-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TZKmPupi0cQGsUCNNFVI9kC3EGVdQOwj9pzYVOowlkbTisOADBX08wP6T7tT4iuh Wu1LU3WxGuG/Y3+uWuHncA== 0000950131-98-005136.txt : 19980911 0000950131-98-005136.hdr.sgml : 19980911 ACCESSION NUMBER: 0000950131-98-005136 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980910 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFUTURES BULL & BEAR FUND L P CENTRAL INDEX KEY: 0001045702 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 742849862 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-63129 FILM NUMBER: 98706530 BUSINESS ADDRESS: STREET 1: 1310 HIGHWAY 620 SOUTH STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 78734 BUSINESS PHONE: 5122633800 MAIL ADDRESS: STREET 1: 1310 HIGHWAY 620 SOUTH STREET 2: SUITE 200 CITY: AUSTIN STATE: TX ZIP: 78734 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on September 10, 1998 Registration No. 333-_____ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- PROFUTURES BULL & BEAR FUND, L.P. (Exact name of registrant as specified in its charter) Delaware 6793 74-2849862 (State of Organization) (Primary Standard Industrial (IRS Employer Classification Code Number) Identification Number) c/o ProFutures, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 (800) 348-3601 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Gary D. Halbert c/o ProFutures, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 (800) 348-3601 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies to: William D. Kerr Kathleen H. Pender Sidley & Austin One First National Plaza Chicago, Illinois 60603 -------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. -------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] -------------- CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------- Proposed Proposed Maximum Maximum Title of each Class of Securities Amount to be Offering Price Aggregate Amount of to be Registered Registered per Unit* Offering Price Registration Fee - ---------------------------------------------------------------------------------------------------- Units of Limited Partnership Interest.......................... $60,000,000 Net Asset Value $60,000,000 $20,690 - ----------------------------------------------------------------------------------------------------
* Calculated pursuant to Rule 457(c) -------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Preliminary Prospectus dated September 10, 1998 - Subject to Completion PROFUTURES BULL & BEAR FUND, L.P. $60,000,000 Limited Partnership Units The Fund The Fund was organized to engage primarily in the speculative trading of stock index futures contracts. Stock index futures trading offers several features that are not widely available when using traditional securities, such as additional leverage, higher liquidity in active market conditions and the potential to profit from stock market downturns by selling short. The Advisor Hampton Investors, Inc., a professional managed futures advisor, trades the Fund's assets pursuant to its Leverage 3 trading program, which currently trades only the S&P 500 Stock Index futures contract on the Chicago Mercantile Exchange. The Units As of July 31, 1998, Units had increased in Net Asset Value by approximately 19% since the Fund began trading pursuant to a private offering in November 1997. Past performance is not necessarily indicative of future results. Units are purchased at a price equal to 101% of the Net Asset Value per Unit on the last day of each month. The Risks These are speculative securities. Before you decide whether to invest, read this entire prospectus carefully and consider The Risks You Face beginning on page 8. You could lose all or substantially all of your investment in the Fund. The Fund is speculative and leveraged. Performance has been volatile and the Net Asset Value per Unit may fluctuate significantly within a single month. The use of a single advisor trading only stock index futures contracts reduces diversification and increases risk of loss relative to a fund trading a diversified portfolio of futures contracts. Substantial expenses must be offset by trading profits and interest income for the Fund to be profitable. Minimum Investment The minimum purchase for first-time investors is $10,000; $5,000 for IRAs, other tax-exempt accounts and current investors. ____________________ THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. ____________________ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ____________________ PROFUTURES, INC. General Partner PROFUTURES FINANCIAL GROUP, INC. Selling Agent ______ , 1998 COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE STATEMENT YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 20 TO 23 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 6. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 8 TO 13. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED. __________________________ THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN WASHINGTON, D.C. THE FUND WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN CHICAGO, NEW YORK OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR FURTHER INFORMATION. THE FUND'S FILINGS WILL BE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV. THIS PROSPECTUS AND ALL PERIODIC FILINGS WILL ALSO BE POSTED AT THE GENERAL PARTNER'S WEBSITE AT HTTP://WWW.ADVISORLINK.COM. _________________________ PROFUTURES, INC. General Partner 11612 Bee Cave Road Suite 100 Austin, Texas 78733 (800) 348-3601 -1- Table of Contents
Page ---- Summary.................................................... 3 The Risks You Face......................................... 8 Fund Operations............................................ 13 Performance of the Fund.................................... 16 Selected Financial Data.................................... 17 Management's Analysis of Operations........................ 18 Use of Proceeds; Interest Income Arrangements.............. 19 Analysis of Fees and Expenses Paid by the Fund............................................. 20 The Advisor................................................ 23 The General Partner........................................ 30 Brokerage Arrangements..................................... 33 Net Asset Value............................................ 34 Conflicts of Interest...................................... 34 The Stock Index Futures Markets............................ 35 Summary of the Limited Partnership Agreement................................................ 39 Tax Consequences........................................... 39 Purchases by Employee Benefit Plans........................ 42 General.................................................... 44 Financial Statements....................................... 45 Exhibit A -- Limited Partnership Agreement.................................... LPA-1 Exhibit B -- Subscription Agreement and Power of Attorney.. B-1 Exhibit C -- Request for Redemption........................ C-1
-2- Summary General The Fund offers individual investors a way to participate in the equity markets through stock index futures, specifically the S&P 500 Stock Index (the "Index") futures contract on the Chicago Mercantile Exchange (the "S&P 500 Contract"), under the guidance of an experienced, professional commodity trading advisor. The Index is based on the stock prices of 500 large-capitalization companies. The market value of the 500 companies is equal to about 80% of the value of all stocks listed on the New York Stock Exchange. The trading of the S&P 500 Contract permits investors to trade the Index at various multiples, thus creating, in effect, a highly-leveraged stock portfolio. The S&P 500 Contract may also offer greater liquidity than the underlying stocks in active market conditions and the potential to profit from stock market downturns by selling short. ProFutures, Inc. ProFutures, Inc., the General Partner and commodity pool operator of the Fund, began operations in 1984 and specializes in the management of speculative managed futures funds. The General Partner currently operates three futures funds -- the Fund and two multi-advisor, widely diversified public futures funds -- having an aggregate capitalization as of July 31, 1998 of approximately $95 million. Hampton Investors, Inc. General Hampton Investors, Inc., the commodity trading advisor for the Fund, has been managing investor accounts and its own capital in the securities markets since 1985 and began trading investor capital in the futures markets in May 1995. The Advisor trades for the Fund pursuant to its Leverage 3 trading program which, since July 1995, has focused on trading only the S&P 500 Contract. Trading Strategy The Advisor's trading system uses several indicators that examine relevant information relating to the S&P 500 Contract. These indicators are broken down into three categories: monetary, market-action based and price-based. The system requires the Advisor to scale up into a position or scale down, depending on how many of its indicators are in a "buy mode." In this manner, the program goes into and out of trades. The Advisor's Leverage 3 program attempts to take a position in the S&P 500 Contract in the range of two to three times that of a fully-funded S&P 500 Contract. The value of a fully-funded S&P 500 Contract equals the contract multiplier (currently $250) times the Index level (which fluctuates daily but assume for purposes of this example that the Index level is 1,100). In this example, a fully-funded S&P 500 Contract is worth $275,000 ($250 x 1,100). If you wanted to trade without use of leverage, you could deposit $275,000 in cash and buy one S&P 500 Contract. Your account would then go up and down in line with the Index. When the Advisor's system is in its most bullish position, the Advisor will buy three S&P 500 Contracts for each $275,000 in the Fund. That means that when the Index moves 1%, the value of the Fund should move approximately 3% in the same direction. In other words, the Fund will at such times be three times leveraged. -3- The Advisor's system increases and decreases leverage as its signal becomes stronger or weaker. If, in the above example, a certain number of the indicators turns negative, the Advisor would reduce its position so as to be only two times leveraged. If more indicators turn negative, the Advisor would liquidate the entire position and be neutral (100% cash, no S&P 500 Contract position). And if more indicators became negative, the Advisor would "short" the market by selling S&P 500 Contracts, again at three times leverage. In that scenario, the Fund would gain approximately 3% for each 1% the Index falls -- assuming the Advisor remains in the position. In summary, the program has four positions: maximum leverage long (three times leverage long), long (two times leverage long), neutral (100% cash) and maximum leverage short (three times leverage short). The Advisor's program provides significant leverage, well above what one can accomplish in a margin account with a stock broker, but well below that of trading futures contracts at an exchange's minimum margin. While the Fund uses considerably less margin than traditional futures trading, investors should be prepared for significant volatility. Leverage amplifies both gains and losses. There has been considerable short-term volatility in the program. The Advisor may also trade other futures and commodity contracts, including other stock index futures contracts, on behalf of the Fund. However, the Advisor currently expects to limit its trading to the S&P 500 Contract. Brokerage Arrangements ING (U.S.) Securities, Futures & Options, Inc. currently acts as the Fund's futures clearing broker. Cash Management Horizon Cash Management L.L.C. (the "Cash Manager"), an investment adviser registered with the Securities and Exchange Commission, provides cash management services covering the Fund's non-margin assets, investing in U.S. government securities and/or other high quality, interest-earning obligations. Major Risks of the Fund Investors must be prepared to lose all or substantially all of their investment in the Units. The Fund utilizes substantial leverage, which magnifies the impact of profits and losses. The Fund is a speculative investment. It is not possible to predict how the Fund will perform over either the long or short term. Investors must not rely on the past performance of either the Fund or the Advisor in deciding whether to purchase Units. The use of a single trading advisor trading only one type of contract reduces diversification and increases risk of loss relative to a fund trading a diversified portfolio of futures contracts. The Fund is subject to substantial charges. During the first year of an investor's participation in the Fund, the Fund must earn overall trading profits of approximately 2.26% of its average Net Asset Value simply to break even after all fees and expenses. Because the Fund's performance is entirely unpredictable, there is no way of telling when would be a good time to invest in the Fund. -4- The Net Asset Value per Unit may vary substantially within a single month. Because investors must submit irrevocable subscriptions as well as redemption notices at least 10 days before the purchase or redemption of Units -- and can do so up to approximately a month before --they cannot know the Net Asset Value at which they will acquire or redeem Units. The Fund could incur material losses between the time investors subscribe and the time they receive their Units. In addition, investors cannot control the maximum losses on their Units because they cannot be sure of the redemption value of their Units. As limited partners, investors have no voice in the operation of the Fund; they are entirely dependent on the management of the General Partner and the Advisor for the success of their investment. Fees and Expenses The incentive fee payable to the Advisor is calculated on a quarterly basis and could be substantial even in a break-even or losing year. The Fund's other significant expenses are its management fees, brokerage commissions, operating and administrative expenses and cash management fee. Further, investors pay a one-time organizational charge. If the Fund's Net Asset Value increases, the absolute dollar amount of any percentage-of-assets fees will also, but they will have the same effect on the Fund's rate of return. -5-
- ------------------------------------------------------------------------------- Break-Even Table - ------------------------------------------------------------------------------- Twelve-month Break-Even Expenses ($10,100 Initial - -------- Investment)/1/ - ------------------------------------------------------------------------------- Organizational and offering/2/ expenses $ 100.00 - ------------------------------------------------------------------------------- Management fee/3/ $ 312.37 - ------------------------------------------------------------------------------- Operating and administrative expenses/4/ $ 200.00 - ------------------------------------------------------------------------------- Round-turn brokerage commissions and other transactional charges/5/ $ 100.00 - ------------------------------------------------------------------------------- Incentive fee/6/ $ 25.59 - ------------------------------------------------------------------------------- Interest income/7/ (net of the Cash Manager's fee) $(510.00) - ------------------------------------------------------------------------------- TWELVE MONTH DOLLAR BREAK-EVEN $ 227.96 - ------------------------------------------------------------------------------- TWELVE MONTH BREAK-EVEN AS A PERCENTAGE OF THE $10,100 GROSS SUBSCRIPTION PRICE 2.26% - -------------------------------------------------------------------------------
See "Analysis of Fees and Expenses Paid by the Fund" at page 20. Explanatory Notes: (1) The foregoing break-even analysis is an approximation only. It assumes that the Units have constant month-end Net Asset Value. All fees and expenses summarized herein are described fully under "Analysis of Fees and Expenses Paid by the Fund." No estimate is included for "bid-asked" spreads or mark-ups on forward trades, as these amounts are not a true "expense" of the Fund but rather represent the component of the sale or purchase price which represents the dealer's profit on the transaction. Calculations are based on $10,000 as the Net Asset Value of the Unit, after deducting the 1% organizational charge. (2) It has been assumed that the gross subscription price of Units was $10,100. For purposes of this break-even analysis, there has been no payment of selling commissions. The organizational charge of $100 was calculated by multiplying $10,000 by 1%. (3) The Fund pays a management fee to the General Partner equal to 3% per annum of month-end Net Assets. This amount has been assumed for the analysis. (4) The Fund pays its ongoing accounting, auditing, legal, printing, computer and other operating and administrative expenses. The General Partner estimates that these expenses will be approximately 2% per annum of average annual Net Assets. These expenses could be substantially lower as the Fund's assets increase. Actual expenses could, however, substantially exceed this level. (5) The Fund pays round-turn brokerage commissions of $8.00 per round-turn trade, plus exchange, pit and NFA fees, any "incidental" trading expenses, floor brokerage expenses and any "give-up" fees. Round-turn commissions and related charges are estimated by the Advisor at approximately 1% of average annual Net Assets based on the Advisor's historical and anticipated trading velocity. Actual round-turn commissions could, however, substantially exceed this level. (6) The Fund pays the Advisor a quarterly incentive fee equal to 20% of New Trading Profit. (7) Interest income is estimated at 5.10% of average month-end Net Assets per annum based on current Treasury bill rates, net of an estimated fee of 0.25% annually paid to the Cash Manager. Actual interest income could be more or less than this level. -6- Principal Tax Aspects of Owning Units Investors are taxed each year on any gains recognized by the Fund whether or not they redeem any Units or receive any distributions from the Fund. 40% of any trading profits on U.S. exchange-traded futures contracts are taxed as short-term capital gains at the individual investor's ordinary income tax rate (39.6% maximum), while 60% of such gains are taxed as long-term capital gain at a 20% maximum rate for individuals. The Fund's trading gains from other contracts, if any, will likely be primarily short-term capital gain. This tax treatment applies regardless of how long an investor holds Units. If, on the other hand, an investor held a stock or bond for longer than 12 months, all the gain realized on its sale would generally be taxed at a 20% maximum rate. Losses on the Units may be deducted against capital gains. Any losses in excess of capital gains may only be deducted against ordinary income by individuals to the extent of $3,000 per year. Consequently, investors could pay tax on the Fund's interest income even though they have lost money on their Units. See "Tax Consequences" beginning at page 39. Liquidity of the Units Units may be redeemed at any month-end upon 10 days' written notice to the General Partner. There is no required minimum holding period; however, the General Partner believes that investors should consider the Units at least a 2- to 3-year commitment. Is the Fund a Suitable Investment for You? You should consider investing in the Fund only if you are interested in a leveraged exposure to up or down U.S. stock market movements and you are prepared to risk significant losses and withstand high volatility. -7- The Risks You Face Possible Total Loss of an Investment in the Fund You could lose all or substantially all of your investment in the Fund. Investors Must Not Rely on the Past Performance of Either the Advisor or the Fund in Deciding Whether to Buy Units The future performance of the Fund is entirely unpredictable, and the past performance of the Fund as well as of the Advisor is not necessarily indicative of their future results. Stock Index Futures Trading Involves Substantial Leverage Stock index futures are typically traded on margin. This means that a small amount of capital can be used to invest in contracts of much greater total value. The resulting leverage means that a relatively small change in the market price of the S&P 500 Contract can produce a substantial profit or loss. The Advisor generally uses up to three times leverage in its trading program. For example, if the market price of the S&P 500 Contract were to change by 1% and the Fund was fully leveraged, the Fund would likely experience a gain or loss of 3%. Leverage enhances the Fund's sensitivity to market movements which can result in greater profits when the Advisor anticipates the direction of the move correctly, or greater losses when the Advisor is incorrect. Stock Index Futures Trading is Speculative, Highly Volatile and Can Result in Large Losses A principal risk in stock index futures trading is the rapid fluctuation in the market prices of stock index futures contracts. The profitability of the Fund depends greatly on the Advisor correctly anticipating trends in market prices. If the Advisor incorrectly predicts the movement of futures prices, large losses could result. Price movements of futures contracts are influenced by such factors as: changing supply and demand relationships; government trade, fiscal, monetary and exchange control programs and policies; national and international political and economic events; and speculative frenzy and the emotions of the marketplace. Importance of Market Conditions to Profitability Most futures traders are more likely to, although there can be no assurance that they will, trade profitably during periods when major price movements occur. Such movements generally occur in any given market only infrequently, and during periods of static or "whipsaw" markets it is unlikely that the Advisor will achieve profits for the Fund. Overall market or economic conditions may have a material effect on performance. Futures Markets Investments Are Different from Securities Markets Investments An investment in the Fund is very different from a typical securities investment (stocks and/or bonds) in which there is an expectation of some consistency of yield (in the case of bonds) or participation over time in general economic growth (in the case of stocks). Futures trading is a "zero-sum" economic activity, meaning for every gain there is an equal and offsetting loss (without considering transaction costs). -8- The Large Size of the Fund's Trading Positions Increases the Risk of Sudden, Major Losses The Fund takes positions with face values up to as much as approximately 3 times its total equity. Consequently, even small price movements can cause major losses. Illiquid Markets Could Make It Impossible for the Fund to Realize Profits or Limit Losses It is not always possible to execute a buy or sell order at the desired price, or to close out an open position, due to market conditions. Daily price fluctuation limits are established by the exchanges and approved by the Commodity Futures Trading Commission (the "CFTC"). When the market price of a futures contract reaches its daily price fluctuation limit, no trades can be executed at prices outside such limit. The holder of a commodity futures contract (including the Fund) may therefore be locked into an adverse price movement for several days or more and lose considerably more than the initial margin put up to establish the position. Another instance of difficult or impossible execution occurs in thinly traded or illiquid markets. While the S&P 500 Contract is generally considered to be an extremely liquid contract, no assurance can be given that Fund orders will be executed at or near the desired price. Speculative Position Limits May Require the Advisor to Modify Its Trading to the Detriment of the Fund The exchanges have established and the CFTC has approved speculative position limits (referred to as "position limits") on the maximum futures position which any person, or group of persons acting in concert, may hold or control in particular futures contracts. For stock index futures contracts, such position limits are set by the exchanges. The position limit for the S&P 500 Contract is very high in comparison to other stock indices. While unlikely, the Advisor may be required to reduce the size of the futures positions which would otherwise be taken in order to avoid exceeding such limits. Such modification of the Fund's trades, if required, could adversely affect the operations and profitability of the Fund. The Advisor May Have Unexpected Problems in Executing Trades The Advisor relies on computer, telephone and related electronic equipment for the execution of its trades. If such equipment fails and/or the firms handling the Advisor's computer and communications facilities are adversely affected due to uncontrollable factors such as weather problems, the Advisor may not be able to execute trades for the Fund, which could cause the Fund to incur losses. The Advisor intends to use back-up systems to try to minimize the impact of such potential execution problems. The Advisor May Not be Successful in "Downward" Equity Markets The Advisor's past performance record has been compiled during a period of predominantly rising equity markets. A static leveraged long position in such markets would be certain to generate substantial profits. While the Advisor can and does take short positions, there is no assurance that its strategy will be successful in down or "bear" markets. -9- "Stop-Loss" Policy is Not a Limit on Losses The Fund's "stop-loss" policy provides no assurance that the Net Assets of the Fund will not drop below fifty percent (50%) of its previous month-end level, since there can be no assurance that the Fund will not incur additional losses in attempting to liquidate open positions. Trading in Options on Stock Index Futures Is Speculative and Highly Leveraged The Advisor may trade options on stock index futures contracts, although it does not do so at present. An option is a right, purchased for a certain price, to either buy or sell the underlying stock index futures contract during a certain period of time for a fixed price. Trading options on stock index futures is speculative and highly leveraged. Specific market movements of the stock index futures contracts underlying an option cannot accurately be predicted. If the Fund purchases an option, it is subject to the risk of losing the entire purchase price of the option. On the other hand, if the Fund writes (sells) an option it is subject to the risk of loss resulting from the difference between the premium received for the option and the price of the futures contract underlying the option which the Fund must purchase or deliver upon exercise of the option. Limitation of the Markets Traded by the Advisor Also Reduces Diversification, Increasing the Risk of Loss The Advisor's program concentrates on only one contract -- the S&P 500 Stock Index futures contract on the Chicago Mercantile Exchange. Market concentration increases the risk of major losses and unstable Unit values relative to diversification in multiple commodities markets. Further, the S&P 500 Contract has historically been quite volatile relative to many other futures contracts. As it is impossible to predict when price trends will occur, certain futures managers attempt to maximize the chance of exploiting such trends by taking positions in as many different markets and market sectors as feasible. The Fund does not follow this approach and, as a result, may not capture trends in other markets which would have been highly profitable. Substantial Expenses Will Cause Losses for the Fund Unless Offset by Profits and Interest Income The Fund pays fixed annual expenses (net of interest income) of approximately 1% of its average annual net asset value (in addition to the one- time 1% organizational charge payable by investors). In addition to this annual expense level, the Fund is also subject to a 20% quarterly incentive fee during its profitable quarters. Because the incentive fee is calculated quarterly, it could represent a substantial expense to the Fund even in a break-even or losing year. The Fund's expenses could, over time, result in significant losses. Except for the incentive fee, these expenses are not contingent and are payable whether or not the Fund is profitable. See "Summary -- Fees and Expenses" at page 5 and "Analysis of Fees and Expenses Paid by the Fund" on page 20. It will be necessary for the Fund to achieve gains from trading and interest income in excess of its charges in order for limited partners to realize increases in the Net Asset Value of their Units. No assurance can be given that the Fund will be able to achieve such, or any, appreciation of its assets. All interest income earned on the Fund's assets (currently estimated at 5.1% annually net of the Cash Manager's fee) is paid to the Fund. -10- Unit Values Are Unpredictable and Vary Significantly Month-to-Month The Net Asset Value per Unit varies significantly month-to-month. Investors cannot know at the time they submit a redemption request what the redemption value of their Units will be. The only way to take money out of the Fund is to redeem Units. You can only redeem Units at month-end upon at least 10 days' advance notice. The restrictions imposed on redemptions limit your ability to protect yourself against major losses by redeeming part or all of your Units. In addition, investors are unable to know whether they are subscribing after a significant upswing in the Net Asset Value per Unit --often a time when the Fund has an increased probability of entering into a losing period. Investing in the Units May Not Diversify an Overall Portfolio Because the Fund focuses on the S&P 500 Contract, its returns may be correlated with equity market returns. The use of leverage and short selling may reduce this correlation at certain times, especially in a falling market. An investment in the Fund may or may not result in diversification of an investor's overall portfolio, depending on what other assets the investor owns and the Advisor's ability to correctly react to stock market trends. The Advisor's Increased Equity Under Management Could Lead to Diminished Returns The more money the Advisor manages, the more difficult it may be for the Advisor to trade profitably because of the difficulty of trading larger positions without adversely affecting prices and performance. Large trades generally result in more price slippage than do smaller orders. The Advisor May Change Its Trading Approach and/or Futures Contracts Traded The Advisor may change its trading approach and/or the futures contracts traded. If the Advisor adds additional contracts to its program, there will be no assurance that its methods will be successful in trading such other contracts. The Advisor Alone Directs the Fund's Trading As the sole advisor to the Fund, the Advisor alone directs the Fund's futures trading. If the Advisor was for any reason unable to continue to manage the Fund's assets, the General Partner most likely would appoint a replacement advisor to trade the Fund's assets after due notice to the limited partners. The Fund May Trade on Non-U.S. Futures Markets Although the Advisor currently does not engage in trading on futures markets outside the United States on behalf of the Fund, it may do so in the future. Foreign trading involves risks -- including exchange-rate exposure, possible governmental intervention and lack of regulation -- which U.S. trading does not. In addition, the Fund may not have the same access to certain positions on foreign exchanges as do local traders, and the historical market data on which the Advisor may base its strategy may not be as reliable or accessible as it is in the United States. Certain foreign exchanges may also be in a more or less developmental stage so that prior price histories may not be indicative of current price dynamics. The rights -11- of clients in the event of the insolvency or bankruptcy of a non-U.S. market or broker are also likely to be more limited than in the case of U.S. markets or brokers. The Fund's Cash Management Strategies Could Lose Both Yield and Principal The Cash Manager will try to generate yields on non-margin assets in excess of the 91-day Treasury bill rate. However, there can be no assurance that the securities the Cash Manager invests in for the Fund will not lose value. If this occurs, the Fund could lose not only the interest it hopes to gain, but also the principal it originally invested with the Cash Manager. The Fund Could Lose Assets and Have Its Trading Disrupted Due to the Bankruptcy of its Broker or Others The Fund is subject to the risk of broker, exchange or clearinghouse insolvency. Fund assets could be lost or impounded in such an insolvency during lengthy bankruptcy proceedings. Were a substantial portion of the Fund's capital tied up in a bankruptcy, the General Partner might suspend or limit trading, perhaps causing the Fund to miss significant profit opportunities. ____________________ The following are not risks but rather important tax features of investing in the Fund which all prospective investors should carefully consider before deciding whether to purchase Units. Investors Are Taxed Every Year on Their Share of the Fund's Profits -- Not Only When They Redeem as Would Be the Case if They Held Stocks or Bonds Investors are taxed each year on their investment in the Fund, irrespective of whether they redeem any Units. In contrast, an investor holding stocks or bonds generally pays no tax on their capital appreciation until the securities are sold. Over time, the deferral of tax on stock and bond appreciation has a compounding effect. All performance information included in this prospectus is presented on a pre-tax basis; the investors who experienced such performance had to pay the related taxes from other sources. The Fund's Trading Gains May Be Taxed at Higher Rates Investors are taxed on their share of any trading profits of the Fund at both short- and long-term capital gain rates. These tax rates are determined irrespective of how long an investor holds Units. Consequently, the tax rate on the Fund's trading gains may be higher than those applicable to other investments held by an investor for a comparable period. -12- Tax Could Be Due from Investors on Their Share of the Fund's Interest Income Despite Overall Losses Investors may be required to pay tax on their allocable share of the Fund's interest income, even though the Fund incurs overall losses. Trading losses can only be used by individuals to offset trading gains and $3,000 of interest income each year. Consequently, if an investor were allocated $5,000 of interest income and $10,000 of net trading losses, the investor would owe tax on $2,000 of interest income even though the investor would have a $5,000 loss for the year. The $7,000 capital loss would carry forward, but subject to the same limitation on its deductibility against interest income. Fund Operations Buying Units You may buy whole Units (or fractions thereof calculated to three decimal places) as of the last business day of any month at Net Asset Value plus a 1% organizational charge. Your subscription should be submitted by the 20th day of such month. Subscriptions submitted after the 20th day of the month may be applied to Unit sales as of the end of the month after receipt, unless revoked. In order to purchase Units initially, you must mail or deliver the following to ProFutures Financial Group, Inc. (the "Selling Agent"): (i) a completed and executed copy of the Subscription Agreement and Power of Attorney (attached as Exhibit B); and (ii) a check for the amount of your investment, plus the 1% organizational charge, made payable to ProFutures Bull & Bear Fund, L.P. Only first-time investors need to submit Subscription Agreements, unless the Selling Agent believes it is necessary to reconfirm an investor's suitability in writing. To purchase additional Units, contact the General Partner or the Selling Agent. The Subscription Agreement and Power of Attorney requires you to make certain specified representations and warranties. You should carefully read Exhibit B -- Subscription Agreement and Power of Attorney and the Subscription Agreement and Power of Attorney Signature Page which accompanies this prospectus in addition to reviewing this entire prospectus carefully before you decide whether to invest in the Units. The minimum purchase for first-time investors is $10,000; $5,000 for IRAs, other tax-exempt accounts and current investors. Proceeds from the sale of Units received prior to the closing date will be held at the Fund's cash management account with a major financial institution until the last business day of the month. All interest (net of the Cash Manager's fee) earned on subscriptions pending their month-end acceptance will be paid to the Fund, not the individual subscribers. Similarly, if the subscription is rejected, in whole or in part (in the sole discretion of the General Partner), the subscription funds or the rejected portion thereof will be returned within 20 days to the subscriber without interest. The Units are offered on a best efforts basis through the Selling Agent. The Selling Agent may permit certain other registered broker-dealers to participate in the offering ("Additional Selling Agents"). If any Additional Selling Agents are engaged to offer Units, the General Partner may pay, out of its own funds, the Additional Selling Agents up to 3% of the sales price of any Units sold by them at any month-end closing and/or ongoing "trail" commissions with respect to Units sold by them which remain outstanding. -13- Use of Proceeds; Interest Income After payment of the 1% organizational charge, 100% of all subscription proceeds are invested directly into the Fund. Neither the Fund nor any subscriber pays any selling commissions. The General Partner may pay, out of its own funds, selling commissions to the Additional Selling Agents, if any. The Fund uses subscription proceeds to margin its speculative futures trading, as well as to pay trading losses, fees and expenses. At the same time that the Fund's assets are being used as margin, they are also available for cash management. All the cash management return earned on the Fund's assets is paid to the Fund, subject to the cash management fee and minor incidental charges. The Fund's assets are held either in bank custodial accounts or deposited with ING (U.S.) Securities, Futures & Options, Inc. (the "Futures Broker") in regulated customer accounts. The Cash Manager applies its yield-enhancement strategies to the Fund's assets deposited in its custodial account. As mentioned above, while being managed by the Cash Manager, these assets are also available to support the Fund's futures trading. The Fund receives all of the interest income generated by investments held in the Fund's brokerage and custodial accounts, subject to a cash management fee and minor incidental charges. Redeeming Units You can redeem Units at each month-end upon ten (10) days' advance written notice by forwarding the completed Request for Redemption (included herein as Exhibit C) to the General Partner, Attention: Fund Administration, ProFutures, Inc., 11612 Bee Cave Road, Suite 100, Austin, Texas 78733. There are no redemption charges or penalties. Payment in respect of Units redeemed will be made (by mailing a check) as promptly as practicable after the effective date of redemption, but in no event more than thirty (30) days thereafter, barring unusual circumstances. Uncertain Subscription and Redemption Value of Units The Fund sells and redeems Units at subscription or redemption date Net Asset Value (plus the 1% organizational charge in the case of subscriptions), not at the Net Asset Value as of the date that subscriptions or redemption requests are submitted. Investors must submit irrevocable subscriptions and redemption requests at least 10 days prior to the effective date of subscription or redemption. Because of the volatility of Unit values, this delay means that investors cannot know the value at which they will purchase or redeem their Units. Materially adverse changes in the Fund's financial position could occur between the time an investor irrevocably commits to acquire or redeem Units and the time the purchase or redemption is made. Mandatory Trading Suspension If Unit Value Falls 50% Since Last Month-End In the event that the Net Asset Value per Unit declines 50% or more since the last month-end, the Fund must liquidate all open positions, suspend trading and offer all limited partners an opportunity to redeem their Units before trading resumes. Only if sufficient capital remained in the Fund after any such special redemption date would the Fund continue operations. -14- Distributions The Fund does not anticipate making any distributions to investors. No distributions have been made to date. Small Minimum Investment The current minimum size for an individually managed account with the Advisor is generally $500,000. By investing in the Fund, you participate in the Advisor's trading program with a minimum investment of only $10,000; $5,000 for IRAs, other tax-exempt accounts and existing investors. Limited Liability for Fund Investors Investors who open individual futures accounts are personally liable for all losses, including margin calls potentially in excess of their investment. As a limited partner of the Fund, you can never lose more than your investment in the Fund and your share of the Fund's profits. Liquidity The Fund is intended to be a long-term investment. The Fund is, however, structured to allow limited partners to redeem all or part of their investment in the Fund as of any month-end without any redemption charge. Administrative Convenience The General Partner provides all administrative services needed for the Fund, including financial and tax reporting. Investors receive monthly financial summaries and annual audited financials. Investors may telephone the General Partner during its normal business hours for the Net Asset Value per Unit. -15- Performance of the Fund The following are the monthly rates of return from the inception of the Fund through July 31, 1998. There can be no assurance that the Fund will continue to perform in the future the way it has in the past. PROFUTURES BULL & BEAR FUND, L.P. November 1997-July 1998 Type of Pool: Privately Offered Inception of Trading: November 1997 Aggregate Subscriptions: $7,505,357 Current Net Asset Value: $7,955,412 Worst Monthly Drawdown (Month/Year): (6.06)% (12/97) Worst Peak-to-Valley Drawdown (Month/Year): (6.06)% (12/97)
- --------------------------------------------------- Month Monthly Rates of Return - --------------------------------------------------- 1998 1997 - --------------------------------------------------- January 2.77% -- - --------------------------------------------------- February 10.43% -- - --------------------------------------------------- March 9.56% -- - --------------------------------------------------- April 2.44% -- - --------------------------------------------------- May 0.37% -- - --------------------------------------------------- June (0.84)% -- - --------------------------------------------------- July (2.26)% -- - --------------------------------------------------- August -- - --------------------------------------------------- September -- - --------------------------------------------------- October -- - --------------------------------------------------- November 1.92% - --------------------------------------------------- December (6.06)% - --------------------------------------------------- 23.90% (4.25)% Compound Rate of Return (7 months) (2 months) - ---------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Notes to Performance of the Fund - -------------------------------- Monthly Rates of Return are calculated by dividing the Fund's net performance during a month by the Fund's Net Asset Value as of the beginning of such month. Compound Rate of Return is calculated by compounding the monthly rates of return. For example, the compound rate of return of (4.25)% for 1997 was calculated by multiplying (1.0192 x 0.9394) -1=(4.25)%. Drawdown means losses experienced by the Fund over a specified period. Worst Peak-to-Valley Drawdown means the greatest cumulative percentage decline in month-end Net Asset Value due to losses sustained by the Fund during any period in which the initial month-end Net Asset Value is not equaled or exceeded by a subsequent month-end Net Asset Value. _______________ -16- Selected Financial Data The following selected financial data is derived from the audited financial statements of the Fund as of December 31, 1997 and for the period August 21, 1997 (inception of the Fund, but not commencement of operations) to December 31, 1997 and the unaudited financial statements of the Fund as of and for the seven months ended July 31, 1998. The Fund commenced trading operations on November 20, 1997. See "Financial Statements" beginning at page 45. ---------------------
January 1, 1998 August 21, 1997 to to July 31, 1998 December 31, 1997 --------------- ------------------ TOTAL ASSETS $7,992,641 $2,932,764 ========== ========== TOTAL PARTNERS' CAPITAL $7,955,412 $2,914,736 ========== ========== INCOME Trading gains (losses) Realized $ 789,454 $ (116,342) Change in unrealized 4,475 2,175 ---------- ---------- Gain (loss) from trading 793,929 (114,167) Interest income 150,530 19,520 ---------- ---------- Total gain (loss) 944,459 (94,647) ---------- ---------- EXPENSES Brokerage commissions 2,946 564 General Partner management fee 81,845 9,826 Advisor incentive fee 171,310 0 Operating expenses 31,070 11,704 ---------- ---------- Total expenses 287,171 22,094 ---------- ---------- NET INCOME (LOSS) $ 657,288 $ (116,741) ========== ========== NET INCOME (LOSS) PER UNIT (based on weighted average number of Units outstanding during the period) $ 164.50 $ (48.21) ========== ========== INCREASE (DECREASE) IN NET ASSET VALUE PER UNIT $ 228.81 $ (42.55) ========== ==========
-17- Management's Analysis of Operations Results of Operations General The program of a purely technical futures trader, such as the Advisor, makes no attempt to predict price movements. The Advisor does not engage in fundamental economic supply or demand analysis to attempt to identify mispricings in the market, nor does it conduct a macroeconomic assessment of the relative strengths of the national economy or economic sectors. Instead, the trading program applies proprietary computer models to analyzing historical market data, and from this data alone attempts to determine whether market prices are trending. The theory behind a technical trader's strategy is that market prices are the best and most efficient indication of market movements. The likelihood of a technical trader's strategy being profitable is materially diminished during periods when events external to the markets themselves, rather than historical market data, have an important impact on prices. In such instances, a technical trader's historical price analysis could establish positions on the wrong side of the price movements caused by such external events. Only historical market data and not economic conditions, political events, etc., or other factors external to market data is directly relevant to the Advisor's trading results. There is no direct connection between particular market conditions and price trends. There are so many influences on the markets that the same general type of economic event may lead to a price trend in some cases but not in others. This performance summary is an outline description of how the Fund performed in the past, not necessarily any indication of how it will perform in the future. Performance Summary 1998 (7 months) The Fund had a very successful first quarter of 1998 as the Advisor's trading model correctly anticipated a strongly rising stock market and remained in the leveraged long position that had been initiated in December 1997. The Fund showed a profit in all three months of the first quarter and the Net Asset Value per Unit climbed over 24%. In the second quarter of 1998, the stock market began showing signs of instability and the Fund earned only a small gain of approximately 2%. As the third quarter began in July, the Fund remained in a long position, resulting in a small loss when the stock market began to fall. In late July, the Advisor's system issued a sell-short signal in anticipation of further market declines. 1997 (2 months) The Fund commenced trading in November 1997 with a short position in the S&P 500 Contract. That initial position resulted in a small profit in the Fund's first month of operation. However, a December stock market rally then caused a loss on the short position. The Advisor's system reversed and went long in the month of December, but as of month-end the Fund still showed a loss of approximately 6%. The long position was still open and subsequently became profitable as the stock market rallied into 1998. -18- Liquidity and Capital Resources The amount of assets invested in the Fund generally does not affect its performance, as typically this amount is not a limiting factor on the positions acquired by the Advisor, and the Fund's expenses are primarily charged as a fixed percentage of its asset base, however large. The Fund raises additional capital only through the sale of Units and trading profits (if any) and does not engage in borrowing. The Fund sells no securities other than the Units. The Fund's assets are held primarily in U.S. Treasury bills or other high- quality, interest earning obligations, as well as in cash. The Net Asset Value of the Fund's cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Fund's debt securities to decline, but only to a limited extent. More importantly, changes in interest rates could cause periods of strong up or down price trends, during which the Fund's profit potential generally increases. The Fund's assets are held in cash and highly liquid U.S. government securities. Accordingly, except in very unusual circumstances, the Fund should be able to close out any or all of its open trading positions and liquidate any or all of its securities holdings quickly and at market prices. This permits the Advisor to limit losses as well as reduce market exposure on short notice should its program direct it to do so in order to reduce market exposure. In addition, because there is a readily available market value for the Fund's positions and assets, the Fund's monthly Net Asset Value calculations are precise. Use of Proceeds; Interest Income Arrangements Custody of Fund Assets After payment of the 1% organizational charge covering its organization and offering expenses, the net proceeds of this offering are (a) deposited in the Fund's cash management account at a major financial institution and at banks selected by the General Partner to be invested in U.S. government securities and/or other high quality, interest-earning obligations and/or held as cash; and/or (b) deposited in the Fund's trading account with the Futures Broker for use in the Fund's futures trading. All of the Fund's assets are expected to be used for speculative trading in financial futures contracts, currently only the S&P 500 Contract. It is expected that 9% to 15% of the Fund's assets will be used as original margin under the trading program currently used by the Fund. The Fund fulfills its margin commitments with cash, U.S. Treasury bills or high-quality, interest-earning obligations. A majority of the Fund's assets will be held in the Fund's cash management account and managed by the Cash Manager. These assets will be committed for margin calls on the Fund's account(s) at the Futures Broker. More specifically, the Cash Manager, on behalf of the Fund, may direct the investment of these funds in items such as: (a) U.S. Treasury securities, bankers' acceptances and certificates of deposit (banks with a long- term credit rating of at least AA); (b) time deposits (one day only -- banks with a long-term credit rating of at least AA); (c) interests in money market funds regulated under U.S. securities laws and regulations; and/or (d) commercial paper (rated AP-1 of top issuers). The Cash Manager's objective is for the Fund's account to earn net interest income and/or profits in excess of short-term Treasury bill rates, net of its fees; however, there is no guarantee the Cash Manager can produce any income or profits on the Fund's account. (The Cash Manager is also responsible for the management of subscription funds held in the Fund's cash management account prior to acceptance of the subscription by the Fund.) The remaining -19- assets will be held at the Futures Broker for margin purposes and will earn interest at short-term Treasury bill rates. The Fund may maintain assets with one or more unaffiliated banks for normal payment of bills and money management purposes. All assets on deposit with the Futures Broker will be segregated as customer funds under the Commodity Exchange Act, as amended (the "CEA"), except as related to assets used to margin any foreign futures trading (not expected by the Fund -- see below). The assets held in the Fund's cash management account and/or a Fund bank account are not subject to the segregation standards of the CEA. The Fund will not: (a) invest in any debt instruments, other than those incident to the Cash Manager's management of the Fund's assets and any other CFTC-authorized investments; (b) invest in any equity security without prior notice to limited partners; or (c) make loans to entities affiliated with the Fund or the General Partner. The General Partner will not commingle the Fund's property with the property of any other person or entity. The Advisor does not currently expect to trade on foreign markets. However, if the Fund does so, assets on deposit at the Futures Broker used to margin foreign futures and options trading will not be held in customer segregation. Rather, such assets will be held in a variety of foreign currencies in the Futures Broker's "foreign futures secured amount" accounts, as required under CFTC rules. Interest Income The Fund will receive all of the interest income generated by investments held in the accounts discussed in the preceding section, subject to the cash management fee and minor incidental charges. The Fund's interest income, as well as the assets on which such interest is credited, is subject to the risk of trading losses. General Subscriptions that are received on a timely basis and are accepted become effective on the first day of the month following receipt. No interest will be credited on subscription amounts prior to the first day of the month. Analysis of Fees and Expenses Paid by the Fund Fees and Expenses to Date
- -------------------------------------------------------------------------------- 01/01/98- 11/20/97- Fees and Expenses 07/31/98 12/31/97 ----------------- -------- -------- - -------------------------------------------------------------------------------- Management fees $ 81,845 $ 9,826 - -------------------------------------------------------------------------------- Operating and administrative expenses 26,329 10,962 - -------------------------------------------------------------------------------- Brokerage commissions and transactional charges 2,946 564 - -------------------------------------------------------------------------------- Cash management fee 4,741 742 - -------------------------------------------------------------------------------- Incentive fees 171,310 0 - -------------------------------------------------------------------------------- TOTAL $287,171 $22,094 - --------------------------------------------------------------------------------
-20- Fees and Expenses Payable by the Fund Brokerage Commissions ING (U.S.) Securities, Futures & Options Inc. serves as the futures broker for the Fund. Futures brokerage commissions for trades upon exchanges are often paid only after a futures position has been both initiated and closed-out. Such commissions are referred to as "round-turn commissions," as they cover both the initial purchase (or sale) of a commodity futures contract and the subsequent offsetting sale (or purchase). Under the brokerage agreement between the Futures Broker and the Fund, the Fund pays brokerage commissions to the Futures Broker in respect of all futures and option trades executed or cleared on behalf of the Fund, on Chicago exchanges, at $8.00 per round-turn, plus exchange, pit and National Futures Association ("NFA") fees, any "incidental" trading expenses, floor brokerage expenses and any "give-up" fees. Any futures trades executed on other U.S. exchanges would be charged at comparable rates. Brokerage rates for any foreign futures trading may be higher. Give-up fees paid to executing brokers that "give-up" the trades for clearing through the Futures Broker are expected to range from $2.00 to $4.00 per "round-turn" trade. The Futures Broker receives a round-turn commission on each purchase or sale of an option by the Fund. In addition, in the event that an option contract is exercised, the Fund pays the Futures Broker a round-turn commission just as it would upon any other acquisition of a futures position. No commission is payable upon the expiration of an outstanding option. The Fund reimburses the Futures Broker for all delivery, insurance, storage and other charges incidental to its trading (which are not expected to be significant). The commission charge includes exchange and clearing fees (see below) and floor brokerage charges. Although the Fund pays commissions on a round-turn basis, the Net Asset Value of the Fund (for all purposes, including redemptions) reflects an accrued liability for the round-turn commissions payable upon the liquidation of each of the Fund's open contracts. The Fund's brokerage commission rates do not include the transaction fee assessed by the NFA upon all options and futures trades on United States and foreign commodity exchanges. These fees have currently been established at $0.20 per round-turn trade of each futures contract and $0.10 per each option trade (a $0.10 fee is charged upon the purchase and upon the exercise, but not upon the expiration, of an option, and an additional $0.20 fee upon the liquidation of the futures position acquired upon such exercise). Round-turn commissions and related charges are estimated by the Advisor to be approximately 1% of average annual Net Assets based on the Advisor's historical and anticipated trading velocity. Actual round-turn commissions could, however, substantially exceed this level. The brokerage rates may only be increased upon notice to the limited partners providing them sufficient time to redeem Units prior to such increase becoming effective. Management Fee The General Partner is paid a management fee equal to 1/4 of 1% of month- end Net Assets (3% annually). Such fee shall be accrued monthly, and paid as soon as practicable, but no later than the end of the month following the month in which the fee accrued. The management fee is pro-rated for partial periods and any interim subscriptions and redemptions. Net Assets for this purpose are calculated after brokerage commissions, operating and administrative expenses and incentive fees, as described below, paid or accrued as of such month-end. -21- Incentive Fee The Advisor is paid a quarterly incentive fee equal to 20% of any New Trading Profit, as defined below, recognized during each calendar quarter. New Trading Profit is the net profits (realized and unrealized), if any, from the Fund's trading through the end of each calendar quarter, after subtraction of the brokerage commissions (including the difference, positive or negative, in accrued commissions on open positions between the end of such period and the end of the previous period). Any trading losses from prior periods must be recouped before New Trading Profit, and thus new incentive fees to the Advisor, can again be generated. New Trading Profit does not include interest income. New Trading Profit is not reduced by operating and administrative expenses, management fees, upfront organizational charges or the Cash Manager's fee. Accordingly, the Fund may be required to pay the Advisor an incentive fee for a quarter (based on New Trading Profit) even though the Fund has a net loss for the quarter (after deduction of all such fees and expenses). Accrued incentive fees on redeemed Units are paid to the Advisor. Redemption of Units will result in a reduction in any loss carryforward existing for incentive fee purposes on the redemption date in proportion to the percentage of the total capital redeemed. Cash Management Fee The Fund pays the Cash Manager a monthly fee based on a sliding scale ranging from an annualized 0.50% to 0.25% depending on the amount of aggregate assets under its management related to accounts associated with the General Partner, ATA Research, Inc. and their respective affiliates and clients. Organizational Charge An organizational charge of 1% of the subscription amount will be paid to the General Partner (or the Selling Agent, its affiliated broker-dealer) by each subscriber. The General Partner has paid for all actual costs of organizing the Fund and conducting the public offering of Units. To the extent that the aggregate 1% organizational charge collected is less than these actual costs, the General Partner will pay the costs. To the extent that the aggregate 1% organizational charge collected exceeds these actual costs, the excess amount will be paid to the Selling Agent. Such payment could be deemed to be a selling commission. Selling Commissions to Additional Selling Agents The General Partner may pay, out of its own funds, to third-party selling agents upfront selling commissions of up to 3% of the sales price of any Units sold by them at any month-end closing and/or ongoing "trail" commissions with respect to Units sold by such selling agents which remain outstanding. Any such payments will be made to the Selling Agent and then to the third-party selling agents. Operating and Administrative Expenses The Fund pays its operating and administrative expenses, such as ongoing accounting, audit, legal, printing, computer and other administrative fees and expenses. The General Partner estimates that such expenses will be approximately 2% per annum of average annual Net Assets, although these expenses could be lower if the Fund's assets increase. Actual expenses could, however, also exceed this level. Extraordinary Expenses The Fund will be required to pay any extraordinary charges (such as taxes) incidental to its trading or otherwise. It is anticipated that there will either be no extraordinary charges or that they will not be material in amount. Extraordinary charges will be assessed to Units on a pro rata basis. -22- General It will be necessary for the Fund to experience gains from futures trading (and interest income) in excess of such expenses in order for limited partners to realize increases in the Net Asset Value of their Units. No assurance can be given that the Fund will be able to achieve any appreciation of its assets. The General Partner will send each limited partner monthly and annual statements, complying with applicable CFTC regulations, which will include a description of the performance of the Fund and set forth, among other things, the aggregate incentive fee, brokerage commissions, management fees, and other expenses incurred or accrued by the Fund during the preceding month or year, as the case may be. The monthly statements will contain unaudited and the annual statements audited financial information. The Advisor Background and Principals The Advisor's place of business is located at 2519 Avenue U, Brooklyn, New York 11229. The telephone number is (800) 524-4832. All books and records pertaining to its business will be maintained at the above address. The Advisor, incorporated in New York in February 1985, is an investment adviser registered with the SEC. In August 1995, the Advisor registered with the CFTC as a commodity trading advisor and is a member of the NFA in such capacity. The sole principals of the Advisor are Charles Mizrahi and Gary Mizrahi. The Advisor started managing client assets in mutual funds in 1985. Its expansion into futures resulted from the fact that mutual funds have certain inherent limitations including lack of leverage and the inability at that time to go short. Moreover, a mutual fund account could only trade once per day. Realizing these limitations, the Advisor developed a modified version of its model to take advantage of its stock market signals. The Advisor's specialty in stock market trading, encompassing a period of over twelve years, found a natural outlet in the S&P stock index futures market. Charles Mizrahi, born 1962, has been the Advisor's President and responsible for its trading activities since he founded the firm in February 1985. From January 1988 through July 1994, he was also an officer and registered representative of Hampton Management, Inc. ("Hampton Management"), an SEC- registered broker-dealer. Mr. Mizrahi was registered with the CFTC as a sole proprietor commodity pool operator from July 1986 to July 1987, managing several small pools whose assets were allocated to third-party advisors. He also was a Vice President of Sales for Comart, Inc., an introducing broker, from June 1984 until February 1985. Mr. Mizrahi attended Brooklyn College in September 1981 prior to beginning his career as a floor trader at the New York Futures Exchange ("NYFE"), trading NYFE stock index futures. Gary Mizrahi, born 1963, has been the Advisor's Treasurer since February 1988 and is primarily responsible for its back office and administrative operations. Mr. Mizrahi was the Advisor's controller from December 1986 until February 1988. He also was Treasurer of Hampton Management from February 1988 through July 1994. Mr. Mizrahi assists in trading execution and is instrumental in the ongoing research and development of the Advisor's proprietary systems. -23- Description of Trading Methods and Strategies The objective of the Advisor's Leverage 3 trading program is to achieve appreciation of the Fund's assets through speculative trading in futures contracts. The Advisor's system in the Leverage 3 trading program is totally technical and mechanical. Technical analysis of the markets often includes a study of the actual daily, weekly and monthly price, volume and open interest data, utilizing charts and/or computers for analysis of these items. The Advisor currently trades only the S&P 500 Contract on the Chicago Mercantile Exchange. An index represents a "basket" or portfolio of stocks or commodities, grouped in a particular way. How a particular stock or commodity index tracks the market depends on the composition of the stocks or commodities included in the index, the percentage weight of each component, and the method of calculating each index. The S&P 500 Stock Index has long been the benchmark by which professionals measure equity portfolio performance. The Standard & Poor's Corporation designed and maintains the Index to be an accurate proxy for a diversified stock portfolio. The Index is based on the stock prices of 500 large-capitalization companies. The market value of the 500 companies is equal to about 80% of the value of all stocks listed on the New York Stock Exchange. These companies' stocks are chosen for market size, liquidity and various industry representation. The Index is capitalization weighted, representing the market value of all outstanding common shares of the companies listed (share price multiplied by the number of shares outstanding). This means that a change in the price of any one stock influences the index in proportion to the relative market value of that company's outstanding shares. The trading of futures contracts on a stock index such as the S&P 500 Stock Index permits an investor to trade the Index at a multiple thus creating, in effect, a highly-leveraged stock portfolio. The S&P 500 Contract is valued at an amount which equals the multiplier (currently $250) times the Index level (which fluctuates daily but for these purposes is assumed to equal 1,100). In such example the S&P 500 Contract is worth $275,000 ($250 x 1,100). The Advisor's Leverage 3 program attempts to take a position in the S&P 500 Contract in the range of three times the size of a fully-funded S&P 500 Contract. For example, if the program is maximum leverage long, the program would take a position size of up to $825,000 (3 x $275,000) for each $275,000 in Fund capital. There are also variations on the S&P 500 Contract, such as the S&P 500/BARRA Growth Index and S&P 500/BARRA Value Index futures contracts, as well as several other stock index futures contracts covering stock values in the United States and worldwide. The Chicago Mercantile Exchange (the "Exchange") has recently decreased the multiplier for the S&P 500 Contract from $500 to $250. The Exchange has also introduced an electronic mini S&P 500 Stock Index futures contract (the "E-Mini") that makes it possible to process small orders through an entirely electronic order entry and execution system. With a multiplier of only $50 times the S&P 500 Stock Index, the E-Mini gives more investors the opportunity to trade the Index, theoretically creating a very liquid market. The E-Mini futures contract features the same 500 stocks, the same benchmark standards, the same liquid index complex, but with a $50 multiplier. The Advisor may in the future trade any of these variations or even other stock index contracts on behalf of the Fund. Since the Advisor employs a systematic approach to trading the S&P 500 Contract, and signals are generated at 4:00 p.m., New York City time, most orders are entered as "on market close." On occasion when data is not accurate due to updates made by the exchanges after the markets close, the Advisor will run its systems and place orders on the GLOBEX exchange overnight or enter orders on the market open of the next day. Rollover of contracts can be executed during the trading day. The Advisor's model uses several indicators that examine the prices of the S&P 500 Contract, broader market action (advance/decline, volume, new highs, new lows) and changes in monetary policy. The system requires the Advisor to scale up into a position or scale down out of a position depending on how many indicators are in a buy mode. -24- When enough signals are on buy, the Advisor will initiate a position, but not add to it, unless and until additional indicators click into buy signals. The same principles are used to implement short positions. The system has four positions: maximum leverage long (+3 leverage), long (+2 leverage), neutral (100% cash) and maximum leverage short (-3 leverage). The Advisor is authorized to trade a wide range of commodity interests on U.S. and foreign exchanges, but currently trades only the S&P 500 Contract. The Advisor may trade any of the commodity interests which are now, or may hereafter be, offered for trading on or off local and international exchanges and markets. In that regard, the Advisor, from time to time in its sole discretion, may add new commodity interests to and delete commodity interests from the portfolio. Trading methods utilized by the Advisor are proprietary and confidential. The description set forth herein is not intended to be exhaustive. Also, the trading methods used by the Advisor for an account may differ from those used with respect to other accounts managed by the Advisor or the trading methods used by the Advisor in trading its own account or those of its principals. The Advisory Agreement The First Amendment and Restatement to Advisory Contract (the "Advisory Agreement") between the Fund and the Advisor terminates on August 31, 1999 and is subject to one-year renewals on the same terms, at the option of the Fund unless terminated by the Advisor or the Fund as set forth herein. The Advisory Agreement terminates automatically without notice in the event that: (a) the Fund is terminated or liquidated; or (b) the registration of the Advisor as a commodity trading advisor or the membership in the NFA is terminated or suspended. In addition, the Fund may terminate the Advisory Agreement at any time for any reason by providing the Advisor with at least thirty (30) days' advance notice of its intent to terminate. Further, the Fund may terminate the Advisory Agreement immediately if there has been any material breach by the Advisor of any provision of the Advisory Agreement, in particular, without limitation, a material breach of any of the representations and warranties set forth therein. The Advisor may terminate the Advisory Agreement (a) immediately if there has been any material breach of the Advisory Agreement by the Fund or (b) at its discretion upon ninety (90) days' notice following the initial one- year term of the Advisory Agreement. In addition, the Advisor may terminate the Agreement upon thirty (30) days' notice to the Fund as of any month-end if (a) the Advisor notifies the General Partner of a proposed material change to the strategy to be used in trading the Fund's assets and the General Partner has instructed the Advisor not to implement such change or (b) the Advisor has determined to cease managing customer accounts pursuant to the Leverage 3 trading strategy used on behalf of the Fund. The Fund has agreed to indemnify the Advisor and related persons for any claims or proceedings involving the business or activities of the Fund, provided that the conduct of such persons does not constitute negligence, misconduct or breach of the Advisory Agreement or of any fiduciary obligation to the Fund and was done in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Fund. The Advisor and related persons will not be liable to the Fund or any of the partners in connection with its management of the Fund's assets except (i) by reason of acts or omissions in breach of the Advisory Agreement, (ii) due to their misconduct or negligence, or (iii) by reason of not having acted in good faith and in the reasonable belief that such actions or omissions were in, or not opposed to, the best interests of the Fund. -25- Year 2000 Compliance The Advisor is taking immediate action to identify any of its computer systems that are Year 2000 vulnerable. If such systems are identified that negatively affect its services (e.g., trade details, fee information), the Advisor will take immediate action to update those systems, extensively test the systems internally and with other parties (if appropriate) to ensure that system interdependencies have been adequately addressed, and establish contingency plans and provide such plans in the event of a malfunction of any part of the systems. If the Advisor has a Year 2000 vulnerable system which is unable to be corrected by the year 2000, it will notify the General Partner in a timely manner. If material to the Fund, the General Partner will promptly notify investors. General The Advisor and/or its principals expect to maintain a substantial investment as limited partners in the Fund. There has not been any material administrative, civil or criminal actions (whether pending, on appeal or concluded) against the Advisor or its principals within the five-year period preceding the date of this Memorandum, except as follows: On September 20, 1995, the Advisor, acting as a registered investment adviser, entered into a Consent Order with the Arizona Corporation Commission (neither admitting nor denying the findings of fact and conclusions of law) at Docket No. 3080-I. The order stemmed from an alleged improper use of solicitors who were registered as investment advisers with the Securities and Exchange Commission but who had not previously been qualified as investment adviser representatives with the Arizona Corporation Commission. Performance of the Advisor Capsule A below reflects the performance of the Leverage 3 Trading Program managed by the Advisor as of July 31, 1998 for the entire history of the program (July 1995 through July 1998), on a monthly and annual basis (year-to-date for partial years). Management fees are charged at rates of 0% to 0.5% (2% annually) of month-end or quarter-end account equity. Incentive fees are charged at rates of 20% to 30% of trading profits. Capsule B below reflects the performance of the Leverage 2 trading program managed by the Advisor as of October 31, 1996 for the entire history of the program (May 1995 through October 1996), on a monthly and year-to-date basis. The management fee was charged at a rate of 0.5% (2% annually) of quarter-end account equity. The incentive fee was charged at a rate of 20% of trading profits. The Leverage 2 trading program has been terminated and is no longer offered to clients. The Advisor has adopted the Fully-Funded Subset method for computing Rates of Return, pursuant to an Advisory published by the Commodity Futures Trading Commission for both capsules. Capsule A presents the composite performance of all accounts managed by the Advisor in the Leverage 3 Program, including both the Fund and other investors. While the performance of the Fund has been similar, investors should not expect the Fund to always experience the same gains or losses as the Leverage 3 composite performance summary. There can be significant differences between the two for reasons such as differing fee structures for other clients, leverage, use of notional funds, and cash flows into and out of the Fund or the composite. For example, in early 1998 the Fund received substantial additional investments from limited partners, which the Advisor was unable to add to a profitable futures trade that was already in place. The presence of this uninvested cash had the effect of reducing the Fund's overall leverage and therefore the returns. Of course, had that particular trade experienced a loss, the uninvested cash might have reduced the Fund's overall loss. -26- The accounts reflected in the capsules were charged different fees than the Fund and the capsules have not been adjusted to reflect the fees and expenses payable by the Fund. In the following capsules "Drawdown" means losses experienced by an account over a specified period and "Worst Peak-to-Valley Drawdown" means the greatest cumulative percentage decline in month-end net asset value due to losses sustained by any account during any period in which the initial month-end net asset value is not equaled or exceeded by a subsequent month-end net asset value. Prospective investors are cautioned that the performance information set forth below is not necessarily indicative of, and has no necessary bearing on, any trading results which may be attained in the future by the Advisor, since past results are not necessarily indicative of future results. There can be no assurance that a participating investor will make any profits at all or avoid incurring substantial losses. Further, the rates of return earned when an advisor is managing a limited amount of equity may bear little relationship to those which such advisor is able to achieve managing greater amounts of equity. -27- CAPSULE A Commodity Trading Advisor: Hampton Investors, Inc. Name of Program: Leverage 3 Program Inception of Trading Client Accounts: May 1995 Inception of Trading Program: July 1995 Number of Open Accounts: 17 Total Actual Assets under Management Overall: $16,669,222 Total Assets Including Notional Funds under Management Overall: $24,052,194 Total Actual Assets under Management in Program: $16,669,222 Total Assets Including Notional Funds under Management in Program: $24,052,194 Worst Monthly Drawdown: (12.78)% (8/97) Worst Peak-to-Valley Drawdown: (12.78)% (8/97) Accounts closed with positive net performance: 2 Accounts closed with negative net performance: 0
====================================================== Rate of Return (Computed on a compounded Monthly basis) ============================================================================== Month 1998 1997 1996 1995 - ------------------------------------------------------------------------------ January 2.85% 12.07% 11.88% -- - ------------------------------------------------------------------------------ February 15.79% 3.80% 0.02% -- - ------------------------------------------------------------------------------ March 11.90% 10.94% 3.33% -- - ------------------------------------------------------------------------------ April 3.51% (10.73)% 4.26% -- - ------------------------------------------------------------------------------ May 0.11% 9.14% 4.77% -- - ------------------------------------------------------------------------------ June (0.82)% 10.02% 1.81% -- - ------------------------------------------------------------------------------ July (2.62)% 14.57% (3.65)% (1.11)% - ------------------------------------------------------------------------------ August (9.96)% 0.57% (0.29)% - ------------------------------------------------------------------------------ September 11.19% 9.34% 6.82% - ------------------------------------------------------------------------------ October (8.42)% 3.43% 1.61% - ------------------------------------------------------------------------------ November 5.88% 4.51% (9.65)% - ------------------------------------------------------------------------------ December (7.76)% (7.31)% 2.08% ============================================================================== Year 33.37% 41.91% 36.48% (1.29)% ==============================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. -28- CAPSULE B Commodity Trading Advisor: Hampton Investors, Inc. Name of Program: Leverage 2 Program Inception of Trading Client Accounts: May 1995 Inception of Trading Program: May 1995 Number of Open Accounts: 0 Total Actual Assets under Management Overall: $16,669,222 Total Assets Including Notional Funds under Management Overall: $24,052,194 Total Actual Assets under Management in Program: $0 Total Assets Including Notional Funds under Management in Program: $0 Worst Monthly Drawdown: (6.63)% 11/95 Worst Peak-to-Valley Drawdown: (6.63)% 11/95 Accounts closed with positive net performance: 1 Accounts closed with negative net performance: 0
=============================== Rate of Return (Computed on a compounded Monthly basis) ============================================================================== Month 1996 1995 - ------------------------------------------------------------------------------ January 8.55% -- - ----------------------------------------------------------------------------- February 0.05% -- - ----------------------------------------------------------------------------- March 1.63% -- - ----------------------------------------------------------------------------- April 2.48% -- - ----------------------------------------------------------------------------- May 3.46% (0.85)% - ----------------------------------------------------------------------------- June 1.57% (0.4)% - ----------------------------------------------------------------------------- July (1.92)% (0.51)% - ----------------------------------------------------------------------------- August 0.31% (0.12)% - ----------------------------------------------------------------------------- September 5.05% 3.43% - ----------------------------------------------------------------------------- October 1.52% 0.87% - ----------------------------------------------------------------------------- November (6.63)% - ----------------------------------------------------------------------------- December 1.10% ============================================================================= Year 16.59% (2.25)% =============================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. -29- The General Partner Background and Principals ProFutures, Inc., a Texas corporation, began operations in December 1984 and specializes in the management of speculative managed futures accounts and funds. The General Partner has been registered with the CFTC as a commodity pool operator since January 1987 and as a commodity trading advisor and introducing broker since December 1984. The General Partner is a member of the NFA in such capacities. Its office address is 11612 Bee Cave Road, Suite 100, Austin, Texas 78733. Its telephone numbers are (800) 348-3601 and (512) 263-3800. The principals of the General Partner are Gary D. Halbert, Debi B. Halbert and Patrick W. Watson. The General Partner is also the commodity pool operator of two multi-advisor, diversified public commodity pools. Gary D. Halbert, born 1952, is a Director, President and majority stockholder of the General Partner. Mr. Halbert is also the Chairman, President and controlling stockholder of: (a) the Selling Agent; (b) ProFutures Fund Management, Inc., which serves as a co-general partner in private investment companies primarily engaged in the trading of securities; (c) ProFutures Capital Management, Inc., a registered investment adviser; and (d) ProFutures International, Ltd., a Bahamian corporation. Mr. Halbert has 27 years of continuous experience in the futures industry. Mr. Halbert, who has served as an arbitrator on several occasions for the NFA, holds a Master's degree in International Management from the American Graduate School (Thunderbird) and a Bachelor of Science degree from Texas Tech University. Debi B. Halbert, born 1955, is a Director, the Chief Financial Officer, Treasurer and minority shareholder of the General Partner. She is also: (a) the Chief Financial Officer and Treasurer of ProFutures Fund Management, Inc.; and (b) the Chief Financial Officer, Treasurer and Director of ProFutures Financial Group, Inc., the Selling Agent, and ProFutures Capital Management, Inc. Ms. Halbert, the wife of Gary D. Halbert, attended Richland College (Texas). She has over fifteen years of experience in the futures industry. Ms. Halbert's principal responsibility is serving as Chief Financial Officer and compliance officer. She manages back-office operations and administration of the Fund and other accounts. Patrick W. Watson, born 1964, is Vice President of the General Partner and is involved in business development, management information systems and investor relations. Mr. Watson joined the General Partner in October 1991. He has also served as Vice President of the Selling Agent and ProFutures Capital Management, Inc. since February 1996. Mr. Watson has a Bachelor of Arts degree from Howard Payne University and a Master of Arts degree from Rice University. Year 2000 Compliance The General Partner's modifications for Year 2000 systems compliance are proceeding according to plan and are expected to be completed on or before June 1999. These modifications will include all systems which substantially affect the operations of the Fund. Based on information currently available, the remaining expenditures are estimated at less than $5,000 and will cover any hardware and software upgrades, systems consulting and computer maintenance. These expenditures are not expected to have a material adverse impact on the General Partner's financial position, results of operations or cash flows in future periods. However, the failure of the General Partner's futures exchanges, clearing organizations, vendors, clients or regulators to resolve their own processing issues in a timely manner could result in a material financial risk. The General Partner is devoting the necessary resources to address all Year 2000 issues in a timely manner. -30- General Partner's Investment The General Partner is required by the Limited Partnership Agreement to maintain a general partnership investment in the Fund equal to 1% of the total contributions of all Partners to the Fund. The General Partner may make withdrawals of such investment as of the end of any month, but at all times its capital account must equal at least 1% of the Fund's Net Assets. The General Partner's general partnership interest in the Fund will, for purposes of allocating Fund expenses, be treated as Units. Performance of the Fund and the General Partner The past performance of the Fund is set forth on page 16. The past performance of the General Partner's other commodity pools is set forth below. The General Partner is a co-general partner of ATA Research/ProFutures Diversified Fund, L.P. and is the general partner of Alternative Asset Growth Fund, L.P. These pools are multi-advisor, widely-diversified commodity pools that have previously sold interests on a public basis. The CFTC requires commodity pool operators to disclose the performance of other pools they operate for only the past five years, although the CFTC permits older performance to be included on a supplemental basis. The past performance of the General Partner's other commodity pools since inception through July 31, 1998 is set forth in the capsule performance table on the following page. Each of the following funds is a materially different investment than the Fund. CFTC regulations require their performance to be included in this prospectus. In the following capsules "Drawdown" means losses experienced by the pool over a specified period and "Worst Peak-to-Valley Drawdown" means the greatest cumulative percentage decline in month-end net asset value due to losses sustained by the pool during any period in which the initial month-end net asset value is not equaled or exceeded by a subsequent month-end net asset value. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS -31-
- --------------------------------------------------------------------------------------------------------- Summary of Capsule Performance of Other Pools operated by ProFutures, Inc. as of July 31, 1998 - --------------------------------------------------------------------------------------------------------- ATA Research/ProFutures Alternative Asset Name of Pool Diversified Fund L.P. Growth Fund, L.P. - --------------------------------------------------------------------------------------------------------- Type of Pool: Publicly Offered Publicly Offered - --------------------------------------------------------------------------------------------------------- Inception of Trading: August 1987 March 1990 - --------------------------------------------------------------------------------------------------------- Aggregate Subscriptions: $128,636,643 $37,373,069 - --------------------------------------------------------------------------------------------------------- Current Net Asset Value: $73,243,914 $14,001,700 - --------------------------------------------------------------------------------------------------------- Largest Monthly Percentage (7.26)% (4/98) (6.72)% (2/96) Drawdown: (Inception of Trading to Date) (Inception of Trading to Date) (7.26)% (4/98) (6.72)% (2/96) (Past Five Years and Year-to-Date) (Past Five Years and Year-to-Date) - --------------------------------------------------------------------------------------------------------- Worst Peak-to-Valley (17.23)% (7/93 to 10/95) (16.13)% (7/93 to 10/95) Drawdown: (Inception of Trading to Date) (Inception of Trading to Date) (17.23)% (7/93 to 10/95) (16.13)% (7/93 to 10/95) (Past Five Years and Year-to-Date) (Past Five Years and Year-to-Date) - --------------------------------------------------------------------------------------------------------- Rates of Return: - --------------------------------------------------------------------------------------------------------- 1998 through July (10.14)% (9.44)% - --------------------------------------------------------------------------------------------------------- 1997 9.92% 9.43% - --------------------------------------------------------------------------------------------------------- 1996 11.13% 4.83% - --------------------------------------------------------------------------------------------------------- 1995 0.73% (3.49)% - --------------------------------------------------------------------------------------------------------- 1994 (0.50)% 0.85% - --------------------------------------------------------------------------------------------------------- 1993 6.54% 8.09% ========================================================================================================= 1992 2.83% (4.86)% - --------------------------------------------------------------------------------------------------------- 1991 7.65% 6.05% - --------------------------------------------------------------------------------------------------------- 1990 38.66% 12.44% - --------------------------------------------------------------------------------------------------------- 1989 11.57% -- - --------------------------------------------------------------------------------------------------------- 1988 2.18% -- - --------------------------------------------------------------------------------------------------------- 1987 1.36% -- - ---------------------------------------------------------------------------------------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE GENERAL PARTNER'S COMMODITY POOLS INCLUDED IN THE FOREGOING TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND. -32- Brokerage Arrangements The Fund's brokers are responsible for holding and maintaining the Fund's funds, securities, commodities and other assets on deposit, the execution or clearance of transactions, the recordkeeping, preparation and transmittal to the Fund of daily confirmations of transactions and monthly statements of account, the calculation of the balance and margin requirements of the Fund's accounts maintained at such brokers, and similar administrative functions. A minority of the Fund's assets are deposited primarily in one brokerage account with ING (U.S.) Securities, Futures & Options Inc., the Futures Broker. Such assets may, however, be deposited in more than one brokerage account with various futures commission merchants. The General Partner has sole responsibility for selection of the Fund's futures brokers. The designation of clearing brokers may change at any time and limited partners will receive notice of such change in the Fund's monthly reports. The General Partner also has the sole authority to negotiate brokerage rates for the Fund. The Futures Broker is a duly registered futures commission merchant and a member of the NFA. The Futures Broker is also registered as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. ING (U.S.) Securities, Futures & Options Inc., which was formed in 1990, operates under the trade name ING BARINGS Futures & Options Clearing Services and is a clearing firm of each of the principal U.S. futures exchanges and the Chicago Board of Options Exchange. The Futures Broker is a wholly-owned subsidiary of ING Bank N.V. in Amsterdam, one of the largest financial institutions in the world. The Futures Broker is an Illinois corporation with a principal place of business at 233 South Wacker Drive, Suite 5200, Chicago, Illinois 60606; telephone (312) 496-7000. At any given time, the Futures Broker may be involved in legal actions, some of which may seek significant damages. With the exception of the action noted below, during the past five years preceding the date hereof, there have been no administrative, civil or criminal actions against the Futures Broker or any of its principals -- whether pending, on appeal or concluded -- which is material in light of all the circumstances. In 1998, a former client filed a demand for arbitration at the National Futures Association seeking a significant award. It is alleged that the claimants' liquidation of positions on a foreign futures exchange in the volatile period of October 1997 resulted in losses. The Futures Broker is vigorously defending the claim, which it believes to be baseless. Under the customer agreement between the Futures Broker and the Fund, the Fund has agreed to maintain at all times such collateral and/or margin in accordance with exchange minimum margin requirements as established by the exchange on which the transaction is executed and has agreed to pay immediately on demand any amount owing with respect to any of the Fund's accounts. Margin requirements may be increased at the Futures Broker's sole and absolute discretion, and may differ from those established by the exchange on which the transaction is executed. If the Fund fails to deposit sufficient funds to pay for any commodities and/or to satisfy any demands for original and/or variation margin, or whenever in the Futures Broker's sole and absolute discretion the Futures Broker considers it necessary, the Futures Broker may, without prior demand or notice, when and if it deems appropriate, notwithstanding any rule of any exchange, liquidate the positions in the Fund's account(s), hedge and/or offset those positions in the cash market or otherwise, sell any property belonging to the Fund or in which the Fund has an interest, cancel any open orders for the purchase and sale of any property, or borrow or buy any property required to make delivery against any sales, including a short sale, effected for the Fund, all for the Fund's sole account and risk. The Fund has agreed that the Futures Broker has no duty and is not required to liquidate positions in the Fund's account(s). -33- The Fund has obtained the foregoing information from the Futures Broker. Other than providing this information, the Futures Broker is not a party to and has not reviewed or passed upon the merits of this prospectus nor will the Futures Broker participate in the Fund beyond its clearing duties pursuant to a brokerage agreement, so long as that agreement is in effect. Net Asset Value The Net Asset Value of the Fund equals its assets less its liabilities, as determined in accordance with Generally Accepted Accounting Principles, including any unrealized profits and losses on its open positions. More specifically, the Net Asset Value of the Fund equals the sum of all cash, the liquidating value (or cost of liquidation, as the case may be) of all futures and options on futures positions and the fair market value of all other assets of the Fund, less all liabilities of the Fund (including accrued liabilities, irrespective of whether such liabilities -- for example, incentive fees -- may in fact never be paid), in each case as determined by the General Partner generally in accordance with Generally Accepted Accounting Principles. Conflicts of Interest Neither the General Partner, the Advisor, nor their respective principals and affiliates (the "Associated Parties") has established any formal procedures to resolve the following conflicts of interest. Consequently, investors cannot rely on an independent control on how the Associated Parties will resolve these conflicts to ensure that the Fund is treated equitably with other clients of the Associated Parties. Because no formal procedures are in place for resolving conflicts, they may be resolved by the Associated Parties in a manner which causes the Fund losses. The value of limited partners' investment may be diminished by actions or omissions which independent third parties could have prevented or corrected. Although the following conflicts of interest are present in the operation of the Fund, the General Partner does not believe that they are likely to have a material adverse effect on its performance. This belief is based on a number of factors, including the following: (i) The Advisor trades all similarly situated accounts in parallel, placing bulk orders which are allocated among the Advisor's accounts pursuant to pre-established procedures. Consequently, the Advisor has little opportunity to prefer another client over the Fund. (ii) The Futures Broker simply receives and executes the Advisor's bulk orders based on pre-established procedures. The Futures Broker has no ability in allocating positions to favor one account over another. (iii) The General Partner, as a fiduciary, is prohibited from benefiting itself at the expense of the Fund. Any of the Associated Parties are free to manage and advise commodity pools and commodity trading accounts in addition to the Fund's account. The General Partner or the Advisor may have a conflict of interest in rendering advice to the Fund because their respective benefit from managing some other commodity pools or commodity accounts may exceed their benefit from managing the Fund's account and, therefore, may provide an incentive to favor such other accounts. Moreover, if any of the Associated Parties makes trading decisions for such other accounts and the Fund's account at or about the same time, the Fund may be competing with such other pools or accounts for the same or similar positions. No Associated Party will enter into transactions where it knowingly and deliberately favors itself or another client over the Fund; however, the Associated Parties each have considerable -34- flexibility to trade for other accounts, and each intends to do so to a significant extent. Accordingly, no assurance is given that the performance of all accounts controlled and managed by the Associated Parties will be identical or even similar. The Associated Parties may trade in the futures markets for their own accounts. An Associated Party may, as a result of a neutral allocation system or testing a new trading system, trade proprietary accounts more aggressively, or take any other actions that would not constitute a violation of applicable duties to the Fund, which includes taking positions in their proprietary accounts which are the same as, to or opposite from those positions taken for a client, including the Fund. The records of such trading will not be made available to limited partners. The Selling Agent will have an incentive to sell Units (despite receiving no direct compensation other than possibly any excess of the aggregate organizational charge) since the management fee received by the General Partner (its affiliate) will be greater should the Fund's capitalization increase. The General Partner is an affiliate of ProFutures Capital Management, Inc. ("PCM"), a registered investment adviser. Under its AdvisorLink program, PCM has selected the Advisor's mutual fund trading program as one of a few it recommends to its clients. PCM receives a portion of the fees paid to the Advisor by clients which PCM referred to the Advisor's mutual fund trading program. The General Partner operates two multi-advisor, diversified commodity pools. The General Partner is a co-general partner of ATA Research/ProFutures Diversified Fund, L.P. (the "Diversified Fund") and is the general partner of Alternative Asset Growth Fund, L.P. (the "Alternative Fund"). The General Partner has selected the Futures Broker to serve as the primary futures broker for both of these pools. The Futures Broker has agreed, so long as it remains the futures broker for these pools and the Fund, to purchase, under specified conditions, shares of common stock of the General Partner sufficient to meet the net worth requirement imposed on the General Partner in connection with its publicly-offered funds (including the Fund). Accordingly, there is an incentive for the General Partner to retain the Futures Broker as the primary futures broker for the Fund. In addition, the Advisor is a trading advisor to the Diversified Fund and the Alternative Fund. The Futures Broker acts as commodity broker for accounts other than the Fund, including accounts of the Futures Broker's affiliates and of limited partnerships of which the Futures Broker or one of its affiliates is general partner, and may have financial and other incentives to favor certain of such accounts over the Fund. The compensation received by the Futures Broker from such accounts may be more or less than the compensation the Futures Broker will receive for its services to the Fund. Certain employees of the Futures Broker are, and will in the future be, members of United States commodities exchanges and are and will serve on the governing bodies and standing committees of such exchanges and of their clearinghouses. In such capacities, these employees have a fiduciary duty to the exchanges and their clearinghouses which will compel such employees to act in the best interests of these entities, perhaps to the detriment of the Fund. The Stock Index Futures Markets Stock Index Futures Contracts Stock index futures contracts are contracts made on a commodity exchange and call for cash settlement, at the close of business on the expiration date of the contract, based on the level of the index in question at such time. In addition, under the daily marked-to-market procedure employed by commodity exchanges, there is a -35- cash settlement each day that a trader holds an open position whereby the trader either pays or receives variation margin based on the change in the value of his position since the close of trading on the previous day. Stock Index Options An option on a stock index futures contract gives the purchaser of the option the right (but not the obligation) to take a position at a specified price (the "striking," "strike" or "exercise" price) in the underlying stock index futures contract. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract. The value of an option at any given point in time is a function of market volatility and the price level of the underlying stock index futures contract. Stock Index Futures Market Participants The two broad classifications of persons who trade in stock index futures are "hedgers" and "speculators." Financial institutions, pension plans and corporations with large equity portfolios use the stock index futures markets to hedge such portfolios against declines in overall stock index levels. In doing so, such hedgers typically accept the "delta" risk -- i.e., the risk that their actual equity portfolio will perform somewhat differently from the overall market -- for their own account. A pension plan might, for example, decide during a run-up in the S&P 500 Stock Index, that it is prudent to hedge 50% of a $100 million stock portfolio against the risk of the S&P 500 Stock Index level dropping below a certain level. Accordingly, the plan would acquire short positions in the S&P 500 Contract with an aggregate face value of $50 million when the market was at such pre-determined level. For every decline of the Index below such level, the plan would earn $1 on its short futures position for every $2 it lost in its equity portfolio -- plus or minus the extent to which such portfolio overperformed or underperformed the S&P 500 Stock Index. The objective of the hedger is to protect all or a portion of the value of his equity holdings from price declines, rather than to profit from his futures trading. The speculator, on the other hand, risks his capital with the hope of making profits from fluctuations in the price of stock index futures contracts. The speculator is, in effect, the risk bearer who assumes the risks which the hedger seeks to avoid. The stock index futures markets are also used by a number of market participants as a means of establishing "proxy" or "surrogate" equity portfolios which will be replaced in due course by the acquisition of actual stocks. For example, a money manager might determine that it was appropriate to rebalance an investment company's portfolio by allocating 10% of such fund's overall holdings out of fixed income instruments and into common stocks. To purchase stocks comprising the S&P 500 Stock Index and in a manner which will minimize execution costs might take several days, whereas the manager may believe that a major stock market movement is imminent. In such circumstances, the manager could acquire stock index futures contracts with a gross value equal to 10% of the investment company's portfolio, thereby immediately positioning the fund to take advantage of upward movements in overall equity price levels, and gradually close out futures positions as the fund's brokers gradually acquired the "cash" equity positions in what they considered to be the most advantageous manner. Another group of market participants in the stock index futures markets are institutions which engage in the arbitrage strategy commonly referred to as "program trading." Program trading involves the purchase or sale of a cash equity portfolio and the simultaneous offsetting sale or purchase of stock index futures contracts of the same aggregate face value. The purpose is to capture the pricing differentials which develop between the cash and the futures markets, whereby one is from time to time over- or under-priced with respect to the other, after taking into account the dividends one earns on actual stocks (as opposed to futures) held and the interest one earns on the assets which one would otherwise have to spend to acquire a "cash" equity position, but which one is able to retain if such position is established in the futures markets, in which it is not necessary to acquire any actual stocks. Barring execution "slippage" the arbitrage position established in a classic program trade should be riskless because upon the expiration of the stock index futures contracts acquired, the value of such contracts would equal the value of the "cash" stock index, thereby causing the program traders' futures and cash positions exactly to offset each other. -36- Speculative Position Limits The exchanges have established, and the CFTC has approved, limits, referred to as "speculative position limits," on the maximum net long or net short position that any person (other than a hedger) may hold or control in stock index futures contracts. The position limit for the S&P 500 Contract is very high relative to other stock indices. The principal purpose of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. Daily Limits The exchanges have established, and the CFTC has approved, regulations which limit the amount of fluctuation in stock index futures prices during a single trading day. These regulations specify what are referred to as "daily price fluctuation limits" or more commonly "daily limits." The daily limits establish the maximum amount by which the price of a stock index futures contract may vary either up or down from the previous day's settlement price at the end of the trading session. Once the daily limit has been reached in a particular commodity for delivery in a particular month, it may be difficult, costly or impossible to liquidate positions in that futures contract. Since "daily limits" restrict price movements only for a given trading day, they do not limit ultimate losses. Regulation Commodity exchanges in the United States, and trading thereon, are subject to regulation by the CFTC under the CEA. In addition, the various commodity exchanges themselves exercise regulatory and supervisory authority over their members. The CFTC also regulates the activities of "commodity trading advisors" and "commodity pool operators" and has adopted regulations with respect to certain of such persons' activities. Under the CEA, a registered commodity pool operator, such as the General Partner, is required to make annual filings with the CFTC describing its organization, capital structure, management and controlling persons. In addition, the CEA authorizes the CFTC to require the maintenance of specified books and records and the preparation of disclosure documents by registered commodity pool operators. Pursuant to such authority, the CFTC requires a commodity pool operator to keep accurate, current and orderly records with respect to each pool it operates. The CFTC has delegated substantial authority to review such books, records and documents to the NFA. The CFTC may suspend the registration of a commodity pool operator (i) if the CFTC finds that the operator's trading practices tend to disrupt orderly market conditions, (ii) if any controlling person of the pool operator is subject to an order of the CFTC denying such person trading privileges on any exchange and (iii) in certain other circumstances. Suspension or termination of the General Partner's registration as a commodity pool operator would prevent it, until such time (if any) as such registration were reinstated, from acting as general partner of the Fund, and would be likely to result in the termination of the Fund. The CEA gives similar authority to the CFTC with respect to the activities of "commodity trading advisors," such as the Advisor. If the Advisor's registration as a commodity trading advisor were to be terminated or suspended, it would be unable, until such time (if any) as such registration was reinstated, to render trading advice to the Fund and the Fund's trading activities would be suspended unless the General Partner selected another trading advisor, which would be unlikely. The CEA requires all "futures commission merchants," such as the Futures Broker, to meet and maintain specified financial requirements, account separately for all customers' funds and positions, and maintain specified books and records open to inspection by the staff of the CFTC. The CFTC has, in effect, delegated responsibility to audit compliance with such financial requirements to the commodity exchanges and the NFA. The CEA authorizes the CFTC to regulate trading by futures commission merchants and their officers and directors, -37- permits the CFTC to require action by exchanges in the event of market emergencies, and establishes a reparations procedure under which commodity customers may institute complaints for damages arising from alleged violations of the CEA by persons required to be registered thereunder. The CEA also gives the states certain powers to enforce its provisions and the regulations of the CFTC. Limited partners are afforded certain rights to institute reparation proceedings under the CEA for violations of the CEA or of any rule, regulation or order of the CFTC by the General Partner, the Advisor or the Futures Broker. The NFA is a "registered futures association" under Section 17 of the CEA. At the present time, the NFA is the only non-exchange, self-regulatory organization for commodities industry professionals. The NFA also arbitrates disputes between members and their customers and conducts registration and fitness screening of applicants for membership. The regulations of the CFTC and the NFA prohibit any representation by a person registered with the CFTC or by a member of the NFA, respectively, that such registration or membership in any respect indicates that the CFTC or the NFA, as the case may be, has approved or endorsed such person or such person's trading program or objectives. The registrations and memberships described above must not be considered as constituting any such approval or endorsement. The regulation of futures contract trading in the United States and other countries is a constantly changing area of the law. The various statements made herein are subject to modification by legislative action and changes in the rules and regulations of the CFTC, the NFA, commodity exchanges and other regulatory bodies. Margins Initial margin is the minimum amount of funds that must be deposited by a commodity futures trader with his commodity broker in order to initiate futures trading. Maintenance margin is the minimum which must remain on deposit with the broker to maintain the trader's open positions in futures contracts. A margin deposit, like a cash performance bond, helps assure the commodity trader's performance of his obligations under his open positions. The initial margin on the S&P 500 Contract is currently set at approximately 3%-5% of contract value. The minimum amount of margin required to acquire or maintain a particular futures contract is set from time to time by the exchange upon which such commodity futures contract is traded and may be modified from time to time by the exchange during the term of the contract. Brokerage firms carrying accounts for traders in commodity futures contracts may increase the amount of margin required as a matter of policy in order to further protect themselves. Such increased margin requirements may apply to existing positions held by the Fund as well as to positions acquired in the future. When the market value of a particular open commodity futures or option position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a margin call will be made by the trader's commodity broker. If the margin call is not met within a reasonable time, the broker is generally required to close out the trader's position. Margin requirements are computed each day by the trader's commodity broker. With respect to the Fund's trading, the Fund, and not the limited partners personally, will be subject to margin calls. -38- The foregoing description of the stock index futures markets is intended to provide only a summary of selected aspects of this industry and should not be viewed as being either comprehensive or exhaustive. Prospective investors should have a general familiarity with the stock index futures markets and may consult an independent adviser or contact the General Partner for further information. Summary of the Limited Partnership Agreement The Fund's Limited Partnership Agreement effectively gives the General Partner full control over the management of the Fund. Limited partners have no voice in its operations. In addition, the General Partner in its operation of the Fund is specifically authorized to engage in the transactions described herein, and is exculpated and indemnified by the Fund against claims sustained in connection with the Fund, provided that such claims were not the result of negligence or misconduct and that the General Partner determined that such conduct was in the best interests of the Fund. Although limited partners investors have no right to participate in the control or management of the Fund, they are entitled to: (i) vote on a variety of different matters; (ii) receive annual audited financial statements, unaudited monthly reports and timely tax information; (iii) inspect the Fund's books and records; (iv) redeem Units; and (v) not have the business terms of the Fund changed in a manner which increases the compensation received by the General Partner or its affiliates without the consent of a majority of the limited partners. Limited partners' voting rights extend to any proposed change in the Limited Partnership Agreement which would adversely affect them, as well as to their right to terminate the Fund's contracts with affiliates of the General Partner. Limited partners also have the right to call meetings of the Fund in order to permit limited partners to vote on any matter on which they are entitled to vote, including the removal of the General Partner as general partner of the Fund. Limited partners or their duly authorized representatives may inspect the Fund's books and records, for a purpose related to their status as limited partners in the Fund, during normal business hours upon reasonable written notice to the General Partner. They may also obtain copies of such records upon payment of reasonable reproduction costs; provided, however, that such limited partners represent that the inspection and/or copies of such records will not be for commercial purposes unrelated to such limited partners' interest in the Fund. The Limited Partnership Agreement provides for the economic and tax allocations of the Fund's profit and loss. Economic allocations are based on investors' capital accounts, and the tax allocations generally attempt to equalize tax and capital accounts by, for example, making a priority allocation of taxable income to limited partners who redeem at a profit. The General Partner may amend the Limited Partnership Agreement in any manner not adverse to the limited partners without need of obtaining their consent. Tax Consequences In the opinion of Sidley & Austin, the following summary of the tax consequences to United States taxpayers who are individuals is materially correct. Sidley & Austin's opinion is filed as an Exhibit to the Registration Statement of which this prospectus is a part. -39- Partnership Tax Status of the Fund Based on the type of income expected to be earned by the Fund, it will not be treated as a "publicly-traded partnership," and, therefore, will not pay federal income tax. Taxation of Partners on Profits or Losses of the Fund Each Partner must pay tax on his share of the Fund's income and gains. Such share must be included each year in a Partner's taxable income whether or not such Partner has redeemed Units. In addition, a Partner may be subject to paying taxes on the Fund's interest income even though the Net Asset Value per Unit has decreased due to trading losses. See "--Tax on Capital Gains and Losses; Interest Income," below. The Fund provides each Partner with an annual schedule of his share of tax items. The Fund generally allocates these items equally to each Unit. However, when a Partner redeems Units, the Fund allocates capital gains or losses so as to reduce or eliminate any difference between the redemption proceeds and the tax accounts of such Units. Limited Deductibility of Fund Losses and Deductions A Partner may not deduct Fund losses or deductions in excess of his tax basis in his Units as of year-end. Generally, a Partner's tax basis in his Units is the amount paid for such Units reduced (but not below zero) by his share of any Fund distributions, losses and deductions and increased by his share of the Fund's income and gains. Limited Deductibility for Certain Expenses For individuals who itemize deductions, the expenses of producing income, including "investment advisory fees," are to be aggregated with unreimbursed employee business expenses and certain other expenses of producing income (collectively, the "Aggregate Investment Expenses"), and such Aggregate Investment Expenses will be deductible only to the extent in excess of 2% of the individual's adjusted gross income. In addition, Aggregate Investment Expenses in excess of the 2% threshold, when combined with certain other itemized deductions, are subject to a reduction generally equal to 3% of the individual's adjusted gross income in excess of a certain threshold amount. Moreover, such Aggregate Investment Expenses are miscellaneous itemized deductions, which are not deductible by an individual in calculating his or her alternative minimum tax liability. The IRS might contend that the management fees, the incentive fee and other expenses of the Fund constitute "investment advisory fees." If this contention were sustained, an individual Partner's pro rata share of the amounts so characterized would be included in Aggregate Investment Expenses potentially subject to these deduction limitations. In addition, each individual Partner's share of income from the Fund would be increased (solely for tax purposes) by such Partner's pro rata share of the amounts so characterized. PROSPECTIVE INVESTORS MUST CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FOREGOING "INVESTMENT ADVISORY FEES" ISSUE, WHICH IS A MATTER OF UNCERTAINTY AND COULD HAVE A MATERIAL IMPACT ON AN INVESTMENT IN THE FUND IN TERMS OF THE TOTAL TAX PAYABLE. -40- Year-End Mark-to-Market of Open Positions Section 1256 Contracts are futures, futures options traded on U.S. exchanges and stock index options. Currently, all of the Fund's open positions are Section 1256 Contracts. Section 1256 Contracts that remain open at the end of each year are treated for tax purposes as if such positions had been sold and any gain or loss recognized. The gain or loss on Section 1256 Contracts is characterized as 40% short-term capital gain or loss and 60% long-term capital gain or loss regardless of how long any given position has been held. Non-U.S. exchange-traded futures are generally non-Section 1256 Contracts. Gain or loss on any non-Section 1256 Contracts will be recognized when sold by the Fund and will be primarily short-term gain or loss. Tax on Capital Gains and Losses; Interest Income As described under "--Year-End Mark-to-Market of Open Positions," the Fund's trading, not including its cash management which generates primarily ordinary income, generates 60% long-term capital gains or losses and 40% short- term capital gains or losses from its Section 1256 Contracts and primarily short-term capital gain or loss from any non-Section 1256 Contracts. Individuals pay tax on long-term capital gains at a maximum rate of 20%. Short-term capital gains are subject to tax at the same rates as ordinary income, with a maximum rate of 39.6% for individuals. Individual taxpayers may deduct capital losses only to the extent of their capital gains plus $3,000. Accordingly, the Fund could incur significant losses but a limited partner could be required to pay taxes on his share of the Fund's interest income. If an individual taxpayer incurs a net capital loss for a year, he may elect to carry back (up to three years) the portion of such loss which consists of a net loss on Section 1256 Contracts. A taxpayer may deduct such losses only against net capital gain for a carryback year to the extent that such gain includes gains on Section 1256 Contracts. To the extent that a taxpayer could not use such losses to offset gains on Section 1256 Contracts in a carryback year, the taxpayer may carry forward such losses indefinitely as losses on Section 1256 Contracts. Syndication Expenses Neither the Fund nor any limited partner will be entitled to any deduction for the Fund's syndication expenses, including the one-time upfront organizational charge paid to the General Partner and any amount paid by the General Partner to any Additional Selling Agents, nor can such expenses be amortized by the Fund or any limited partner. Unrelated Business Taxable Income Tax-exempt limited partners will not be required to pay tax on their share of income or gains of the Fund, provided that such limited partners do not purchase Units with borrowed funds. IRS Audits of the Fund and Its Partners The IRS is required to audit Fund-related items at the Fund level rather than the partner level. The General Partner is the Fund's "tax matters partner" with general authority to determine the Fund's responses to a tax audit. If an audit of the Fund results in an adjustment, all partners may be required to pay additional taxes plus interest as well as penalties. -41- State and Other Taxes In addition to the federal income tax consequences described above, the Fund and the partners may be subject to various state and other taxes. ____________________ Prospective investors are urged to consult their tax advisers before deciding whether to invest. Purchases by Employee Benefit Plans In General This section sets forth certain consequences under ERISA and the Code which a fiduciary of an "employee benefit plan" as defined in and subject to ERISA or of a "plan" as defined in Section 4975 of the Code who has investment discretion should consider before deciding to invest the plan's assets in the Fund (such "employee benefit plans" and "plans" being referred to herein as "Plans," and such fiduciaries with investment discretion being referred to herein as "Plan Fiduciaries"). Furthermore, all potential investors should read the following disclosure because it describes certain issues that could affect the Fund as a consequence of Plans purchasing Units. The terms "employee benefit plans" and "plans" include, but are not limited to, corporate pension and profit sharing plans, "simplified employee pension plans," KEOGH plans for self-employed individuals (including partners), individual retirement accounts described in Section 408 of the Code and medical benefit plans. Special Investment Considerations Each Plan Fiduciary must give appropriate consideration to the facts and circumstances that are relevant to an investment in the Fund, including the role that an investment in the Fund plays or would play in the Plan's overall investment portfolio. Each Plan Fiduciary, before deciding to invest in the Fund, must be satisfied that such investment is prudent for the Plan, that the investments of the Plan, including the investment in the Fund, are diversified so as to minimize the risk of large losses and that an investment in the Fund complies with the terms of the Plan and related trust. The Fund Should Not Be Deemed To Hold "Plan Assets" A regulation issued under ERISA (the "ERISA Regulation") contains rules for determining when an investment by a Plan in an equity interest of a limited partnership will result in the underlying assets of the partnership being assets of the Plan for purposes of ERISA and Section 4975 of the Code (i.e., "plan assets"). Those rules provide in pertinent part that assets of a limited partnership will not be plan assets of a Plan which purchases an equity interest in the partnership if (i) investment by all "benefit plan investors" is not significant (the "Participation Exception"), or (ii) the equity interest purchased is a "publicly-offered security" (the "Publicly-Offered Security Exception"). If the underlying assets of a partnership are considered to be assets of any Plan for purposes of ERISA or Section 4975 of the Code, the operations of such partnership would be subject to and, in some cases, limited by, the provisions of ERISA and Section 4975 of the Code. The Participation Exception applies if, immediately after the most recent acquisition of an equity interest of the partnership, "benefit plan investors" (defined as any Plan, any other employee benefit plan as defined in, but not subject to, ERISA and any entity deemed for any purpose of ERISA or Section 4975 of the Code to hold assets of any employee benefit plan or plan) own, in the aggregate, less than 25% of the value of each class of equity interests of the partnership (determined by not including the investments of persons with discretionary authority or control over the assets of such partnership, certain other persons and their "affiliates" (as defined in the ERISA Regulation)). The Publicly-Offered Security Exception applies if the equity interest is a security that is (1) "freely transferable" (determined based on the applicable facts and circumstances), (2) part of a class of securities that is "widely held" (meaning that the class of securities is owned by 100 or more investors independent of the issuer and of each other) and (3) either (a) part of a class of securities registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, or (b) sold to the Plan as part of a public offering pursuant to an effective registration statement under the Securities Act of 1933 and the class of which such security is a part is registered under the Securities Exchange Act of 1934 within 120 days (or such later time as may be allowed by the Securities and Exchange Commission) after the end of the fiscal year of the issuer in which the offering of such security occurred. Prior to the date of this Prospectus, the General Partner relied upon the Participation Exception to avoid having the underlying assets of the Fund be plan assets. As of the date of this Prospectus, the General Partner believes that the Publicly-Offered Security Exception will apply with respect to the Units and, accordingly, will rely upon such exception, instead of the Participation Exception, to avoid having the underlying assets of the Fund be plan assets. In the event that the number of investors holding Units who are independent of the Fund and of each other drops below 100, the Publicly-Offered Security Exception may no longer apply and, therefore, the General Partner intends, in such situation, to thereafter comply with the Participation Exception. In addition, if it is determined for any other reason that the Units do not qualify as publicly-offered securities under the ERISA Regulation, the General Partner intends to thereafter comply with the Participation Exception. Such Exception would require the General Partner to restrict the aggregate investment by benefit plan investors to under 25% of the total capital of each class of equity interests of the Fund (not including any investments of the General Partner, the Advisor, the Cash Manager and certain other persons). Furthermore, because the 25% test is ongoing, it not only restricts additional investment by benefit plan investors, but also can cause the General Partner to require that existing benefit plan investors withdraw from the Fund in the event that other investors withdraw. If rejection of subscriptions or such mandatory withdrawals are necessary, as determined by the General Partner, so that the assets of the Fund will not be plan assets, the General Partner will effect such rejections or withdrawals in such manner as the General Partner, in its sole discretion, determines. Ineligible Purchasers Units may not be purchased with the assets of a Plan if the General Partner, the Advisor, the Selling Agent, any Additional Selling Agents, the Futures Broker, the Cash Manager or any of their respective affiliates either: (a) has investment discretion with respect to the investment of such plan assets; (b) has authority or responsibility to give or regularly gives investment advice with respect to such plan assets, for a fee, and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such plan assets and that such advice will be based on the particular investment needs of the plan; or (c) is an employer maintaining or contributing to such Plan. ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF ANY PLAN IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR THE ADVISOR THAT AN INVESTMENT IN THE UNITS IS APPROPRIATE OR AUTHORIZED FOR SUCH PLAN. EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. -42- General Sidley & Austin has advised the General Partner on the offering of the Units. Sidley & Austin drafted "Tax Consequences." Sidley & Austin does not serve as counsel to the Fund or to the limited partners. The balance sheet of the General Partner as of June 30, 1998 and the financial statements of the Fund as of December 31, 1997 and for the period August 21, 1997 (inception) to December 31, 1997 included herein have been audited by Arthur F. Bell, Jr. & Associates, L.L.C. -43- Financial Statements Index to Financial Statements
Page ---- ProFutures Bull & Bear Fund, L.P. Independent Auditor's Report...........................................46 Statements of Financial Condition as of July 31, 1998 (Unaudited) and December 31, 1997 (Audited)......................................47 Statements of Operations for the Seven Months Ended July 31, 1998 (Unaudited) and For the Period August 21, 1997 (inception) to December 31, 1997 (Audited)..........................................48 Statements of Changes in Partners' Capital (Net Asset Value) For the Seven Months Ended July 31, 1998 (Unaudited) and For the Period August 21, 1997 (inception) to December 31,1997 (Audited)............................................................49 Notes to Financial Statements For the Seven Months Ended July 31, 1998 (Unaudited) and For the Period August 21, 1997 (inception) to December 31,1997 (Audited)............................50 ProFutures Inc. Independent Auditor's Report...........................................55 Balance Sheet as of June 30, 1998......................................56 Notes to Balance Sheet.................................................57
______________________ 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 notes thereto. _______________ -44- INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners ProFutures Bull & Bear Fund, L.P. We have audited the accompanying statement of financial condition of ProFutures Bull & Bear Fund, L.P. as of December 31, 1997, and the related statements of operations and changes in partners' capital (net asset value) for the period August 21, 1997 (inception) to December 31, 1997. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides 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 ProFutures Bull & Bear Fund, L.P. as of December 31, 1997, and the results of its operations and the changes in its net asset value for the period August 21, 1997 (inception) to December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. March 9, 1998 Lutherville, Maryland -45- PROFUTURES BULL & BEAR FUND, L.P. STATEMENTS OF FINANCIAL CONDITION JULY 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997 (AUDITED) - --------------------------------------------------------------------------------
July 31, December 31, 1998 1997 (Unaudited) (Audited) ----------- ------------ ASSETS Equity in broker trading account Cash $1,565,849 $ 585,732 Unrealized gain on open contracts 6,650 2,175 ---------- ---------- Deposits with broker 1,572,499 587,907 Cash and cash equivalents 6,036,905 2,275,163 Subscriptions receivable 383,237 69,694 ---------- ---------- Total assets $7,992,641 $2,932,764 ========== ========== LIABILITIES Accounts payable $ 18,871 $ 11,744 Commissions and other trading fees on open contracts 320 189 General Partner management fee 18,038 6,095 ---------- ---------- Total liabilities 37,229 18,028 ---------- ---------- PARTNERS' CAPITAL (Net Asset Value) General Partner - 61.4461 and 30.6159 units outstanding at July 31, 1998 and December 31, 1997 72,891 29,313 Limited Partners - 6,644.8448 and 3,013.6483 units outstanding at July 31, 1998 and December 31, 1997 7,882,521 2,885,423 ---------- ---------- Total partners' capital (Net Asset Value) 7,955,412 2,914,736 ---------- ---------- Total liabilities and partners' capital $7,992,641 $2,932,764 ========== ==========
See accompanying notes. Past performance is not necessarily indicative of future results. -46- PROFUTURES BULL & BEAR FUND, L.P. STATEMENTS OF OPERATIONS FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - --------------------------------------------------------------------------------
Seven Months Period Ended Ended July 31, December 31, 1998 1997 (Unaudited) (Audited) ----------- ------------ INCOME Trading gains (losses) Realized $789,454 $(116,342) Change in unrealized 4,475 2,175 -------- --------- Gain (loss) from trading 793,929 (114,167) Interest income 150,530 19,520 -------- --------- Total gain (loss) 944,459 (94,647) -------- --------- EXPENSES Brokerage commissions 2,946 564 General Partner management fee 81,845 9,826 Advisor incentive fee 171,310 0 Operating expenses 31,070 11,704 -------- --------- Total expenses 287,171 22,094 -------- --------- NET INCOME (LOSS) $657,288 $(116,741) ======== ========= NET INCOME (LOSS) PER UNIT (based on weighted average number of units outstanding during the period $ 164.50 $ (48.21) ======== ========= INCREASE (DECREASE) IN NET ASSET VALUE PER UNIT $ 228.81 $ (42.55) ======== =========
See accompanying notes. Past performance is not necessarily indicative of future results. -47- PROFUTURES BULL & BEAR FUND, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED)
- ---------------------------------------------------------------------------------------------------- Total Partners' Capital Number of ---------------------------------------- Units General Limited Total ----------- ------- ------- ----- Audited ------- Balances at August 21, 1997 (inception) 0.0000 $ 0 $ 0 $ 0 Additions 3,044.2642 30,198 3,001,279 3,031,477 Net (loss) for the period August 21, 1997 (inception) to December 31, 1997 (885) (115,856) (116,741) ---------- -------- ---------- ---------- Balances at December 31, 1997 3,044.2642 29,313 2,885,423 2,914,736 Unaudited --------- Net income for the seven months ended July 31, 1998 6,647 650,641 657,288 Additions 3,741.1284 36,931 4,436,951 4,473,882 Redemptions (79.1017) 0 (90,494) (90,494) ---------- -------- ---------- ---------- Balances at July 31, 1998 6,706.2909 $ 72,891 $7,882,521 $7,955,412 ========== ======== ========== ==========
Net Asset Value Per Unit --------------------------------- July 31, December 31, 1998 1997 ---- ---- $1,186.26 $957.45 ========= =======
See accompanying notes. Past performance is not necessarily indicative of future results. -48- PROFUTURES BULL & BEAR FUND, L.P. NOTES TO FINANCIAL STATEMENTS FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - -------------------------------------------------------------------------------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Description of the Fund ProFutures Bull & Bear Fund, L.P. (the "Fund") is a Delaware limited partnership which operates as a commodity investment pool. It is subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States (U.S.) government which regulates most aspects of the commodity futures industry, rules of the National Futures Association, an industry self-regulatory organization, and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Fund trades. The Fund was organized on August 21, 1997 and commenced trading on November 20, 1997. B. Method of Reporting The Fund's financial statements are presented in accordance with generally accepted accounting principles, which require the use of certain estimates made by the Fund's management. 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 the broker trading account. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. C. Cash and Cash Equivalents Cash and cash equivalents includes cash and short-term investments in fixed income securities. D. Brokerage Commissions Brokerage commissions include other trading fees and are charged to expense when contracts are opened. Past performance is not necessarily indicative of future results. -49- PROFUTURES BULL & BEAR FUND, L.P. NOTES TO FINANCIAL STATEMENTS (continued) FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - -------------------------------------------------------------------------------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Income Taxes The Fund prepares calendar year U.S. and state information tax returns and reports to the partners their allocable shares of the Fund's income, expenses and trading gains or losses. F. Organizational Charge The General Partner pays all organizational and offering costs of the Fund. As reimbursement for such costs, the General Partner (or the Distributor, ProFutures Financial Group, Inc., a broker/dealer affiliate of the General Partner) receives an organizational charge of 1% of the subscription amount of each subscriber to the Fund. Additions are reflected in the statement of changes in partners' capital (net asset value) net of such organizational charge totaling $44,739 for the seven months ended July 31, 1998 and $30,315 for the period August 21, 1997 (inception) to December 31, 1997. Note 2. GENERAL PARTNER The General Partner of the Fund is ProFutures, Inc., which conducts and manages the business of the Fund. The Limited Partnership Agreement requires the General Partner to maintain a capital account equal to at least 1% of the total capital of the Fund. The General Partner is paid a monthly management fee equal to 1/4 of 1% (3% annually) of month-end Net Assets (as defined in the Limited Partnership Agreement). Note 3. COMMODITY TRADING ADVISOR The Fund has an advisory contract with Hampton Investors, Inc. pursuant to which the Fund pays a quarterly incentive fee equal to 20% of New Trading Profits (as defined in the advisory contract). Past performance is not necessarily indicative of future results. -50- PROFUTURES BULL & BEAR FUND, L.P. NOTES TO FINANCIAL STATEMENTS (continued) FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - -------------------------------------------------------------------------------- Note 4. DEPOSITS WITH BROKER The Fund deposits funds with ING (U.S.) Securities, Futures & Options Inc. to act as broker subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such broker. The Fund earns interest income on its cash deposited with the broker. Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS Investments in the Fund are made by subscription agreement, subject to acceptance by the General Partner. The Fund is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of units owned, subject to restrictions in the Limited Partnership Agreement. Note 6. TRADING ACTIVITIES AND RELATED RISKS The Fund engages in the speculative trading of stock index futures contracts ("derivatives") on U.S. exchanges. The Fund 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 to the terms of a contract. Purchase and sale of futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker'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 total cash and other property deposited. The Fund has a substantial portion of its assets on deposit with financial institutions in connection with its cash management activities. In the event of a financial institution's insolvency, recovery of Fund assets on deposit may be limited to account insurance or other protection afforded such deposits. In the normal course of business, the Fund does not require collateral from such financial institutions. Past performance is not necessarily indicative of future results. -51- PROFUTURES BULL & BEAR FUND, L.P. NOTES TO FINANCIAL STATEMENTS (continued) FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - -------------------------------------------------------------------------------- Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Fund is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short. The fair value of derivatives represents unrealized gains and losses on open futures contracts. The average fair value of derivatives for the seven months ended July 31, 1998 and for the period November 20, 1997 (commencement of trading) to December 31, 1997 was approximately $140,000 and $30,000, respectively, and the related values at July 31, 1998 and December 31, 1997 were approximately $7,000 and $2,000, respectively. Net trading results from derivatives for the seven months ended July 31, 1998 and for the period August 21, 1997 (inception) to December 31, 1997 are reflected in the statement of operations and equal gain (loss) from trading less brokerage commissions. Such trading results reflect the net gain (loss) arising from the Fund's speculative trading of futures contracts. At July 31, 1998 and December 31, 1997, the notional amount of open contracts to purchase totaled approximately $0 and $5,600,000, respectively, and the notional amount of open contracts to sell totaled approximately $18,800,000 and $0, respectively. These amounts do not represent the Fund's risk of loss due to market and credit risk, but rather represent the Fund's extent of involvement in derivatives at the date of the statement of financial condition. The General Partner has established procedures to actively monitor and minimize market and credit risk. 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 7. SUBSEQUENT EVENTS The General Partner of the Fund commenced procedures to register the Fund's units with the Securities and Exchange Commission under the Securities Act of 1933. The General Partner anticipates filing an initial Registration Statement on Form S-1 in September 1998. In connection with this registration, the General Partner anticipates amending and restating the Limited Partnership Agreement. Past performance is not necessarily indicative of future results. -52- PROFUTURES BULL & BEAR FUND, L.P. NOTES TO FINANCIAL STATEMENTS (continued) FOR THE SEVEN MONTHS ENDED JULY 31, 1998 (UNAUDITED) AND FOR THE PERIOD AUGUST 21, 1997 (INCEPTION) TO DECEMBER 31, 1997 (AUDITED) - -------------------------------------------------------------------------------- Note 8. INTERIM FINANCIAL STATEMENTS The statement of financial condition as of July 31, 1998 and the statements of operations and changes in partners' capital (net asset value) for the seven months ended July 31, 1998 are unaudited. In the opinion of management, such financial statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of July 31, 1998 and the results of operations for the seven months ended July 31, 1998. Past performance is not necessarily indicative of future results. -53- INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Stockholders and Board of Directors ProFutures, Inc. We have audited the accompanying balance sheet of ProFutures, Inc. as of June 30, 1998. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of ProFutures, Inc. as of June 30, 1998, in conformity with generally accepted accounting principles. ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. Lutherville, Maryland August 21, 1998 -54- PROFUTURES, INC. BALANCE SHEET June 30, 1998 ---------
ASSETS Cash and cash equivalents $420,231 Management fees receivable 237,248 General partner interests in commodity pools 308,679 Other assets 8,574 -------- 974,732 -------- Fixed Assets Furniture and fixtures 13,866 Office equipment 122,124 Leasehold improvements 1,900 -------- 137,890 Less: Accumulated depreciation 128,906 -------- 8,984 -------- Total assets $983,716 ======== LIABILITIES Accounts payable $ 14,952 Franchise tax payable 17,530 -------- Total liabilities 32,482 -------- STOCKHOLDERS' EQUITY Common stock - no par value; 1,000,000 shares authorized; 5,251 shares issued and outstanding 1,000 Retained earnings 950,234 -------- Total stockholders' equity 951,234 -------- Total liabilities and stockholders' equity $983,716 ========
See accompanying notes. PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -55- PROFUTURES, INC. NOTES TO BALANCE SHEET ------------------ Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General ProFutures, Inc. (the "Company") is a Texas corporation, organized on December 3, 1984, which specializes in speculative managed futures accounts. The Company is a Commodity Trading Advisor, Commodity Pool Operator and a Guaranteed Introducing Broker registered with and subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States government which regulates most aspects of the commodity futures industry. It is also a member of and subject to the rules of the National Futures Association, an industry self-regulatory organization. B. Method of Accounting The balance sheet is presented in accordance with generally accepted accounting principles. The preparation of the balance sheet in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates, and such differences may be material to the financial statement. C. Cash and Cash Equivalents Cash and cash equivalents consist of cash and a money market mutual fund account. D. Management Fees Management fees are accrued based on the terms of the related agreements. E. General Partner Interests in Commodity Pools The Company is the general partner or co-general partner of several commodity pools formed as limited partnerships, collectively referred to as partnerships. The Company's investments in partnerships are carried at its share of the underlying equity in the net asset value of the limited partnerships. The partnerships carry their assets and liabilities at fair value as required by generally accepted accounting principles for such entities. As a general partner, the Company has a fiduciary responsibility to the limited partnerships and potential liability beyond amounts recognized as an asset in the balance sheet. PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -56- PROFUTURES, INC. NOTES TO BALANCE SHEET (CONTINUED) ------------------ Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Fixed Assets Fixed assets are stated at cost. Depreciation and amortization is provided for using straight-line and accelerated methods with lives that range from 5 to 31 years. G. Income Taxes The Company has elected "S" corporation status under the Internal Revenue Code, pursuant to which the Company does not pay U.S. corporate income tax on its taxable income. Instead, the stockholders are liable for individual income tax on the Company's taxable income. However, the Company is liable for Texas Franchise tax, which has been reflected in the balance sheet. Note 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS ProFutures, Inc. is a general partner and commodity pool operator of ATA Research/ProFutures Diversified Fund, L.P., Alternative Asset Growth Fund, L.P. and ProFutures Bull & Bear Fund, L.P., collectively referred to as partnerships. Summarized activity for the Company's investments in partnerships is as follows:
ATA Research/ Alternative ProFutures ProFutures Diversified Asset Growth Bull & Bear Fund, L.P. Fund, L.P. Fund, L.P. ----------------------- ------------- ----------- Net asset value at December 31, 1997 $131,712 $119,749 $29,313 Additions 0 0 37,158 Net income (loss) for the six months ended June 30, 1998 (9,790) (7,570) 8,107 -------- -------- ------- Net asset value at June 30, 1998 $121,922 $112,179 $74,578 ======== ======== =======
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -57- PROFUTURES, INC. NOTES TO BALANCE SHEET (CONTINUED) ------------------ Note 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS (CONTINUED) Summarized financial information with respect to partnerships as of and for the six months ended June 30, 1998 is as follows:
ATA Research/ Alternative ProFutures ProFutures Diversified Asset Growth Bull & Bear Fund, L.P. Fund, L.P. Fund, L.P. ---------------------- ------------ ----------- Balance Sheet Data Assets $78,935,514 $15,423,257 $7,403,045 Liabilities (2,189,548) (776,391) (39,154) ----------- ----------- ---------- Net Asset Value $76,745,966 $14,646,866 $7,363,891 =========== =========== ========== Operating Data Total income (loss) $(1,145,101) $ 194,655 $1,088,962 Total expenses 5,266,614 1,217,047 265,123 ----------- ----------- ---------- Net income (loss) $(6,411,715) $(1,022,392) $ 823,839 =========== =========== ==========
For managing the businesses of the partnerships, the Company earns management fees and administrative fees based on the terms of the respective limited partnership agreements. June 30, 1998 management fees receivable represent management fees owed by the partnerships for the month of June, 1998. The agreements of limited partnership of ATA Research/ProFutures Diversified Fund, L.P. and Alternative Asset Growth Fund, L.P. requires the Company to maintain in the aggregate a net worth not less than the sum of (i) the lesser of $250,000 or 15% of the aggregate capital contributions of any limited partnership for which it acts as a general partner or co-general partner if such contributions are equal to or less than $2,500,000; and (ii) 10% of the aggregate capital contributions of any limited partnership for which it shall act as a general partner or co-general partner if such contributions exceed $2,500,000. The agreements of limited partnership also require the Company to maintain minimum investments in the partnerships. PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -58- PROFUTURES, INC. NOTES TO BALANCE SHEET (CONTINUED) ------------------ Note 3. CALLABLE SUBSCRIPTIONS TO COMMON STOCK ProFutures, Inc. has callable subscription agreements with Internationale Nederlanden (U.S.) Securities, Futures & Options Inc. (ING), whereby ING agrees to purchase or subscribe, up to $19,000,090, for the number of shares of common stock of ProFutures, Inc. necessary to maintain the general partner net worth requirements described in Note 2. Note 4. RELATED PARTIES The Company is one of a group of corporations that are commonly controlled. The Company shares facilities and other resources with these corporations, which are related through common ownership and management. A portion of the costs for these shared facilities and other resources are paid for by the Company and allocated to such affiliated entities. Note 5. TRADING ACTIVITIES AND RELATED RISKS The partnerships for which the Company is either the sole general partner or co-general partner engage in the speculative trading of U.S. and foreign futures contracts and options on U.S. and foreign futures contracts (collectively, "derivatives"). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The partnerships are 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 to the terms of a contract. Theoretically, the partnerships and the Company, as a general partner, are exposed to a market risk equal to the notional value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the partnerships pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the partnerships and the Company, as a general partner, to potentially unlimited liability, and purchased options expose the partnerships to a risk of loss limited to the premiums paid. The average fair value of derivatives held by the partnerships during the six months ended June 30, 1998 was approximately $1,240,000, and the fair value as of June 30, 1998 is approximately $1,245,000. The fair value of derivatives represents unrealized gains and losses on open futures contracts and long and short options at market value. At June 30, 1998, the notional amount of the partnerships' open contracts is as follows:
Contracts to Contracts to Purchase Sell ------------ ------------ Derivatives (excluding purchased options) $914,000,000 $673,150,000 Purchased options 15,200,000 8,500,000
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -59- PROFUTURES, INC. NOTES TO BALANCE SHEET (CONTINUED) ------------------ Note 5. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) The above amounts do not represent the partnerships' risk of loss due to market and credit risk, but rather represent the partnerships' extent of involvement in derivatives at the date of the balance sheet. The Company, as general partner or co-general partner, has established procedures to actively monitor and minimize market and credit risks. Note 6. LEASE COMMITMENT The Company leases space in an office building in Austin, Texas under a lease expiring November 30, 1998. The Company has the right to terminate the lease after November 30, 1996 by giving 120 days' notice to the lessor. PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS COMPANY. -60- EXHIBIT A PROFUTURES BULL & BEAR FUND L.P. FORM OF SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT Dated as of ______, 1998 PROFUTURES, INC. GENERAL PARTNER PROFUTURES BULL & BEAR FUND L.P. FORM OF SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT TABLE OF CONTENTS
Page ------ 1. Continuation and Name................................................ LPA-1 2. Principal Office..................................................... LPA-1 3. Business............................................................. LPA-1 4. Term, Fiscal Year and Net Assets..................................... LPA-1 (a) Term....................................................... LPA-1 (b) Fiscal Year................................................ LPA-1 (c) Net Assets................................................. LPA-2 5. Net Worth of General Partner......................................... LPA-2 6. Capital Contributions................................................ LPA-2 7. Allocation of Profits and Losses..................................... LPA-3 (a) Capital Accounts........................................... LPA-3 (b) Allocations; Valuation Dates............................... LPA-3 (c) Allocation of Profit and Loss for Federal Income Tax Purposes........................................ LPA-3 (d) Expenses................................................... LPA-5 (e) Limited Liability of Limited Partners...................... LPA-6 8. Management of the Fund............................................... LPA-6 (a) General.................................................... LPA-6 (b) Fiduciary Duties........................................... LPA-7 (c) Brokerage Arrangements..................................... LPA-7 (d) Loans; Investments......................................... LPA-7 (e) Certain Conflicts of Interest Prohibited................... LPA-7 (f) Certain Agreements......................................... LPA-7 (g) No "Pyramiding"............................................ LPA-7 (h) Other Activities........................................... LPA-7 9. Audits and Reports................................................... LPA-8 10. Assigning Units...................................................... LPA-9 11. Redeeming Units...................................................... LPA-9 12. Offering of Units....................................................LPA-10 13. Power of Attorney....................................................LPA-10 14. Withdrawal of a Partner..............................................LPA-11 15. Standard of Liability; Indemnification...............................LPA-11 (a) Standard of Liability for the General Partner..............LPA-11 (b) Indemnification of the General Partner by the Fund.........LPA-11 (c) Indemnification of the Fund by the Partners................LPA-12 16. Amendments; Meetings.................................................LPA-12 (a) Amendments with Consent of the General Partner.............LPA-12 (b) Amendments and Actions without Consent of the General Partner....................................................LPA-13 (c) Meetings; Other Voting Matters.............................LPA-13 17. Benefit Plan Investors...............................................LPA-14 18. GOVERNING LAW........................................................LPA-14 19. Miscellaneous........................................................LPA-15 (a) Notices....................................................LPA-15 (b) Binding Effect.............................................LPA-15 (c) Captions...................................................LPA-15 (d) Close of Business..........................................LPA-15
------------------------------------ PROFUTURES, INC. General Partner LPA-(i) PROFUTURES BULL & BEAR FUND, L.P. SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT This Second Amended and Restated Limited Partnership Agreement (this "Agreement") is made as of _________, 1998, by and among ProFutures, Inc., a Texas corporation, as general partner (the "General Partner"), and each other party who shall execute a counterpart of this Limited Partnership Agreement as a limited partner or who becomes a party to this agreement as a limited partner by execution of a Subscription Agreement and Power of Attorney or other instrument or otherwise and who is shown on the books and records of the Partnership as a limited partner (individually, a "Limited Partner" and collectively, "Limited Partners") (the General Partner and Limited Partners are collectively referred to herein as "Partners"). WITNESSETH: 1. Continuation and Name. The parties hereby form and continue ProFutures Bull & Bear Fund, L.P. (the "Fund") under the Delaware Revised Uniform Limited Partnership Act (the "Act"). This Agreement amends and restates all previous Limited Partnership Agreements of the Fund. 2. Principal Office. The principal office of the Fund is c/o the General Partner, 11612 Bee Cave Road, Suite 100, Austin, Texas 78733. The registered office and agent for service of process in the State of Delaware is c/o Corporation Service Company, 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. 3. Business. The Fund's business and purpose is to trade, buy, sell or otherwise acquire, hold or dispose of futures contracts on commodities, financial instruments and currencies, spot and forward currency contracts, commodities and options on any of the foregoing, and to engage in all activities incidental thereto on domestic and foreign exchanges and/or through over-the-counter markets. The objective of the Fund's business is appreciation of its assets through speculative trading. The Fund may engage in such business directly or through partnerships, joint ventures or similar arrangements. 4. Term, Fiscal Year and Net Assets. (a) Term. The Fund began on August 21, 1997 and will dissolve on the earlier of: (1) December 31, 2035; (2) receipt by the General Partner of 90 days' notice to dissolve from Limited Partners owning more than 50% of the outstanding Units; (3) withdrawal, insolvency or dissolution of the General Partner, or any other event that causes the General Partner to cease to be a general partner of the Fund unless (i) at the time of such event there is at least one remaining general partner of the Fund who carries on the business of the Fund, or (ii) within 90 days after such event all Limited Partners agree in writing to continue the business of the Fund and to the appointment, effective as of the date of such event, of one or more general partners of the Fund; (4) dissolution of the Fund as otherwise provided in this Agreement; or (5) any other event requiring dissolution. Upon dissolution of the Fund, the General Partner, or another person approved by a majority of the Units, shall act as liquidator trustee. (b) Fiscal Year. January 1 through December 31. LPA-1 (c) Net Assets. The "Net Assets" of the Fund are its assets less its liabilities, determined in accordance with Generally Accepted Accounting Principles, including any unrealized profits and losses on its open positions. More specifically, the Net Asset Value of the Fund equals the sum of all cash, the liquidating value (or cost of liquidation, as the case may be) of all futures and options on futures positions and the fair market value of all other assets of the Fund, less all liabilities of the Fund (including accrued liabilities, irrespective of whether such liabilities -- for example, incentive fees -- may in fact never be paid), in each case as determined by the General Partner generally in accordance with Generally Accepted Accounting Principles. The General Partner's interest in the Fund shall be represented by Units of General Partnership Interest. Interests in the Fund, other than the Units of General Partnership Interest of the General Partner, shall be Units of Limited Partnership Interest ("Units" or, indi vidually, a "Unit"). The "Net Asset Value per Unit" shall mean the Net Assets divided by the number of Units outstanding. The Fund may issue an unlimited number of Units of Limited Partnership Interest at the Net Asset Value per Unit. 5. Net Worth of General Partner. The General Partner agrees that it will maintain a net worth of not less than the greater of $50,000 or at least 5% of the total contributions to the Fund and all other partnerships of which the General Partner is general partner. For these purposes, Net Worth shall be calculated in accordance with generally accepted accounting principles, consistently applied, with all current assets valued at then current fair market values, and may include promissory notes or stock subscriptions issued to the General Partner by its affiliates or other persons, including the Fund's commodity broker and shall exclude any interest held by the General Partner in the Fund or any other limited partnership. In no event shall the General Partner be required to maintain a net worth in excess of the greater of: (i) $1,000,000 or (ii) the amount by which the General Partner is advised by counsel is necessary or advisable to ensure that the Fund is taxed as a partnership for federal income tax purposes. This net worth agreement may be modified if counsel opines that such change will not adversely affect the partnership taxation of the Fund, and if such change meets applicable state securities laws or guidelines. 6. Capital Contributions. The General Partner and/or its principals and affiliates shall make contributions to the capital of the Fund in amounts which equal at least 1% of the aggregate capital contributions to the Fund (including the General Partner's contribution). The General Partner and/or its principals and affiliates shall not reduce by withdrawal the aggregate interest in the capital of the Fund to less than a 1% interest in the capital, income and losses of the Fund from time to time. The General Partner and/or its principals and affiliates may withdraw any portion of its interest in the Fund which is in excess of its required interest described above. The Partners' contributions to the capital of the Fund shall be as shown in the books and records of the Fund. The General Partner may on behalf of the Fund admit additional Limited Partners to the Fund in compliance with applicable law and may issue and sell Units to them. After the admission of each new Partner, the General Partner's (and its principals and affiliates) interest in the capital, income and losses of the Fund shall always be at least 1%. The General Partner is authorized to take such action and make such arrangements for the issue and sale of such Units, if any, as it deems appropriate. All Units subscribed for upon receipt of a check or draft of the subscriber are issued subject to the collection of the funds represented by such check or draft. In the event a check or draft of a subscriber for Units representing payment for Units is returned unpaid, the Fund shall cancel the Units issued to such subscriber represented by such returned check or draft. Any losses or profits sustained by the Fund in connection with the Fund's commodity trading allocable to such canceled Units shall be deemed an increase or decrease in Net Assets and allocated among the remaining Partners as described in Section 7. The Fund may require a Partner to reimburse the Fund for any expense or loss (including any trading loss) incurred in connection with the issuance and cancellation of any such Limited Partnership Interests issued to him. LPA-2 The Partners' respective capital contributions shall be as shown on the books and records of the Fund. 7. Allocation of Profits and Losses. (a) Capital Accounts. A capital account shall be established for each Partner. The initial balance of each capital account shall be the amount initially contributed to the Fund with respect to Units allocated to that account, net of organizational or other similar charges. For purposes of this Section, the general partnership interest of the General Partner shall be treated on a Unit-equivalent basis. (b) Allocations; Valuation Dates. As of the close of business (as determined by the General Partner) on the last day of each month and on each redemption date (including any Special Redemption Date), the following determinations and allocations shall be made. (1) The Net Assets of the Fund shall be determined. (2) Any increase or decrease in the Net Assets of the Fund as compared to the last such determination of Net Assets shall be credited or charged to the capital accounts of each Partner in the ratio that the balance of each account bears to the balance of all accounts. (3) The amount of any distribution to a Partner, any amount paid upon redemption of Units and any amount paid to the General Partner on withdrawal of its interest in the Fund shall be charged to the Partner's capital account. (4) The Net Asset Value of a Unit shall be determined. (c) Allocation of Profit and Loss for Federal Income Tax Purposes. As of the end of each fiscal year, the Fund's profit or loss shall be allocated among the Partners for federal income tax purposes pursuant to the following subparagraphs. If the allocations contained herein were determined to lack "substantial economic effect," each Limited Partner's distributive share of items of Fund income, gain, loss, deduction or credit shall be determined in accordance with such Partner's interest in the Fund (taking into account all the facts and circumstances). (1) Items of operating income, including, without limitation, interest and items of operating expense, including, if applicable, legal, accounting and administrative expenses shall be allocated to each Partner by allocating such items which accrued during each month among the persons who were Partners during such month in the ratio that each such Partner's capital account bears to all such Partners' capital accounts at the end of such month. (2) Net realized capital gain or loss and any net gain or loss from Section 988 of the Internal Revenue Code of 1986, as amended (the "Code"), transactions associated with the Fund's trading activities shall be allocated in the following manner: (aa) For the purpose of allocating the Fund's net realized capital gain or loss and any net gain or loss from Code Section 988 among the Partners, there shall be established a tax allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid to the Fund for the Units (net of any organization and offering charges). Allocation accounts shall be adjusted as of the end of each fiscal year as follows. (i) Each allocation account shall be increased by the amount of income allocated to the holder of the Unit with respect to the Unit pursuant to subparagraph (c)(1) above and subparagraphs (bb) and (cc) below. LPA-3 (ii) Each allocation account shall be decreased by the amount of expense or loss allocated to the holder of the Unit with respect to the Unit pursuant to subparagraphs (c)(1) above and subparagraphs (dd) and (ee) below and by the amount of any distribution the holder of the Unit has received with respect to the Unit (other than on redemption of the Unit). (iii) When a Unit is redeemed, the allocation account with respect to such Unit shall be eliminated. (bb) Net realized capital gain shall be allocated first to each Partner who has redeemed a Unit during the fiscal year up to the excess, if any, of the amount received upon redemption of the Unit over the allocation account attributable to the redeemed Unit. If the gain to be so allocated to all Partners who have redeemed Units during a fiscal year is less than the excess of all such amounts received upon redemption over all such allocation accounts, the entire capital gain for such fiscal year shall be allocated among all such Partners in the ratio that each such Partner's excess bears to the aggregate excess of all such Partners who redeemed Units during such fiscal year. (cc) Net realized capital gain remaining after the allocation thereof pursuant to subparagraph (bb) shall be allocated next among all Partners whose capital accounts are in excess of the Units' tax allocation accounts (after the adjustments in subsection (bb)) in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that gain to be allocated pursuant to this subsection (cc) is greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (dd) Net realized capital loss shall be allocated first to each Partner who has redeemed a Unit during the fiscal year up to the excess, if any, of the allocation account attributable to the redeemed Unit over the amount received upon redemption of the Unit. If the loss to be so allocated to all Partners who have redeemed Units during a fiscal year is less than the excess of all such allocation accounts over all such amounts received upon redemption, the entire capital loss for such fiscal year shall be allocated among all such Partners in the ratio that each such Partner's excess bears to the aggregate excess of all such Partners who redeemed Units during such fiscal year. (ee) Net realized capital loss remaining after the allocation thereof pursuant to subsection (dd) shall be allocated next among all Partners whose tax allocation accounts (after the adjustments in subsection (dd)) are in excess of their capital accounts in the ratio that each such Partner's excess bears to all such Partners' excesses. In the event that loss to be allocated pursuant to this subsection (ee) is greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss will be allocated among all Partners in the ratio that each Partner's capital account bears to all Partners' capital accounts. (ff) In the event that Units have been assigned with the consent of the General Partner, the allocations prescribed by this Section 7(c) shall be made with respect to such Units without regard to the assignment except that in the year of assignment the allocations prescribed by Section 7(c)(1) shall be divided between the assignor and the assignee based on the number of whole months each held the assigned Units. For purposes of this Section 7(c), tax allocations shall be made to the General Partner's general partnership interest on a Unit-equivalent basis. (gg) The allocations of profit and loss to the Partners in respect of the Units shall not exceed the allocations permitted under Subchapter K of the Code, as determined by the General Partner, whose determination shall be binding. The purpose of the foregoing allocations is to LPA-4 allocate taxable income so as nearly as possible to have Limited Partners' tax basis accounts equal to their capital accounts as provided by the Code, including without limitation a "Qualified Income Offset." (3) For the purposes of this Section 7(c), net realized capital gain or loss shall include any gain or loss required to be taken into account under Section 1256 of the Code. (d) Expenses. Operating, administration and all other expenses and liabilities of the Fund shall be paid by the Fund. The General Partner shall be reimbursed for any such expenses incurred on behalf of the Fund. The Fund shall pay any extraordinary charges (such as taxes) incidental to its trading or otherwise. The General Partner shall be entitled to charge Limited Partners upon admission to the Fund an organizational charge of 1% of Net Asset Value to reimburse the General Partner or an affiliate thereof for any and all costs and expenses paid by it which are related to the organization of the Fund, as well as the initial and any future offering of Units. Such organizational and offering expenses shall include all expenses incurred by the Fund in connection with and in preparing the Fund's Units for registration or exemption therefrom, and subsequently offering and distributing its Units to investors, on a public or private basis including, but not limited to, expenses for printing, engraving, mailing, charges of transfer agents, registrars, trustees, escrow holders, depositories, experts, expenses of qualification of the sale of its Units under federal and state law, including taxes and fees, accountants' and attorneys' fees. The Fund shall pay to the General Partner a management fee equal to 1/4 of 1% of month-end Net Assets (3% annually). Net Assets for this purpose are calculated after brokerage commissions, operating and administrative expenses and incentive fees paid or accrued as of such month-end. The management fee shall be accrued as required herein and paid as soon as practicable, but no later than the end of the month following the month in which the fee accrued. The management fee will be pro-rated for partial periods and any interim capital contributions and capital withdrawals. The Fund shall pay all routine charges incidental to trading (including, without limitation, brokerage commissions, exchange, clearinghouse, regulatory, floor brokerage and "give-up" fees) and any extraordinary charges incidental to trading (for example insurance or delivery charges). The General Partner shall be reimbursed promptly for any operating, administration and other expenses and liabilities incurred on behalf of the Fund. None of the General Partner's "overhead" expenses (including, but not limited to, salaries, rent and travel expenses) may be charged to the Fund; provided, however, that the General Partner may be reimbursed for time and expenses of internal counsel, if any, incurred in connection with legal and compliance matters for the Fund, as well as time and expenses for accounting services provided by the General Partner or an Affiliate thereof for the Fund, all at such reasonable rates determined by the General Partner. The General Partner pays the costs of the continuous offering of the Units. The General Partner pays the selling commissions (if any) and ongoing compensation due on the Units. Any goods and services provided to the Fund by the General Partner shall be provided at rates and terms at least as favorable as those which may be obtained from third parties in arm's-length negotiations. All of the expenses which are for the Fund's account shall be billed directly to the Fund. The Fund will pay any taxes applicable to it and any charges incidental to its trading. The General Partner will reimburse the Fund, on an annual basis, to the extent that the Fund's brokerage commissions have exceeded 14% of the Fund's average month-end Net Assets during the preceding year. The General Partner shall reimburse the Fund for any fees paid by the Fund to any trading advisor during any fiscal year, to the extent that such fees exceed the percentage limitation on annual management fees and quarterly incentive fees contemplated by the North American Securities Administrators Association, Inc. Guidelines LPA-5 for the Registration of Commodity Pool Programs (the "NASAA Guidelines") during such year. Any such reimbursement shall be made on a present value basis, fully compensating the Fund for having made payments at any time during the year which would not otherwise have been due from it. The General Partner shall disclose any such reimbursement in the Annual Report delivered to Limited Partners. No compensation paid by the Fund to any party may be increased without prior written notice to Limited Partners within sufficient time for them to redeem prior to such increase becoming effective. Such notification shall contain a description of Limited Partners' voting and redemption rights as well as a description of any material effect of such increase. (e) Limited Liability of Limited Partners. Each Unit, when purchased in accordance with this Agreement, shall be fully-paid and nonassessable, except as otherwise provided by law. Any provisions of this Limited Partnership Agreement to the contrary notwithstanding, no Limited Partner shall be liable for Fund obligations in excess of the capital contributed by him, plus his share of undistributed profits and assets (including his obligation, as required by law, under certain circumstances to return to the Fund distributions and returns of contributions). 8. Management of the Fund. (a) General. The General Partner shall manage the business of the Fund. The General Partner shall determine what distributions, if any, shall be made to the Partners. The General Partner may take such actions relating to the business of the Fund as the General Partner deems necessary or advisable and which are consistent with the terms of this Agreement. In addition to any specific contract or agreements described herein, the Fund, and the General Partner on behalf of the Fund, may enter into any other contracts or agreements specifically described in or contemplated by the prospectus for the Units current at the time the General Partner entered into such contract (the "Prospectus") without any further act, approval or vote of any Partner other than the General Partner, notwithstanding any other provisions of this Agreement, the Act or any applicable law, rule or regulations. The General Partner is specifically authorized, without limitation, by each Limited Partner to enter into the cash management arrangements described under "Use of Proceeds, Interest Income Arrangements" in the Prospectus. The General Partner is hereby specifically authorized to enter into, deliver and perform on behalf of the Fund, the business arrangements referred to in the Prospectus. The General Partner may engage such persons as the General Partner in its sole judgment shall deem advisable for operating the business of the Fund; provided, that no such arrangement shall allow brokerage commissions above those described in the Prospectus or permitted under applicable NASAA Guidelines in effect as of the date of the Prospectus, whichever is higher. Any material change in the Fund's basic investment policies or structure requires the approval of a majority of the Units. The General Partner is the "tax matters partner" of the Fund. LPA-6 The General Partner has authority to cause the Fund to take such actions as it may deem appropriate, subject to the fiduciary obligations and other restrictions applicable to the General Partner as general partner of the Fund. (b) Fiduciary Duties. The General Partner shall be under a fiduciary duty to conduct the affairs of the Fund in the best interests of the Fund, provided that the General Partner shall not be obligated to engage in any conduct on behalf of the Fund to the detriment of any other commodity pool to which the General Partner owes similar fiduciary duties. The Limited Partners will under no circumstances be deemed to have contracted away the fiduciary obligations owed to them by the General Partner under the common law. The General Partner's fiduciary duty includes, among other things, the safekeeping of all Fund assets and the use thereof for the benefit of the Fund. The General Partner shall at all times act with integrity and good faith and exercise due diligence in all activities relating to the conduct of the business of the Fund and in resolving conflicts of interest. The General Partner will take no actions with respect to the property of the Fund which do not benefit the Fund. (c) Brokerage Arrangements. The Fund's brokerage arrangements shall be non-exclusive, and the brokerage commissions paid by the Fund shall be competitive. The Fund shall seek the best price and services available for its commodity transactions. The brokerage fees paid by the Fund may not exceed the amount permitted under applicable NASAA Guidelines in effect as of the date hereof. (d) Loans; Investments. The Fund shall not make loans, and the funds of the Fund will not be commingled with the funds of any other person or entity (deposit of funds with a commodity or securities broker or clearinghouse or entering into joint ventures or partnerships shall not be deemed to constitute "commingling" for these purposes). (e) Certain Conflicts of Interest Prohibited. No person or entity may receive, directly or indirectly, any advisory fees or incentive fees from entities in which the Fund participates, for investment advice or management who shares or participates in any commodity brokerage commissions paid by the Fund; and no broker may pay, directly or indirectly, rebates or give-ups to any trading advisor, the General Partner or any of their respective affiliates. Such prohibitions may not be circumvented by any reciprocal business arrangements. No trading advisor for the Fund shall be affiliated with the Fund's commodity broker, the General Partner or any of their affiliates. (f) Certain Agreements. Any agreements between the Fund and the General Partner or any affiliate of the General Partner shall be terminable by the Fund on no more than 60 days' written notice. All trading advisors used by the Fund must satisfy the experience requirements of the NASAA Guidelines. The maximum period covered by any contract entered into by the Fund, except for the various provisions of the Selling Agreement which survive the final closing of the sale of the Units, shall not exceed one year. (g) No "Pyramiding." The Fund is prohibited from "pyramiding." (h) Other Activities. The General Partner engages in other business activities and shall not be required to refrain from any such activities, whether or not in competition with the Fund. Neither the Fund nor any of LPA-7 the Partners shall have any rights in such activities. Limited Partners may similarly engage in any such other business activities. The General Partner shall devote to the Fund such time as the General Partner deems advisable to conduct the Fund's business. 9. Audits and Reports. The Fund's books shall be audited annually by an independent certified public accountant. The Fund will use its best efforts to cause each Limited Partner to receive (i) within 90 days after the close of each fiscal year certified financial statements of the Fund for the fiscal year then ended, (ii) in no event later than March 15 of each year all tax information relating to the prior fiscal year necessary to complete his federal income tax return and (iii) such other information as the CFTC may by regulation require. The General Partner shall include in the annual financial statements sent to Limited Partners an estimate of the brokerage rate paid by the Fund during the preceding year as a percentage of average Net Assets. The Fund will seek the best price and services available on its commodity brokerage transactions and will, with the assistance of the Fund's commodity broker, make an annual review of the Fund's commodity brokerage arrangements. In connection with such review, the General Partner will determine, to the extent practicable, the commodity brokerage rates charged to other major commodity pools whose trading and operations are, in the opinion of the General Partner, comparable to those of the Fund, in order to assess whether the rates charged to the Fund are reasonable in light of the services it receives. If, as a result of such review, the General Partner determines that such rates are not so reasonable, the General Partner will notify the Limited Partners, describing the rates charged to the Fund and several funds which are, in the General Partner's opinion, comparable to the Fund. Limited Partners or their duly authorized representatives may inspect the Fund's books and records, for any purpose reasonably related to their status as Limited Partners in the Fund, during normal business hours upon reasonable written notice to the General Partner. They may also obtain copies of such records upon payment of reasonable reproduction costs; provided, however, that such Limited Partners shall represent that the inspection and/or copies of such records will not be for commercial purposes unrelated to such Limited Partners' interest in the Fund. The General Partner shall calculate the Net Asset Value per Unit on a daily basis and furnish such information upon request to any Limited Partner. The General Partner will send written notice to each Limited Partner within seven days of (i) any decline in the Fund's Net Asset Value per Unit to 50% or less of such Net Asset Value as of the previous month-end, (ii) any material change in its agreement with the Advisor or any modification in connection with the method of calculating the incentive fee due to the Advisor or (iii) any material change affecting the compensation of any party. Any such notice shall contain a description of Limited Partners' voting rights. The General Partner shall maintain and preserve all Fund records for a period of not less than 6 years. In particular, and not by way of limitation, the General Partner will retain all Subscription Agreement and Power of Attorney Signature Pages submitted by persons admitted as Limited Partners, and all other records necessary to substantiate that Units are sold only to purchasers for whom the Units are a suitable investment, for at least six (6) years after Units are sold to such persons. LPA-8 10. Assigning Units. Each Limited Partner agrees that he will not assign, transfer or otherwise dispose of any interest in his Units in violation of any applicable federal or state securities laws or without giving written notice to the General Partner. No assignment, transfer or disposition of Units shall be effective against the Fund or the General Partner until the first day of the month following the month in which the General Partner receives such notice. The General Partner may, in its sole discretion, waive any such notice. No assignee, except with the consent of the General Partner, may become a substituted Limited Partner. The General Partner intends to so consent, provided that the General Partner and the Fund receive an opinion of counsel to the General Partner that such admission will not adversely affect the tax classification of the Fund as a partnership. If the General Partner withholds consent, an assignee shall not become a substituted Limited Partner, and shall not have any of the rights of a Limited Partner, except that the assignee shall be entitled to receive that share of capital and profits and shall have that right of redemption to which his assignor would otherwise have been entitled. Each Limited Partner agrees that with the consent of the General Partner any assignee may become a substituted Limited Partner without the consent of any Limited Partner. If the General Partner withholds consent, an assignee shall not become a substituted Limited Partner, and shall not have any of the rights of a Limited Partner, except that the assignee shall be entitled to receive that share of capital and profits and shall have that right of redemption to which his or her assignor would otherwise have been entitled. The General Partner will send written confirmation to both the transferors and transferees of Units that the transfers in question have been duly recorded on the Fund's books and records. 11. Redeeming Units. Units may be redeemed as of the close of business (as determined by the General Partner) in Austin, Texas on the last day of any month, provided that (i) all liabilities, contingent or otherwise, of the Fund have been paid or there remains property of the Fund sufficient to pay them and (ii) the Fund has received written notice of redemption at least ten (10) days before the last day of such month, or such lesser period as shall be acceptable to the General Partner. Any number of whole Units may be redeemed. Fractional Units may only be redeemed upon redemption of a Limited Partner's entire interest in the Fund. Redemption requests must be in writing, unless the General Partner determines otherwise. In the event that the Net Assets of the Fund has, as of the close of business on any business day, declined to a level equal to less than fifty percent (50%) of the Net Assets of the Fund at the end of the preceding month (adjusted for contributions, redemptions and distributions), the General Partner shall so notify the Limited Partners within seven (7) business days thereafter and shall suspend new trading and liquidate all positions as promptly as practicable. The General Partner, in its notification, will set a date ten (10) business days after the notice date as of which Limited Partners may redeem their Units. The General Partner shall mail notice of such date to each Limited Partner and assignee of Units of whom it has received written notice, by first class mail, postage prepaid, together with instructions as to the procedure such Limited Partner or assignee must follow to have such Limited Partner's or assignee's interest (only entire, not partial, interests may be so redeemed unless otherwise determined by the General Partner) in the Fund redeemed on such date. Upon redemption pursuant to a Special Redemption Date, a Limited Partner or any other assignee of whom the General Partner has received written notice, shall receive from the Fund an amount equal to the Net Asset Value of such Limited Partner's interest, determined as of the close of business (as determined by the General Partner) on such Special Redemption Date. No redemption charges shall be assessed on any such Special Redemption Date. As in the case of a regular redemption, an assignee shall not be LPA-9 entitled to redemption on any Special Redemption Date until the General Partner has received written notice of the assignment, transfer or disposition under which the assignee claims an interest in the Units to be redeemed. After such Special Redemption Date, the Fund may, in the discretion of the General Partner, resume trading. If the General Partner determines not to resume trading, the Fund will be terminated. The General Partner may, in its discretion, declare additional regular redemption dates for Units, permit certain Limited Partners to redeem at other than month-end and waive the 10-day notice period otherwise required to effect redemptions. The General Partner may declare additional Special Redemption Dates upon notice to the Partners and assignees of whom the General Partner has received notice. In the event the General Partner does, in its discretion, declare a Special Redemption Date, the General Partner may, in its notice of such Special Redemption Date modify the circumstances under which the General Partner is again required to declare a Special Redemption Date, as set forth in the preceding paragraph. The General Partner may for any reason, upon two (2) days' advance written notice, cause the involuntary withdrawal of any Limited Partner by redeeming all or part of his Units as of any month-end. Payment in respect of Units redeemed will be made (by mailing a check) as promptly as practicable after the effective date of redemption or the Special Redemption Date, but in no event more than thirty (30) days thereafter. However, under special circumstances including, but not limited to, inability to liquidate commodity positions due to the operation of daily limits or otherwise as of such redemption or Special Redemption Date, or default or delay in payments due the Fund from futures brokers, banks, dealers or other persons, the Fund may, in turn, delay payment to Partners requesting redemption of Units of the proportionate part of the Net Asset Value of the Units being redeemed represented by the sums which are the subject of such circumstances. All redemptions will be made at Net Asset Value as of the effective day of redemption. 12. Offering of Units. The General Partner may, in its discretion, continue or terminate the offering of the Units on a public or private basis. All sales of Units in the United States will be conducted by registered brokers. 13. Power of Attorney. Each Limited Partner hereby irrevocably appoints the General Partner and each officer of the General Partner, with full power of substitution, as his true and lawful attorney-in-fact, in his name, place and stead, to execute, acknowledge, swear to, deliver and file, record in public offices and publish: (i) this Agreement, including any amendments; (ii) certificates of limited partnership or assumed name, including amendments, with respect to the Fund; (iii) all conveyances and other instruments which the General Partner deems appropriate to qualify or continue the Fund in the State of Delaware and any other jurisdictions in which the Fund may conduct business, or which may be required to be filed by the Fund or the Partners under the laws of any jurisdiction; and (iv) to file, prosecute, defend, settle or compromise litigation, claims or arbitrations on behalf of the Fund. The Power of Attorney granted herein shall be deemed to be coupled with an interest, shall survive and shall not be affected by the subsequent incapacity, disability or death of a Limited Partner. LPA-10 14. Withdrawal of a Partner. The Fund shall be dissolved upon the withdrawal, dissolution, insolvency or removal of the General Partner, or any other event that causes the General Partner to cease to be a general partner under the Act, unless the Fund is continued pursuant to the terms of Section 4(a)(3). In addition, the General Partner may withdraw from the Fund, without any breach of this Agreement, at any time upon 120 days' written notice by first class mail, postage prepaid, to each Limited Partner and each assignee of whom the General Partner has notice. If the General Partner withdraws as general partner, and the Fund's business is continued pursuant to the terms of Section 4(a)(3)(ii), the withdrawing General Partner shall pay all expenses incurred by the Fund as a result of its withdrawal. The General Partner may not assign its general partner interest or its obligation to direct the trading of the Fund's assets without the consent of each Limited Partner. The General Partner will notify all Limited Partners of any change in the principals of the General Partner. A Limited Partner ceasing to be a Limited Partner will not terminate or dissolve the Fund. No Limited Partner, including such Limited Partner's estate, custodian or personal representative, shall have any right to redeem or value such Limited Partner's interest in the Fund except as provided in Section 11. Each Limited Partner agrees that in the event of his death, he waives on behalf of himself and of his estate, and directs the legal representatives of his estate and any person interested therein to waive, any inventory, accounting or appraisal of the assets of the Fund and any right to an audit or examination of the books of the Fund. Nothing in this Section 14 shall, however, waive any right for a Limited Partner to be informed of the Net Asset Value of his Units, to receive periodic reports, audited financial statements and other pertinent information from the General Partner or the Fund or to redeem or transfer Units. 15. Standard of Liability; Indemnification. (a) Standard of Liability for the General Partner. The General Partner and its Affiliates, as defined below, shall have no liability to the Fund or to any Partner for any loss suffered by the Fund which arises out of any action or inaction of the General Partner or its Affiliates, if the General Partner, in good faith, determined that such course of conduct was in the best interests of the Fund, and such course of conduct did not constitute negligence or misconduct on behalf of the General Partner or its Affiliates. (b) Indemnification of the General Partner by the Fund. To the fullest extent permitted by law, subject to this Section 15, the General Partner and its Affiliates shall be indemnified by the Fund against any losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with the Fund; provided, that such claims were not the result of negligence or misconduct on the part of the General Partner or its Affiliates, and the General Partner, in good faith, determined that such conduct was in the best interests of the Fund; and provided further, that Affiliates of the General Partner shall be entitled to indemnification only for losses incurred by such Affiliates in performing the duties of the General Partner and acting wholly within the scope of the authority of the General Partner. Notwithstanding anything to the contrary contained in the preceding paragraph, none of the General Partner, its Affiliates or any persons acting as selling agent for the Units shall be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless (1) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee and the court approves indemnification of the litigation costs, or (2) such claims have been with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee and the court approves indemnification of the litigation costs, or (3) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made. LPA-11 In any claim for indemnification for federal or state securities law violations, the party seeking indemnification shall place before the court the position of the Securities and Exchange Commission, the California Department of Corporations, the Massachusetts Securities Division, the Pennsylvania Securities Commission, the Tennessee Securities Division, the Texas Securities Board and any other state or applicable regulatory authority with respect to the issue of indemnification for securities law violations. The Fund shall not bear the cost of that portion of any insurance which insures any party against any liability the indemnification of which is herein prohibited. For the purposes of this Section 15, the term, "Affiliates," shall mean any person acting on behalf of or performing services on behalf of the Fund who: (1) directly or indirectly controls, is controlled by, or is under common control with the General Partner; or (2) owns or controls 10% or more of the outstanding voting securities of the General Partner; or (3) is an officer or director of the General Partner; or (4) if the General Partner is an officer, director, partner or trustee, is any entity for which the General Partner acts in any such capacity. Advances from Fund assets to the General Partner and its Affiliates for legal expenses and other costs incurred as a result of any legal action initiated against the General Partner by a Limited Partner are prohibited. Advances from Fund assets to the General Partner and its Affiliates for legal expenses and other costs incurred as a result of a legal action will be made only if the following three conditions are satisfied: (1) the legal action relates to the performance of duties or services by the General Partner or its Affiliates on behalf of the Fund; (2) the legal action is initiated by a third party who is not a Limited Partner; and (3) the General Partner or its Affiliates undertake to repay the advanced funds, with interest from the initial date of such advance, to the Fund in cases in which they would not be entitled to indemnification under the standard of liability set forth in Section 15(a). In no event shall any indemnity or exculpation provided for herein be more favorable to the General Partner or any Affiliate than that contemplated by the NASAA Guidelines as in effect on the date of this Agreement. In no event shall any indemnification permitted by this Section 15(b) be made by the Fund unless all provisions of this Section for the payment of indemnification have been complied with in all respects. Furthermore, it shall be a precondition of any such indemnification that the Fund receive a determination of qualified independent legal counsel in a written opinion that the party which seeks to be indemnified hereunder has met the applicable standard of conduct set forth herein. Receipt of any such opinion shall not, however, in itself, entitle any such party to indemnification unless indemnification is otherwise proper hereunder. Any indemnification payable by the Fund hereunder shall be made only as provided in the specific case. In no event shall any indemnification obligations of the Fund under this Section 15(b) subject a Limited Partner to any liability in excess of that contemplated by Section 7(d). (c) Indemnification of the Fund by the Partners. In the event the Fund is made a party to any claim, dispute or litigation or otherwise incurs any loss or expense as a result of or in connection with any Limited Partner's activities, obligations or liabilities unrelated to the Fund's business, or as a result of or in connection with a transfer, assignment or other disposition or an attempted transfer, assignment or other disposition by a Limited Partner or an assignee of its Units or of any part of its right, title and interest in the capital or profits of the Fund in violation of this Agreement, such Limited Partner shall indemnify and reimburse the Fund for all such loss and expense incurred, including reasonable attorneys' fees. 16. Amendments; Meetings. (a) Amendments with Consent of the General Partner. The General Partner may amend this Agreement with the approval the majority of the Units. No meeting procedure or specified notice period is required in LPA-12 the case of amendments made with the consent of the General Partner, mere receipt of an adequate number of unrevoked written consents being sufficient. Such vote shall be taken at least 30 but not more than 60 days after delivery by the General Partner to each Limited Partner of record by certified mail of notice of the proposed amendment and voting procedures. The General Partner may also amend this Agreement without the consent of the Limited Partners in order: (i) to clarify any clerical inaccuracy or ambiguity or reconcile any inconsistency (including any inconsistency between this Agreement and the Prospectus); (ii) to effect the intent of the allocations proposed herein to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (iii) to attempt to ensure that the Fund is taxed as a partnership; (iv) to qualify or maintain the qualification of the Fund as a limited partnership in any jurisdiction; (v) to change this Agreement as required by the Staff of the Securities and Exchange Commission, any other federal agency or any state "Blue Sky" official or in order to opt to be governed by any amendment or successor statute to the Act; (vi) to make any amendment to this Agreement which the General Partner deems advisable, provided that such amendment is not adverse to the Limited Partners; (vii) to make any amendment that is appropriate or necessary, in the opinion of the General Partner, to avoid causing the assets of the Fund from being considered for any purpose of ERISA or Section 4975 of the Code to constitute assets of any Plan; and (viii) to make any amendment to this Agreement required by law. (b) Amendments and Actions without Consent of the General Partner. In any vote called by the General Partner or pursuant to Section 16(c), upon the affirmative vote of a majority of the Units, the following actions may be taken, irrespective of whether the General Partner concurs: (i) this Agreement may be amended, provided, however, that the approval of all Limited Partners shall be required in the case of amendments changing or altering this Section 16, extending the term of the Fund or materially changing the Fund's basic investment policies; (ii) the Fund may be dissolved; (iii) the General Partner may be removed and replaced; (iv) a new general partner may be elected if the General Partner withdraws from the Fund; (v) the sale of all or substantially all of the assets of the Fund may be approved; and (vi) any contract with the General Partner or any of its affiliates may be disapproved of and terminated upon 60 days' notice. No reduction of any Limited Partner's capital account or modification of the percentage of profits, losses or distributions to which a Limited Partner is entitled shall be made without such Limited Partner's written consent; (c) Meetings; Other Voting Matters. Any Limited Partner may for a purpose related to his status as a Limited Partner obtain from the General Partner, provided that reasonable copying and mailing costs are paid in advance, a list of the names, addresses and number of Units held by each Limited Partner. Such list will be mailed by the General Partner within ten days of the receipt of the request; provided, that the General Partner may require any Limited Partner requesting such information to submit written confirmation that such information will not be used for commercial purposes. Upon receipt of a written proposal, signed by Limited Partners owning at least 10% of the Units, that a meeting of the Fund be called to vote on any matter on which the Limited Partners are entitled to vote, the General Partner will, by written notice to each Limited Partner of record sent by certified mail within 15 days after such receipt, call the meeting. Such meeting shall be held at least 30 but not more than 60 days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time for such meeting, as well as its purpose. Such notice shall establish a record date for Limited Partners entitled to vote at the meeting, which shall be not more than 15 days prior to the date established for such meeting. In determining whether a majority of the Units has approved an action or amendment, only Units owned by Limited Partners shall be counted. Any Units acquired by the General Partner or any of its Affiliates will be non-voting, and will not be considered outstanding for purposes of determining whether the majority approval of the outstanding Units has been obtained. The General Partner may not restrict the voting rights of Limited Partners as set forth herein. LPA-13 In the event that this Agreement is to be amended in any material respect, the amendment will not become effective prior to all Limited Partners having an opportunity to redeem their Units. 17. Benefit Plan Investors. (a) Investment in accordance with Law. Each Limited Partner that is an "employee benefit plan" as defined in and subject to ERISA, a "plan" as defined in Section 4975 of the Code (collectively, a "Plan"), and each fiduciary who has caused a Plan to become a Limited Partner (a "Plan Fiduciary"), represents and warrants that: (a) the Plan Fiduciary has considered an investment in the Fund in light of the risks relating thereto; (b) the Plan Fiduciary has determined that the investment in the Fund is consistent with the Plan Fiduciary's responsibilities under ERISA; (c) the investment in the Fund does not violate the terms of any legal document constituting the Plan or any trust agreement thereunder; (d) the Plan's investment in the Fund has been duly authorized and approved by all necessary parties; (e) none of the General Partner, the Fund's advisor(s), the Fund's cash manager, the Fund's futures broker, any selling agents and any of their respective affiliates or any of their respective agents or employees: (i) has investment discretion with respect to the assets of the Plan used to purchase Units; (ii) has authority or responsibility to or regularly gives investment advice with respect to the assets of the Plan used to purchase Units for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the Plan and that such advice will be based on the particular investment needs of the Plan; or (iii) is an employer maintaining or contributing to the Plan; and (f) the Plan Fiduciary: (i) is authorized to make, and is responsible for, the decision of the Plan to invest in the Fund, including the determination that such investment is consistent with the requirement imposed by Section 404 of ERISA that Plan investments be diversified so as to minimize the risks of large losses; (ii) is independent of the General Partner, the Fund's advisor(s), the Fund's cash manager, the Fund's futures broker, any selling agents and any of their respective affiliates; and (iii) is qualified to make such investment decision. (b) Disclosures and Restrictions Regarding Benefit Plan Investors. Each Limited Partner that is a "benefit plan investor" (defined as any Plan, any other employee benefit plan as defined in but not subject to ERISA and any entity deemed for any purpose of ERISA or Section 4975 of the Code to hold assets of any employee benefit plan or plan) represents that the individual signing the Subscription Agreement and Power of Attorney has disclosed such Limited Partner's status as a benefit plan investor in the Subscription Agreement and Power of Attorney. Each Limited Partner that is not a "benefit plan investor" represents and agrees that if at a later date such Limited Partner becomes a benefit plan investor, such Limited Partner will immediately notify the General Partner of such change of status. Notwithstanding anything herein to the contrary, the General Partner, on behalf of the Fund, may take any and all action including, but not limited to, refusing to admit persons as Limited Partners or refusing to accept additional capital contributions, and requiring the redemption of the Units of any Limited Partner upon two (2) days' notice to the Limited Partner and otherwise in accordance with Section 11 hereof, as may be necessary or desirable to avoid having the assets of the Fund be considered for any purpose of ERISA or Section 4975 of the Code to constitute assets of any Plan. 18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, THAT THE FOREGOING CHOICE OF LAW SHALL NOT RESTRICT THE APPLICATION OF ANY STATE'S SECURITIES LAWS TO THE SALE OF UNITS TO ITS RESIDENTS OR WITHIN SUCH STATE. 19. Miscellaneous. (a) Notices. All notices under this Agreement must be in writing and will be effective upon personal delivery, or if sent by first class mail, postage prepaid, upon the deposit of such notice in the United States mail. (b) Binding Effect. This Agreement shall inure to and be binding upon all of the parties hereto and all parties indemnified under Section 15, as well as their respective successors and assigns, custodians, estates, heirs and personal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the Fund and the General Partner may rely upon the Fund records as to who are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and they shall be bound thereby. (c) Captions. Captions are not part of this Agreement. (d) Close of Business. The General Partner will decide when the close of business occurs. * * * * * LPA-14 The parties hereby execute this Second Amended and Restated Limited Partnership Agreement as of the day and year first above written. GENERAL PARTNER: LIMITED PARTNERS: PROFUTURES, INC. PROFUTURES, INC. Attorney-in-Fact By /s/ GARY D. HALBERT By /s/ GARY D. HALBERT ----------------------- ----------------------- Gary D. Halbert Gary D. Halbert President President LPA-15 EXHIBIT B SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY PROFUTURES BULL & BEAR FUND, L.P. (To be executed by all purchasers) Subscription Instructions Fill in all of the boxes and blanks on page B-7, as follows: Part 1 . Indicate if this is an addition to an existing account; if so, enter your Limited Partner account number. . Indicate if you are a Benefit Plan Investor (see page B-7) or an employee of an NASD member firm. . Enter your Social Security Number or Taxpayer ID Number and check the appropriate box to indicate the type of entity that is subscribing. In case of joint ownership, either Social Security Number may be used. . Enter the exact name in which the Units are to be held based on ownership type, and other information. . If there is a Co-Purchaser, Trustee or Custodian, complete the applicable information. IRA or Keogh plan investments may only be accepted if received from a third party custodian. Call the General Partner for details. Part 2 . Enter the dollar amount of the subscription. Make your check payable to ProFutures Bull & Bear Fund, L.P. (the "Fund") Part 3 . You must execute the Subscription Agreement and Power of Attorney Signature Page. Each joint tenant or tenant in common must sign in the space provided. If purchaser is a trust, partnership, corporation or other business association, the signing trustee, partner or officer represents and warrants that he/she/it has full power and authority to execute this Agreement on its behalf. If Purchaser is a trust or partnership, please attach a copy of the trust instrument or partnership agreement. If Purchaser is a corporation, please attach certified corporate resolution authorizing signature. Mail Executed Subscription Agreement and Power of Attorney to: PROFUTURES BULL & BEAR FUND, L.P. c/o ProFutures Financial Group, Inc. 11612 Bee Cave Road, Suite 100 Austin, Texas 78733 Read this prospectus carefully before you subscribe. Contained herein are disclosures concerning various risks, conflicts, fees and expenses relating to or to be paid by the Fund. You should be aware that the disclosure made may be used as a defense if proceedings are brought by Limited Partners relating to the Fund. B-1 Subscription Agreement and Power of Attorney By executing page B-7 of this Subscription Agreement and Power of Attorney (hereafter, the "Subscription Agreement"), you irrevocably subscribe for Units of Limited Partnership Interest ("Units") in the Fund. You have enclosed the sum indicated on page B-7 (minimum $10,000 or $5,000 for IRAs and retirement plans). Subscriptions, whether checks or wire transfers, should be made payable to "ProFutures Bull & Bear Fund, L.P." If this Subscription Agreement is accepted, you agree to contribute the amount enclosed to the Fund and to be bound by the terms of the Second Amended and Restated Limited Partnership Agreement, as it may be amended from time to time. Representations and Warranties You represent and warrant to the Fund, the General Partner and their respective affiliates as follows: (1) You are of legal age and legally competent to execute this Subscription Agreement. (2) All information in this Subscription Agreement is correct and complete. You will immediately contact the General Partner if there is any change in such information. (3) Your subscription is made with your own funds and for your own account. (4) Your subscription, if made as custodian for a minor, is a gift you have made to such minor or, if not a gift, the following representations as to net worth and annual income apply to such minor personally. (5) If you are subscribing in a representative capacity, you have full power and authority to purchase the Units on behalf of the entity for which you are acting, and such entity has full power and authority to purchase such Units. (6) If required to be, you are registered with the Commodity Futures Trading Commission or a member of the National Futures Association. (7) If you are acting on behalf of an "employee benefit plan," you confirm the representations set forth in Section 17 of the Limited Partnership Agreement. General You acknowledge that: (1) The Units are speculative investments and purchasing them involves a high degree of risk of loss of your entire investment in the Fund. (2) You are encouraged to discuss your proposed purchase with your attorney, accountant or a Purchaser Representative (as defined under Regulation D, promulgated under the Securities Act of 1933, as amended), are aware of and can afford the risks of an investment in the Fund, and are satisfied that you have had an adequate opportunity to ask questions concerning the Fund, the Units and the transactions described in the Prospectus. (3) No federal or state agency has passed upon the adequacy of the information set forth in the Prospectus or made any finding or determination as to the fairness of the investment, or any recommendation or endorsement of the Units as an investment. B-2 (4) You are not dependent upon a current cash return with respect to your investment in the Units. You understand that distributions are not required to be made, and that redemptions probably will be your sole method to withdraw profits and capital from the Fund. (5) The Fund is not a "tax shelter," and any information to be furnished to you concerning the federal income tax consequences arising from your investment in the Fund is necessarily general in nature, and the specific tax consequences to you as a result of your investment in the Fund depends on your individual circumstances. (6) Trading in commodity futures contracts involves investing capital in assets that can fluctuate rapidly and substantially in value, often resulting in quick and substantial gains and losses. (7) Management fees to the General Partner, brokerage commissions and certain other expenses must be paid regardless of whether the Fund realizes profits. You understand and agree that this subscription may be accepted or rejected by the General Partner, in whole or in part, in its sole and absolute discretion. You hereby acknowledge and agree that this Subscription Agreement shall survive: (i) changes in the transactions, documents and instruments described in the Prospectus which are not material; (ii) your death or disability; and (iii) the acceptance of this subscription by the General Partner. By executing this Subscription Agreement below, you: (i) acknowledge the accuracy of all statements herein and (ii) appoint the General Partner to act as your true and lawful attorney and agent to execute the Limited Partnership Agreement and to file any documents or take any action required for the Fund to carry out its business activities. In addition, by executing this Subscription Agreement you waive on behalf of yourself and your estate the furnishing of any inventory, accounting or appraisal of the assets of the Fund; provided that such waiver does not extend to any rights granted a Limited Partner under the Limited Partnership Agreement. The foregoing information which has provided to the General Partner is true and accurate as of the date hereof and shall be true and accurate as of the date of your admission to the Fund as a limited partner. If in any respect such representations, warranties or information shall not be true and accurate at any time prior to your admission as a limited partner, you will give written notice of such fact to the General Partner, specifying which representation, warranty or information is not true and accurate and the reason therefor. Tax Matters By executing this Subscription Agreement, you certify, under penalty of perjury: (1) That the Social Security Number or Taxpayer Identification Number provided below is correct. (2) That the IRS has never notified you that you are subject to 20% backup withholding, or has notified you that you are no longer subject to such backup withholding. (Note: If this part (2) is not true in your case, please strike out this part before signing). (3) You are a U.S. citizen or resident, or a domestic corporation, partnership, limited liability company or trust, as defined in the Internal Revenue Code of 1986, as amended. (4) You acknowledge and agree that this information may be disclosed to the Internal Revenue Service by the Fund and that any false statement contained in this Section is punishable by fine, imprisonment or both. You will notify the Fund within sixty (60) days of the date upon which any of the information contained herein becomes false or otherwise changes B-3 in a material manner, or you become a foreign person. You agree to update this information whenever requested by the Fund. Under penalties of perjury, you declare that you have examined the information contained herein and to the best of the undersigned's knowledge and belief, correct and complete, and that you have the authority to execute this Subscription Agreement. This Subscription Agreement and the representations and warranties contained herein shall be binding upon your heirs, executors, administrators and other successors. If there is more than one signatory hereto, your obligations, representations, warranties and agreements are made jointly and severally. Benefit Plan Investors (1) The undersigned has checked the box on page B-7 if the Purchaser is a "benefit plan investor." The term "benefit plan investor" refers to (i) any "employee benefit plan" as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), regardless of whether it is subject to ERISA, (ii) any "plan" as defined in section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), and (iii) any entity deemed for any purpose of ERISA or Section 4975 of the Code to hold assets of any such employee benefit plan or plan. (2) If the undersigned is not a benefit plan investor, on the date this Subscription Agreement and Power of Attorney is signed, the undersigned agrees to notify the General Partner immediately if the undersigned becomes a benefit plan investor. (3) If the undersigned is acting on behalf of an "employee benefit plan," as defined in and subject to ERISA, or any "plan," as defined in Section 4975 of the Code (a "Plan"), the individual signing this Subscription Agreement and Power of Attorney on behalf of the undersigned, in addition to the representations and warranties set forth above, hereby further represents and warrants as, or on behalf of, the fiduciary of the Plan responsible for purchasing Units (the "Plan Fiduciary") that: (a) the Plan Fiduciary has considered an investment in the Fund for such Plan in light of the risks relating thereto; (b) the Plan Fiduciary has determined that, in view of such considerations, the investment in the Fund is consistent with the Plan Fiduciary's responsibilities under ERISA; (c) the Plan's investment in the Fund does not violate and is not otherwise inconsistent with the terms of any legal document constituting the Plan or any trust agreement thereunder; (d) the Plan's investment in the Fund has been duly authorized and approved by all necessary parties; (e) none of the General Partner, the Fund's advisors, the Fund's cash manager, the Fund's futures broker, any selling agent, any of their respective affiliates or any of their respective agents or employees: (i) has investment discretion with respect to the investment of assets of the Plan used to purchase Units; (ii) has authority or responsibility to or regularly gives investment advice with respect to the assets of the Plan used to purchase Units for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to the Plan and that such advice will be based on the particular investment needs of the Plan; or (iii) is an employer maintaining or contributing to the Plan; and (f) the Plan Fiduciary (i) is authorized to make, and is responsible for, the decision to invest in the Fund, including the determination that such investment is consistent with the requirement imposed by Section 404 of ERISA that Plan investments be diversified so as to minimize the risks of large losses, (ii) is independent of the General Partner, the Fund's advisors, the Fund's cash manager, the Fund's futures broker, any selling agent, each of their respective affiliates, and (iii) is qualified to make such investment decision. The undersigned will, at the request of the General Partner, furnish the General Partner with such information as the General Partner may reasonably require to establish that the purchase of the Units by the Plan does not violate any B-4 provision of ERISA or the Code, including without limitation, those provisions relating to "prohibited transactions" by "parties in interest" or "disqualified persons" as defined therein. Investor Suitability Requirements You understand that the purchase of Units may be made only by persons who, at a minimum, have (i) a net worth of at least $150,000 (exclusive of home, furnishings and automobiles) or (ii) an annual gross income of at least $45,000 and a net worth (similarly calculated) of at least $45,000. Residents of the following states must meet the specific requirements set forth below (net worth is, in all cases, to be calculated exclusive of home, furnishings and automobiles). 1. Arizona -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 2. California -- Liquid net worth of at least $100,000 and an annual taxable income of at least $50,000. 3. Iowa -- Net worth of at least $225,000 or a net worth of at least $60,000 and an annual taxable income of at least $60,000. Minimum purchase for individual retirement accounts and employee benefit plans in Iowa is $2,500. 4. Maine -- Net worth of at least $200,000 or a net worth of at least $50,000 and an annual income of at least $50,000. All Maine residents, including existing Limited Partners in the Fund subscribing for additional Units, must execute a Subscription Agreement and Power of Attorney Signature Page. Maine residents must sign a Subscription Agreement and Power of Attorney Signature Page specifically prepared for Maine residents, a copy of which shall accompany this Prospectus and be delivered to all Maine residents. 5. Massachusetts -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 6. Michigan -- Net worth of at least $225,000 or a net worth of at least $60,000 and taxable income during the preceding year of at least $60,000. 7. Minnesota -- Except as provided in the immediately following sentence, each Minnesota purchaser must be an "accredited investor" as defined in Regulation D under the Securities Act of 1933 and must, either alone or together with a purchaser representative, have sufficient financial knowledge and experience to be capable of evaluating the risks and merits of an investment in the Units. The Fund may effect no more than 35 sales of Units to non-accredited investors in Minnesota in any consecutive 12-month period. Each non-accredited investor must have a net worth of at least $225,000 or a net worth of at least $60,000 and an annual income of at least $60,000. Minnesota residents must sign a Subscription Agreement and Power of Attorney Signature Page specifically prepared for Minnesota residents, a copy of which shall accompany this Prospectus and delivered to all Minnesota residents. 8. Mississippi -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 9. Missouri -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 10. New Hampshire -- Net worth of at least $250,000 or a net worth of at least $125,000 and an annual taxable income of at least $50,000. B-5 11. North Carolina -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 12. Oklahoma -- Net worth of at least $225,000 or a net worth of $60,000 and an annual income of at least $60,000. 13. Oregon -- Net worth of at least $225,000 or a net worth of at least $60,000 and an annual income of at least $60,000. 14. Pennsylvania -- Net worth of at least $175,000 or a net worth of at least $100,000 and an annual income of at least $50,000. No individual Pennsylvania purchaser may invest more than 10% of his or her net worth (exclusive of home, furnishings and automobiles) in the Fund. 15. South Carolina -- Net worth of at least $100,000 or a net income in the preceding year some portion of which was subject to maximum federal and state income tax. 16. South Dakota -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. 17. Tennessee -- Net worth of at least $250,000 or a net worth of at least $65,000 and annual taxable income of at least $65,000. 18. Texas -- Net worth of at least $225,000 or a net worth of at least $60,000 and annual taxable income of at least $60,000. ------------------------- In the case of IRA and SEP plans, the foregoing suitability standards are applicable to the owner of the plan for whose account the Units are being acquired. The foregoing suitability standards are regulatory minimums only. Mail Subscription Agreement and Power of Attorney and Check to: ProFutures Bull & Bear Fund, L.P. ProFutures Financial Group, Inc. 11612 Bee Cave Road, Suite 100 Austin, Texas 78733 1-800-348-3601 B-6 Signature Page PART 1 - SUBSCRIBER Is this an addition to an existing Fund account? [_] Yes [_] No If so, enter LP# ---------------------------------------------------------- The undersigned is the following kind of entity (please check): [_] Individual Ownership [_] Joint Tenants w/Rights of Survivorship (JTWROS)* [_] Joint Tenants in common (TENCOM)* [_] Partnership* [_] Corporation* [_] Non-Profit Organization* [_] Trust* [_] UGMA (Gift to Minor) [_] Pension Plan* [_] Other (Specify) ------------------------ *NOTE: Please refer to instructions on page B-1 of this Subscription Agreement. [_] Benefit Plan Investor? (see page B-4) [_] Employee of NASD member firm? Firm Name and Address ------------------------- - ----------------------------------------------- ----------------------------- Print Purchaser's Full Name or Name of Trust or Social Security or Custodian Account Taxpayer ID # - ----------------------------------------------- ----------------------------- Print Name of Co-Purchaser or Authorized Person, Date of Birth of Purchaser if an Institutional Trust ( ) - ----------------------------------------------- ----------------------------- Street Address of Purchaser Business Phone (Day) ( ) - ----------------------------------------------- ----------------------------- City, State and Zip Code Home Phone PART 2 - SUBSCRIPTION Make your check payable only to: Subscription Amount $ PROFUTURES BULL & BEAR FUND, L.P. ----------- PART 3 - SIGNATURE Date: ---------------- Signature of Purchaser or Authorized Person Signature of Co-Purchaser - ----------------------------------------------- ----------------------------- TO BE COMPLETED BY REGISTERED REPRESENTATIVE LP # --------- B-7 The undersigned certifies that he has informed the Purchaser of all pertinent facts relating to the liquidity and marketability of the Units as set forth in the Prospectus. The undersigned has reasonable grounds to believe on the basis of information obtained from the Purchaser concerning his investment objectives, other investments, financial situation and needs, and any other information known by the undersigned, that: (i) the Purchaser is or will be in a financial position appropriate to enable him to realize to a significant extent the benefits described in the Prospectus; (ii) the Purchaser has a fair market net worth sufficient to sustain the risks inherent in the Fund, including losses of investment and lack of liquidity; and (iii) the Fund is otherwise a suitable investment for the Purchaser. Accepted _____________ by: ProFutures Financial Group, Inc. ProFutures Inc. Austin, Texas CRD #24328 General Partner of Gary D. Halbert, Registered Representative ProFutures Bull & Bear Fund, L.P. - ------------------------------------------ --------------------------------- Gary D. Halbert, Registered Representative Gary D. Halbert, President B-8 EXHIBIT C REQUEST FOR REDEMPTION _______________________, 199_ PROFUTURES BULL & BEAR FUND, L.P. c/o ProFutures, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 The undersigned hereby requests redemption of _____ Units. The undersigned hereby represents and warrants that he is the true and lawful owner of the Unit(s) to which this request relates with full power and authority to request redemption of such Unit(s). Such Unit(s) are not subject to any pledge or otherwise encumbered in any fashion. This redemption shall be governed by the terms of the Fund's Limited Partnership Agreement. Please forward to the undersigned at the address below. Name_________________________________________ Address _____________________________________ City, State__________________________________ PARTNER'S SIGNATURE MUST BE IDENTICAL TO NAME IN WHICH UNITS ARE REGISTERED. By: _________________________________________ (Signature of Owner) Name:________________________________________ Partnership, Trust, Plan or Corporation By:__________________________________________ (Signature of Authorized Representative) Name: _______________________________________ Title: ______________________________________ C-1 PART II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution. An organizational charge of 1% of the subscription amount is paid to the General Partner (or the Selling Agent, its affiliated broker-dealer) by each subscriber. The General Partner will pay for all actual costs of conducting the public offering of Units. To the extent that the aggregate 1% organizational charge collected is less than these actual costs, the General Partner will pay the costs. To the extent that the aggregate 1% organizational charge collected exceeds these actual costs, the excess amount will be paid to the Selling Agent. Such payment could be deemed to be a selling commission. The following is an estimate of such costs:
Approximate Amount ------------------ Securities and Exchange Commission Registration Fee.......... $ 20,690* National Association of Securities Dealers, Inc. Filing Fee.. 6,500* Printing Expenses............................................ 40,000 Fees of Certified Public Accountants......................... 25,000 Blue Sky Expenses (Excluding Legal Fees)..................... 50,000 Fees of Counsel.............................................. 200,000 Miscellaneous Offering Costs................................. 20,000 -------- Total...................................................... $362,190 ========
----------------------- * Fees marked with an asterisk are exact rather than estimated and approximate. -------------------- Item 14. Indemnification of Directors and Officers. Section 15 of the Limited Partnership Agreement (attached as Exhibit A to the prospectus which forms a part of the Registration Statement) provides for the indemnification of the General Partner and certain of its Affiliates by the Registrant. "Affiliates" shall mean any person performing services on behalf of the Partnership who: (1) directly or indirectly controls, is controlled by, or is under common control with the General Partner; or (2) owns or controls 10% or more of the outstanding voting securities of the General Partner; or (3) is an officer or director of the General Partner; or (4) if the General Partner is an officer, director, partner or trustee, is any entity for which the General Partner acts in any such capacity. Indemnification is to be provided for any loss suffered by the Registrant which arises out of any action or inaction, if the party, in good faith, determined that such course of conduct was in the best interest of the Registrant and such conduct did not constitute negligence or misconduct. The General Partner and its Affiliates will only be entitled to indemnification for losses incurred by such Affiliates in performing the duties of the General Partner and acting wholly within the scope of the authority of the General Partner. Item 15. Recent Sales of Unregistered Securities. Beginning on September 1, 1997 and until August 31, 1998, the Registrant sold, at month-end closings, Units of Limited Partnership Interest to accredited investors and less than 35 unaccredited investors pursuant to a private offering which was exempt under Section 4(2) of the Securities Act of 1933. Such Units were sold by the General Partner and/or the Selling Agent. II-1 Item 16. Exhibits and Financial Statement Schedules. The following documents (unless otherwise indicated) are filed herewith and made a part of this Registration Statement: (a) Exhibits.
Exhibit Number Description of Document - ------- ----------------------- 1.01 Form of Amended and Restated Selling Agreement among the Registrant, the General Partner, the Selling Agent and the Advisor. 3.01 Certificate of Limited Partnership of the Registrant 3.02 Form of Second Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the Prospectus). 5.01 Opinion of Sidley & Austin relating to the legality of the Units. 8.01 Opinion of Sidley & Austin with respect to federal income tax consequences. 10.01 First Amendment and Restatement of Advisory Contract between the Registrant and the Advisor. 10.02 Customer Agreement between the Registrant and the Futures Broker. 10.03 Investment Advisory Agreement between the Registrant and the Cash Manager 10.04 Form of Additional Selling Agents Agreement 10.05 Form of Subscription Agreement and Power of Attorney (included as Exhibit B to the Prospectus). 23.01 Consent of Sidley & Austin. 23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C. 27 Financial Data Schedule
Item 17. The undersigned registrant hereby undertakes: (a) Rule 415 Offerings (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or II-2 high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Equity Offerings of Nonreporting Registrants Note: The Units are not certificated. (c) Indemnification Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted to officers, directors or controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by an officer, director, or controlling person of the registrant in the successful defense of any such action, suit or proceeding) is asserted by such officer, director or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the General Partner of the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Austin in the State of Texas on the 9th day of September, 1998. ProFutures Bull & Bear Fund, L.P. By: ProFutures, Inc. By: /s/ GARY D. HALBERT, JR. -------------------------------------- Gary D. Halbert, Jr. President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following person on behalf of ProFutures, Inc., General Partner of the Registrant, in the capacities and on the date indicated. /s/ GARY D. HALBERT President and Director September 9, 1998 - ---------------------------- (Principal Executive Gary D. Halbert Officer) /s/ DEBI B. HALBERT Chief Financial Officer, September 9, 1998 - ---------------------------- Treasurer and Director Debi B. Halbert (Principal Financial and Accounting Officer) (Being the principal executive officer, the principal financial and accounting officer and a majority of the directors of ProFutures, Inc.) PROFUTURES, INC. General Partner of Registrant By /s/ GARY D.HALBERT September 9, 1998 ------------------------- Gary D. Halbert President EXHIBIT INDEX
Exhibit Number Description of Document - ------ ----------------------- The following exhibits are filed herewith. 1.01 Form of Amended and Restated Selling Agreement among the Fund, the General Partner, the Selling Agent and the Advisor. 3.01 Certificate of Limited Partnership of the Registrant. 3.02 Form of Second Amended and Restated Limited Partnership Agreement of the Fund (included as Exhibit A to the Prospectus). 5.01 Opinion of Sidley & Austin relating to the legality of the Units. 8.01 Opinion of Sidley & Austin with respect to federal income tax consequences. 10.01 First Amendment and Restatement of Advisory Contract between the Fund and the Advisor. 10.02 Customer Agreement between the Fund and the Futures Broker. 10.03 Investment Advisory Agreement between the Fund and the Cash Manager. 10.04 Form of Additional Selling Agents Agreement. 10.05 Form of Subscription Agreement and Power of Attorney (included as Exhibit B to the Prospectus). 23.01 Consent of Sidley & Austin. 23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C. 27 Financial Data Schedule
EX-1.01 2 FORM OF AMENDED AND RESTATED SELLING AGREEMENT EXHIBIT 1.01 FORM OF AMENDED AND RESTATED SELLING AGREEMENT -------------------------- PROFUTURES BULL & BEAR FUND L.P. (A Delaware Limited Partnership) Units of Limited Partnership Interest Dated as of ________, 1998 PROFUTURES BULL & BEAR FUND L.P. AMENDED AND RESTATED SELLING AGREEMENT TABLE OF CONTENTS
Page ---- Section 1. Representations and Warranties of the General Partner............ 2 Section 2. Representations and Warranties of the Selling Agent.............. 6 Section 3. Representations and Warranties of the Trading Advisor........... 7 Section 4. Representations and Warranties of the Broker..................... 9 Section 5. Offering and Sale of Units....................................... 11 Section 6. Covenants of the General Partner................................. 15 Section 7. Covenants of the Trading Advisor................................. 16 Section 8. Covenants of the Broker.......................................... 17 Section 9. Payment of Expenses and Fees..................................... 17 Section 10. Conditions of Closing............................................ 18 Section 11. Indemnification and Exculpation.................................. 27 Section 12. Status of Parties................................................ 30 Section 13. Representations, Warranties and Agreements to Survive Delivery... 30 Section 14. Termination...................................................... 31 Section 15. Notices and Authority to Act..................................... 31 Section 16. Parties.......................................................... 32 Section 17. Governing Law.................................................... 32 Section 18. Requirements of Law.............................................. 32
PROFUTURES BULL & BEAR FUND L.P. (A Delaware Limited Partnership) $60,000,000 Units of Limited Partnership Interest (Subscription Price: 101% of Net Asset Value per Unit) FORM OF AMENDED AND RESTATED SELLING AGREEMENT ------------------------- _______, 1998 PROFUTURES FINANCIAL GROUP, INC. 1310 Highway 620 South Suite 200 Austin, Texas 78734 Dear Sirs: Your affiliate, ProFutures, Inc., a Texas corporation (referred to herein in its individual corporate capacity and as general partner as the "General Partner"), and an initial limited partner have caused the formation of a limited partnership pursuant to the Revised Uniform Limited Partnership Act of the State of Delaware ("DRULPA") under the name ProFutures Bull & Bear Fund, L.P. (the "Fund"), for the purpose of engaging in speculative trading of futures and forward contracts and commodity options. As described in the Prospectus referred to below, the Fund has entered into the First Amendment and Restatement of Advisory Contract (the "Advisory Agreement") with Hampton Investors, Inc., a New York corporation (the "Trading Advisor"). The Fund engages in speculative trading in the commodities markets under the direction of the Trading Advisor pursuant to its Leverage 3 Trading Program (the "Trading Strategy"). You shall serve as lead selling agent for the Fund (herein referred to as the "Selling Agent") and you may select, with the consent of the General Partner, other selling agents (the "Additional Selling Agents") (including those introduced by wholesalers ("Wholesalers")) to act as selling agents for the Fund in accordance with the terms of the Additional Selling Agent Agreement attached hereto as Exhibit A. In addition, the Additional Selling Agents may also, with the consent of the Selling Agent and the General Partner, distribute Units through the use of "introducing broker" Correspondents ("Correspondents"). 1 ING (U.S.) Securities, Futures & Option, Inc. (the "Broker") acts as broker for the Fund pursuant to a customer agreement (the "Customer Agreement") between the Broker and the Fund. Capitalized terms used herein, unless otherwise indicated, shall have the meanings attributed to them in the Prospectus referred to below. Section 1. Representations and Warranties of the General Partner. The General Partner represents and warrants to the Trading Advisor, the Broker and the Selling Agent, as follows: (a) The Fund has provided to the Trading Advisor and to the Selling Agent and filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-1 (Registration No. 333-_____), as initially filed with the SEC on ________, 1998 for the registration of Units of Limited Partnership Interests (the "Units") in the Fund under the Securities Act of 1933, as amended (the "1933 Act"), has filed two copies thereof with the Commodity Futures Trading Commission (the "CFTC") under the Commodity Exchange Act (the "Commodity Act") and one copy with the National Futures Association (the "NFA") in accordance with NFA Compliance Rule 2-13. The Registration Statement became effective with the SEC as of the date hereof. (The Registration Statement, in the form in which it became effective, and the Prospectus included therein as first filed pursuant to Rule 424(b) of the rules and regulations of the SEC under the 1933 Act (the "SEC Regulations") are hereinafter referred to as the "Registration Statement" and the "Prospectus," respectively.) If the Fund files a subsequent post-effective amendment to the Registration Statement, then the term Registration Statement shall, from and after the declaration of the effectiveness of such post-effective amendment, refer to the Registration Statement as amended by such post-effective amendment thereto, and the term Prospectus shall refer to the amended prospectus then on file with the SEC as part of the Registration Statement, or if a subsequent prospectus is filed by the Fund pursuant to Rule 424 of the SEC Regulations, the term Prospectus shall refer to the prospectus most recently filed pursuant to such Rule from and after the date on which it shall have been first used. Except as required by law, the Fund will not file any amendment to the Registration Statement or any amendment or supplement to the Prospectus which shall be reasonably objected to in writing by the Trading Advisor or by counsel to the Trading Advisor, upon reasonable prior notice. (b) The Fund will not utilize any promotional brochure or other marketing materials (collectively, "Promotional Material"), including "Tombstone Ads" or other communications qualifying under Rule 134 of the SEC Regulations, which are reasonably objected to by the Selling Agent. No reference to the Selling Agent may be made in the Registration Statement, Prospectus or in any Promotional Material which has not been approved in writing by the Selling Agent, which approval the 2 Selling Agent may withhold in its sole and absolute discretion. The Fund will file all Promotional Material with the National Association of Securities Dealers, Inc. (the "NASD"), and will not use any such Promotional Material to which the NASD has not stated in writing that it has no objections. The Fund will file all Promotional Material in all state jurisdictions where such filing is required, and will not use any such Promotional Material in any state which has expressed any objection thereto (except pursuant to agreed-upon modifications to the Promotional Material). (c) The Certificate of Limited Partnership (the "Certificate of Limited Partnership") pursuant to which the Fund has been formed and the Second Amended and Restated Limited Partnership Agreement of the Fund (the "Limited Partnership Agreement") each provides for the subscription for and sale of the Units; all action required to be taken by the General Partner and the Fund as a condition to the sale of the Units to qualified subscribers therefor has been, or prior to the Initial Public Closing Time and Subsequent Public Closing Times, as defined in Section 5 hereof, will have been taken; and, upon payment of the consideration therefor specified in all accepted Subscription Agreements and Powers of Attorney, the Units will constitute valid limited partnership interests in the Fund. (d) The Fund is a limited partnership duly organized pursuant to the Certificate of Limited Partnership, the Limited Partnership Agreement and the DRULPA and validly existing under the laws of the State of Delaware with full power and authority to engage in the trading of futures, forward and option contracts, as described in the Prospectus, and the Fund has qualified to do business in the State of Texas. (e) The General Partner is duly organized and validly existing and in good standing as a corporation under the laws of the State of Texas and in good standing as a foreign corporation in any other jurisdiction in which the nature or conduct of its business requires such qualification and the failure to so qualify would materially adversely affect the Fund or the General Partner's ability to perform its obligations hereunder. (f) The Fund and the General Partner have partnership or corporate power and authority under applicable law to perform their respective obligations under the Limited Partnership Agreement, the Customer Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement, the Advisory Agreement and this Agreement, as described in the Registration Statement and Prospectus. (g) The Registration Statement and Prospectus contain all statements and information required to be included therein by the Commodity Act and the rules and regulations thereunder. When the Registration Statement became effective under the 1933 Act and at all times subsequent thereto up to and including the Initial Public Closing Time, the Registration Statement and Prospectus will comply in all material 3 respects with the requirements of the 1933 Act, the Commodity Act and the rules and regulations under such Acts. The Registration Statement as of its effective date did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus as of its date of issue and at the Initial Public Closing Time did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. This representation and warranty shall not, however, apply to any statement or omission in the Registration Statement or Prospectus made in reliance upon and in conformity with information relating to the Trading Advisor, the Broker or the Cash Manager and furnished or approved in writing by the Trading Advisor, the Broker or the Cash Manager. (h) Arthur F. Bell, Jr. & Associates, L.L.C., the accountants who certified the financial statements filed with the SEC as part of the Registration Statement, are, with respect to the General Partner and the Fund, independent public accountants with respect to the General Partner and the Fund as required by the 1933 Act and the SEC Regulations. (i) The financial statements filed as part of the Registration Statement and those included in the Prospectus present fairly the financial position of the Fund and of the General Partner as of the dates indicated; and said financial statements have been prepared in conformity with generally accepted accounting principles (as described therein), or, in the case of unaudited financial statements, in substantial conformity with generally accepted accounting principles, applied on a basis which is consistent in all material respects for each balance sheet date presented. (j) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, business or prospects of the General Partner or the Fund, whether or not arising in the ordinary course of business. (k) The General Partner at the Initial Public Closing Time and each Subsequent Public Closing Time will have a net worth sufficient in amount and satisfactory in form, as set forth in the opinion of Sidley & Austin, counsel for the General Partner, for classification of the Fund as a partnership for Federal income tax purposes under current interpretations of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder. (l) The Advisory Agreement, the Limited Partnership Agreement, the Additional Selling Agents Agreement and this Agreement have each been duly and validly authorized, executed and delivered by the General Partner for itself and on behalf of the Fund, and each constitutes a legal, valid and binding agreement of the Fund and the General Partner enforceable in accordance with its terms. The 4 Investment Advisory Agreement and the Customer Agreement have both been duly and validly authorized, executed and delivered by the General Partner on behalf of the Fund. (m) The execution and delivery of the Limited Partnership Agreement, the Customer Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement, the Advisory Agreement and this Agreement, the incurrence of the obligations set forth in each of such agreements and the consummation of the transactions contemplated therein and in the Prospectus will not constitute a breach of, or default under, any instrument by which either the General Partner or the Fund, as the case may be, is bound or any order, rule or regulation applicable to the General Partner or the Fund of any court or any governmental body or administrative agency having jurisdiction over the General Partner or the Fund. (n) There is not pending, or, to the best of the General Partner's knowledge threatened, any action, suit or proceeding before or by any court or other governmental body to which the General Partner or the Fund is a party, or to which any of the assets of the General Partner or the Fund is subject, which is not referred to in the Prospectus and which might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), business or prospects of the General Partner or the Fund or is required to be disclosed in the Prospectus pursuant to applicable CFTC regulations. The General Partner has not received any notice of an investigation or warning letter from the NFA or the CFTC regarding non-compliance by the General Partner with the Commodity Act or the regulations thereunder. (o) The General Partner has all Federal and state governmental, regulatory and commodity exchange approvals and licenses, and has effected all filings and registrations with Federal and state governmental agencies required to conduct its business and to act as described in the Registration Statement and Prospectus or required to perform its obligations as described under the Limited Partnership Agreement and this Agreement (including, without limitation, registration as a commodity pool operator under the Commodity Act and membership in the NFA as a commodity pool operator), and the performance of such obligations will not con travene or result in a breach of any provision of its certificate of incorporation, by-laws or any agreement, order, law or regulation binding upon it. The principals of the General Partner identified in the Registration Statement are all of the principals of the General Partner, as "principals" is defined by the CFTC regulations. Such principals are duly registered as such on the General Partner's commodity pool operator Form 7-R registration. (p) The Fund does not require any Federal or state governmental, regulatory or commodity exchange approvals or licenses, or need to effect any filings or registrations with any Federal or state governmental agencies in order to conduct its businesses and to act as contemplated by the Registration Statement and Prospectus 5 and to issue and sell the Units (other than filings relating solely to the offering of the Units), and to trade in the commodity markets. (q) None of the General Partner or any principal or affiliate thereof has "operated," since January 1, 1991, any commodity pool, within the meaning of the CFTC's Part 4 Regulations, the performance of which is not included in the Prospectus. Section 2. Representations and Warranties of the Selling Agent. The Selling Agent represents and warrants to the Fund, the General Partner, the Trading Advisor and the Broker as follows: (a) The Selling Agent is a corporation duly organized and validly existing and in good standing under the laws of the State of Texas and in good standing and qualified to do business in each jurisdiction in which the nature or conduct of its business requires such qualification and the failure to be duly qualified would materially adversely affect the Selling Agent's ability to perform its obligations hereunder. The Selling Agent has full corporate power and authority to perform its obligations under this Agreement and as described in the Registration Statement and Prospectus. (b) All references to the Selling Agent and its principals in the Registration Statement and Prospectus are accurate and complete in all material respects, and set forth in all material respects the information required to be disclosed therein under the Commodity Act and the rules and regulations thereunder. As to the Selling Agent and its principals, (i) the Registration Statement and Prospectus contain all statements and information required to be included therein under the Commodity Act and the rules and regulations thereunder, (ii) the Registration Statement as of its effective date did not contain any misleading or untrue statement of a material fact or omit to state a material fact which is required to be stated therein or necessary to make the statements therein not misleading and (iii) the Prospectus at its date of issue and as of the Initial Public Closing Time did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which such statements were made. (c) The Selling Agent has all Federal and state governmental, regulatory and commodity exchange licenses and approvals, and has effected all filings and registrations with Federal and state governmental and regulatory agencies required to conduct its business and to act as described in the Registration Statement and Prospectus or required to perform its obligations under this Agreement, and the performance of such obligations will not violate or result in a breach of any provision of the Selling Agent's certificate of incorporation, by-laws or any agreement, instrument, order, law or regulation binding upon the Selling Agent. 6 (d) This Agreement has been duly authorized, executed and delivered by the Selling Agent and constitutes a valid, binding and enforceable agreement of the Selling Agent in accordance with its terms. (e) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated in or contemplated by the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, business or prospects of the Selling Agent, whether or not arising in the ordinary course of business. (f) In the ordinary course of its business, the Selling Agent may be engaged in civil litigation and subject to administrative proceedings. Neither the Selling Agent nor any of its principals have been the subject of any administrative, civil, or criminal actions within the five years preceding the date hereof that would be material to an investor's decision to purchase the Units which are not disclosed in the Prospectus. (g) The execution and delivery of this Agreement, the incurrence of the obligations set forth herein and the consummation of the transactions contemplated herein and in the Prospectus will not constitute a breach of, or default under, any instrument by which the Selling Agent is bound or any order, rule or regulation applicable to the Selling Agent of any court or any governmental body or administrative agency having jurisdiction over the Selling Agent. Section 3. Representations and Warranties of the Trading Advisor. The Trading Advisor represents and warrants to the Fund, the Selling Agent, the Broker and the General Partner as follows: (a) The Trading Advisor is a corporation duly organized and validly existing and in good standing under the laws of the State of New York and in good standing as a foreign corporation in each other jurisdiction in which the nature or conduct of its business requires such qualification and the failure to be duly qualified would materially affect the Trading Advisor's ability to perform its obligations under this Agreement and the Advisory Agreement. The Trading Advisor has full corporate power and authority to perform its obligations under this Agreement and the Advisory Agreement as described in the Registration Statement and Prospectus. (b) All references to the Trading Advisor and its principals, and its trading systems, methods and performance in the Registration Statement and the Prospectus are accurate and complete in all material respects. As to the Trading Advisor, each of the principals of the Trading Advisor, the Trading Strategy and the Trading Advisor's trading systems, strategies and performance, (i) the Registration Statement and Prospectus contain all statements and information required to be included therein under the Commodity Act and the rules and regulations thereunder, (ii) the Registration Statement (with respect to the information relating to the Trading 7 Advisor as of its effective date did not contain any misleading or untrue statement of a material fact or omit to state a material fact which is required to be stated therein or necessary to make the statements therein not misleading and (iii) the Prospectus (with respect to information relating to the Trading Advisor) at its date of issue and as of the Initial Public Closing Time, as supplemented, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which such statements were made. Except as otherwise disclosed in the Prospectus or identified in writing to the General Partner on or prior to the date hereto, the actual performance of each discretionary account directed by the Trading Advisor or any principal or affiliate of the Trading Advisor for the periods covered by the performance summaries set forth in the Prospectus is disclosed in accordance with the requirements of the Commodity Act and the rules and regulations thereunder (or as otherwise permitted by the Staff of the Division of Trading and Markets). The information, performance summaries and monthly rates of return relating to the performance of the Trading Advisor comply in all material respects with the disclosure requirements of the rules and regulations of the CFTC under the Commodity Act. The performance summaries in the Prospectus (as applicable to the Trading Advisor) have been calculated in the manner set forth in the notes thereto. (c) The Advisory Agreement and this Agreement have each been duly and validly authorized, executed and delivered on behalf of the Trading Advisor and both constitute valid, binding and enforceable agreements of the Trading Advisor in accordance with their terms. (d) The Trading Advisor has all Federal and state governmental, regulatory and commodity exchange licenses and approvals and has effected all filings and registrations with Federal and state governmental and regulatory agencies required to conduct its business and to act as described in the Registration Statement and Prospectus or required to perform its obligations under this Agreement and the Advisory Agreement (including, without limitation, registration of the Trading Advisor as a commodity trading advisor under the Commodity Act and membership of the Trading Advisor as a commodity trading advisor in the NFA), and the performance of such obligations will not violate or result in a breach of any provision of the Trading Advisor's Certificate of Incorporation, By- laws or any agreement, instrument, order, law or regulation binding on the Trading Advisor. The principals of the Trading Advisor are duly listed as such on the Trading Advisor's commodity trading advisor Form 7-R registration. (e) Management by the Trading Advisor of an account for the Fund in accordance with the terms hereof and of the Advisory Agreement, and as described in the Prospectus, will not require any registration under, or violate any of the provisions of, the Investment Advisers Act of 1940. 8 (f) Neither the Trading Advisor nor any principal of the Trading Advisor will use or distribute any preliminary prospectus, Prospectus, amended or supplemented Prospectus or selling literature nor engage in any selling activities whatsoever in connection with the offering of the Units. (g) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated in or contemplated by the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, business or prospects of the Trading Advisor, whether or not arising in the ordinary course of business. (h) The execution and delivery of this Agreement and the Advisory Agreement, the incurrence of the obligations herein and therein set forth and the consummation of the transactions contemplated herein and therein and in the Prospectus will not constitute a breach of, or default under, any instrument by which the Trading Advisor is bound or any order, rule or regulation applicable to the Trading Advisor of any court or any governmental body or administrative agency having jurisdiction over the Trading Advisor. (i) There is not pending, or to the best of the Trading Advisor's knowledge threatened, any action, suit or proceeding before or by any court or other govern mental body to which the Trading Advisor is a party, or to which any of the assets of the Trading Advisor is subject, which might reasonably be expected to result in any material adverse change in the condition, financial or otherwise, business or prospects of the Trading Advisor. The Trading Advisor has not received any notice of an investigation or warning letter from the NFA or the CFTC regarding non- compliance by the Trading Advisor with the Commodity Act or the regulations thereunder. (j) The Trading Advisor has not received, and is not entitled to receive, directly or indirectly, any commission, finder's fee, similar fee or rebate from any person in connection with the organization or operation of the Fund. Section 4. Representations and Warranties of the Broker. The Broker represents and warrants to the Fund, the General Partner, the Trading Advisor and the Selling Agent, as follows: (a) The Broker is a corporation duly organized and validly existing and in good standing under the laws of the State of Illinois and in good standing and qualified to do business in each jurisdiction in which the nature or conduct of its business requires such qualification and the failure to be duly qualified would materially adversely affect the Broker's ability to perform its obligations hereunder or under the Customer Agreement. The Broker has full corporate power and authority to perform its obligations under the Customer Agreement and this Agreement and as described in the Registration Statement and Prospectus. 9 (b) All references to the Broker and its principals in the Registration Statement and Prospectus are accurate and complete in all material respects, and set forth in all material respects the information required to be disclosed therein under the Commodity Act and the rules and regulations thereunder. As to the Broker and its principals, (i) the Registration Statement and Prospectus contain all statements and information required to be included therein under the Commodity Act and the rules and regulations thereunder, (ii) the Registration Statement as of its effective date did not contain any misleading or untrue statement of a material fact or omit to state a material fact which is required to be stated therein or necessary to make the statements therein not misleading and (iii) the Prospectus at its date of issue and as of the Initial Public Closing Time did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading, in light of the circumstances under which such statements were made. (c) The Broker has all Federal and state governmental, regulatory and commodity exchange licenses and approvals, and has effected all filings and registrations with Federal and state governmental and regulatory agencies required to conduct its business and to act as described in the Registration Statement and Prospectus or required to perform its obligations under the Customer Agreement and this Agreement (including, without limitation, registration of the Broker as a futures commission merchant under the Commodity Act and membership of the Broker as a futures commission merchant in the NFA), and the performance of such obligations will not violate or result in a breach of any provision of the Broker's certificate of incorporation, by-laws or any agreement, instrument, order, law or regulation binding upon the Broker. (d) This Agreement and the Customer Agreement have been duly authorized, executed and delivered by the Broker, and constitute valid, binding and enforceable agreements of the Broker in accordance with their terms. (e) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated in or contemplated by the Registration Statement and the Prospectus, there has not been any material adverse change in the condition, financial or otherwise, business or prospects of the Broker, whether or not arising in the ordinary course of business. (f) In the ordinary course of its business, the Broker is engaged in civil litigation and subject to administrative proceedings. Neither the Broker nor any of its principals have been the subject of any administrative, civil, or criminal actions within the five years preceding the date hereof that would be material to an investor's decision to purchase the Units which are not disclosed in the Prospectus. (g) The execution and delivery of the Customer Agreement and this Agreement, the incurrence of the obligations set forth herein and therein and the con- 10 summation of the transactions contemplated herein and therein and in the Prospectus will not constitute a breach of, or default under, any instrument by which the Broker is bound or any order, rule or regulation applicable to the Broker of any court or any governmental body or administrative agency having jurisdiction over the Broker. Section 5. Offering and Sale of Units. (a) The Selling Agent is hereby appointed the principal selling agent of the Fund (although as described herein it is contemplated that certain Additional Selling Agents (including those introduced to the Selling Agent by Wholesalers), Wholesalers and Correspondents may also market Units provided each of such Additional Selling Agents, Wholesalers and Correspondents is duly registered as a broker-dealer in each jurisdiction in which such person markets Units) during the term herein specified for the purpose of finding acceptable subscribers for the Fund through a public offering. The Initial Public Offering Period shall continue until the first full month after the Registration Statement has been declared effective (the "Initial Public Offering Period"; such date being hereafter referred to as the "Initial Public Offering Termination Date"). Thereafter, Units may be sold as of the beginning of each month, as determined by the General Partner (the "Ongoing Public Offering Period"; such subsequent sale dates being hereinafter referred to as "Subsequent Public Closing Times"). The Initial Public Offering Period and the Ongoing Public Offering Period shall be referred to herein as the "Public Offering Period." Subject to the performance by the General Partner of all its obligations to be performed hereunder, and to the completeness and accuracy in all material respects of all the representations and warranties of the General Partner, the Broker and the Trading Advisor contained herein, the Selling Agent hereby accepts such agency and agrees on the terms and conditions herein set forth to use its best efforts during the Public Offering Period to find acceptable subscribers for the Units at a public offering price of 101% of Net Asset Value (including the 1% organizational charge referred to below), each subscriber being required to make a minimum subscription of at least $10,000, except for (i) trustees or custodians of eligible tax-exempt accounts and individual retirement accounts and (ii) Limited Partners subscribing for additional Units, where the minimum subscription is $5,000. It is understood that the Selling Agent's agreement to use its best efforts to find acceptable subscribers for the Units shall not prevent it from acting as a selling agent or underwriter for the securities of other issuers which may be offered or sold during the Public Offering Period. (b) At the Initial Public Offering Closing Time the General Partner shall notify the Selling Agent of the aggregate number of Units for which the General Partner has received acceptable subscriptions and payment of the purchase price for the Units may, if the General Partner so elects, be made at the office of ProFutures, Inc., 11612 Bee Cave Road, Suite 100, Austin, Texas 78733, or at such other place as shall be agreed upon between the Selling Agent and the General Partner, at 10:00 A.M., Texas time, on the fifth full business day after the day on which the General Partner notifies the Selling Agent of the number of Units for which subscriptions have been 11 accepted or such other day and time as shall be agreed upon between the Selling Agent and the General Partner (the "Initial Public Closing Time"). (c) An organizational charge of 1% of the subscription amount will be paid to the General Partner by each subscriber. The General Partner has paid all actual costs of organizing the Fund and conducting the public offering of the Units. To the extent that the aggregate 1% organizational charge is less than the actual costs, the General Partner will pay the costs. To the extent that the aggregate 1% organizational charge collected exceeds the actual costs, the excess amount will be paid to the Selling Agent. Such payment could be deemed to be a selling commission. The Additional Selling Agents, if any, shall be compensated as set forth in the Additional Selling Agents Agreement attached hereto as Exhibit A. (d) The Selling Agent will compensate its own Registered Representatives pursuant to the Selling Agent's standard compensation procedures. The Selling Agent will pay Additional Selling Agents selling commissions of up to 3% of the Net Asset Value of each Unit sold by the Registered Representative of each such Additional Selling Agent. In the case of an Additional Selling Agent introduced by a Wholesaler, the Selling Agent will pay such Wholesaler a portion of the up to 3% per Unit selling commissions depending upon the Wholesaler's arrangements with the Additional Selling Agent. Ongoing compensation, of up to __% per annum of the month-end Net Asset Value of the Units attributable to Units sold by a Registered Representative of the Additional Selling Agent which remain outstanding for more than twelve months (including the month as of the end of which such Units is redeemed) will also be paid to each such Registered Representative who agrees to provide the additional services described below, who is registered with the CFTC and who has satisfied all applicable proficiency requirements (including those imposed by the NASD as a condition of receiving "trailing commissions") by either passing the Series 3 National Commodity Futures Exam or the Series 31 exam or being "grandfathered" from having to do so. In the case of an Additional Selling Agent introduced by a Wholesaler who meets the eligibility requirements for receipt of ongoing compensation, the Selling Agent will pay a portion of the up to __% monthly ongoing compensation to the Wholesaler depending upon the Wholesaler's arrangement with the Additional Selling Agent. For purposes of determining when "trailing commissions" should begin to accrue, Units sold during the Initial Offering Period shall not be deemed to be outstanding until the Initial Closing Time. The ongoing compensation described in the foregoing paragraph shall only be paid to any otherwise eligible Registered Representatives, provided that the Additional Selling Agent with which such Registered Representative is associated continues to be registered with the CFTC as a futures commission merchant or introducing broker and continues to be a member in good standing of NFA in such capacity, and is contingent upon the provision by a Registered Representative (duly registered and qualified as to proficiency with the CFTC and NFA as described above) who sold outstanding Units in his capacity as a registered representative of an 12 Additional Selling Agent of additional services in connection with such Units, including: (i) inquiring of the General Partner from time to time, at the request of a Limited Partner, as to the Net Asset Value of a Unit; (ii) inquiring of the General Partner from time to time, at the request of a Limited Partner, regarding the commodities markets and the Fund; (iii) assisting, at the request of the General Partner, in the redemption of Units sold by such Registered Representative; and (iv) providing such services to the Limited Partners as the General Partner, from time to time, reasonably request. Ongoing compensation shall be credited and paid only in respect of Units sold by Registered Representatives who are eligible to receive such ongoing compensation as described above. No ongoing compensation whatsoever shall be credited, paid or accrued on any Units sold by Registered Representatives not then eligible to receive such ongoing compensation. With respect to particular Units substitute Registered Representatives who are appropriately registered and who agree in writing to perform the services described in this Section 5(d) above with respect to such Units ("Substitute Registered Representatives") may also receive ongoing compensation with respect to such Units. Such ongoing compensation shall be paid monthly. In the event that the payment of ongoing compensation is restricted by the NASD, the Selling Agent's payments of such ongoing compensation shall be limited to the maximum amount permissible pursuant to such restrictions. In the case of Units sold by Registered Representatives who are not qualified to receive ongoing compensation as set forth above, the Selling Agent will pay such Registered Representatives installment selling commissions at the same rate as in the case of ongoing compensation, but the sum of such installment selling commissions and the initial selling commission payable to each such Registered Representative is limited in amount, pursuant to applicable NASD policy, to 9.5% of the initial subscription price of the Units sold by such Registered Representatives and remaining outstanding. In respect of Correspondents selected by an Additional Selling Agent (with the consent of the General Partner and the Selling Agent), the Selling Agent shall pay such Additional Selling Agent selling commissions and ongoing compensation or installment sales commissions as set forth above, a portion (as agreed between such Additional Selling Agent and each such Correspondent) of which shall be passed on by the Additional Selling Agent to such Correspondents. Ongoing compensation which cannot be paid because an Additional Selling Agent or a Correspondent (or a Registered Representative of either) has not met the eligibility requirements shall be retained by the Selling Agent. (e) The Selling Agent will use its best efforts to find eligible persons to purchase the Units on the terms stated herein and in the Registration Statement and 13 Prospectus. It is understood that the Selling Agent has no commitment with regard to the sale of the Units other than to use its best efforts. In connection with the offer and sale of the Units, the Selling Agent represents that it will comply fully with all applicable laws, and the rules of the NASD, the SEC, the CFTC, state securities administrators and any other regulatory body. In particular, and not by way of limitation, the Selling Agent represents and warrants that it is aware of Rule 2810 of the NASD (formerly Appendix F of the NASD Rules of Fair Practice) and that it will comply fully with all the terms thereof in connection with the offering and sale of the Units. The Selling Agent shall not execute any sales of Units from a discretionary account over which it has control without prior written approval of the customer in whose name such discretionary account is maintained. The Selling Agent agrees not to recommend the purchase of Units to any subscriber unless the Selling Agent shall have reasonable grounds to believe, on the basis of information obtained from the subscriber concerning, among other things, the subscriber's investment objectives, other investments, financial situation and needs, that the subscriber is or will be in a financial position appropriate to enable the subscriber to realize to a significant extent the benefits of the Fund, including tax benefits described in the Prospectus; the subscriber has a fair market net worth sufficient to sustain the risks inherent in participating in the Fund, including loss of investment and lack of liquidity; and the Units are otherwise a suitable investment for the subscriber. The Selling Agent agrees to maintain files of information disclosing the basis upon which the Selling Agent determined that the suitability requirements of Section (b)(2) of Rule 2810 of the NASD were met as to each subscriber (the basis for determining suitability may include the Subscription Agreements and Powers of Attorney and other certificates submitted by subscribers). The Selling Agent represents and warrants that it has reasonable grounds to believe, based on information in the Prospectus and information to which the Selling Agent has had access due to its affiliation with the General Partner, that all material facts relating to an investment in the Units are adequately and accurately disclosed in the Prospectus. In connection with making the foregoing representations and warranties, the Selling Agent further represents and warrants that it has, among other things, examined the Prospectus and obtained such additional information from the General Partner and the Trading Advisor regarding the information set forth thereunder as the Selling Agent has deemed necessary or appropriate to determine whether the Prospectus adequately and accurately discloses all material facts relating to an investment in the Fund and provides an adequate basis to subscribers for evaluating an investment in the Units. In connection with making the representations and warranties set forth in this paragraph, the Selling Agent has not relied on inquiries made by or on behalf of any other parties. The Selling Agent agrees to inform all prospective purchasers of Units of all pertinent facts relating to the liquidity and marketability of the Units as set forth in the Prospectus. 14 (f) None of the Selling Agent, the Fund or the General Partner shall, directly or indirectly, pay or award any finder's fees, commissions or other compensation to any person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchase of Units; provided, however, the normal sales commissions payable to a registered broker-dealer or other properly licensed person for selling Units shall not be prohibited hereby. (g) All payments for subscriptions shall be made by deposit of check or transfer of funds to the custodial account of the Fund as described in the Prospectus. (h) The General Partner agrees to cause its counsel to prepare and deliver to the Selling Agent a Blue Sky Survey which shall set forth, for the guidance of the Selling Agent, in which United States jurisdictions the Units may be offered and sold. It is understood and agreed that the Selling Agent may rely, in connection with the offering and sale of Units in any jurisdiction, on advice given by such counsel as to the legality of the offer or sale of the Units in such jurisdiction, provided, however, that the Selling Agent shall be responsible for compliance with all applicable laws, rules and regulations with respect to the actions of its employees, acting as such, in connection with sales of Units in any jurisdiction. Section 6. Covenants of the General Partner. (a) The General Partner will notify the Selling Agent, the Broker and the Trading Advisor immediately and confirm such notification in writing (i) when any amendment to the Registration Statement shall have become effective, (ii) of the receipt of any comments from the SEC, CFTC or any other Federal or state regulatory body with respect to the Registration Statement, (iii) of any request by the SEC, CFTC or any other Federal or state regulatory body for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information relating thereto and (iv) of the issuance by the SEC, CFTC or any other Federal or state regulatory body of any order suspending the effectiveness of the Registration Statement under the 1933 Act, the CFTC registration or NFA membership of the General Partner as a commodity pool operator, or the registration of Units under the Blue Sky or securities laws of any state or other jurisdiction or any order or decree enjoining the offering or the use of the then current Prospectus or of the institution, or notice of the intended institution, of any action or proceeding for that purpose. (b) The General Partner will deliver to the Selling Agent, as soon as available, a conformed copy of each amendment to the Registration Statement as originally filed including the Exhibits thereto, and will also deliver to the Selling Agent such additional number of conformed copies of the Registration Statement as originally filed and of each amendment thereto (including Exhibits) as the Selling Agent shall reasonably require. 15 (c) The General Partner will deliver to the Selling Agent as promptly as practicable from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as the Selling Agent, Wholesalers, Additional Selling Agents and Correspondents may reasonably request for the purposes contemplated by the 1933 Act or the SEC Regulations. (d) During the period when the Prospectus is required to be delivered pursuant to the 1933 Act, the General Partner and the Fund will use best efforts to comply with all requirements imposed upon them by the 1933 Act and the Commodity Act, each as now and hereafter amended, and by the SEC Regulations and rules and regulations of the CFTC, as from time to time in force, so far as necessary to permit the continuance of sales of, or dealings in, the Units during such period in accordance with the provisions hereof and as set forth in the Prospectus. (e) If any event relating to or affecting the General Partner or the Fund shall occur as a result of which it is necessary, in the reasonable opinion of the Selling Agent, to amend or supplement the Prospectus in order to make the Prospectus not materially misleading in light of the circumstances existing at the time it is delivered to a subscriber, the General Partner and the Fund will forthwith prepare and furnish to the Selling Agent, at the expense of the General Partner, a reasonable number of copies of an amendment or amendments of, or a supplement or supplements to, the Prospectus which will amend or supplement the Prospectus so that as amended or supplemented it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time the Prospectus is delivered to a subscriber, not misleading. No such amendment or supplement shall be filed without the approval of the Selling Agent, the Broker and the Trading Advisor. (f) The General Partner will use best efforts to qualify the Units for offer and sale under applicable securities or "Blue Sky" laws and continue such qualification throughout the Offering Period, provided that in no event shall the General Partner or the Fund be obligated to (i) take any action which would subject it to service of process in suits other than those arising out of the offering or sale of the Units, or taxes, in any jurisdiction where either is not now so subject, (ii) change any material term in the Registration Statement or (iii) expend a sum of money considered unreasonable by the General Partner. 16 Section 7. Covenants of the Trading Advisor. (a) The Trading Advisor agrees to cooperate, to the extent reasonably requested by the General Partner, in the preparation of any amendments or supplements relating to itself to the Registration Statement and the Prospectus. (b) During the period when the Prospectus is required to be delivered under the 1933 Act, the Trading Advisor agrees to notify the General Partner immediately upon discovery of any untrue or misleading statement regarding it, its operations or any of its principals or of the occurrence of any event or change in circumstances which would result in there being any untrue or misleading statement or an omission in the Prospectus or Registration Statement regarding it, its operations or any of its principals or result in the Prospectus not including all information relating to the Trading Advisor and its principals required pursuant to CFTC regulations. During such period, the Trading Advisor shall promptly inform the General Partner if it is necessary to amend or supplement the Prospectus in order to make the Prospectus not materially misleading in light of the circumstances existing at the time the Prospectus is delivered to a subscriber. Section 8. Covenants of the Broker. (a) The Broker agrees to cooperate, to the extent reasonably requested by the General Partner, in the preparation of any amendments or supplements relating to itself to the Registration Statement and the Prospectus. (b) During the period when the Prospectus is required to be delivered under the 1933 Act, the Broker agrees to notify the General Partner immediately upon discovery of any untrue or misleading statement regarding it, its operations or any of its principals or of the occurrence of any event or change in circumstances which would result in there being any untrue or misleading statement or an omission in the Prospectus or Registration Statement regarding it, its operations or any of its principals or result in the Prospectus not including all information relating to the Broker and its principals required pursuant to CFTC regulations. During such period, the Broker shall promptly inform the General Partner if it is necessary to amend or supplement the Prospectus in order to make the Prospectus not materially misleading in light of the circumstances existing at the time the Prospectus is delivered to a subscriber. Section 9. Payment of Expenses and Fees. The General Partner will pay all expenses incident to the performance of the obligations of the General Partner and the Fund hereunder, including: (i) the printing and delivery to the Selling Agent in quantities as hereinabove stated of copies of the Registration Statement and all amendments thereto, of the Prospectus and any supplements or amendments thereto, and of any supplemental sales materials; (ii) the reproduction of this Agreement and the printing and filing of the Registration Statement and the Prospectus (and, in certain cases, the exhibits thereto) with the SEC, CFTC and NFA; (iii) the qualification of the Units 17 under the securities or "Blue Sky" laws in the various jurisdictions, including filing fees and the fees and disbursements of the General Partner's counsel incurred in connection therewith; (iv) the services of counsel and accountants for the General Partner and the Fund, including certain services of Arthur F. Bell, Jr. & Associates, L.L.C. in connection with their review of the performance records in the Prospectus; (v) the printing or reproduction and delivery to the Selling Agent of such number of copies as it may reasonably request of the Blue Sky Survey; and (vi) "road show" presentations (not including the expenses of the Trading Advisor and their personnel which shall be borne by the Trading Advisor). The General Partner and the Selling Agent are each aware of the limitations imposed by Rule 2810 of the NASD on the aggregate selling commissions which may be received by the Selling Agent in connection with the offering and sale of the Units. The General Partner will in no event make any payments to the Selling Agent nor shall the Selling Agent make any payments to its own Registered Representatives or any Additional Selling Agents as described above, which would exceed 9.5% of the gross proceeds of the Units sold to the public. The General Partner shall not reimburse the Selling Agent for any due diligence expenses in connection with the offering. Section 10. Conditions of Closing. The obligations of each of the parties hereunder are subject to the accuracy of the representations and warranties of the other parties hereto, to the performance by such other parties of their respective obligations hereunder and to the following further conditions: (a) At the Initial Public Closing Time and each Subsequent Public Closing Time no order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceeding therefor initiated or threatened by the SEC and no objection to the content thereof shall have been expressed or threatened by the CFTC or the NFA. (b) At the Initial Closing Time, Sidley & Austin, counsel to the General Partner, shall deliver to all the parties hereto its opinion, in form and substance satisfactory to each of the parties hereto, to the effect that: (i) The Certificate of Limited Partnership pursuant to which the Fund has been formed and the Limited Partnership Agreement each provides for the subscription for and sale of the Units; all action required to be taken by the General Partner and the Fund as a condition to the subscription for and sale of the Units to qualified sub scribers therefor has been taken; and, upon payment of the consideration therefor specified in the accepted Subscription Agreements and Powers of Attorney, the Units will constitute valid limited partnership interests in the Fund and each subscriber who purchases Units will become a Limited Partner, subject to the requirement that each such purchaser shall have duly completed, executed and delivered to the Fund a Subscription Agreement and Power of Attorney relating to the Units purchased by such party, that such 18 purchaser meets all applicable suitability standards as set forth in the Prospectus and that the representations and warranties of such purchaser in the Subscription Agreement and Power of Attorney are true and correct. (ii) The Fund is a limited partnership duly organized pursuant to the Certificate of Limited Partnership, the Limited Partnership Agreement and DRULPA and validly existing under the laws of the State of Delaware with partnership power and authority to conduct the business in which it proposes to engage as described in the Prospectus; the Fund has qualified to do business in Texas and need not effect any other filings or qualifications under the laws of the United States and the States of Illinois, New York, Texas and California and the District of Columbia in order to preserve the status of the Fund as a limited partnership or to enable the Fund to perform its obligations under the Advisory Agreement and this Agreement and to conduct the business in which it proposes to be engaged as described in the Prospectus. (iii) The General Partner is duly organized and validly existing and in good standing as a corporation under the laws of the State of Texas with corporate power and authority to act as general partner of the Fund, and is qualified to do business and is in good standing as a foreign corporation in each other jurisdiction in which the failure to so qualify might, in their opinion, reasonably be expected to result in material adverse consequences to the Fund. The General Partner has full corporate power and authority to perform its obligations as described in the Registration Statement and Prospectus. (iv) Each of the General Partner (including the principals, as defined in the Commodity Act, of the General Partner) and the Fund has all Federal and state governmental and regulatory licenses and approvals and has received or made all filings and registrations with Federal and state governmental and regulatory agencies necessary in order for each of the General Partner and the Fund to conduct its business as described in the Registration Statement and Prospectus, and, to the best of their knowledge, none of such approvals, licenses or registrations have been rescinded or revoked. (v) Each of the Limited Partnership Agreement, the Advisory Agreement, the Customer Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement and this Agreement has been duly and validly authorized, executed and delivered by or on behalf of the General Partner or the Fund (as the case may be) and assuming that such agreements are legal, valid and 19 binding on the other parties hereto and thereto, each of the Limited Partnership Agreement, the Advisory Agreement, the Customer Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement and this Agreement constitutes a legal, valid and binding agreement of the General Partner or the Fund (as the case may be) enforceable in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (vi) The execution and delivery of this Agreement, the Limited Partnership Agreement, the Customer Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement and the Advisory Agreement and the incurrence of the obligations herein and therein set forth and the consummation of the transactions contemplated herein and therein and in the Prospectus will not be in contravention of any of the provisions of the General Partner's certificate of incorporation or by-laws, of the Limited Partnership Agreement, and, to their knowledge, will not constitute a breach of, or default under, any instrument by which the General Partner or the Fund is bound or any order, rule or regulation applicable to the General Partner or the Fund of any court or any governmental body or administrative agency having jurisdiction over the General Partner or the Fund. (vii) To their knowledge, there are no actions, claims or proceedings pending or threatened in any court or before or by any governmental or administrative body, nor have there been any such suits, claims or proceeding within the last five years, to which the General Partner (or any principal of the General Partner) or the Fund is or was a party, or to which any of their assets is or was subject, which are required to be, but are not disclosed in, the Registration Statement or Prospectus or which might reasonably be expected to materially adversely affect the condition (financial or otherwise), business or prospects of the General Partner or the Fund. (viii) No authorization, approval or consent of any governmental authority or agency is necessary in connection with the subscription for and sale of the Units, except such as may be required under the 1933 Act, the Commodity Act, NFA compliance rules or applicable securities or "Blue Sky" laws. 20 (ix) The terms and provisions of the Limited Partnership Agreement, the Customer Agreement, the Advisory Agreement, the Investment Advisory Agreement, the Additional Selling Agents Agreement and this Agreement conforms in all material respects to descriptions thereof contained in the Prospectus. (x) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge, no proceedings for a stop order are pending or threatened under Section 8(d) of the 1933 Act. (xi) At the time the Registration Statement initially became effective and at the time any post-effective amendment thereto became effective, the Registration Statement, and at the time the Prospectus and any amendments or supplements thereto were first issued, the Prospectus, complied as to form in all material respects with the requirements of the 1933 Act, the SEC Regulations under the 1933 Act and CFTC regulations. Nothing has come to their attention that would lead them to believe that with respect to the General Partner and the Selling Agent (a) at the time the Registration Statement initially became effective and at the time any post-effective amendment thereto became effective, the Registration Statement contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Prospectus as first issued or as subsequently issued or at the Initial Public Closing Time contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that such counsel need express no opinion (A) as to the financial statements, notes thereto and other financial or statistical data set forth in the Registration Statement and Prospectus or (B) as to any performance data set forth in the Registration Statement, and Prospectus, including the performance summaries (and the notes thereto) in the Registration Statement and Prospectus, except that such counsel shall opine, without rendering any opinion as to the accuracy of the information in the performance summaries, that such the performance summaries comply as to form in all material respects with applicable CFTC rules. (xii) Such counsel confirm their opinion, a form of which appears as Exhibit 8.01 to the Registration Statement, that the sum mary of Federal income tax consequences to Limited Partners set forth under the caption "Tax Consequences" in the Prospectus accurately describes the material tax consequences set forth therein 21 and that such counsel further confirm their advice to the General Partner explicitly set forth therein and in such Exhibit 8.01. (xiii) To the best of their knowledge, (a) there are no contracts, indentures, mortgages, loan agreements, leases or other documents of a character required to be described or referred to in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement other than those described or referred to therein or filed as exhibits thereto, and with respect to the existing contracts, indentures, mortgages, loan agreements, leases and other documents so described, referred to or filed, the descriptions thereof, references thereto or copies so filed are correct in all material respects, and (b) no material default on the part of the General Partner or the Fund exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract or lease so described or filed. (xiv) Assuming operation in accordance with the Prospectus, the Fund, at Closing Time, is not an "investment company" as that term is defined in the Investment Company Act of 1940, as amended. In rendering the opinions set forth above, Sidley & Austin may rely as to certain matters relating to the General Partner on Fishman, Jones, Walsh & Gray, P.C. (c) Counsel to the Selling Agent shall deliver to all the parties hereto, an opinion to the effect that: (i) The Selling Agent is duly organized and validly existing and in good standing as a corporation under the laws of the State of Texas and is qualified to do business and in good standing as a foreign corporation in each jurisdiction in which such qualification is required and in which the failure to so qualify might, in such counsel's opinion, reasonably be expected to result in material adverse consequences to the Fund. The Selling Agent has full corporate power and authority to perform its obligations as described in the Registration Statement and Prospectus. (ii) This Agreement has been duly authorized, executed and delivered by the Selling Agent, and constitutes a legal, valid and binding agreement of the Selling Agent enforceable in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability relating to or affecting the enforcement of creditors' rights and by the effect of general principles of equity (regardless of whether enforceability is considered). (iii) The Selling Agent has all Federal and state governmental and regulatory licenses and approvals and has received or made all filings and registrations with Federal and state governmental and regulatory agencies necessary in order for the Selling Agent to conduct its business as described in the Registration Statement and Prospectus, and, to such counsel's knowledge, none of such approvals, licenses or registrations has been rescinded or revoked. (iv) The execution and delivery of this Agreement, the incurrence of the obligations herein set forth and the consummation of the transactions contemplated herein and in the Prospectus will not, to the best of such counsel's knowledge, constitute a breach of, or default under, any instrument known to such counsel by which the Selling Agent is bound or, any order, rule or regulation applicable to the Selling Agent, of any court or any governmental body or administrative agency having jurisdiction over the Broker. (v) To such counsel's knowledge, there are no actions, claims or proceedings pending or threatened in any court or before or by a governmental or administrative body, nor have there been any suits, claims or proceedings within the last five years, to which the Selling Agent (or any principal of the Selling Agent) is or was a party or to which any of its assets is or was subject, which are required to be 22 disclosed in the Registration Statement or Prospectus or which might reasonably be expected to materially adversely affect the business of the Selling Agent. (vi) Nothing has come to such counsel's attention that would lead such counsel to believe that (a) at the time the Registration Statement initially became effective and at the time any post- effective amendment thereto became effective, insofar as the Selling Agent and its principals are concerned, the Registration Statement contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Prospectus as first filed pursuant to Rule 424(b) or as subsequently filed pursuant to Rule 424 or at the Initial Public Closing Time contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein relating to the Selling Agent or its principals, in light of the circumstances under which they were made, not misleading. (d) Counsel to the Trading Advisor shall deliver to the General Partner, the Broker and the Selling Agent an opinion as of the Initial Public Closing Time to the effect that: (i) The Trading Advisor is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and is in good standing in each jurisdiction in which the nature or conduct of its business requires such qualification and in which the failure to so qualify might reasonably be expected to materially adversely affect the Fund, as described in the Registration Statement and Prospectus, and its ability to discharge its obligations under the Advisory Agreement and this Agreement. (ii) Each of the Advisory Agreement and this Agreement has been duly authorized, executed and delivered by the Trading Advisor and constitutes a valid, binding and enforceable agreement of the Trading Advisor in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability generally of rights of creditors and except as enforceability of the indemnification provisions contained in such Agreements may be limited by applicable law and the enforcement of specific terms or remedies may be unavailable. (iii) The Trading Advisor (including the principals of the Trading Advisor) has all material Federal and state governmental and regulatory licenses and approvals and has received or made all filings 23 and registrations with Federal and state governmental and regulatory authorities necessary in order for the Trading Advisor to conduct its business as described in the Registration Statement and Prospectus (including, without limitation, performance of this Agreement and the Advisory Agreement) and, to the best of such counsel's knowledge, none of such approvals, licenses or registrations has been rescinded or revoked. (iv) There is not pending or, to the best of such counsel's knowledge, threatened any actions, suits or proceedings before or by any court or other governmental or administrative body, nor have there been any such suits, claims or proceedings within the last five years to which the Trading Advisor, or any of its principals, is or was a party, or to which any of their assets is or was subject, which are required to be, but are not disclosed in the Registration Statement or Prospectus or which might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), business or prospects of the Trading Advisor. (v) The execution and delivery of this Agreement and the Advisory Agreement, the incurrence of the obligations herein and therein set forth and the consummation of the transactions contemplated herein, therein and in the Prospectus will not be in contravention of any of the provisions of the certificate of incorporation or by-laws of the Trading Advisor, or, to the best of such counsel's knowledge, constitute a breach of, or default under, any instrument by which the Trading Advisor is bound or any order, rule or regulation applicable to the Trading Advisor of any court or any governmental body or administrative agency having jurisdiction over the Trading Advisor. (vi) Nothing has come to such counsel's attention that would lead such counsel to believe that (a) at the time the Registration Statement initially became effective and at the time any post- effective amendment thereto became effective, insofar as the Trading Advisor and its principals are concerned, the Registration Statement contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (b) the Prospectus as first filed pursuant to Rule 424(b) or as subsequently filed pursuant to Rule 424 or at the Initial Public Closing Time contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein relating to the Trading Advisor or its principals, in light of the circumstances under which they were made, not misleading; provided, however, that no counsel for the Trading Advisor need express an opinion or belief (A) as to the financial state- 24 ments, notes thereto and other financial or statistical data and notes or descriptions thereto set forth in the Registration Statement and Prospectus or (B) as to the performance data and notes or descriptions thereto set forth in the Registration Statement, except that such counsel shall opine, without rendering any opinion as to the accuracy of the information in such performance summaries, that the performance summaries relating to the Trading Advisor set forth in the Prospectus comply as to form in all material respects with CFTC rules. (e) At the Initial Public Closing Time, the General Partner shall deliver a certificate to the effect that: (i) no order suspending the effectiveness of the Registration Statement has been issued and to the best of its knowledge no proceedings therefor have been instituted or threatened by the SEC, the CFTC or other regulatory body; (ii) the representations and warranties of the General Partner contained herein are true and correct with the same effect as though expressly made at the Initial Closing Time and in respect of the Registration Statement as in effect at the Initial Public Closing Time; and (iii) the General Partner has performed all covenants and agreements herein contained to be performed on its part at or prior to the Initial Public Closing Time. Such certificate may state that the General Partner has relied upon the Trading Advisor to provide certain information relating to the Trading Advisor for use in the Registration Statement. (f) The Trading Advisor shall deliver a report dated as of the Initial Public Closing Time which shall present, for the period from the date after the last day covered by the performance summaries in the Prospectus to the latest practicable day before the Initial Public Closing Time, figures which shall be a continuation of such performance records and which shall certify that such figures are accurate in all material respects. The Trading Advisor shall also certify that such performance summaries have been calculated in accordance with the notes to the applicable performance summaries in the Prospectus. (g) If requested by the General Partner, at the time the Registration Statement initially becomes effective, Arthur F. Bell, Jr. & Associates, L.L.C. shall have delivered a letter, substantially in the form previously agreed upon by the Selling Agent and the General Partner. (h) If requested by the General Partner, at the Initial Public Closing Time, Arthur F. Bell, Jr. & Associates, L.L.C. shall deliver a letter in a form satisfactory to the Selling Agent and the General Partner, substantially the same in scope and substance as the letter described in paragraph (h) of this Section 10, dated as of Initial Public Closing Time. (i) At the Initial Public Closing Time, the Trading Advisor shall make an investment in the Units in accordance with the Advisory Agreement. 25 (j) At the Initial Public Closing Time, the Trading Advisor shall deliver a certificate to the effect that (i) the representations and warranties of contained herein are true and correct with the same effect as though expressly made at the Initial Public Closing Time, (ii) the Trading Advisor has performed all covenants and agreements herein contained to be performed on its part at or prior to the Initial Public Closing Time and (iii) since the date of the most recent financial information relating to the Trading Advisor prior to the date of this Agreement there has been no material adverse change, or development involving a prospective material adverse change, in the financial condition, business or business prospects of the Trading Advisor. (k) At the Initial Public Closing Time, the Broker shall deliver a certificate to the effect that the representations and warranties of the Broker contained herein are true and correct with the same effect as though expressly made at the Initial Public Closing Time and in respect of the Registration Statement as in effect at the Initial Public Closing Time. (l) At the Initial Public Closing Time, the Selling Agent shall deliver a certificate to the effect that the representations and warranties of the Selling Agent contained herein are true and correct with the same effect as though expressly made at the Initial Public Closing Time and in respect of the Registration Statement as in effect at the Initial Public Closing Time. (m) The parties hereto shall have been furnished with such additional information, opinions and documents, including supporting documents relating to parties described in the Prospectus and certificates signed by such parties with regard to information relating to them and included in the Prospectus as they may reasonably require for the purpose of enabling them to pass upon the sale of the Units as herein contemplated and related proceedings, in order to evidence the accuracy or completeness of any of the representations or warranties or the fulfillment of any of the conditions herein contained; and all actions taken by the parties hereto in connection with the sale of the Units as herein contemplated shall be reasonably satisfactory in form and substance to counsel to the Trading Advisor, counsel to the Broker, counsel to the Selling Agent and Sidley & Austin. If any of the conditions specified in this Section 10 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement and all obligations hereunder may be canceled by any party hereto by notifying the other parties hereto of such cancellation in writing or by telegram at any time at or prior to the Initial Public Closing Time, and any such cancellation or termination shall be without liability of any party to any other party except as otherwise provided in Section 9. (n) The representations and warranties set forth herein shall be restated as of each Subsequent Closing Time as if made as of the date thereof. The conditions of closing set 26 forth in this Section 10 shall, at the option of the General Partner, apply at each Subsequent Closing Time. Section 11. Indemnification and Exculpation. (a) Indemnification by the General Partner. The General Partner agrees to indemnify and hold harmless the Selling Agent, the Broker, any Wholesaler, any Additional Selling Agent, any Correspondent, the Broker and the Trading Advisor and each person, if any, who controls the Selling Agent, the Broker or the Trading Advisor within the meaning of Section 15 of the 1933 Act, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) or any omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, unless (a) in the case of the Trading Advisor, such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to the Trading Advisor furnished or approved in writing by the Trading Advisor, (b) in the case of the Selling Agent, such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to the Selling Agent or furnished or approved by the Selling Agent, (c) in the case of the Broker, such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to the Broker furnished or approved by the Broker or (d) in the case of any Wholesaler, Additional Selling Agent or Correspondent, such untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with information relating to such Wholesaler, Additional Selling Agent or Correspondent furnished or approved by such Wholesaler, Additional Selling Agent or Correspondent; (ii) against any and all loss, liability, claim, damage and expense whatsoever to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission 27 or any such alleged untrue statement or omission (any settlement to be subject to indemnity hereunder only if effected with the written consent of the General Partner); and (iii) against any and all expense whatsoever (including the fees and disbursements of counsel) reasonably incurred in investigating, preparing or defending against litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under clauses (i) or (ii) above. In no case shall the General Partner be liable under this indemnity agreement with respect to any claim made against any indemnified party unless the General Partner shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure to so notify the General Partner shall not relieve the General Partner from any liability which it may have otherwise than on account of this indemnity agreement. The General Partner shall be entitled to participate at its own expense in the defense or, if it so elects within a reasonable time after receipt of such notice, to assume the defense of that portion of any suit so brought relating to the General Partner's indemnification obligations hereunder, which defense shall be conducted by counsel chosen by it and satisfactory to the indemnified party or parties, defendant or defendants therein. In the event that the General Partner elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties, defendant or defendants in the suit, shall, in the absence of conflicting claims, bear the fees and expenses of any additional counsel thereafter retained by it or them. In no event, however, shall the General Partner be obligated to indemnify the Selling Agent hereunder, and the Selling Agent agrees not to attempt to obtain any indemnity from the General Partner hereunder, to the extent that the General Partner and the Selling Agent are advised by counsel reasonably satisfactory to the General Partner and the Selling Agent that payment of such indemnity could adversely affect the classification of the Fund as a partnership for Federal income tax purposes. The General Partner agrees to notify the Trading Advisor, the Broker and the Selling Agent within a reasonable time of the assertion of any claim in connection with the sale of the Units against it or any of its officers or directors or any person who controls the General Partner within the meaning of Section 15 of the 1933 Act. (b) Indemnification by the Trading Advisor. The Trading Advisor agrees to indemnify and hold harmless the Selling Agent, the Broker, the General Partner, the Fund and each person, if any, who controls the Selling Agent, the Broker, the Fund or the General Partner within the meaning of Section 15 of the 1933 Act (and, in the case of the General Partner and the Fund, each person who signed the Registration 28 Statement or is a director of the General Partner), to the same extent as the indemnity from the General Partner set forth in Section 11(a) hereof, but only insofar as the losses, claims, damages, liabilities or expenses indemnified against arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission relating or with respect to the Trading Advisor or any principal of the Trading Advisor, or their operations, trading systems, methods or performance, which was made in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and furnished by or approved by the Trading Advisor for inclusion therein. (c) Indemnification by the Broker. The Broker agrees to indemnify and hold harmless the Selling Agent, the Trading Advisor, the General Partner, the Fund and each person, if any, who controls the Selling Agent, the Trading Advisor, the Fund or the General Partner within the meaning of Section 15 of the 1933 Act (and, in the case of the General Partner and the Fund, each person who signed the Registration Statement or is a director of the General Partner), to the same extent as the indemnity from the General Partner set forth in Section 11(a) hereof, but only insofar as the losses, claims, damages, liabilities or expenses indemnified against arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission relating or with respect to Broker, which was made in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and furnished by or approved by the Broker for inclusion therein. (d) Indemnification by the Selling Agent. The Selling Agent agrees to indemnify and hold harmless the Broker, the General Partner, the Fund, the Trading Advisor and each person, if any, who controls the Broker, the General Partner, the Fund or the Trading Advisor within the meaning of Section 15 of the 1933 Act (and in the case of the General Partner and the Fund, each person who signed the Registration Statement or is a director of the General Partner), (i) to the same extent as the indemnify from the General Partner set forth in Section 11(a) hereof, but only insofar as the losses, claims, damages, liabilities or expenses indemnified against arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission relating or with respect to the Selling Agent or any of its principals, or their operations, which was made in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and furnished by or approved by the Selling Agent for inclusion therein and (ii) against any and all loss, liability, claim, damage and expense whatsoever resulting from a demand, claim, lawsuit, action or proceeding relating to the actions or capacities of the Selling Agent (including a breach of its obligations hereunder) and any Wholesaler, Additional Selling Agent or Correspondent relating to the offering of Units under this Agreement or any Wholesaling Agreement, Additional Selling Agent Agreement or Correspondent Selling Agent Agreement as the case may be. (e) Contribution. If the indemnification provided for in this Section 11 is not permitted under applicable law under subsection (a), (b), (c) or (d) above in 29 respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Trading Advisor, on the one hand, and, the Selling Agent, the Broker and the General Partner, on the other, from the offering of the Units. (f) Limitation on Certain Indemnifications and Exculpations. The exculpation provisions in the Advisory Agreement shall not relieve the Trading Advisor from any liability it may have or incur to the Fund, the General Partner, the Selling Agent or the Broker under this Agreement (including, without limitation, pursuant to the provisions of Section 11(b) hereof). Nor shall the Trading Advisor be entitled to be indemnified by the General Partner, pursuant to the indemnification provisions contained in the Advisory Agreement, against any loss, liability, damage, cost or expense it may incur under this Agreement. The General Partner shall not be entitled to be indemnified by the Fund, pursuant to the indemnification provisions contained in the Limited Partner ship Agreement against any loss, liability, damage, cost or expense it may incur under this Agreement. Section 12. Status of Parties. In selling the Units for the Fund, the Selling Agent is acting solely as an agent for the Fund and not as a principal. The Selling Agent will use its best efforts to assist the Fund in obtaining performance by each purchaser whose offer to purchase Units from the Fund has been accepted on behalf of the Fund, but the Selling Agent shall not have any liability to the Fund in the event that Subscription Agreements and Powers of Attorney are improperly completed or any such purchase is not consummated for any reason. Although the Trading Advisor and the Fund have entered into the Advisory Agreement, all parties hereto acknowledge that none of such parties has the power to act for another in any respect, except as set forth in the Advisory Agreement, and that in no event shall the Fund be held responsible hereunder for the acts and omissions of the Trading Advisor (or, conversely, the Trading Advisor be held responsible for acts and omissions of the Fund) as a consequence of the Advisory Agreement. Section 13. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or contained in certificates of any party hereto submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by, or on behalf of, the Selling Agent, the General Partner, the Fund, the Broker, the Trading Advisor or any person who controls any of the foregoing and shall survive the Initial Public Closing Time. Section 14. Termination. The General Partner shall have the right to terminate this Agreement at any time prior to the Initial Public Closing Time by giving written notice of such termination to the Trading Advisor, the Selling Agent and the Broker. Section 15. Notices and Authority to Act. All communications hereunder shall be in writing and, if sent to the Selling Agent, the General Partner, the Broker, the Trading Advisor or 30 the Fund, shall be mailed, delivered or telegraphed and confirmed as set forth below and shall be effective when actually received. If to the General Partner: ------------------------- ProFutures Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 Attention: Gary Halbert Phone: (512) 263-3800 Telecopier: (512) 263-3459 If to the Fund: -------------- ProFutures Bull & Bear Fund, L.P. c/o ProFutures, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 Attention: Gary Halbert Phone: (512) 263-3800 Telecopier: (512) 263-3459 If to the Selling Agent: ----------------------- ProFutures Financial Group, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 Attention: Gary Halbert Phone: (512) 263-3800 Telecopier: (512) 263-3459 If to the Broker: ---------------- ING (U.S.) Securities, Futures & Options, Inc. 233 S. Wacker Drive Suite 5200 Chicago, IL 60606 Attention: Brac Carr Phone: (312) 496-7000 Facsimile: (312) 496-7214 31 If to the Advisor: ----------------- Hampton Investors, Inc. 2519 Avenue U Brooklyn, New York 11229 Attention: Charles & Gary Mizrahi Phone: (800) 524-4832 Telecopier: (718) 891-2455 Section 16. Parties. This Agreement shall inure to the benefit of and be binding upon the Selling Agent, the Fund, the General Partner, the Broker, the Trading Advisor and such parties' respective successors to the extent provided herein. This Agreement and the conditions and provisions hereof are intended to be and are for the sole and exclusive benefit of the parties hereto and their respective successors, assigns and controlling persons and parties indemnified hereunder, and for the benefit of no other person, firm or corporation. No purchaser of a Unit shall be considered to be a successor or assign solely on the basis of such purchase. Section 17. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Section 18. Requirements of Law. Whenever in this Agreement it is stated that a party will take or refrain from taking a particular action, such party may nevertheless refrain from taking or take such action if advised by counsel that doing so is required by law or advisable to ensure compliance with law, and shall not be subject to any liability hereunder for doing so, although such action shall permit termination of the Agreement by the other parties hereto. 32 If the foregoing is in accordance with each party's understanding of its agreement, each party is requested to sign and return to the General Partner a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement among them in accordance with its terms. Very truly yours, PROFUTURES BULL & BEAR FUND, L.P. BY: PROFUTURES, INC., General Partner By: ------------------------------------- Name: Title: HAMPTON INVESTORS, INC., Trading Advisor By: ------------------------------------- Name: Title: ING. (U.S.) SECURITIES, FUTURES & OPTIONS, INC., Broker By: ------------------------------------- Name: Title: PROFUTURES, INC., General Partner By: ------------------------------------- Name: Title: 33 Confirmed and accepted as of the date first above written: PROFUTURES FINANCIAL GROUP, INC., Selling Agent By: ------------------------- Name: Title: 34 EX-3.01 3 CERTIFICATE OF LIMITED PARTNERSHIP EXHIBIT 3.01 CERTIFICATE OF LIMITED PARTNERSHIP OF PROFUTURES BULL & BEAR FUND, L.P. This Certificate of Limited Partnership of ProFutures Bull & Bear Fund, L.P. (the "Partnership"), dated as of the 18th day of August, 1997, is being executed and filed by the undersigned in accordance with the provisions of 6 Del.C. Sec.17-201 to form a limited partnership under the Delaware Revised Uniform Limited Partnership Act (6 Del.C. Sec.17-101, et. seq.). 1. Name. The name of the limited partnership formed pursuant to this Certificate is "ProFutures Bull & Bear Fund, L.P." 2. Registered Office. The address of the registered office of the Partnership in the State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. 3. Registered Agent. The name and address of the registered agent for service of process on the Partnership in the State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. 4. General Partner. The name and business address of the general partner of the Partnership are: PROFUTURES, INC. 1310 Highway 620 South - Suite 200 Austin, Texas 78734 IN WITNESS WHEREOF, the undersigned general partner has executed this Certificate of Limited Partnership as of the date first written above. PROFUTURES, INC. By: /s/ Patrick W. Watson --------------------------------- Patrick W. Watson, Vice President EX-5.01 4 OPINION OF SIDLEY & AUSTIN-LEGALITY OF UNITS EXHIBIT 5.01 SIDLEY & AUSTIN A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS DALLAS One First National Plaza WASHINGTON, D.C. ------ Chicago, Illinois 60603 ------ LOS ANGELES Telephone 312 853 7000 LONDON ------ Facsimile 312 853 7036 ------ NEW YORK SINGAPORE Founded 1866 ------ TOKYO September 9, 1998 ProFutures, Inc. as general partner of ProFutures Bull & Bear Fund, L.P. 1310 Highway 620 South Suite 200 Austin, Texas 78734 Re: ProFutures Bull & Bear Fund, L.P. $60,000,000 of Units of Limited Partnership Interest (the "Units") ----------------------------------------- Dear Sir or Madam: We refer to the Registration Statement on Form S-1 (the "Registration Statement") filed by ProFutures Bull & Bear Fund, L.P., a Delaware limited partnership (the "Partnership"), on or about September 10, 1998 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration of $60,000,000 of Units of the Partnership. Capitalized terms not defined herein have the meanings specified in the Registration Statement. We are familiar with the proceedings to date with respect to the proposed issuance and sale of the Units pursuant to the Prospectus and have examined such records, documents and questions of law, and satisfied ourselves as to such matters of fact, as we have considered relevant and necessary as a basis for this opinion. For purposes of rendering this opinion, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such copies. Based on the foregoing, we are of the opinion that: 1. The Partnership has been duly formed and is validly existing in good standing as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the "Act"). 2. The General Partner has taken all corporate action required to be taken by it to authorize the issuance and sale of the Units to prospective investors and to authorize the admission to the Partnership of the persons purchasing Units as Limited Partners of the Partnership. 3. Assuming (i) the due authorization, execution and delivery to the General Partner of a Subscription Agreement and Power of Attorney (the "Subscription Agreement") by each subscriber for Units (the "Subscribers"), (ii) the due acceptance by the General Partner of each Subscription Agreement and the due acceptance by the General Partner of the admission of each of the Subscribers as a Limited Partner of the Partnership, (iii) the payment by each Subscriber to the Partnership of the full consideration due for the Units to which such Subscriber has subscribed, (iv) that the books and records of the Partnership set forth all information required by the Limited Partnership Agreement and the Act, including Sidley & Austin Chicago ProFutures, Inc. September 9, 1998 Page 2 all information with respect to all persons and entities to be admitted as Limited Partners and their contributions to the Partnership, (v) that the Subscribers, as Limited Partners of the Partnership, do not participate in the control of the business of the Partnership within the meaning of the Act, (vi) that the Units are offered and sold as described in the Prospectus and the Limited Partnership Agreement and (vii) that the Subscribers meet all of the applicable suitability standards set forth in the Prospectus and that the representations and warranties of the Subscribers in their respective Subscription Agreements are true and correct, the Units to be issued to the Subscribers will represent valid and legally issued limited partner interests in the Partnership and, subject to the qualifications set forth below, will be fully paid and nonassessable limited partner interests in the Partnership, as to which the Subscribers, as limited partners of the Partnership, will have no liability in excess of their obligations to make contributions to the Partnership, their obligations to make other payments provided for in the Limited Partnership Agreement and their share of the Partnership's assets and undistributed profits (subject to the obligation of a Limited Partner to repay funds distributed to such Limited Partners by the Partnership in certain circumstances). 4. There are no provisions in the Limited Partnership Agreement the inclusion of which, subject to the terms and conditions set forth therein, would cause the Limited Partners, as limited partners of the Partnership, to be deemed to be participating in the control of the business of the Partnership within the meaning of the Act. This opinion is limited to the Act and the General Corporation Law of the State of Delaware. We express no opinion as to the application of the securities or blue sky laws of the various states (including the State of Delaware) to the sale of the Units. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to all references to our firm included in or made a part of the Registration Statement. Very truly yours, SIDLEY & AUSTIN EX-8.01 5 OPINION OF SIDLEY & AUSTIN-FED. INCOME TAX EXHIBIT 8.01 SIDLEY & AUSTIN A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS DALLAS One First National Plaza WASHINGTON, D.C. ------ Chicago, Illinois 60603 ------ LOS ANGELES Telephone 312 853 7000 LONDON ------ Facsimile 312 853 7036 ------ NEW YORK SINGAPORE Founded 1866 ------ TOKYO September 8, 1998 ProFutures, Inc. as general partner of ProFutures Bull & Bear Fund, L.P. 1310 Highway 620 South Suite 200 Austin, Texas 78734 Re: Registration Statement on Form S-1 ---------------------------------- Dear Sir or Madam: We have acted as your counsel in connection with the preparation and filing with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended, of the Registration Statement on Form S-1 to be filed with the SEC on or about September 8, 1998, (the "Registration Statement"), relating to Units of Limited Partnership Interest ("Units") of ProFutures Bull & Bear Fund, L.P. (the "Fund"), a limited partnership organized under the Delaware Revised Uniform Limited Partnership Act. We have reviewed such data, documents, questions of law and fact and other matters as we have deemed pertinent for the purpose of this opinion. Based upon the foregoing, we hereby confirm our opinions expressed under the caption "Tax Consequences" in the Prospectus (the "Prospectus") constituting a part of the Registration Statement that: (i) based on the type of income expected to be earned by the Fund, the Fund will be taxed as a partnership for federal income tax purposes; (ii) each Partner will be required to report on his tax return his allocable share of the Fund's income, gains, losses, and deductions; (iii) based on the contemplated trading activities of the Fund, the income earned by the Fund will not constitute "unrelated business taxable income" under section 511 of the Code to employee benefit plans and other tax-exempt entities which purchase Units; provided that such Units purchased by such plans and entities are not "debt-financed" within the meaning of section 514 of the Code. We also advise you that in our opinion the description set forth under the caption "Tax Consequences" in the Prospectus correctly describes (subject to the uncertainties referred to therein) the material aspects of the federal income tax treatment to United States individual investors, as of the date hereof, of an investment in the Fund. We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the inclusion in the Prospectus of our opinion set forth under the caption "Federal Income Tax Consequences." Very truly yours, SIDLEY & AUSTIN EX-10.01 6 FIRST AMEND. AND RESTATEMENT OF ADVISORY CONTRACT EXHIBIT 10.01 PROFUTURES BULL & BEAR FUND, L.P. FIRST AMENDMENT AND RESTATEMENT OF ADVISORY CONTRACT This FIRST AMENDMENT AND RESTATEMENT OF ADVISORY CONTRACT (the "Agreement") is made as of the 31st day of August, 1998, by and between PROFUTURES BULL & BEAR FUND, L.P., a Delaware limited partnership (the "Fund"), and HAMPTON INVESTORS, INC., a New York corporation (the "Advisor"). W I T N E S S E T H: WHEREAS, the Fund is a limited partnership organized for the purpose of buying, selling, trading and generally dealing in commodity futures and options contracts and other commodity interests (including spot and forward contracts on currencies and options on currencies); WHEREAS, the Fund and the Advisor entered into an Advisory Contract, dated September 1, 1997 (the "First Agreement"), at which time the Fund was offering its Limited Partnership Interests (the "Interests") for sale to qualified investors pursuant to a Private Offering Memorandum and Disclosure Document, dated September 1, 1997; WHEREAS, the Fund expects to offer the Interests to the public pursuant to a Prospectus filed with the Securities and Exchange Commission as part of the Fund's Registration Statement on Form S-1 (the "Prospectus"); and WHEREAS, the Fund and the Advisor wish to enter into this Agreement in order to set forth the terms and conditions upon which the Advisor will continue to render and implement trading advisory services for the Fund. NOW, THEREFORE, the parties agree as follows: 1. DUTIES OF THE ADVISOR. The Advisor shall continue to have the sole authority and responsibility for directing, independently of any other trading advisors retained by the Fund, the investment and reinvestment of the Net Assets (as defined in Exhibit A) for the purpose of trading commodity interests. For these purposes, the Advisor's trading account is one or more separate accounts established for the Fund with a futures commission merchant, dealer, broker and/or bank selected by mutual agreement of the Fund and Advisor (the "Futures Broker") holding the assets allocated to the Advisor for the Advisor's management; provided, however, that the Advisor shall have the right to execute orders through such brokers as it shall select with instructions to "give-up" the trades to the Futures Broker. The Advisor and the Fund shall mutually agree upon any give-up fees to be paid to other brokers and all such fees shall be paid by the Fund. The Fund and Advisor hereby acknowledge that the Fund's account is being traded pursuant to Advisor's Leverage 3 trading program as described in its July 17, 1998 disclosure document, as amended (the "Disclosure Document"). Prior to the date of this Agreement, the Advisor has delivered the Advisor's Disclosure Document conforming in all material respects to the rules adopted under the Commodity Exchange Act, as amended (the "CEA"). Receipt of such Disclosure Document is hereby acknowledged. All purchases and sales of commodity interests shall be for the account and at the risk of the Fund. All commissions and expenses arising from the trading of, or other transactions in the course of the administration of, the Fund's account shall be charged to the Fund. The Fund has delivered to the Advisor a Trading Authorization appointing the Advisor the Fund's agent and attorney-in- fact with respect to the Fund's assets maintained in the Advisor's trading account. However, it is expressly agreed that in the event the Fund shall, in its sole discretion, using its prudent business judgment, determine that any trading instructions issued by the Advisor violate the Fund's trading policies, then the Fund may negate the Advisor's trading instructions. The Advisor shall not be responsible for the execution or clearance of the Fund's trades once complete orders have been transmitted to the Fund's Futures Broker(s), nor shall the Advisor be liable to the Fund for any errors or omissions by any Futures Broker. The Advisor shall, however, use the Advisor's best efforts to notify the Fund and the Futures Broker of any order or trade which the Advisor reasonably believes was not executed in accordance with the Advisor's instructions to such Futures Broker. 2. ALLOCATION AND REALLOCATION OF ASSETS; DESIGNATION OF ADDITIONAL TRADING ADVISORS. The Fund's account with the Advisor has been actually funded with cash and/or other margin-qualified assets, which assets shall continue to be traded by the Advisor at the trading level designated by the Fund. The Fund shall provide to the Advisor, if requested, monthly account statements and/or such other information the Fund deems sufficient to confirm the funded status of the account so long as margin-qualified assets are not actually deposited with the Futures Broker. Subject to the first paragraph in Section 1 hereof, the Fund may in the near future, at any time and from time to time: (a) allocate to the Advisor for management an additional portion of the Fund's Net Assets and/or a portion of any additional capital contributions made to the Fund, and/or increase or decrease the Net Assets; (b) reallocate the Fund's Net Assets, including a portion of assets allocated to the Advisor, among other trading advisors for the Fund; and/or (iii) designate additional advisor(s) for the Fund, in which case the Fund may allocate to such additional advisor(s) the management of such portion of the Fund's Net Assets managed by the Advisor, as the Fund shall determine. The term "Net Assets", for purposes of this Agreement, is defined in the attached Exhibit A, incorporated herein by reference. 3. COMPENSATION. (a) In consideration of and in compensation for all of the services to be rendered by the Advisor to the Fund under this Agreement, the Fund shall pay the Advisor an incentive fee equal to twenty percent (20%) of quarterly New Trading Profits generated by Advisor in the trading of commodity interests for the Fund. The Fund will not pay the Advisor a management fee. The term "New Trading Profits" for purposes of the calculating of the incentive fee is defined in Exhibit A. (b) For any period of less than a full quarter (including the quarters in which this Agreement commences and terminates), the fees shall be payable as if the portion of the fiscal quarter 2 constituted a full quarter. Each fee shall be accrued monthly. Such fees due the Advisor are payable within fifteen (15) days after the end of each quarter. The Fund expressly agrees that any fees due the Advisor pursuant to this Section 3 shall survive the termination of this Agreement. 4. RIGHT TO ADVISE OTHERS; SPECULATIVE POSITION LIMITS; RIGHT TO PROPORTIONATE PERCENTAGE. (a) The Advisor's present business is advising with respect to the trading of commodity interests. The services provided by the Advisor are not to be deemed exclusive. Subject to Subsection 4(c) below, the Advisor may render advisory, consulting and management services to other clients for which the Advisor may charge fees different from those charged to the Fund. The Advisor shall be free to advise others and manage other accounts during the term of this Agreement and to use in the trading of commodity interests the same or different information, computer programs and trading strategy which the Advisor obtains, produces or utilizes in the performance of services for the Fund. In that connection, however, the Advisor represents and warrants that the rendering of such consulting, advisory and management services to other interest trading accounts and entities will not materially impair the discharge of the Advisor's responsibilities under this Agreement. The Advisor shall not knowingly or deliberately favor any other account over the Fund's account. (b) The Advisor will immediately notify the Fund if the Fund's positions are included in an aggregate amount which exceeds the Advisor's applicable speculative position limits. The Advisor represents that, if the Advisor's trading recommendations are altered because of the application of the speculative position limits, the Advisor will not modify the trading instructions to the Fund in such manner as to affect the Fund disproportionately compared with the Advisor's other accounts. (c) As of the date hereof, the assets of the Fund and those of the other commodity pools for which ProFutures, Inc. ("ProFutures") is the General Partner (the "ProFutures Assets") comprise approximately fifty percent (50%) of the assets (the "Proportionate Percentage") under management in the Advisor's Leverage 3 trading program (or any substantially similar program) (the "Program Assets"). During the term of this Agreement, the Advisor shall at all times reserve the Proportionate Percentage of Program Assets for ProFutures Assets -- i.e., such ProFutures entities shall have the right at any time to maintain the Proportionate Percentage relative to non-ProFutures Assets in the Leverage 3 trading program. The Advisor shall provide ProFutures with reasonable advance notice (by telephone or telefacsimile) of any increase to the Program Assets of $5 million or more from non-ProFutures sources so that ProFutures can allocate additional assets to the program and avoid a later conflict with such non- ProFutures Assets. 5. THE FUND'S RECORDS. (a) The Fund will instruct the Fund's Futures Broker to furnish to the Advisor and the Fund copies of all trade confirmations and monthly trading reports relating to the trading directed by the Advisor. The Advisor will maintain a record of all trading orders the Advisor places for the Fund's account, whether by internal records and/or those of the Futures Broker, and shall keep these records for the term of the Agreement plus five (5) years, and will monitor the Fund's open positions which the Advisor initiates. 3 (b) Subject to the property rights of the Advisor described in Section 9, and at the reasonable request of the Fund, the Advisor and any of the Advisor's employees and affiliates shall, at the Fund's expense, promptly (within two business days) make available to the Fund copies of the normal daily, monthly, quarterly and annual, as the case may be, written reports and any work papers reflecting the performance of all accounts in the program(s) traded by the Fund advised, managed, owned or controlled by the Advisor or the Advisor's employees and affiliates. At the reasonable request of the Fund, the Advisor shall promptly deliver to the Fund a written explanation of material differences (if any) in the performance between the Fund's account and such other accounts. Notwithstanding the foregoing, the Fund and its agents understand that (i) the Advisor may delete the names and other identifying information from such books, records and other information and (ii) such books, records and other information regarding the Advisor are confidential and are deemed to be "trade secrets" of the Advisor. Therefore, the parties agree not to disclose, furnish or distribute to any person any of such books, records or information obtained by any of them pursuant to this Section 5(b) without the express written consent of the Advisor. 6. TERM. (a) This Agreement shall continue in effect until August 31, 1999. Thereafter, this Agreement is renewable at the option of the Fund on the same terms. (b) Notwithstanding any provision to the contrary in this Agreement, this Agreement shall terminate: (i) immediately if the Fund shall terminate or liquidate or the Advisor's registration as a commodity trading advisor with the CFTC or membership with the NFA is terminated or suspended; (ii) at the discretion of the Fund if there has been a material breach by the Advisor of any provision of this Agreement; (iii) at the discretion of the Fund as of any month-end upon thirty (30) days' written notice to the Advisor; (iv) at the discretion of the Advisor if there has been any material breach by the Fund of the any provision of this Agreement; (v) at the discretion of the Advisor upon ninety (90) days' notice following the initial one-year term of this Agreement by the Fund; or (vi) at the discretion of the Advisor upon thirty (30) days' notice to the Fund as of any month-end if: (i) the Advisor notifies the General Partner of a proposed material change to the strategy to be used in trading the Fund's assets and the General Partner has instructed the Advisor not to implement such change; or (ii) the Advisor has determined to cease managing any customer accounts pursuant to the same strategy as such Advisor has been retained to employ on behalf of the Fund. 7. INDEMNITY. The Fund shall indemnify, defend and hold harmless the Advisor and its affiliates and their respective directors, officers, shareholders, employees and controlling persons from and against any 4 and all losses, claims, damages, liabilities (joint and several), costs and expenses (including any investigatory, legal and other expenses incurred in connection with, and any amounts paid in, any settlement; provided that the Fund shall have approved such settlement) resulting from a demand, claim, lawsuit, action or proceeding relating to any of such person's actions or capacities relating to the business or activities of the Fund pursuant to this Agreement; provided that the conduct of such person which was the subject of the demand, claim, lawsuit, action or proceeding did not constitute negligence, misconduct or a breach of this Agreement or of any fiduciary obligation to the Fund and was done in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Fund. The termination of any demand, claim, lawsuit, action or proceeding by settlement shall not, in itself, create a presumption that the conduct in question was not undertaken in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Fund. The Advisor shall indemnify, defend and hold harmless the Fund, the General Partner, their respective affiliates and their respective directors, officers, shareholders, employees and controlling persons from and against any and all losses, claims, damages, liabilities (joint and several), costs and expenses (including any reasonable investigatory, legal and other expenses incurred in connection with, and any amounts paid in, any settlement; provided, that the Advisor shall have approved such settlement) resulting from a demand, claim, lawsuit, action or proceeding relating to any action or omission of the Advisor or any of its respective officers, directors or employees relating to the business or activities of such person under this Agreement or relating to the management of an account of the Fund, provided: the action or omission of such person which was the subject of the demand, claim, lawsuit, action or proceeding constituted negligence or misconduct or a breach of this Agreement or was an action or omission taken otherwise than in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Fund. The Advisor, its officers, directors, employees and shareholders shall not be liable under this Agreement to the Fund, its officers, directors or shareholders or to any of their successors or assigns except by reason of acts or omissions in contravention of the express terms of this Agreement, or due to their misconduct or negligence, or by reason of not having acted in good faith and in the reasonable belief that such actions or omissions were in, or not opposed to, the best interests of the Fund. The foregoing agreements of indemnity shall be in addition to, and shall in no respect limit or restrict, any other remedies which may be available to an indemnified party. This foregoing indemnity provision shall not increase the liability of any Limited Partner of the Fund beyond the amount of such Limited Partner's capital and profits (exclusive of distributions). In no case shall an indemnifying person be liable under this indemnity agreement with respect to any claim made against any indemnified party unless such indemnifying person shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure so to notify such indemnifying person shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying person shall be entitled to participate at its own expense in the defense or, if it so elects within a reasonable time after receipt of such notice, to assume the defense of any suit so brought, which defense shall be conducted by counsel chosen by it and satisfactory to the indemnified party defendant or defendants therein. In the event that an indemnifying person elects to assume the defense of any such suit and retain such counsel, the 5 indemnified party defendant or defendants in the suit shall bear the fees and expenses of any additional counsel thereafter retained by it or them. The provisions set forth in this Section 7 shall survive any termination or expiration of this Agreement (with respect to matters which arose prior to such termination or expiration), as shall the obligation to settle accounts hereunder. No indemnification under this Section 7 shall be made in respect of any demand, claim, lawsuit, action or proceeding relating to activities of the person to be indemnified which have been adjudged, by a court having jurisdiction with respect to the matter upon entry of a final judgment, not to have been done in good faith and in the reasonable belief that such conduct was in, or not opposed to, the best interests of the Fund or to constitute negligence, misconduct or breach of this Agreement unless, and except to the extent that, such court determines that, despite such judgment, such person is fairly and reasonably entitled to indemnity. Any indemnification required by this Section 7, unless ordered or expressly permitted by a court, shall be made by the indemnifying party only upon a determination by independent legal counsel mutually agreeable to the parties hereto in a written opinion that the conduct which is the subject of the claim, demand, lawsuit, action or proceeding with respect to which indemnification is sought meets the applicable standard set forth in this Section 7. The exculpation provisions in the Selling Agreement among the Fund, ProFutures, ProFutures Financial Group, Inc. and the Advisor (the "Selling Agreement") shall not relieve the Advisor from any liability it may have or incur under this Agreement. Nor shall the Advisor be entitled to be indemnified by the General Partner, pursuant to the indemnification provisions contained in the Selling Agreement, against any loss, liability, damage, cost or expense it may incur under this Agreement. 8. REPRESENTATIONS AND WARRANTIES. (a) The Advisor represents, warrants and agrees that: (i) the Advisor is a corporation in good standing under the laws of the state of its incorporation and is (and at all times through the date of termination of the Fund's offering and during the term of this Agreement will be) in good standing and qualified to do business as a corporation in each jurisdiction in which the nature or conduct of its business requires such qualification and the failure to be so qualified would materially adversely affect its ability to act as a corporation and perform its obligations under this Agreement, and to act as described in the Prospectus; (ii) this Agreement is a valid and binding agreement enforceable in accordance with its terms and the performance of the Advisor's obligations under this Agreement will not result in any violation, breach or default under any term or provision of any undertaking, contract, agreement or order to which the Advisor is a party or by which the Advisor is bound; (iii) it is duly registered as a commodity trading advisor under the CEA and is a member in such capacity of the National Futures Association and it will maintain and renew such registration and membership during the term of this Agreement; (iv) all of the information relating to and furnished by the Advisor contained in the Disclosure Document, as amended and updated by the Advisor from time to time as required under 6 CFTC Rule 4.31, is true and accurate in all material respects, does not omit any material information and is in material compliance with the CEA, as amended, and regulations thereunder (if applicable); (v) if the Fund suspends trading following written instructions to that effect to the Advisor by the Fund, the Advisor will suspend all trading activity for the Fund and liquidate positions held by the Fund as soon as practicable under the circumstances; (vi) the Advisor's management of client accounts other than that of the Fund, which the Advisor has agreed to or may in the future agree to manage, which accounts the Advisor is permitted to manage under this Agreement (subject to limitations contained in Section 4 hereof), will be conducted in such a manner as to assure that the Fund's account will receive equitable treatment, it being understood that the Advisor may adjust the implementation of the Advisor's trading system in a good faith effort to accommodate additional accounts or accounts of different sizes and that, as a result of a neutral allocation system, testing new trading systems, trading proprietary accounts or other actions, the Advisor may from time to time take positions which are opposite or ahead of, the positions taken for the Fund; (vii) the Advisor expressly represents that neither the Advisor nor any of the Advisor's principals or affiliates will participate in the brokerage commissions paid by the Fund to any Futures Broker; and (viii) subject to Section 5(b) and Section 9 hereof and after 48 hours' prior written notice to the Advisor, the Advisor will permit the Fund during normal business hours and at the Fund's expense to inspect the records of the Advisor at the Advisor's office and the Advisor will provide the Fund with all pertinent information (including order entry procedures) on the overall performance of all of the Advisor's accounts for the purpose of determining whether the Fund has been treated equitably with other accounts of the Advisor during the term of this Agreement. All representations, warranties and agreements hereunder shall be continuing during the term of this Agreement, and shall survive the termination or expiration of this Agreement with respect to any matter arising while this Agreement is in effect. In addition, if, at any time, any event has occurred which would make, or tend to make, any of the foregoing representations, warranties and agreements not true, the Advisor will promptly provide notice of such event and the facts related thereto in the manner provided below. (b) The Fund represents, warrants and agrees that: (i) the Fund is a limited partnership in good standing under the laws of the State of Delaware and is (and at all times through the date of termination of the offering and during the term of this Agreement will be) in good standing and qualified to do business as a foreign limited partnership in each jurisdiction in which the nature or conduct of its business requires such qualifications and the failure to be so qualified would materially adversely affect its ability to act as a limited partnership and perform its obligations under this Agreement, and to act as described in the Prospectus; 7 (ii) this Agreement has been duly and validly authorized, executed and delivered on behalf of the Fund and is a valid and binding agreement enforceable in accordance with its terms (except as may be limited by bankruptcy laws and general equity principles); (iii) the performance of the Fund's obligations under this Agreement and the consummation of the transactions set forth in the Prospectus are not contrary to the provisions of the Fund's Limited Partnership Agreement or any material statute, law or regulation of any jurisdiction and will not result in any violation, breach or default under any term or provision of any material undertaking, contract, agreement or order to which the Fund is a party or by which the Fund is bound; (iv) to the best of its knowledge, the Fund has obtained all required material governmental and regulatory licenses, registrations and approvals required by law as may be necessary to act as described in the Prospectus and to offer and sell Interests in the Fund; and (v) the Fund is not required to be registered as an investment company under the Investment Company Act of 1940, as amended, or any similar state law. The foregoing representations, warranties and agreements shall be continuing during the term of this Agreement and shall survive the termination or expiration of this Agreement with respect to any matter arising while this Agreement is in effect. In addition, if at any time any event has occurred which would make, or tend to make, the foregoing representations, warranties and agreements not true, the Fund will promptly provide notice of such event and the facts related thereto in the manner provided below. 9. PROPERTY RIGHTS OF THE TRADING ADVISOR. The Fund acknowledges that commodity trading advice provided by the Advisor is a property right belonging to the Advisor. The Fund further agrees, unless authorized by the Advisor, that such advice will not be disseminated in whole or in part, directly or indirectly, to any of the shareholders, Futures Broker(s), Futures Broker(s)' customers, employees, agents, officers, directors or any others, except as necessary to conduct the business of the Fund or except as required by any applicable law or regulation. The Fund expressly authorizes the Advisor, because of their proprietary and confidential nature, to withhold the names and addresses of the Advisor's clients from any inspection provided the Fund pursuant to this Agreement. 10. NO GUARANTEE OF PERFORMANCE. The Advisor makes no promises, representations, warranties or guarantees that any of the Advisor's services to be rendered to the Fund will result in a profit or will not result in a loss to the Fund. 11. ORDER ENTRY. Subject to Section 1, the Advisor will utilize a fair and reasonable order entry system which shall be no less favorable to the Fund than that provided for any other client account advised by the Advisor. 12. YEAR 2000 COMPLIANCE. The Advisor is taking immediate action to identify any of its computer systems that are Year 2000 vulnerable. If such systems are identified that negatively affect its services (e.g., trade details, fee information), the Advisor will take immediate action to update those systems, extensively test the systems internally and with other parties (if appropriate) to ensure 8 that system interdependencies have been adequately addressed, and establish contingency plans and provide such plans in the event of a malfunction of any part of the systems. If the Advisor has a Year 2000 vulnerable system which is unable to be corrected by January 1, 2000, it will notify the General Partner in a timely manner. 13. COMPLETE AGREEMENT. This Agreement constitutes the entire agreement between the parties and no other agreement, verbal or otherwise, shall be binding on the parties. 14. ADVISOR NOTICE. The Advisor agrees to notify the Fund immediately upon discovery of any material omission or untrue or misleading statement in the Advisor's Disclosure Document or any amendment or supplement thereto regarding the Advisor. The representations, warranties, agreements and obligations to indemnify certain parties hereto contained herein shall attach to any such amendment or supplement. 15. ASSIGNMENT AND AMENDMENT. This Agreement may not be assigned or amended without the written consent of all other parties hereto. 16. SUCCESSORS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. 17. NOTICES. All notices required to be delivered under this Agreement shall be delivered personally, by air courier or by registered or certified mail, postage prepaid, return receipt requested, at such address(es) given from one party to the other from time to time. 18. ATTORNEYS' FEES. In the event litigation is required to enforce any provisions of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees. 19. SPECIAL DISCLOSURE. The CFTC requires the following special disclosure for all customer accounts which are not fully-funded: SPECIAL DISCLOSURE FOR NOTIONALLY-FUNDED ACCOUNTS YOU SHOULD REQUEST YOUR COMMODITY TRADING ADVISOR TO ADVISE YOU OF THE AMOUNT OF CASH OR OTHER ASSETS (ACTUAL FUNDS) WHICH SHOULD BE DEPOSITED TO THE ACCOUNT TO BE CONSIDERED "FULLY-FUNDED." THIS IS THE AMOUNT UPON WHICH THE ADVISOR WILL DETERMINE THE NUMBER OF CONTRACTS TRADED IN THE FUND'S ACCOUNT AND SHOULD BE AN AMOUNT SUFFICIENT TO MAKE IT UNLIKELY THAT ANY FURTHER CASH DEPOSITS WOULD BE REQUIRED FROM YOU OVER THE COURSE OF YOUR PARTICIPATION IN THE ADVISOR'S PROGRAM. THE ACCOUNT SIZE TO WHICH YOU HAVE AGREED IN WRITING (THE "NOMINAL" OR "NOTIONAL" ACCOUNT SIZE) IS NOT THE MAXIMUM POSSIBLE LOSS THAT YOUR ACCOUNT MAY EXPERIENCE. YOU SHOULD CONSULT THE ACCOUNT STATEMENTS IN ORDER TO DETERMINE THE ACTUAL ACTIVITY IN THE ACCOUNT, INCLUDING PROFITS, LOSSES AND CURRENT CASH EQUITY BALANCE. TO THE EXTENT THAT THE EQUITY IN THE ACCOUNT IS AT ANY TIME LESS THAN THE NOMINAL ACCOUNT SIZE, THE EFFECT ON THE FUND WILL BE THE FOLLOWING: (a) ALTHOUGH YOUR GAINS AND LOSSES, FEES AND COMMISSIONS MEASURED IN DOLLARS WILL BE THE SAME, THEY WILL BE GREATER WHEN EXPRESSED AS A PERCENTAGE OF ACCOUNT EQUITY. 9 (b) YOU MAY RECEIVE MORE FREQUENT AND LARGER MARGIN CALLS. (c) THE DISCLOSURES WHICH ACCOMPANY THE PERFORMANCE TABLE ASSOCIATED WITH THE PROGRAM SELECTED BY THE FUND MAY BE USED TO CONVERT THE RATES OF RETURN ("ROR") IN THE PERFORMANCE TABLE TO THE CORRESPONDING RORs FOR PARTICULAR PARTIAL FUNDING LEVELS. 20. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in that state without reference to its conflicts of laws provisions. IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written. PROFUTURES BULL & BEAR FUND, L.P., a Delaware limited partnership By: ProFutures, Inc., its General Partner By: /s/ Gary D. Halbert --------------------------- Gary D. Halbert, President HAMPTON INVESTORS, INC. By: /s/ Charles Mizrahi --------------------------- Charles Mizrahi, President 10 EXHIBIT A DEFINITIONS ----------- Net Assets - The "Net Assets" of the Fund are its assets less its liabilities, determined by the General Partner in accordance with generally accepted accounting principles, with each position in a commodity interest accounted for at fair market value. Net Assets shall include any unrealized profits or losses on open positions, and any fees or expenses based on the Net Assets of the Partnership. Net Assets is defined more fully in the Prospectus. New Trading Profit - The net profits, if any, from the Fund's trading through the end of each calendar quarter after subtraction of brokerage commissions (including the difference, positive or negative, in accrued commissions on open positions between the end of such period and the end of the previous period). Any trading losses from prior periods must be recouped before New Trading Profit can again be generated. New Trading Profit does not include interest income. New Trading Profit is not reduced by operating and administrative expenses, management fees, upfront organizational charges or the cash manager's fee. 11 EX-10.02 7 CUSTOMER AGREEMENT EXHIBIT 10.02 ---------------------------- For Office Use Only CORPORATE/PARTNERSHIP/TRUST ACCOUNT FORM ____________________________ Customer Name ____________________________ Account Number/Salescode ____________________________ Approval ---------------------------- ING BARINGS FUTURES & OPTIONS CLEARING SERVICES ING (U.S) Securities, Futures & Options, Inc. 233 South Wacker Drive Suite 5200 Chicago, Illinois 60606 Telephone: (312) 496-7000 Facsimile: (312) 496-7125 RISK DISCLOSURE STATEMENT FOR FUTURES AND OPTIONS This brief statement does not disclose all of the risks and other significant aspects of trading in futures and options. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in futures and options is not suitable for many members of the public. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. Futures 1. Effect of 'Leverage' or 'Gearing' Transactions in futures carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract so that transactions are 'leveraged' or 'geared'. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. 2. Risk-reducing orders or strategies The placing of certain orders (e.g., 'stop-loss' orders, where permitted under local law, or 'stop-limit' orders) which are intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Strategies using combinations of positions, such as 'spread' and 'straddle' positions may be as risky as taking simple 'long' or 'short' positions. -1- Options 3. Variable degree of risk Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e., put or call) which they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs. The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the option is on a future, the purchaser will acquire a futures position with associated liabilities for margin (see the section on Futures above). If the purchased options expire worthless, you will suffer a total loss of your investment which will consist of the option premium plus transaction costs. If you are contemplating purchasing deep-out-of-the-money options, you should be aware that the chance of such options becoming profitable ordinarily is remote. Selling ('writing' or 'granting') an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavorably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obligated to either settle the option in cash or to acquire or deliver the underlying interest. If the option is on a future, the seller will acquire a position in a future with associated liabilities for margin (see the section on Futures above). If the option is 'covered' by the seller holding a corresponding position in the underlying interest or a future or another option, the risk may be reduced. If the option is not covered, the risk of loss can be unlimited. Certain exchanges in some jurisdictions permit deferred payment of the option premium, exposing the purchaser to liability for margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time. Additional risks common to futures and options 4. Terms and conditions of contracts You should ask the firm with which you deal about the terms and conditions of the specific futures or options which you are trading and associated obligations (e.g., the circumstances under which you may become obligated to make or take delivery of the underlying interest of a futures contract and, in respect of options, expiration dates and restrictions on the time for exercise). Under certain circumstance the specifications of outstanding contracts (including the exercise price of an option) may be modified by the exchange or clearing house to reflect changes in the underlying interest. 5. Suspension or restriction of trading and pricing relationships Market conditions (e.g., illiquidity) and/or the operation of the rules of certain markets (e.g., the suspension of trading in any contract or contract month because of price limits or 'circuit breakers') may increase the risk of loss by making it difficult or impossible to effect transactions or -2- liquidate/offset positions. If you have sold options, this may increase the risk of loss. Further, normal pricing relationships between the underlying interest and the future, and the underlying interest and the option may not exist. This can occur when, for example, the futures contract underlying the option is subject to price limits while the option is not. The absence of an underlying reference price may make it difficult to judge 'fair' value. 6. Deposited cash and property You should familiarize yourself with the protections accorded money or other property you deposit for domestic and foreign transactions, particularly in the event of a firm insolvency or bankruptcy. The extent to which you may recover your money or property may be governed by specific legislation or local rules. In some jurisdictions, property which had been specifically identifiable as your own will be pro-rated in the same manner as cash for purposes of distribution in the event of a shortfall. 7. Commission and other charges Before you begin to trade, you should obtain a clear explanation of all commission, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your costs. 8. Transactions in other jurisdictions Transactions on market in other jurisdictions, including markets formally linked to a domestic market, may expose you to additional risk. Such markets may be subject to regulation which may offer different or diminished investor protection. Before you trade you should enquire about any rules relevant to your particular transactions. Your local regulatory authority will be unable to compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions where your transactions have been effected. You should ask the firm with which you deal for details about the types of redress available in both your home jurisdiction and other relevant jurisdictions before you start to trade. 9. Currency risks The profit or loss in transactions in foreign currency-denominated contracts (whether they are traded in your own or another jurisdiction) will be affected by fluctuations in currency rates where there is a need to convert from the currency denomination of the contract to another currency. 10. Trading facilities Most open-outcry and electronic trading facilities are supported by computer-based component systems for the order-routing, execution, matching, registration or clearing of trades. As with all facilities and systems, they are vulnerable to temporary disruption or failure. Your ability to recover certain losses may be subject to limits on liability imposed by the system provider, the market, the clearing house and/or member firms. Such limits may vary; you should ask the firm with which you deal for details in this respect. 11. Electronic trading Trading on an electronic trading system may differ not only from trading in an open-outcry market but also from trading on other electronic trading systems. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with the system including the failure of hardware and software. The result of any system failure may be that your order -3- is either not executed according to your instructions or is not executed at all. 12. Off-exchange transactions In some jurisdictions, and only then in restricted circumstances, firms are permitted to effect off-exchange transactions. The firm with which you deal may be acting as your counterparty to the transaction. It may be difficult or impossible to liquidate an existing position, to assess the value, to determine a fair price or to assess the exposure to risk. For these reasons, these transactions may involve increased risks. Off-exchange transactions may be less regulated or subject to a separate regulatory regime. Before you undertake such transactions, you should familiarize yourself with applicable rules and attendant risks. The undersigned hereby acknowledges that the undersigned has received and understood this risk disclosure statement. PROFUTURES BULL & BEAR FUND, L.P. By: ProFutures, Inc., General Partner By: /s/ Gary Halbert ---------------------- Name: Gary Halbert Title: President Date: October 22, 1997 -4- PLEASE READ THIS COMMODITY AGREEMENT CAREFULLY ---------------------------------------------- ING (U.S.) Securities, Futures & Options Inc. 233 South Wacker Drive Suite 5200 Chicago, Illinois 60606 Ladies and Gentlemen: In consideration of your accepting its account and your agreement to act as its broker, Customer agrees to the following with respect to any and all of its accounts with ING (U.S.) Securities, Futures & Options Inc. ("ING") for the purchase and sale of securities, monies, physical commodities, futures contracts, options on futures, foreign futures contracts, options on foreign futures, forward contracts, exchange for physicals and foreign exchange contracts (collectively referred to as "commodities" or "property"): 1. Customer represents that it is the sole owner of its accounts and that no person or entity, except as disclosed to you, has any interest therein. The Customer agrees to notify you of the identity of any other person or entity who controls the trading of the account, has a financial interest of 10% or more in the account or the identity of any other account in which the Customer controls or has a 10% or more ownership interest. The Customer shall maintain its account(s) in accordance with and shall be solely responsible for compliance with the rules, regulations and/or guidelines issued by any federal, state or administrative bodies having oversight or regulatory authority over its activities, and any statutes governing its activities. 2. All transactions for Customer's account(s) shall be subject to the regulations of all applicable federal, state and self-regulatory agencies including the constitution, rules and customs, as the same may be constituted from time to time, of the exchanges, market or place (and the clearing associations, if any) where executed or, if different, your house rules. This paragraph is solely for your protection and your failure to comply with any such regulations, constitutions, rules and/or customs shall not be a breach of this Agreement and shall not relieve Customer of any of its obligations under this Agreement. 3. Customer agrees not to exceed the position limits of any federal agency or exchange for its account(s), acting alone or in concert with others. Customer will promptly notify you of positions for which Customer is required to file reports with the Commodity Futures Trading Commission ("CFTC") or any exchange. 4. Customer understands that you have at your sole and absolute discretion the right to limit positions in its account(s), to decline to accept any orders and to require that its account(s) be transferred to another firm. Customer understands that if Customer does not promptly transfer its positions upon your demand you reserve the right to liquidate positions in its account(s) at your sole and absolute discretion. Customer also understands that you may transfer its account to another firm upon written notice unless Customer objects to the proposed transfer within a reasonable period of time after the receipt of such notice. 5. Customer understands that you act as agent and not as principal for your -1- clients' commodity futures and commodity options transactions which are effected on exchanges. Consequently, you do not guarantee the performance of the obligations of any party to the futures or options contracts purchased and/or sold by your clients. Customer understands you may act as principal in certain cash, forward, foreign commodity and foreign exchange transactions. 6. Any property belonging to Customer or in which Customer has an interest, either individually or jointly with others, held by you or any of your subsidiaries or affiliates or carried in any account(s) shall be subject to a general lien and security interest for the discharge of Customer's obligations to you, wherever or however arising and without regard to whether or not you have made advances with respect to such property, and you are hereby authorized to sell and/or purchase any and all such property without notice to satisfy such general lien and security interest. Customer irrevocably appoints you as its attorney-in-fact with power of substitution to execute any documents for the perfection or registration of such general lien and security interest. 7. Customer agrees to maintain at all times such collateral and/or margin in accordance with exchange minimum margin requirements as established by the exchange on which the transaction is executed and agrees to pay immediately on demand any amount owing with respect to any of Customer's accounts. Margin requirements may be increased at ING's sole and absolute discretion and may differ from those established by the exchange on which the transaction is executed. Margin requirements are subject to change without notice and will be enforced retroactively and prospectively. Customer shall make deposits of margin as ING requests within a reasonable time after such request. It is agreed and understood that one hour may be deemed to be a reasonable time; provided, however, that ING, in its sole and absolute discretion, may request that deposits be made in a lesser period of time. ING's failure to require satisfaction of a margin call within one hour, or any shorter time period, on any occasion shall not be deemed to be a waiver of its right to do so in the future. Customer shall provide ING with the names of bank officers and information necessary for immediate verification of wire transfers. 8. In the event Customer fails to deposit sufficient funds to pay for any commodities and/or to satisfy any demands for original and/or variation margin, or whenever in your sole and absolute discretion you consider it necessary, you may, without prior demand or notice, when and if you deem appropriate, notwithstanding any rule of any exchange, liquidate the positions in Customer's account(s), hedge and/or offset those positions in the cash market or otherwise, sell any property belonging to Customer or in which Customer has an interest, cancel any open orders for the purchase and sale of any property, or borrow or buy any property required to make delivery against any sales, including a short sale, effected for Customer, all for Customer's sole account and risk. Such sale or purchase may be public or private and may be made without advertising or notice to Customer and in such manner as you may, in your sole and absolute discretion, determine, and no demands, tenders or notices which you may make or give shall invalidate Customer's aforesaid waiver. Customer agrees that ING has no duty and is not required to liquidate positions in Customer's account(s) and that the provisions of this paragraph are solely for the protection of ING. The proceeds of such transactions, if any, are to be applied to reduce any indebtedness owing by Customer to you. -2- 9. Customer acknowledges that Customer shall be liable for all losses in its account(s) whether or not its account(s) is liquidated and for any debts and deficiencies, including, but not limited to, interest, costs, expenses and attorneys' fees, including all debts and deficiencies resulting from a liquidation of Customer's account(s). Customer further agrees that ING shall have full authority to set off all debts owed to ING by Customer against any and all accounts which Customer has or in which Customer has an interest at ING. 10. Customer agrees to pay storage and delivery charges and service fees charged to its account(s). Customer authorizes you to pay and charge to its account(s) any give-up or give-in fee that may be charged by any executing firm or broker whom Customer or its agents have authorized to execute transactions for its account(s). Customer agrees to pay such fees, brokerage and commission charges as you may impose or which may be imposed by any exchange or regulatory organization. Unless otherwise agreed, you may charge exchange, clearing, brokerage and NFA fees as separate items for each transaction in its account(s). Moreover, such fees are subject to change without notice. Customer acknowledges that transactions on the Mid America Commodity Exchange may include a "changer fee" and the amount of such fee, if any, included in a transaction price will be provided upon request. In the event a debit balance occurs in Customer's account(s), you shall be entitled to receive and charge to its account(s) interest at the greater of the following rates: twelve (12) percent per year, or at the rate determined by adding one (1) percent to the rate announced from time to time by Harris Trust and Savings Bank of Chicago as its prime commercial rate for the entire period that such debit shall exist. Customer agrees that any and all interest earned on any available cash balances in Customer's account(s) may accrue to, and may be retained by ING. In the event that Customer's account is transferred to another futures commission merchant, a reasonable transfer charge may be imposed and charged against Customer's account(s). 11. This agreement shall be binding upon Customer, its successors and assigns and in the event of dissolution, liquidation, bankruptcy or any similar act, you may cancel or complete any open orders for the purchase or sale of any property; you may place orders for the sale of property which you may be carrying for it, or buy any property of which its account(s) may be short, or any part thereof, under the same terms and conditions as hereinabove stated, as though Customer was still in existence without prior notice to its trustees, successors or assigns and without prior demand upon any of them. 12. Written confirmation of actual transactions and/or orders, purchase and sales notices, correction notices and statements of Customer's account(s) (collectively "statements") shall be conclusive and deemed ratified by Customer unless ING shall receive oral notice from Customer to the contrary IMMEDIATELY upon Customer's receipt thereof and thereafter confirmed by Customer in writing. Oral notice shall be given to ING by telephoning ING at (312) 496-7000, Attention: Compliance Department. In any event, such statements shall be conclusive and deemed ratified by Customer if not objected to in writing SEVEN days after mailing by you to it. In the event Customer fails to receive statements for its account within SEVEN days from the date of a transaction in its account, such transaction shall be conclusive and deemed ratified by Customer unless Customer notifies you IMMEDIATELY in writing of its failure to receive such statements. However, the seven day time period does not apply if statements are received by -3- Customer by facsimile transactions. In that case, Customer must notify ING of any discrepancies by the opening of the market on the next trading day. Communications mailed to Customer at the address specified hereon or faxed to Customer at the fax number provided by Customer shall, until you have received notice in writing of a different address or fax number, be deemed to have been personally delivered to customer and Customer agrees to waive all claims resulting from failure to receive such communications. Written notice to ING under this paragraph shall be sent to: ING (U.S.) Securities, Futures & Options Inc., 233 South Wacker Drive, Suite 5200, Chicago, IL, 60606 Attention: Compliance Department. 13. Customer understands that you are not responsible for any losses resulting directly or indirectly from any government restriction, exchange ruling, suspension of trading, actions of independent floor brokers, or other persons beyond your control, war, strike, national disaster or wire malfunction, delay in mails or any other delay or inaccuracy in the transmission of orders of the information because of a breakdown or failure of transmission or communication facilities. All price quotations, commodity information, or trade reports given to Customer are also subject to change and errors, as well as delays in reporting and Customer acknowledges that reliance upon such information is at its own risk. Customer understands that Customer is bound to the actual executions of transactions on the exchange(s) and that you are not bound by erroneous reports of execution transmitted to it. 14. Customer acknowledges that you are hereby specifically authorized for your account and benefit, from time to time without notice to Customer, either separately or with others, to lend, pledge, repledge, hypothecate or rehypothecate, either to yourself or to others, any and all property (including, but not limited to, metals, warehouse receipts or other negotiable instruments) held by you in any of its accounts and you shall not at any time be required to deliver to Customer identical property, but may fulfill your obligations to Customer by delivery or property of the same kind and amount. 15. If Customer initiates a transaction on an exchange or in a market which margins or settles the positions(s) in a currency different than the type held or deposited in its account(s), you shall have the right to convert such currency from one type to another (e.g. U.S. to foreign currency, foreign currency to U.S. currency, or foreign currency to other foreign currency) as you in your sole and absolute discretion may determine at an exchange rate determined by you in your discretion based on prevailing money markets. Any profit or loss from a fluctuation in the exchange rate of such currency will be for Customer's sole account and risk. Unless Customer instructs you otherwise, monies Customer deposits with you in currency other than U.S. dollars and unrealized profits in currency other than U.S. dollars are not intended to margin, guarantee or secure transactions on United States contract markets. 16. No provision of this Agreement can be amended or waived except in writing signed by a Principal of ING. No oral agreements or instructions contrary to any provisions of this Agreement shall be recognized or enforceable. Customer agrees to be bound by any amendments to this Agreement to which Customer has not objected in writing within three business days after receipt thereof. The failure of ING to enforce, at any time, any provision of this Agreement shall not be construed to be a waiver of such provision and shall not in any way affect the validity of this Agreement or the right of ING thereafter to enforce each -4- and every provision of this Agreement. No waiver or amendment shall be implied from your conduct, action or inaction. 17. NOTICE OF CFTC Reg. (S)15.05 and Reg. (S)21.03, relating to Foreign Brokers and Foreign Traders. A Foreign Broker is any non-U.S. resident who carries an account in commodities for any other person. A Foreign Trader is any non-U.S. resident who owns or controls an account in commodities. If Customer is a foreign trader or foreign broker Customer understands that pursuant to CFTC Regulation 15.05, you are its agent or the agent of its customers for purposes of accepting delivery and service of any communications issued by CFTC with respect to any futures or options contracts which are or have been maintained in accounts carried by you. Customer understands that ING will transmit the communication promptly to it in a manner which is reasonable under the circumstances or as specified by the CFTC. Customer also understands CFTC Regulation 21.03 requires it to provide to the CFTC upon special call, market information concerning it or its customers' options and futures trading. If Customer fails to respond to the special call, the CFTC may direct the appropriate contract market and all brokers to prohibit or restrict further trades for or on its or its customers behalf. (Customer understands that copies of Reg. (S)15.05 and (S)21.03 are available from ING upon its written request.) 18. Customer understands that some exchanges and clearing houses have established cut-off times for the tender of exercise instructions and that an option will become worthless if instructions are not received by ING before such expiration time. Customer also understands that certain exchanges and clearing houses automatically exercise some "in-the-money" options unless instructed otherwise. Customer acknowledges full responsibility for taking action either to exercise or to prevent the automatic exercise of an option contract, as the case may be, and you are not required to take any action with respect to an option contract, including without limitation, any action to exercise in option prior to its expiration date or to prevent its automatic exercise, except upon Customer's express instructions. Customer further understands that you may establish exercise cut-off times which may be different from the times established by exchanges and clearing houses. Customer understands that all short option positions are subject to assignment at any time including positions established on the same day that exercises are assigned, and assignment notices are allocated randomly from among all your customers' short options positions which are subject to assignment. 19. This Agreement shall enure to the benefit of ING's present organization, and any successor organization, irrespective of any change or changes at any time in the personnel thereof for any cause whatsoever, and to any ING's assigns. Customer agrees that all of its rights and obligations under this Agreement shall not be assigned, transferred, sold or otherwise conveyed, and any such attempted assignment, transfer, sale or conveyance shall be null and void and of no force or effect. In any event, ING may, subject to the applicable rules and regulations of the CFTC and the National Futures Association ("NFA"), assign this Agreement and transfer Customer's account(s) to another duly registered futures commission merchant. 20. You are authorized to accept oral or telephonic orders as Customer or its authorized agent may give for transactions in its account(s). Customer hereby waives any defense that such order was not in writing or evidenced by a memorandum in writing as required by the Statute of Frauds or any other statute. Although authorized, you are not required to accept oral or telephonic -5- orders. You are further authorized to record whether by tape, wire or other method, with or without a periodic tone signal, any and all telephonic or other oral communications between us, with or without notice thereof. 21. Customer represents and warrants that Customer is under no legal disability which would prevent Customer from trading in commodities or from entering into this Agreement and that all of the information contained in the Customer Information Sheet is true, complete, and correct as of the date hereof. Customer will promptly notify ING in writing of any changes of such information or any change in circumstances which would effect the representations and information given ING or which would in any way affect Customer's ability to make any transactions contemplated by this Agreement. 22. Customer authorizes ING to contact such banks, financial institutions and credit agencies as ING shall deem appropriate from time to time to verify the information regarding Customer which may be provided by Customer from time to time. Customer further authorizes ING to conduct, or cause to be conducted, an investigation into Customer's background, including but not limited to, credit, regulatory and legal matters, and authorizes ING to retain a consumer reporting agency for that purpose. 23. Should you become a party, without fault on your part, to any action or proceeding arising out of Customer's account(s) or orders given to you, Customer agrees to indemnify and hold you harmless therefrom and to pay you such attorneys' fees and costs incurred by you as the court or arbitration panel may determine. Customer shall further indemnify you and hold you harmless from and against any and all liabilities, losses, damages, costs and expenses, including attorneys' fees, which arise out of, or which in any manner or way whatsoever are related to any representation made by Customer in this Agreement, or by its failure to perform any of its agreements made herein, including, but not limited to, the failure to immediately pay any deficit balances which may arise in its account(s). 24. Customer agrees that this account documentation and any and all subparts contained herein, or any other documentation delivered in connection with the maintenance of the undersigned account, may be delivered by facsimile and such delivery shall have the same effect as the delivery of originally executed account documentation. Customer authorizes you to rely on and releases you from any and all claims arising out of your reliance on such facsimiles. Customer agrees to indemnify and save you harmless from and against any and all liabilities, losses, damages, costs and expense, including attorneys fees which may arise out of, or which in any manner or way whatsoever are related to your acceptance of the facsimiles referenced herein. 25. This Agreement has been made and delivered at Chicago, Illinois. Its validity, construction and enforcement shall be governed by and construed with the substantive laws of the State of Illinois, without reference to its principals of conflict of laws. This Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof. Wherever possible, each portion of this Agreement shall be interpreted in such a manner to be valid and effective under applicable law, but if any provisions of this Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provisions or the remaining provisions of this Agreement. CUSTOMER AGREES NOT TO COMMENCE ANY LEGAL OR ADMINISTRATIVE PROCEEDING -6- AGAINST ING UNTIL ANY DEFICIT BALANCE IN THE ACCOUNT(S) IS SATISFIED. BASIC REPRESENTATIONS --------------------- 1. Status. If applicable, Customer is duly organized and validly existing under the laws of the jurisdiction of Customer's organization or incorporation and, if relevant under such laws, in good standing; 2. Powers. Customer has the power to execute this Agreement and any other documentation relating to this Agreement to which Customer is party, to deliver this Agreement and any other documentation relating to this Agreement that Customer is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which Customer is a party and has taken all necessary action to authorize such execution, delivery and performance; 3. No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to Customer, any provision of Customer's constitutional documents, any order or judgement of any court or other agency of government applicable to Customer or any of Customer's assets or any contractual restriction binding on or affecting Customer or any of Customer's assets; 4. Consents. All governmental and other consents that are required to have been obtained by Customer with respect to this Agreement or any Credit Support Document to which Customer is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and 5. Obligations Binding. Customer's obligations under this Agreement and any Credit Support Document which Customer has submitted and to which Customer is a party constitute Customer's legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). CONSENT TO JURISDICTION ----------------------- ALL ACTIONS, DISPUTES, CLAIMS OR PROCEEDINGS, INCLUDING, BUT NOT LIMITED TO, ANY ARBITRATION PROCEEDING, INCLUDING NFA ARBITRATIONS, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM THE CUSTOMER AGREEMENT, ANY OTHER AGREEMENT BETWEEN THE CUSTOMER AND ING (U.S.) SECURITIES, FUTURES & OPTIONS INC. OR ANY ORDERS ENTERED OR TRANSACTIONS EFFECTED FOR CUSTOMER'S ACCOUNT(S), WHETHER OR NOT INITIATED BY ING, SHALL BE ADJUDICATED ONLY IN COURTS OR OTHER DISPUTE RESOLUTION FORUMS WHOSE SITUS IS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS, AND CUSTOMER HEREBY SPECIFICALLY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT OR ARBITRATION PROCEEDINGS LOCATED WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. CUSTOMER WAIVES ANY CLAIM CUSTOMER MAY HAVE THAT (A) CUSTOMER IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT OR -7- ARBITRATION PROCEEDINGS LOCATED WITHIN THE STATE OF ILLINOIS, (B) CUSTOMER IS IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO CUSTOMER OR CUSTOMER'S PROPERTY, (C) ANY SUCH SUIT, ACTION OR PROCEEDINGS IS BROUGHT IN AN INCONVENIENT FORUM, (D) THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER OR (E) THIS CONSENT OR THE CUSTOMER AGREEMENT BETWEEN CUSTOMER AND ING MAY NOT BE ENFORCED IN OR BY SUCH COURT OR ARBITRATION PROCEEDING. BY SIGNING THE CONTRACT CONTAINING THIS CONSENT TO JURISDICTION, CUSTOMER ASSENTS TO JURISDICTION AS SET FORTH ABOVE, AND ACKNOWLEDGES THAT THESE CLAUSES WERE FREELY AND KNOWINGLY NEGOTIATED BETWEEN THE PARTIES. THIS COMMODITY CUSTOMER AGREEMENT IS A CONTRACTUAL AGREEMENT. DO NOT SIGN IT UNTIL YOU HAVE READ IT CAREFULLY. BY SIGNING BELOW, THE UNDERSIGNED REPRESENTS AND WARRANTS TO YOU THAT ALL INFORMATION CONTAINED HEREIN, OR IN ANY OTHER ACCOUNT FORM OR OTHER DOCUMENT FROM THE UNDERSIGNED IS TRUE AND CORRECT AND THAT IF ANY CHANGE TO SUCH INFORMATION OCCURS, THE UNDERSIGNED WILL IMMEDIATELY INFORM YOU, IN WRITING, OF SUCH CHANGE. BY SIGNING BELOW, THE UNDERSIGNED ACKNOWLEDGES THAT (S)HE HAS READ AND UNDERSTANDS ALL OF THE TERMS AND CONDITIONS OF THE COMMODITY CUSTOMER AGREEMENT AND AGREES TO BE BOUND BY THEM. PROFUTURES BULL & BEAR FUND, L.P. By: ProFutures, Inc., General Partner By: /s/ Gary Halbert ------------------- Name: Gary Halbert Title: President Date: October 22, 1997 -8- EX-10.03 8 INVESTMENT ADVISORY AGREEMENT Exhibit 10.03 INVESTMENT ADVISORY AGREEMENT Between: Dated: September 1, 1997 ------------------------ Horizon Cash Management L.L.C. ("Horizon") and ProFutures Bull & Bear Fund, L.P. (the "Client") Horizon and the Client hereby agree as follows: 1. The Client hereby agrees to open a trust account and deposit funds with the Custodian referred to in Paragraph 2, such funds will be used to purchase and sell securities and other obligations consistent with the investment objectives and guidelines contained in Appendix 1 hereto. Horizon shall have the sole power and discretion with respect to the purchase and sale of any such securities or obligations and with respect to the authorization and execution of transactions for the account of the Client within the classifications of securities or obligations and pursuant to the investment objectives and guidelines contained in Appendix 1 hereto until Horizon receives written notice of termination from the Client. Horizon may either purchase such securities directly in the Client's account or in a master trust account established at the Custodian in which Client will participate on a pro rata basis with other Horizon Clients having similar investment objectives and guidelines. 2. All funds and securities in the Client's account will be held by Citibank, N.A., as custodian (the "Custodian"), pursuant to a Custody Agreement, a copy of which is attached hereto as Appendix 2. Horizon may from time to time in its sole discretion, upon written notice to the Client (but without further approval of the Client being required), appoint another major money center banking institution as custodian of the funds and securities in the Client's account and transfer such funds and securities to the new custodian. 3. Horizon shall neither own nor have any interest in securities or funds deposited under this Agreement. All funds deposited shall be held for the sole and exclusive benefit of the Client. 4. Horizon will be available to consult with the Client with respect to the investment objectives and needs of the Client. 5. The Client understands and agrees that nothing herein shall restrict the ability of Horizon or any of its principals, employees or affiliates to engage in any transactions for its (or their) own account and for the account of others. The performance of such services for others shall not be deemed to violate or give rise to any duty or obligation to the Client. 6. Horizon will act in a fair and reasonable manner in allocating suitable investments among the Client's account and all other accounts advised by Horizon or any of its affiliates, but the Client acknowledges that equality of treatment cannot be assured in all situations. 7. The Client agrees to pay Horizon the applicable annualized fee set forth in Appendix 3, incorporated herein by reference. The management fee shall be computed and accrued on a daily basis. Custody and related securities transaction fees will be paid from Horizon's management fee on a net basis after compensating balance credits are applied. Wire transfer fees and check processing fees are charged to the Client on a per use basis at the current prevailing rate charged by the Custodian and shall be enumerated on daily and month-end statements and debited from the income portion of the Client's account by the Custodian. 8. The Client hereby authorizes Horizon, on a monthly basis, to withdraw or transfer (or authorize the same) from the Client's account cash in an amount equal to the management fee accrued under Paragraph 7; provided that (a) such payment shall be made exclusively out of income and (b) Horizon has, prior to or concurrently with such withdrawal, sent to the Client a statement which shows the amount of the fee for such month, the principal amount of the Client's assets on which such fee was based and the specific manner in which the fee was calculated. The Client will notify Horizon within five business days after receipt of the statement of any objections or exceptions. 9. It is understood and agreed that the Client shall be able to withdraw all or any part of the funds on deposit or add additional funds thereto upon notice to Horizon, subject to the specific cut-off times and requirements established by Horizon as may be in effect from time to time. Horizon is authorized to receive and act upon instructions from the persons named in Appendix 4 hereto as authorized representatives of the Client. The Client may add or delete authorized representatives upon written notice to Horizon. Any funds withdrawn by the Client pursuant to this paragraph will be transferred directly to an account authorized in Appendix 4 of this Agreement, a copy of which is maintained by the Custodian. The Client retains the right to pledge or hypothecate the assets in its account, all of which is expected to be subject to margin calls pursuant to the client's trading activities. 10. Horizon is authorized to enter into transactions with Citibank, N.A. (the "Bank") whereby the Bank will advance funds to the Client to purchase securities in the Client's account in anticipation of receipt of additional funds from the Client later in the day. Horizon is also authorized to pledge securities owned by Client to the Lender to secure such advances. Lender shall not charge any interest or other fees in connection with such advances, except that if funds are not received from Client by the close of business on the advance date the Client shall be subject to standard overdraft charges. The purpose of these transactions is to allow Horizon to obtain maximum overnight rates on Client funds despite not receiving such funds until after the applicable purchase deadline. 11. The Client shall bear all risk of gain or loss in its account. No assurance can be given that Horizon's advice will result in profit for the Client or that the Client will not incur losses. 12. Neither Horizon nor any of its principals, employees, agents or affiliates shall be liable to the Client for any loss, cost, damage, expense, fine or penalty occasioned by any act or omission or error of judgment of Horizon or any of its principals, employees, agents or affiliates in connection with the performance of services hereunder, except as a direct result of Horizon's negligence, -2- intentional misconduct or violation of applicable law. Federal and state securities laws impose liabilities under certain circumstances on persons who act in good faith, and nothing herein shall in any way constitute a waiver or limitation of any rights which the Client might have under any federal and state securities laws. 13. The Client shall indemnify and hold harmless Horizon and its principals, employees, agents and affiliates against all losses, costs, damages, expenses (including attorneys' fees), fines or penalties ("Losses") arising out of or relating to this Agreement or the services performed hereunder, unless such Losses arise out of or result from negligence, malfeasance, intentional misconduct or a violation of applicable law on the part of Horizon or its principals, employees, agents or affiliates. Horizon shall indemnify and hold harmless Client and its principals, agents and affiliates and their principals and employees against all losses arising out of or related to this Agreement or the services performed hereunder, if such losses arise out of or result from the negligence, malfeasance, intentional misconduct or violation of applicable law on the part of Horizon, its principals, agents and affiliates or their principals or employees. 14. Horizon shall neither be responsible for delays in the transmission nor execution of instructions due to breakdown or failure of transmission or communication facilities, or to any other cause of causes beyond its reasonable control or anticipation. Horizon shall not be responsible for any loss, damage, expense or claim arising from any act of omission of the Custodian (or any replacement custodian) or any broker, dealer or bank in connection herewith. 15. For all purposes of this Agreement, Horizon shall be an independent contractor and not an employee or dependent agent of the Client; nor shall anything herein be construed as making the Client a partner or co-venturer with Horizon or any of its other clients. Except as provided in this Agreement, Horizon shall not have any authority to bind, obligate or represent the Client. 16. All investment advice furnished by Horizon to the Client or for the Client's benefit shall remain property of Horizon, shall be treated as confidential by the Client and shall not be used by the Client or disclosed to third parties, except as required in connection with the operation of the Client's account or as required by law or by demand of any regulatory or self- regulatory authority. 17. Anything in this Agreement to the contrary notwithstanding, it is understood and agreed that (a) Horizon may refuse, at any time or from time to time, to accept deposit of any funds of the Client, in whole or in part, (b) Horizon may terminate this Agreement, and cause all the funds of the Client to be withdrawn from the account of the Client established pursuant to this Agreement and delivered to the Client (i) if the average daily balance in the undersigned's account during any period of 30 consecutive days is less than $100,000 or (ii) at any time upon 30 days written notice to the Client and (c) the Client may terminate this Agreement immediately at any time upon written notice to Horizon. 18. Each party hereby represents that it is duly authorized and empowered to execute, deliver and perform this Agreement, that such action does not conflict with or violate any provision -3- of law, rule or regulation, contract, deed of trust or other instrument to which it is a party or to which any of its property is subject, and that this Agreement is its valid and binding obligation enforceable in accordance with its terms. The Client shall provide to Horizon upon request satisfactory evidence of its authority to enter into this Agreement and the signatory's authority to execute this Agreement on the Client's behalf. 19. The Client represents that it is familiar with and will, upon completion of its offering, meet one of the criteria for qualification as an "Accredited Investor" as that term is defined in Regulation D promulgated under the Securities Act of 1933 and that it has such financial resources and investment experience and knowledge in financial, investment and business matters that it is capable of evaluating the risks and merits of participating in Horizon's investment program. The Client acknowledges receipt of Horizon's current Form ADV Part II at least 48 hours prior to entering into this Agreement. The Client represents that it understands the nature and risks of Horizon's investment program, is satisfied that it has received adequate information and opportunities to ask questions of and receive clarification from Horizon on all matters it considers material to its engagement of Horizon and has relied solely on Horizon's Form ADV Part II and independent investigation made by it in determining to invest in Horizon's investment program. 20. The Client hereby agrees to execute and authorizes Horizon to execute any documents, including but not limited to repurchase agreements, broker/dealer account agreements, limited powers of attorney and account agreements with the Custodian (or any replacement custodian), which are deemed by Horizon to be necessary for the consummation of the transactions contemplated herein. 21. Any communications or notices provided for in this Agreement shall be sent in writing to a party at the following address or such other address as notified in writing by such party: in the case of Horizon, Horizon Cash Management L.L.C., 325 West Huron, Suite 808, Chicago, Illinois 60610, Attention: Diane Mix Birnberg, Facsimile No.: 312/335-8501; and in the case of the Client, the address set forth in Appendix 2. All communications or notices sent to such addresses or telecommunication numbers (or as otherwise directed by the parties by notice hereunder) shall be effective upon receipt. 22. The provisions of this Agreement shall be continuous and shall cover individually and collectively all accounts which the Client now maintains or may in the future open or reopen with Horizon, and shall inure to the benefit of Horizon and its successors and assigns and shall be binding upon the Client and the estate, executors, administrators, successors and assigns of the Client; provided, however, that no assignment (as that term is defined in Section 202(a)(1) of the Investment Advisers Act of 1940) of this Agreement shall be made by Horizon without the consent of the Client. 23. Except as otherwise expressly provided herein, this Agreement shall not be amended, nor shall any provision of this Agreement be considered modified or waived, unless evidenced by a writing signed by the party to be charged with such amendment, waiver or modification. A waiver -4- on one occasion will not be deemed to be a waiver of the same or any other breach on a future occasion. 24. The provisions of this Agreement shall in all respects be construed according to, and the rights and liabilities of the parties hereto shall in all respects be governed by, the laws of the State of Illinois. 25. This Agreement, together with the Appendices hereto, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior communications, agreements, understandings, representations, and warranties, whether oral or written, between the parties hereto with respect to the subject matter hereof. 26. Each provision of this Agreement is intended to be severable from the others so that if any provision or term hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remaining provisions and terms hereof. 27. This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first set forth above. HORIZON CASH MANAGEMENT L.L.C. PROFUTURES, INC., GENERAL PARTNER, L.P. By: /s/Diane Mix Birnberg --------------------- By: ProFutures, Inc., General Partner, L.P. By: /s/ Gary D. Halbert --------------------------------------- Title: President Title: President ------------------- ------------------------------------- -5- Appendix 1 Investment Objectives Achieve a high absolute rate of return relative to the risk assumed Specific Investment Guidelines in Furtherance of Investment Objectives Cash management/yield enhancement Securities Eligible For Investment - See attached from Private Offering Memorandum X U.S. Government Securities ------- U.S. Government Agency Securities ------- X Bankers' Acceptances ------- X Certificates of Deposit ------- X Time Deposits ------- X Commercial Paper ------- ------- Loan Participation Notes X Repurchase Agreements ------- X Money Market Funds ------- -6- The Partnership will fulfill its margin commitments with cash, U.S. Treasury bills or high-quality interest-earning obligations. A majority of the Partnership's assets will be held with the custody department of Citibank, N.A. and managed by Horizon. These assets will be committed for margin calls on the Partnership's account(s) at the Futures Broker. More specifically, Horizon, on behalf of the Partnership, may direct the investment of these funds in items such as: (a) U.S. Treasury securities, bankers' acceptances and certificates of deposit (banks with a long-term credit rating of at least AA); (b) time deposits (one day only -- banks with a long-term credit rating of at least AA); (c) interests in money market funds regulated under U.S. securities laws and regulations; and/or (d) commercial paper (rated AP-1 of top issuers). Horizon's objective is for the Partnership's account to earn net interest income and/or profits in excess of short-term Treasury bill rates, net of its fees; however, there is no guarantee that Horizon can produce any income or profits on the Partnership's account. (Horizon is also responsible for the management of subscription funds held in the Partnership's account at Citibank, N.A. prior to acceptance of the subscription by the Partnership.) The remaining assets will be held at the Futures Broker for margin purposes and will earn interest at short- term Treasury bill rates. The Partnership may maintain assets with one or more unaffiliated banks in Austin, Texas for normal payment of bills and money management purposes. -7- APPENDIX 2 ---------- --------------------------------------------------------------- CUSTODIAL SERVICES AGREEMENT BETWEEN CITIBANK, NA., SUBSIDIARIES and AFFILIATES AND HORIZON CASH MANAGEMENT, L.L.C. INVESTMENT ADVISER ON BEHALF OF CLIENTS ---------------------------------------------------------------
TABLE OF CONTENTS PREAMBLE............................................................. 1 1. DEFINITIONS..................................................... 1 2. SELECTION AND APPOINTMENT OF THE BANK; SEVERAL LIABILITY........ 3 3. PROPERTY ACCEPTED............................................... 3 4. REPRESENTATIONS AND WARRANTIES.................................. 4 5. IDENTIFICATION AND SEGREGATION OF ASSETS........................ 4 6. PERFORMANCE BY THE BANK......................................... 5 7. REGISTRATION.................................................... 7 8. CLIENT DEPOSIT ACCOUNT PAYMENTS................................. 7 9. CUSTODY ACCOUNTS AND ACCOUNT PROCEDURES......................... 8 10. REPORTS, RECORDS, AFFIDAVITS AND ACCESS......................... 8 11. WITHDRAWAL AND DELIVERY......................................... 9 12. USE OF AGENTS, CLEARANCE SYSTEMS AND DEPOSITORIES............... 9 13. CITICORP ORGANIZATION INVOLVEMENT............................... 10 14. SCOPE OF RESPONSIBILITY......................................... 11 15. INDEMNITY....................................................... 12 16. LIEN............................................................ 13 17. FEES AND EXPENSES............................................... 13 18. TERMINATION..................................................... 14 19. ASSIGNMENT...................................................... 14 20. JOINT AND SEVERAL LIABILITY OF THE CLIENT....................... 14
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21. DISCLOSURE..................................................... 15 22. NOTICES........................................................ 15 23. AMENDMENT...................................................... 15 24. GOVERNING LAW AND JURISDICTION................................. 15
-iii- CUSTODIAL SERVICES AGREEMENT is made as of ________, 1995 by and between Horizon Cash Management, L.L.C. Investment Adviser on behalf of clients on behalf of its customers (the "Client") having its office or principal place of business at 325 West Huron Street, Chicago, Illinois 60610, and Citibank, N.A., a national banking association having an office at 111 Wall Street, New York, New York, 10005 and acting through such office in New York (the "Bank"). WITNESSETH THAT WHEREAS, the Client represents that it is authorized to (a) open and maintain a custody account on behalf of its customers with the Bank to hold certain property of its customers including, but not limited to, stocks, bonds, or other securities, funds and other property owned by such customers and under the management of the Client, (b) enter into this Agreement, and (c) direct all actions and transactions contemplated hereunder. The Client further represents that it is duly incorporated, organized or associated and in good standing under the laws of the state or country of its incorporation, organization or association that the consummation of transactions contemplated hereby or directed by it hereunder will not violate any applicable laws, regulations or order, and that the Client has obtained the necessary direction and authority from its customers; NOW, THEREFORE, in consideration of the premises and of the agreements hereinafter set forth, the parties agree as follows: 1. DEFINITIONS ----------- "Agreement" means this Custodial Services Agreement, and other applicable terms and conditions or operating procedures (if any) agreed upon by the Client and the Bank, as may be amended from time to time. "Authorized Person(s)" means (i) any officers, employees or agents of the Client as have been authorized by notice in writing to the Bank to act on behalf of the Client in the performance of any acts, discretions or duties under this Agreement, or (ii) any other person, firm or company holding a duly executed Power-of-Attorney from the Client which is in a form acceptable to the Bank. "Branch" means any branch or office of Citibank, N.A. "Citicorp Organization" means Citicorp and any entity of which Citicorp is, now or hereafter, directly or indirectly a shareholder. For purposes of this Agreement, each Branch of Citibank, NA., shall be deemed to be a separate member of the Citicorp Organization. "Clearance System" means any United States central securities depository it deems appropriate, including, but not limited to, the Depository Trust Company; the Participants Trust Company and the Federal Reserve Book Entry System. The Bank will deposit -1- Securities held hereunder with a U.S. Depository only in an account which holds exclusively the assets of customers of the Bank. "Instructions" means instructions from any Authorized Person received by the Bank, either orally or via telephone, telex (whether tested or untested), facsimile transmission, bank wire or other teleprocess or electronic instruction system acceptable to the Bank which have been transmitted with proper testing or authentication on such terms and conditions as such Bank may specify, provided that: (i) Instructions delivered to the Bank by telephone shall be promptly confirmed in writing by an Authorized Person (which confirmation, if the Bank agrees, may bear a facsimile signature) although such Bank may, in its absolute discretion, act upon the Instructions before any confirmation is received and shall be fully protected in so acting even in the absence of any such confirmation; (ii) Instructions shall continue in full force and effect until canceled or superseded, (iii) If any Instructions are unclear and/or ambiguous, the Bank may, in its absolute discretion and without any liability on its part, act upon what it believes in good faith such Instructions to be or refuse to execute such Instructions until any ambiguity or conflict has been resolved to its satisfaction; (iv) Instructions shall be provided and carried out subject to the operation-procedures, marketing practices, rules and regulations of any relevant stock exchange, Clearance System, depository or market where they are to be executed, and can be acted upon by the Bank only during Banking hours and on Banking days when the applicable financial markets are open for business. All such Instructions shall be carried out subject to the local laws, regulations, customs, procedures and practices applicable at the place of performance of such Instructions or to which the Bank is otherwise subject and shall be governed by and construed in accordance with the local law applicable at such place of performance; and (v) The Bank shall be entitled to rely upon the continued authority of any Authorized Person to give Instructions until the Bank receives notice from the Client to the contrary; and the Bank shall be entitled to rely upon any Instructions it believes in good faith to have been given by any Authorized Person. "Person" means any person, firm, company, corporation, government, state or agency thereof or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing. "Property" means, as the context requires, any Securities (as hereinafter defined), cash and/or any other property held by the Bank under this Agreement. -2- "Securities" means bonds, debentures, notes, stocks, shares, units or other securities and all Monies, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of the foregoing or evidencing or representing any other rights or interests therein (including without limitation any of the foregoing not constituted, evidenced or represented by a certificate or other document but an entry in the books or other permanent records of the issuer, a trustee, or other fiduciary thereof, or a Clearance System). 2. SELECTION AND APPOINTMENT OF THE BANK; SEVERAL LIABILITY -------------------------------------------------------- (A) The Client hereby selects, appoints and authorizes the Bank to establish in accordance with this Agreement (i) a custody account ("Custody Account") in the name of the Client for the benefit of its customers for the deposit of any Property (except cash) from time to time received by the Bank for the account of the Client, and (ii) a deposit account ("Client Deposit Account") in the name of the Client for the benefit of its customers for the deposit of funds, whether by way of deposit or arising out of or in connection with any Property in the Custody Account. The Custody Account may include separate sub- accounts for each customer of the client. (B) The Client understands and agrees that obligations and duties hereunder of the Bank shall be performed only by the Bank, and shall not be deemed obligations or duties of any other member of the Citicorp Organization. (C) In the event that applicable law or regulations change in a way that would prevent or limit the performance of the duties and obligations of the Bank, then until such time as the Bank is again able to perform such duties and obligations hereunder, such duties and obligations of the Bank shall be superseded and no other member of the Citicorp Organization nor Citicorp itself will be liable therefor or for any damages in any way resulting from such prevented or limited performance. (D) The Client agrees to execute such further documents and provide such materials and information as may be reasonably requested by the Bank to facilitate the opening and maintenance of such account. 3. PROPERTY ACCEPTED ----------------- The Bank agrees to accept for custody in the Custody Account at its discretion and subject to the conditions set forth herein: (A) Securities; (B) Precious Metals; and/or (C) any other form of Property (except cash) acceptable to the Bank and capable of deposit under the terms of this Agreement including, but not limited to, physical assets. -3- The Bank agrees to accept for custody in the Client Deposit Account, cash in any currency which the Bank may accept for deposit. 4. REPRESENTATIONS, COVENANTS AND WARRANTIES ------------------------------------------ The Client hereby represents, covenants and warrants to the Bank and the Bank hereby represents and warrants to the Client that: (A) During the term of this Agreement, it (and any person on whose behalf it may act as agent or otherwise in a representative capacity) has and during the term of this Agreement, will continue to have full capacity and authority to enter into this Agreement and to carry out all the actions contemplated herein, and has taken and will continue to take all action (including without limitation the obtaining of all necessary governmental consents in any applicable jurisdiction and customer consents) to authorize the execution, delivery and performance of this Agreement; and (B) If the Client is a company or other corporate body, the resolutions of its Board of Directors or other managing body authorizing the execution, delivery and performance of this Agreement have been obtained and that such resolutions remain and will continue to remain in full force and effect as of the date hereof and during the term of this Agreement without revocation or amendment. 5. IDENTIFICATION AND SEGREGATION OF ASSETS ---------------------------------------- With respect to Property in the Custody Account: (A) except as otherwise provided in this Agreement, the Bank will separately identify the Property on its records as being held for the account of its customers and, to the extent practicable, segregate all Property held on behalf of the Client and all property of customers of the Client held by such Bank or any other entity authorized to hold Property in accordance with Section 12 hereof. (B) the Bank shall supply to the Client from time to time as mutually agreed upon, a written statement with respect to all Property in the Custody Account and the Client Deposit Account. In the event that the Client does not inform the Bank in writing of any exceptions or objections thereto within 60 days after the date of such statement, the Client shall be deemed to have approved such statement. (C) in order for Client to comply with rule 206 (4)-2 of the Investment Advisers Act of 1940, the Client requests and the Bank hereby agrees that the Client will provide the following documents to the Bank and the Bank will maintain these documents in its files: -4- (i) the Investment Advisory Agreements and Limited Power of Attorney forms for each of the customers of the Client. (ii) the allocation of securities per each of the customers of the Client. The first item will be provided as a customer provides executed documents to the Client and any changes to the Agreements will also be provided as may occur. Notwithstanding their holding the referenced documents, it is understood and agreed that the Bank shall have no additional obligations with respect to such documents, nor shall the Bank be charged with knowledge of their contents, meaning or any obligations or responsibilities therein undertaken. Additionally, the Bank shall not be responsible for ensuring compliance with the referenced section, or any other provisions, of the Investment Advisers Act of 1940. The second item will be provided daily either by facsimile or other electronic transmission; provided, however, that the Bank shall not be responsible for ensuring the accuracy of the information it receives. 6. PERFORMANCE BY THE BANK ----------------------- (A) Transactions not requiring Instructions. In the absence of contrary ---------------------------------------- Instructions, the Bank is authorized by the Client to carry out the following transactions relating to the Property without obtaining specific Instructions from the Client: (i) to sign any affidavits, certificates of ownership or other certificates relating to the Property which may be required under any laws or regulations made by any tax authority or any other regulatory authority in any relevant jurisdiction, whether governmental or otherwise, and whether relating to ownership, income tax or capital gains, or any other tax, duty or levy (and the Client further agrees to ratify and to confirm or to do such things as may be necessary to complete or evidence any of the Bank's actions property taken under this Section 6(A)(i) or otherwise under the terms of this Agreement); (ii) to collect and receive, for the account of the Client on behalf of its customers, all income and other payments and distributions in respect of the Property, and in the absence of contrary Instructions credit the same to the Client Deposit Account; (iii) to take any action necessary and proper in connection with the receipt of income and other payments and distributions as are referred to in Section 6(A)(ii) above, including without limitation the presentation of coupons and other interest items; -5- (iv) to receive and hold, for the account of the Client on behalf of its customers, any capital arising out of or in connection with the Property whether as a result of its being called or redeemed or otherwise becoming payable (other than at the option of the holder thereof) and in the absence of contrary Instructions credit the same to the Client Deposit Account; (v) to take action necessary and proper in connection with the receipt of any capital as is referred to in Section 6(A)(iv) above, including without limitation, the presentation for payment of any Property which becomes payable as a result of its being called or redeemed or otherwise becoming payable (other than at the option of the holder thereof) and the endorsement for collection of checks, drafts and other negotiable instruments; (vi) to receive and hold, for the account of the Client on behalf of its customers, all Securities received by the Bank as a result of a stock dividend, share subdivision or reorganization, capitalization of reserves or otherwise; (vii) to exchange interim or temporary receipts for definitive certificates, and old or overstamped certificates for new certificates; (viii) subject to Section 16 below to make cash disbursements for any expenses incurred in handling the Property and for similar items in connection with the Bank's duties under this Agreement, and in the absence of contrary Instructions debit the same to the Client Deposit Account or any other account of the Client with the Bank; (ix) to deliver to the Client transaction advices and/or statements of account showing the Property held at such intervals as may be agreed between the Client and the Bank; and (x) to notify the Client of all notices, reports and other financial information relating to the Property when received by the Bank, and to seek Instructions as to any action to be taken in connection therewith. (B) Transactions Requiring Instructions. The Bank is authorized by the Client to carry out the following actions relating to the Property only upon receipt of specific Instructions from the Client: (i) to deliver Property, sold by the Client for the account held on behalf of customers of the Client, against payment or as may be specified by the Client in its Instructions; -6- (ii) to make payment for and to receive Property purchased by the Client for the account held on behalf of customers of the Client, such payment to be made by the Bank in accordance with the prevailing rules, operating procedures or market practice on any relevant stock exchange, Clearance System, depository or market, where or through which such payment is to be made, or as may be specified by the Client in its Instructions; (iii) to deal with bonus or scrip issues, warrants and other similar interests offered or received by the Bank (or its nominee or other agent) or to handle proxy forms, only as may be specified by the Client in its Instructions; (iv) to exercise any voting rights attributable to Securities and to forward proxy forms signed in blank by the Bank (or its nominee or other agent) or to destroy proxy forms, only as may be specified by the Client in its Instructions; (v) except as otherwise provided herein, to deliver or dispose of the Property only as may be specified by the Client in its Instructions; and (vi) to insure the Property on the Client's behalf provided that the Client makes available to the Bank the cost of such insurance in advance or authorizes the Bank to debit such cost to the Client Deposit Account or any other account of the Client with the Bank. 7. REGISTRATION ------------ The Client agrees and understands that, except as may be specified by the Client in its Instructions, Property may be registered as the Bank deems appropriate in the name of the Bank, its nominee company or agent or a Clearance System, depository or nominee company thereof in the jurisdiction where the Property is required to be registered or otherwise held. Where feasible, Bank will arrange on written request by the Client, for registration of Property with the issuer or its agent in the name of the Client or its nominee company on behalf of the Client's customers. The Client understands and agrees, however, that the Bank shall have discretion to judge whether such direct registration is feasible. 8. CLIENT DEPOSIT ACCOUNT PAYMENTS ------------------------------- Except as may be otherwise provided herein, the Bank shall make, or cause its nominee company or agent to make, payments from the Client Deposit Account only: (A) in connection with the purchase of Property for the account held on behalf of the customers of the Client and its delivery to the Client, or its crediting to the Custody Account; -7- (B) for the payment for the account of the Client of taxes, management or supervisory fees, agents and other advisers' fees, distributions and operating expenses incurred under the terms of this Agreement; (C) for payments to be made in connection with the conversion, exchange or surrender of Property held in the Custody Account; (D) for other proper purposes as may be specified by the Client in its Instructions; or (E) upon the termination of this Agreement as herein provided; PROVIDED, HOWEVER, that the payments referred to above do not exceed the funds available in the Client Deposit Account at any time and that nothing in this Agreement shall oblige the Bank to extend credit, grant financial accommodation or otherwise advance monies to the Client for the purpose of meeting any such payments or part thereof or otherwise carrying out any Instructions. 9. CUSTODY ACCOUNT AND CLIENT DEPOSIT ACCOUNT PROCEDURES ----------------------------------------------------- Unless otherwise agreed to by the Bank and the Client, the Bank shall or shall instruct any other entity authorized to hold Property in accordance with Section 12 hereof to, receive or deliver Securities and credit or debit the Custody Account or Client Deposit Account, as the case may be, in accordance with Instructions from any Authorized Person. The proceeds from the sale or exchange of Property and the Property purchased or acquired will be credited to the Client Deposit Account or the Custody Account, as the case may be, on the date the proceeds or such Property, as the case may be, are actually received by such Bank. 10. REPORTS, RECORDS, AFFIDAVITS AND ACCESS --------------------------------------- If the Bank has in place a system for providing telecommunication access or other means of direct access by customers to such Bank's reporting system for Property in the Custody Account or the Client Deposit Account, then, upon mutual agreement and arrangement between the Client and the Bank, the Bank shall provide the Client with such Instructions and passwords and/or access codes as may be necessary in order for the Client to have such direct access through the Client's terminal device. Except as otherwise provided in this Agreement, during the Bank's regular Banking hours and upon receipt of reasonable notice from the Client, any officer or employee of the Client, any independent accountant(s) selected by the Client and any person designated by any regulatory authority having Jurisdiction over the Client shall be entitled to examine on the Bank's premises, Property held by the Bank on its premises and the Bank's records regarding Property held hereunder deposited with entities authorized to hold Property in accordance with Section 12 hereof, but only upon the Client's furnishing the Bank with Instructions to -8- that effect, provided such examination shall be consistent with the Bank's obligations of confidentiality to other parties. The Bank's costs and expenses in facilitating such examinations and providing such reports and documents, including but not limited to the cost to the Bank of providing personnel in connection with examinations shall be borne by the Client if not borne by the person or agencies making such examinations or receiving such reports or documents, provided such costs and expenses shall not be deemed to include the Banks costs in providing, to the Client (i) the "single audit report," if any, of the independent certified public accountants engaged by the Bank, and (ii) such reports and documents as this Agreement contemplates that the Bank shall furnish routinely to the Client. The Bank shall also, subject to restrictions under applicable law, seek to obtain from any entity with which the Bank maintains the physical possession of any of the Property in the Custody Account and the Client Deposit Account, such records of the Custody Account or the Client Deposit Account as may be required by the Client or its agents in connection with an internal examination by the Client of its own affairs. Upon a reasonable request from the Client, the Bank shall use its best efforts to furnish to the Client such reports or portions thereof of the external auditors of each such entity's system of internal accounting controls applicable to its duties under its agreement with the Bank. The Bank may supply to the Client from time to time written service standards and/or operating procedures which shall govern the day-to- day operations of the Custody Account and the Client Deposit Account. Such service standards and/or operating procedures, as amended from time to time, are hereby incorporated herein by reference. 11. WITHDRAWAL AND DELIVERY ----------------------- The Client on behalf of its customers, may at any time subject to Section 16 hereof, demand withdrawal of all or any part of the Property in the Custody Account and/or the Client Deposit Account. Payments of cash shall be made at the expense of the Client's customers by banker's draft or check, telegraphic transfer to the authorized bank pursuant to Client Instructions. Delivery of any Property other than cash will be made without undue delay at such locations as the parties hereto may agree and at the expense of the Client. Where necessary, the Bank will on withdrawal, transfer any Property in the name of the Client's customers or as the Client may direct, (which direction may be based on it's customer's directions) at the expense of the Client. 12. USE OF AGENTS, CLEARANCE SYSTEMS AND DEPOSITORIES -------------------------------------------------- The Client agrees and understands that: (A) Each Bank is authorized, subject to applicable laws, rules and regulations, to appoint agents, including without limitation, any member of the Citicorp Organization, whether in its own name or that of the Client, to perform any of the duties of the Bank -9- under this Agreement and the Bank may delegate to any agent so appointed any of its functions under this Agreement, including without limitation, the collection of all payments due on the Property whether of an so appointed any of its limitation, the collection income or a capital nature; (B) in selecting and appointing agents, the Bank shall use reasonable care to ensure that it appoints only competent persons provided that the Bank shall not be responsible (except as to the negligence in the selection of such agents) for the performance by such agents of any of the duties delegated to them under this Agreement except for Citibank subsidiaries and branches; (C) if the Bank appoints any agent pursuant to this Section 12, it shall be entitled to pay all normal remuneration to such agent for the account of the Client; and (D) The Bank is entitled to deposit any Property at its discretion in any Clearance System deemed appropriate by the Bank, and any Property so held shall be subject to the rules and operating procedures of such Clearance System and any applicable laws and regulations whether of a governmental authority or otherwise. 13. CITICORP ORGANIZATION INVOLVEMENT --------------------------------- (A) Subject to applicable laws, the Client hereby authorizes the Bank without the need for the Bank to obtain the Client's prior consent: (i) when acting on Instructions from the Client to purchase and sell Property from and to the Bank or any other member of the Citicorp Organization and through any member of the Citicorp Organization, and from and to any other client of the Bank or any other member of the Citicorp Organization; and (ii) to obtain and keep, without being liable to account to the Client, any commission payable by any third party or any other member of the Citicorp Organization in connection with dealings arising out of or in connection with the Custody Account and/or the Client Deposit Account. (B) The Client agrees and understands that if the Bank, acting on Instructions from the Client, arranges for investment in the name of the Bank (but for the account of the Client on behalf of its customers) in any Property held, issued, or managed by any member of the Citicorp Organization, then such member of the Citicorp Organization may retain a profit (other than the charges, commissions and fees payable by the Client under this Agreement) without being liable to account to the Client for such profit. -10- (C) The Client agrees and understands that the Bank may have banking relationships with companies whose Property is held in the Custody Account and/or Client Deposit Account or which are purchased and sold for the Custody Account and/or Client Deposit Account. 14. SCOPE OF RESPONSIBILITY ----------------------- The Client agrees and understands that: (A) subject to the terms hereof, the Bank shall use all reasonable care in the performance of its duties under this Agreement and shall exercise the same standard of care that it exercises over its own assets in the safekeeping, handling, servicing and disposition of the Property, but shall not be responsible for any losses or damages suffered by the Client as a result of the Bank performing such duties unless the same results from an act of negligence, bad faith or willful misfeasance on the part of the Bank or the reckless disregard of its duties hereunder in which event the liability of the Bank in connection with any Property shall not exceed the market value of such Property at the time of such negligence, bad faith or willful misfeasance or the reckless disregard of its duties hereunder as aforesaid; (B) unless otherwise expressly agreed, the Bank need not maintain any insurance on Property held under the terms of this Agreement; (C) upon receipt of each and every transaction advice and/or statement of account supplied to it by the Bank pursuant to Section 6(A)(ix) hereof, the Client shall examine the same and notify the Bank within sixty (60) days of the date of any such advice or statement of any discrepancy between Instructions given and the situation shown therein and/or of any other errors therein. In the absence of any such notification by the Client, the Bank shall not (in the absence of negligence, bad faith or willful misfeasance or the reckless disregard of its duties hereunder on its own part) be liable for the consequences of any discrepancy or error which was made or existed during the period covered by the statement or the transaction indicated by the advice, provided, however, that Bank shall not be liable for any such consequences during the period prior to the receipt of any such notification; (D) upon Client's Instructions, the Bank or any of its nominees or agents, as the case may be, may (but without being under any duty or obligation to) institute or defend legal proceedings, or take or defend any other action arising out of or in connection with the Property; provided, however, that the Client shall first indemnify the Bank against any costs, charges and expenses arising from such proceedings or other action and make available to the Bank such security in respect of such costs, charges and expenses as the Bank in its absolute discretion deems necessary; -11- (E) the Bank does not have any responsibility if for any reason or cause beyond its control, including without limitation nationalization, expropriation, currency restrictions, acts of war, terrorism, insurrection, revolution, nuclear fusion, fission or acts of God, the operation of the Custody Account and/or the Client Deposit Account and/or the Bank's ability to carry out Instructions or account to the Client is restricted, removed or subject to delay in any way; (F) all collections of the Property and of any funds or other property paid or distributed in respect of the Property is made at the risk of the Client and its customers; (G) the Bank shall not be liable for any liabilities, damages, losses, claims or expenses resulting from or caused by the carrying out of any Instructions of the Client; (H) the Client shall be responsible for all filings, tax returns and reports on any transactions undertaken pursuant to this Agreement which must be made to any relevant authority, whether governmental or otherwise, and for the payment of all unpaid calls, taxes (including without limitation, any value-added taxes), imposts, levies or duties due on any principal or interest, or any other liability or payment arising out of or in connection with the Property, and in so far as the Bank is under any obligation (whether of a governmental or otherwise) to pay the same on behalf of the Client it may do so out of any monies or assets held in the Custody Account and/or the Client Deposit Account only out of income unless otherwise required by applicable law or regulatory authority; (I) the Bank is not acting under this Agreement as investment manager or investment adviser to the Client and the Bank's duty is solely to keep safe custody of the Property (with responsibility for the selection, acquisition and disposal of the Property remaining with the Client at all times); and (J) the Bank may rely, in the performance of its duties under this Agreement and without liability on its part, upon any Instructions believed by it in good faith to be genuine and given by an Authorized Person. 15. INDEMNITY --------- The Client agrees to indemnify and hold the Bank and each nominee or agents harmless against all costs, losses, liabilities, damages, claims and expenses including without limitation, any reasonable legal fees and disbursements arising directly or indirectly: (A) from the fact that the Property is registered in the name of or held by the Bank or any nominees or agents thereof; -12- (B) without limiting the generality of Section 15(A) above from any act or thing, including without limitation, any overdraft or other financial accommodation which arises on the records of the Bank (whether on an advised or unadvised basis), which the Bank or such nominee or agent allows, takes or does or omits to allow, take or do in relation to the Property under or pursuant to the terms of this Agreement or as a consequence of the carrying out of any Instructions; and (C) from the Bank or any such nominees or agent carrying out any Instructions believed by it in good faith to have been given by an Authorized Person; PROVIDED, HOWEVER, that neither the Bank, nor its nominees or agents shall be indemnified against any liability arising out of the Bank's or such nominees or agent's own willful misfeasance, bad faith, negligence or reckless disregard of its duties under this Agreement. 16. LIEN ---- The Bank hereby represents and agrees that (i) the Property held in accounts in the name of the Client for the benefit of its customers is not subject to and the Bank will not cause or permit its agents to cause the same to become subject to, any right, charge, security interest, lien or claim of any kind in favor of the Bank, any Clearance System in which the Property held in accounts in the name of the Client for the benefit of its customers is held or any creditor of any of them, except a claim of payment of their safe custody and administration; and (ii) the beneficial ownership of the Property held in accounts in the name of the Client for the benefit of its customers shall be freely transferable without the payment of money or other value other than for safe custody or administration. Subject to the foregoing, the Bank shall have a general lien on all other Property held by it under this Agreement until the satisfaction of all liabilities and obligations of the Client (whether actual or contingent) owed to the Bank hereunder, provided, that such lien shall secure only the Client's obligations to the Bank for the safe custody and registration of the Property under this Agreement. In the event of failure by the Client to discharge any of such liabilities and obligations pursuant to this Agreement when due, upon prior notice to the Client the Bank shall be entitled to sell or otherwise realize any such Property and to apply any moneys from time to time deposited with it under this Agreement and the proceeds of such sale or realization in the satisfaction of such liabilities and obligations; for the purpose of such application the Bank may purchase with any moneys standing to the credit of any account such other currencies and at such rate(s) of exchange as may be necessary to effect such application. 17. FEES AND EXPENSES ----------------- Without prejudice to any of its liabilities and obligations under this Agreement, the Client agrees to pay to the Bank from time to time, such fees and commissions for its services pursuant to this Agreement as may be notified by the Bank to the Client from time to time and -13- the Bank's reasonable out-of-pocket or incidental expenses including without limitation, all those items referred to in Section 8 hereof, and to indemnify and hold the Bank harmless from any liabilities, losses or withholdings resulting from any taxes or other governmental charges and any expenses related thereto, which may be imposed or assessed in connection with or arising out of the Custody Account and/or the Client Deposit Account. Subject to specific Instructions from the Client to the contrary, the Bank is further authorized to debit (after as well as before the date of any termination pursuant to Section 18 hereof) any account of the Client with the Bank, including without limitation the Client Deposit Account, for any amount owing to such Bank from time to time under this Agreement only out of income unless otherwise required by applicable law or regulatory authority. The provisions of this Section 17 shall survive the termination of this Agreement. 18. TERMINATION ----------- The Client may terminate this Agreement in whole by giving not less than thirty (30) days prior written notice to the Bank. The Bank may terminate this Agreement by giving not less than thirty (30) days prior written notice to the Client. Upon the expiration of such thirty (30) day notice period, the Bank as to which this Agreement has been terminated shall, subject to Section 16 hereof, account to the Client in accordance with the terms of Section 10 hereof, provided, however, that if the Bank has effected any transaction on behalf of the Client, the contractual settlement date of which is or is likely to extend beyond the expiration of such notice period, then the Bank shall be entitled its absolute discretion to close out or complete such transaction and to retain sufficient funds from the Property for that purpose and to satisfy any outstanding obligations or liabilities of the Client. 19. ASSIGNMENT ---------- This Agreement shall bind and enure for the benefit of the parties hereto and their respective successors, and neither the Client nor the Bank may assign, transfer or change all or any of its rights and benefits hereunder without the written consent of the Bank or the Client, as the case may be. 20. JOINT AND SEVERAL LIABILITY OF THE CLIENT ----------------------------------------- Where the Client comprises two or more persons, all obligations and liabilities under this Agreement shall be deemed to be joint and several, and any notice served on any one of such persons shall be deemed to have been served on all such other person or persons, as the case may be. -14- 21. DISCLOSURE ---------- The Client agrees and understands that the Bank or its agent may disclose information regarding the Custody Account and/or the Client Deposit Account if required to do so by any court order or similar process in any relevant jurisdiction or by order of an authority having power to do so over the Bank or its agents within the jurisdiction of such court or authority. 22. NOTICES ------- All notices and other communications hereunder, except for Instructions and reports relating to the Property which are transmitted through the Bank's reporting system for Property in the Custody Account, shall be in writing, telex, fax or telecopy, or if verbal, shall be promptly confirmed in writing, and shall be hand-delivered, telexed, faxed, telecopied or mailed by prepaid first class mail (except that notice of termination, if mailed, shall be by prepaid registered or certified mail) to each party at its address set forth above, if to the Client, marked "Attention: Diane Mix Birnberg" and if to the Bank, marked "Citibank as Custodian for Horizon Cash Management, L.L.C. Investment Adviser on behalf of clients" or at such other address as each party may be given written notice of to the other party. 23. AMENDMENT --------- This Agreement shall not be amended except by a writing signed by the party against whom enforcement is sought. 24. GOVERNING LAW AND JURISDICTION ------------------------------ THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED ACCORDING TO, THE LAWS OF THE STATE OF NEW YORK AND THE PARTIES AGREE THAT THE COURTS OF THE STATE OF NEW YORK SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY SUIT, ACTION OR PROCEEDING AND TO SETTLE ANY DISPUTES WHICH MAY ARISE OUT OF OR IN CONNECTION WITH THIS AGREEMENT, AND, FOR SUCH PURPOSES, EACH IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS. -15- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized. CITIBANK, N.A. HORIZON CASH MANAGEMENT, L.L.C. INVESTMENT ADVISER ON BEHALF OF CLIENTS By:/s/Frank Clacich By:/s/ Diane Mix Birnberg --------------------------------- ---------------------------- Title:Vice President Title:President ------------------------------ -------------------------- Attest:/s/ Craig Moore Attest:/s/ Pauline Slager ----------------------------- ------------------------- ATTACHMENTS -16- Appendix 2 (Cont'd) Part IV - Other Information Accountant: LAMP Technologies, LLC Contact Aladin T. Abughazabeh, President Address 5910 N. Central Expressway - Suite 1520 City Dallas State TX Zip 78206 Telephone 214-891-6200 Fax 214-750-7816 Send Duplicate Confirmations to Accounting Firm? Yes X No ----- ----- Appendix 3 MANAGEMENT FEES Client shall pay Horizon a management fee equal to the annual rate set forth below based on the corresponding amount of previous month-end assets under management for accounts associated with ATA Research, Inc., ProFutures, Inc. and their respective affiliates and clients:
Previous Month-end Aggregate Assets under Management Annual Rate of Management Fee - ----------------------- ----------------------------- $0 to $25,000,000 .50% $25,000,001 to $50,000,000 .45% $50,000,001 to $75,000,000 .35% $75,000,001 or more .25%
The management fee shall be calculated on the 360 day year and will be noted on the Client's daily statement as a debit. Fees are paid by Client on income earned daily. Horizon shall present the Client at the end of each month a statement of the management fee charged. Client shall indicate its approval or disapproval on each statement. Only upon Client's approval shall Custodian transfer payment of the management fee to Horizon and Horizon accept such payment. -17- Appendix 4 Part 1 - Client Information Name: ProFutures Bull & Bear Fund, L.P. Address: 1310 Highway 620 South - Suite 200 City: Austin State: Texas Zip: 78734 Telephone 512-263-3800 Fax: 512-263-3459 Tax I.D./Social Security No. 74-2849862 If client is a non-U.S. entity, an IRS form W-8 must be completed.
Authorized Persons Name Title Telephone ---- ----- --------- Gary D. Halbert President of ProFutures, Inc. Same as above Debi B. Halbert CFO of ProFutures, Inc. " " " Patrick Watson Vice President of ProFutures, Inc. " " "
Part II - Authorized Bank Wire Instructions None as instructed by Client Part III - Clearing Firm Information and Authorization ProFutures Bull & Bear Fund, L.P. hereby authorizes Horizon Cash Management L.L.C. to accept wire transfer instructions from the following authorized persons at our clearing firm(s) for the instructions listed below. Name of Client: ProFutures, Inc. Signature: By ProFutures, Inc. General Partner , /s/Gary D. Halbert Printed Name: Gary D. Halbert Title: President Date: September 1, 1997 Notice to Client of Withdrawal Required? Yes X No ----- ----- Duplicate Confirmations to Clearing Firm? Yes X No ----- ----- -18- Letter of Acknowledgment TO: Horizon Cash Management L.L.C. FROM: ProFutures Bull & Bear Fund, L.P. DATE: September 1, 1997 This is to acknowledge that as of this date we received and reviewed the Form ADV, Investment Advisory Agreement, Limited Power of Attorney and descriptive brochure. We have delineated our investment objectives in Appendix I of the Advisory Agreement along with any specific guidelines we require. We have authorized Horizon Cash Management L.L.C. to provide investment advisory services in accordance with these objectives and guidelines. We acknowledge that changes to the Agreement, objectives and guidelines as well as wire transfer instructions must be made by us in writing. We further acknowledge that any mention by Horizon of past results does not in anyway guarantee future performance. ProFutures Bull & Bear Fund, L.P. By: ProFutures, Inc., a General Partner ------------------------------------ By: /s/Gary D. Halbert ------------------ Title: President --------- Date: September 1, 1997 ----------------- Received: Horizon Cash Management L.L.C. By: /s/Diane Mix Birnberg ---------------------- Date: September 1, 1997 ----------------- -21- EX-10.04 9 FORM OF ADDT'L. SELLING AGENTS AGREEMENT EXHIBIT 10.04 PROFUTURES BULL & BEAR FUND, L.P. (A Delaware Limited Partnership) $60,000,000 of Units of Limited Partnership Interest (Subscription Price: 101% of Net Asset Value per Unit) FORM OF ADDITIONAL SELLING AGENTS AGREEMENT ----------------------------------- _________, 1998 Name of Selling Agent Street Address City, State, Zip Code Dear Sirs: ProFutures, Inc., a Texas corporation (the "General Partner"), has caused the formation of a limited partnership pursuant to the Revised Uniform Limited Partnership Act of the State of Delaware ("DRULPA") under the name ProFutures Bull & Bear Fund, L.P. (the "Fund"), for the purpose of engaging in speculative trading of futures and forward contracts and commodity options. As described in the Prospectus referred to below, the Fund has entered into the First Amendment and Restatement of Advisory Contract (the "Advisory Agreement") with Hampton Investors, Inc., a New York corporation (the "Trading Advisor"). The Fund engages in speculative trading in the commodities markets under the direction of the Trading Advisor pursuant to its Leverage 3 Trading Program (the "Trading Strategy"). The Fund proposes to make a public offering of units of limited partnership interest in the Fund (the "Units") through us, ProFutures Financial Group, Inc. (the "Lead Selling Agent"), on a best-efforts basis pursuant to the Selling Agreement dated as of _______, 1998 among us, the Fund and others (the "Selling Agreement"), a copy of which has been furnished to you. In connection with the proposed public offering, the Fund has filed with the United States Securities and Exchange Commission (the "SEC"), pursuant to the United States Securities Act of 1933, as amended (the "1933 Act"), a registration statement on Form S-1 to register the Units, and as part thereof a prospectus (Registration No. 333-_____) (which registration statement, together with all amendments thereto, shall be referred to herein as the "Registration Statement" and which prospectus together with all amendments and supplements thereto in the forms filed with the SEC pursuant to Rule 424 under the Act shall be referred to herein as the "Prospectus"). Other selling agents, including those introduced by wholesalers ("Wholesalers") to us (the "Additional Selling Agents" and together with the Lead Selling Agent and the Wholesalers, the "Selling Agents"), may be selected by us with the consent of the General Partner. We have so selected you as an Additional Selling Agent. We confirm our agreement with you as follows. Capitalized terms used but otherwise not defined herein shall have the meanings ascribed to them in the Selling Agreement unless the context indicates otherwise. 1. Appointment and Undertakings of the Additional Selling Agent (a) Subject to the terms and conditions set forth in this Agreement, the Selling Agreement and the Registration Statement, the Additional Selling Agent is hereby appointed, and hereby accepts such appointment, as one of the Fund's non-exclusive selling agents to offer and sell the Units on a best- efforts basis without any commitment on the Additional Selling Agent's part to purchase any Units. It is understood and agreed that the Lead Selling Agent, with the consent of the General Partner, may retain other selling agents (including those introduced by Wholesalers) and that the Additional Selling Agent or any other Additional Selling Agent, with the consent of the Lead Selling Agent and General Partner in their sole discretion, may retain correspondent selling agents ("Correspondents"). The Additional Selling Agent agrees to comply with the terms and conditions of this Agreement and any terms and conditions of the Selling Agreement applicable to Additional Selling Agents. The Additional Selling Agent from time to time will provide the Lead Selling Agent with a list of prospective Correspondents. Unless the prospective Correspondent has a verifiable preexisting relationship with the Lead Selling Agent (including previously having approached or been approached by the Lead Selling Agent about being an Additional Selling Agent for the Fund) as notified to the Additional Selling Agent in writing, such Correspondent shall only be permitted to offer Units as a Correspondent of the Additional Selling Agent pursuant to a Correspondent Selling Agreement in a form agreed to by the Additional Selling Agent. (b) The Additional Selling Agent agrees to use its reasonable efforts to procure subscriptions for the Units as long as this Agreement and the Selling Agreement remain in effect and to make the offering of Units at the offering price and minimum amounts and on the other terms and conditions set forth in the Prospectus and the Selling Agreement. (c) The Additional Selling Agent shall offer and sell Units only to persons and entities who satisfy the suitability and/or investment requirements set forth in the Prospectus and the subscription agreements attached thereto and who, to the General Partner's satisfaction, complete the subscription agreements and related subscription documents used in connection with the offering of the Units (the "Subscription Documents") and remit good funds for the full subscription price. The Additional Selling Agent shall conduct a thorough review of the suitability of each subscriber for Units that it solicits and of the Subscription Documents. The Additional Selling Agent shall not forward to the General Partner any Subscription Documents that are not in conformity with the requirements specified in the Prospectus and in the Subscription Documents appropriate for the particular subscriber, or that are illegible in any respect or are not fully completed, dated, or signed, or that represent the subscription of a person or entity not satisfying the suitability and/or investment requirements applicable to such person or entity. The Additional Selling Agent shall not execute any transactions in Units in a discretionary account over which it has control without prior written approval of the customer in whose name such discretionary account is maintained. -2- The Additional Selling Agent agrees not to recommend the purchase of Units to any subscriber unless the Additional Selling Agent shall have reasonable grounds to believe, on the basis of information obtained from the subscriber concerning, among other things, the subscriber's investment objectives, other investments, financial situation and needs, that the subscriber is or will be in a financial position appropriate to enable the subscriber to realize to a significant extent the benefits of the Fund, including the tax benefits (if any) described in the Prospectus; the subscriber has a fair market net worth sufficient to sustain the risks inherent in participating in the Fund, including loss of investment and lack of liquidity; and the Units are otherwise a suitable investment for the subscriber. In addition to submitting such information to the General Partner, the Additional Selling Agent agrees to maintain files of information disclosing the basis upon which the Additional Selling Agent determined that the suitability requirements of Section (b)(2) of Rule 2810 of the National Association of Securities Dealers, Inc. ("NASD") (formerly Section 3 of Appendix F of the NASD's Rules of Fair Practice) were met as to each subscriber (the basis for determining suitability may include the Subscription Documents and other certificates submitted by subscribers). In connection with making the foregoing representations and warranties, the Additional Selling Agent further represents and warrants that it has received copies of the Registration Statement, as amended to the date hereof, and the Prospectus and has, among other things, examined the Prospectus and obtained such additional information from the General Partner regarding the information set forth therein as the Additional Selling Agent has deemed necessary or appropriate to determine whether the Prospectus adequately and accurately discloses all material facts relating to an investment in the Fund and provides an adequate basis to subscribers for evaluating an investment in the Units. In connection with making the representations and warranties set forth in this paragraph, the Additional Selling Agent has not relied on inquiries made by or on behalf of any other parties. The Additional Selling Agent agrees to inform all prospective purchasers of Units of all pertinent facts relating to the liquidity and marketability of the Units as set forth in the Prospectus. The Additional Selling Agent shall offer and sell Units in compliance with the requirements set forth in the Registration Statement (particularly the "Subscription Agreement and Power of Attorney" attached as Exhibit B thereto), this Agreement and the Blue Sky Survey delivered to the Lead Selling Agent by the General Partner's counsel, a copy of which has been provided to the Additional Selling Agent. The Additional Selling Agent represents and warrants that it shall comply fully at all times with all applicable federal and state securities and commodities laws (including without limitation the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Commodity Exchange Act, as amended (the "CEA"), and the securities and Blue Sky laws of the jurisdictions in which the Additional Selling Agent solicits subscriptions, all applicable rules and regulations under such laws, and all applicable requirements, rules, policy statements and interpretations of the NASD, and the securities and commodities exchanges and other governmental and self-regulatory authorities and organizations having jurisdiction over it or the offering of Units). The Additional Selling Agent shall under no circumstances engage in any activities hereunder in any jurisdiction (i) in which the General Partner has not informed the Additional Selling Agent that counsel's advice has been received that the Units are qualified for sale or are exempt under the applicable securities or Blue Sky laws thereof or (ii) in which the Additional Selling Agent may not lawfully engage. -3- The Additional Selling Agent further agrees to comply with the requirement under applicable federal and state securities laws to deliver to each offeree a Prospectus and any amendments or supplements thereto. Neither the Additional Selling Agent nor any of its employees, agents or representatives will use or distribute any marketing material or information other than that prepared by the Fund and the General Partner. It is, however, understood that the Additional Selling Agent may use documents that it prepares solely for the purpose of communicating with its Registered Representatives and Correspondents provided that the Lead Selling Agent and the General Partner have provided the written consent to the use of each such document. (d) The additional services that the Additional Selling Agent will provide on an ongoing basis to Limited Partners will include but not be limited to: (i) inquiring of the General Partner from time to time, at the request of Limited Partners, as to the Net Asset Value of a Unit, (ii) inquiring of the General Partner from time to time at the request of the Limited Partners, as to the commodities markets and the activities of the Fund, (iii) assisting, at the request of the General Partner, in the redemption of Units sold by the Additional Selling Agent, (iv) responding to questions of Limited Partners from time to time with respect to monthly account statements, annual reports and financial statements furnished to Limited Partners, and (v) providing such other services to the owners of Units as the General Partner may, from time to time, reasonably request. All payments for subscriptions shall be made as described in the Prospectus. (e) The Additional Selling Agent (i) acknowledges that, other than as set forth herein, it is not authorized to act as the agent of the Lead Selling Agent in any connection or transaction and (ii) agrees not to so act or to purport to so act. 2. Compensation (a) In consideration for the Additional Selling Agent performing the obligations under this Agreement, the Lead Selling Agent shall pay the Additional Selling Agent a selling commission of __% of the subscription value of the Unit(s) sold by the Additional Selling Agent. Such commissions will be paid in respect of each subscription as promptly as practicable after the relevant month-end closing. (b) The Additional Selling Agent shall receive ongoing compensation, payable monthly by the Lead Selling Agent, of __ of __% per month (approximately __% per annum) of the month-end Net Asset Value of the Units sold by a Registered Representative of the Additional Selling Agent which remain outstanding for more than twelve months (including the month as of the end of which such Unit is redeemed) assuming (i) the Additional Selling Agent's continued registration with the Commodity Futures Trading Commission (the "CFTC") as a futures commission merchant or introducing broker and continued membership with the National Futures Association ("NFA") in such capacity and (i) the Registered Representative's compliance with the additional requirements described in subsection 1(d), registration with the CFTC and compliance with all applicable proficiency requirements (including those imposed by the NASD as a condition of receiving "trailing commissions") by either passing the Series 3 National Commodity Futures Exam or the Series 31 exam or being "grandfathered" from having to do so. Such ongoing compensation shall begin to -4- accrue with respect to each Unit only after the end of the twelfth full month after the sale of such Unit. In the event the Additional Selling Agent's Wholesaler, if any, is not eligible to receive ongoing compensation, the Additional Selling Agent shall receive the amount that would have been due to the Wholesaler in the absence of ineligibility. For purposes of determining when ongoing compensation should begin to accrue, Units shall not be deemed to be sold until the day Units are issued, and in either case not the day when subscriptions are accepted by the General Partner or subscriptions funds are deposited in escrow. Furthermore, the Lead Selling Agent shall not compensate the Additional Selling Agent, and the Additional Selling Agent shall not compensate its employees or other persons, unless the recipient thereof is legally qualified and permitted to receive such compensation. Also, such ongoing compensation may be paid by the Lead Selling Agent to the Additional Selling Agent and by the Additional Selling Agent to its employees or other persons, only in respect of outstanding Units sold by such persons to Limited Partners and only so long as the additional services described in Section 1(d) above are provided by such person to Limited Partners. With respect to particular Units, substitute Registered Representatives who are appropriately registered and who agree to perform the services described in Section 1(d) above with respect to such Units ("Substitute Registered Representatives") may also receive ongoing compensation with respect to such Units. In case of Units with respect to which there is no Registered Representative who is qualified to receive ongoing compensation as set forth above, the Lead Selling Agent will pay the Additional Selling Agent installment selling commissions at the same rate as in the case of ongoing compensation, but the sum of such installment selling commissions and the initial selling commission paid to the Additional Selling Agent and its Wholesaler, if any, is limited in amount, pursuant to applicable NASD policy, to 9.5% of the initial subscription price of the Units; provided, that no such installment selling commissions shall be payable until the General Partner and the Lead Selling Agent determine that the payment of such installment selling commission is in compliance with Rule 2810 of the NASD (formerly Appendix F of the NASD's Rules of Fair Practice) on aggregate compensation which may be received by the Selling Agents. In respect of Correspondents, if any, selected by the Additional Selling Agent (with the consent of the Lead Selling Agent and the General Partner), the Lead Selling Agent shall pay to the Additional Selling Agent selling commissions and ongoing compensation or installment sales commissions as set forth above, a portion (as agreed between the Additional Selling Agent and each such Correspondent) of which shall be passed on by the Additional Selling Agent to such Correspondents. The Additional Selling Agent agrees that it will promptly pass on to its Registered Representatives and Correspondents the applicable portions of the selling commissions received from the Lead Selling Agent to which such Registered Representatives and Correspondents are entitled pursuant to, respectively, the Additional Selling Agent's standard compensation procedures and the Additional Selling Agent's agreement with each such Correspondent. The Additional Selling Agent, although otherwise entitled to ongoing compensation, will not be entitled to receipt thereof with respect to particular Units (but may continue to receive -5- installment selling commissions) for any month during any portion of which the Registered Representative who is receiving such ongoing compensation is at any time not properly registered with the CFTC or does not agree to provide the ongoing services described above. However, the Lead Selling Agent agrees that Substitute Registered Representatives may receive such ongoing compensation. The Lead Selling Agent shall supply to the Additional Selling Agent at its reasonable request reports concerning all currently outstanding Units sold by the Additional Selling Agent or any Correspondent. The Additional Selling Agent shall, at the reasonable request of the Lead Selling Agent, inform the Lead Selling Agent of currently outstanding Units sold by the Additional Selling Agent or any Correspondent with respect to which ongoing compensation may not be paid. Ongoing compensation which cannot be paid because the Additional Selling Agent or its Correspondent (or a Registered Representative of either) has not met the eligibility requirements shall be retained by the Lead Selling Agent. The Additional Selling Agent shall not, directly or indirectly, pay or award any finder's fees, commissions or other compensation to any person engaged by a potential investor for investment advice as an inducement to such advisor to advise the purchase of Units; provided, however, the normal sales commissions payable to a registered broker-dealer or other properly licensed person for selling Units shall not be prohibited hereby. (c) Notwithstanding any other provision of this Agreement to the contrary, the General Partner shall have sole discretion to accept or reject any subscription for the Units in whole or in part. (d) The Lead Selling Agent agrees to make all payments to the Additional Selling Agent pursuant to this Section 2 within 15 days following the end of a monthly period in which compensation is earned. Notwithstanding anything above to the contrary, the Lead Selling Agent shall be liable to make ongoing compensation payments to the Additional Selling Agent only after the Lead Selling Agent has actually received its fee from the General Partner. 3. Representations and Warranties of the Lead Selling Agent The Lead Selling Agent hereby represents and warrants as follows: (a) The Lead Selling Agent is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas and has power and authority to enter into and carry out its obligations under this Agreement. (b) The Lead Selling Agent has all governmental and regulatory registrations, qualifications, approvals and licenses required to perform its obligations under this Agreement (including, but not limited to, registration as a broker-dealer with the SEC, membership in such capacity in the NASD, and registration or qualification under the laws of each state in which Lead Selling Agent will offer and sell Units); the performance by the Lead Selling Agent of its obligations under this Agreement will not violate or result in a breach of any provision of its certificate of incorporation or by-laws or any agreement, order, law, or regulation binding upon it. -6- (c) This Agreement has been duly and validly authorized, executed, and delivered on behalf of the Lead Selling Agent and is a valid and binding agreement of the Lead Selling Agent enforceable against the Lead Selling Agent in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability generally of rights of creditors except as enforceability of the indemnification provisions contained in this Agreement may be limited by applicable law and the enforcement of specific terms or remedies may be unavailable. 4. Representations and Warranties of the Additional Selling Agent The Additional Selling Agent hereby represents and warrants as follows: (a) The Additional Selling Agent is a corporation duly organized, validly existing, and in good standing under the laws of the state of its incorporation and has power and authority to enter into and carry out its obligations under this Agreement. (b) The Additional Selling Agent has all governmental and regulatory registrations, qualifications, approvals and licenses required to perform its obligations under this Agreement (including, but not limited to, registration as a broker-dealer with the SEC, membership in such capacity in the NASD, registration as a futures commission merchant or introducing broker under the CEA and membership with NFA, and registration or qualification under the laws of each state in which Additional Selling Agent will offer and sell Units); the performance by the Additional Selling Agent of its obligations under this Agreement will not violate or result in a breach of any provision of its certificate of incorporation or by-laws or any agreement, order, law, or regulation binding upon it. (c) This Agreement has been duly and validly authorized, executed, and delivered on behalf of the Additional Selling Agent and is a valid and binding agreement of the Additional Selling Agent enforceable against the Additional Selling Agent in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium or similar laws at the time in effect affecting the enforceability generally of rights of creditors except as enforceability of the indemnification provisions contained in this Agreement may be limited by applicable law and the enforcement of specific terms or remedies may be unavailable. (d) Neither the Additional Selling Agent nor any of its principals have been the subject of any administrative, civil, or criminal actions within the five years preceding the date hereof that would be material for an investor's decision to purchase the Units which have not been disclosed to the Fund, the General Partner or the Lead Selling Agent in writing. (e) The information, if any, relating to the Additional Selling Agent which the Additional Selling Agent has furnished to the Fund and the General Partner for use in the Registration Statement is correct. (f) In respect of purchasers of Units that are not individuals, the Additional Selling Agent shall have received, prior to sale of Units to each such purchaser, evidence that the purchaser -7- is authorized to invest in the Units and shall provide the Lead Selling Agent with copies of such evidence upon reasonable request of the Lead Selling Agent. 5. Authorization Under the Selling Agreement The Additional Selling Agent agrees to be bound by any action taken by the Lead Selling Agent or the General Partner, in accordance with the provisions of the Selling Agreement of which the Additional Selling Agent has received notice, to terminate the Selling Agreement or the offering of the Units, to consent to changes in the Selling Agreement or to approve of or object to further amendments to the Registration Statement or amendments or supplements to the Prospectus, if, in the judgment of the Lead Selling Agent or the General Partner, such action would be advisable, provided that the Additional Selling Agent shall not be bound by any such action that adversely affects the Additional Selling Agent unless the Additional Selling Agent shall have consented to such action. The Lead Selling Agent agrees that, at the Additional Selling Agent's request, the Lead Selling Agent will require any documents required to be delivered to or by the Lead Selling Agent pursuant to Section 10 of the Selling Agreement to be addressed and delivered to the Additional Selling Agent. 6. Covenants of the Lead Selling Agent (a) The Lead Selling Agent will notify the Additional Selling Agent immediately (i) when any amendment to the Registration Statement shall have become effective and (ii) of the issuance by the SEC, CFTC or any other Federal or state regulatory body of any order suspending the effectiveness of the Registration Statement under the 1933 Act, the CFTC registration or NFA membership of the General Partner as a commodity pool operator, the CFTC registration or NFA membership of the Lead Selling Agent as a futures commission merchant, or the registration of Units under the Blue Sky or securities laws of any state or other jurisdiction or any order or decree enjoining the offering or the use of the then current Prospectus or of the institution, or notice of the intended institution, of any action, investigation or proceeding for that purpose. (b) The Lead Selling Agent will cause the General Partner to deliver to the Additional Selling Agent as promptly as practicable from time to time during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as the Additional Selling Agent may reasonably request for the purposes contemplated by the 1933 Act or the SEC Regulations. (c) The Lead Selling Agent will cause the General Partner to furnish to the Additional Selling Agent a reasonable number of copies of any amendment or amendments of, or supplement or supplements to, the Prospectus which will amend or supplement the Prospectus. (d) The Lead Selling Agent will cause the General Partner to deliver to the Additional Selling Agent copies of all written communications to any Limited Partner (other than tax information) whose Units were sold by the Additional Selling Agent or its Correspondents. -8- 7. Indemnification and Contribution (a) The Lead Selling Agent shall indemnify, hold harmless, and defend the Additional Selling Agent and any person who controls the Additional Selling Agent within the meaning of Section 15 of the 1933 Act, to the same extent, and subject to the same conditions and procedural requirements, that the General Partner agrees to indemnify the Lead Selling Agent pursuant to Section 11 of the Selling Agreement; provided that, in no case shall the Lead Selling Agent be liable under this indemnity to the Additional Selling Agent if the loss, liability, claim, damages or expense of the Additional Selling Agent arises out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or any omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein not misleading made in reliance upon and in conformity with information relating to the Additional Selling Agent and furnished or approved by the Additional Selling Agent. In addition, the Lead Selling Agent shall indemnify, hold harmless and defend the Additional Selling Agent (and any controlling person) for any loss, liability, claim, damage or expense incurred by the Additional Selling Agent arising from any breach of this Agreement by the Lead Selling Agent. (b) Hampton Investors, Inc. (the "Trading Advisor") agrees to indemnify and hold harmless the Additional Selling Agent, and each person, if any, who controls the Additional Selling Agent within the meaning of Section 15 of the 1933 Act, to the same extent as the indemnity from the Trading Advisor set forth in Section 11(b) of the Selling Agreement, but only insofar as the losses, claims, damages, liabilities or expenses indemnified against, arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission relating or with respect to the Trading Advisor or any principal of the Trading Advisor, or their operations, trading systems, methods or performance, which was made in any preliminary prospectus, the Registration Statement or the Prospectus or any amendment or supplement thereto and furnished by or approved by the Trading Advisor for inclusion therein. (c) The Additional Selling Agent shall indemnify, hold harmless, and defend the Fund, the General Partner, the Lead Selling Agent, the Trading Advisor, the Broker and any person who controls any of the foregoing within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense whatsoever incurred by any such party arising from any material breach by the Additional Selling Agent of its representations, warranties, obligations and undertakings set forth in this Agreement. The Fund, the General Partner, the Trading Advisor and the Broker are expressly made third party beneficiaries of this Agreement. (d) If the indemnification provided for in this Section 7 shall not be permitted under applicable law in respect of any loss, liability, claim, damage or expense referred to herein, then the indemnitor shall, in lieu of indemnifying the indemnified party contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense, (A) in such proportion as shall be appropriate to reflect the relative benefits received by the Lead Selling Agent on the one hand and the Additional Selling Agent on the other from the offering of the Units by the Additional Selling Agent or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred -9- to in clause (A) above but also the relative fault of the Lead Selling Agent on the one hand the Additional Selling Agent on the other with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations. Relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Lead Selling Agent on the one hand or the Additional Selling Agent on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by a pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by the indemnified party as a result of the loss, liability, claim, damage or expense referred to above in this Section 7, shall be deemed to include, for purpose of this Section 7, any legal or other expenses reasonably incurred by such otherwise indemnified party in connection with investigating or defending any such action or claim. 8. Termination (a) This Agreement shall terminate on the earlier of (i) such date as the Lead Selling Agent may determine by giving 30 days' prior written notice to the Additional Selling Agent, (ii) the termination of the Selling Agreement or the offering of the Units or (iii) by the Lead Selling Agent, without notice, upon breach by the Additional Selling Agent of, or non-compliance by the Additional Selling Agent with, any material term of this Agreement. (b) The Additional Selling Agent shall have the right to terminate its participation under this Agreement (i) at any time upon breach by the Lead Selling Agent of or non-compliance with, any material term of this Agreement; and (ii) at any time upon thirty business days' prior written notice of such termination to the Lead Selling Agent and the Fund. (c) The termination of this Agreement shall not affect (i) the ongoing obligations of the Lead Selling Agent to pay selling commissions, ongoing compensation or installment selling commissions with respect to Units sold prior to the termination hereof, (ii) the Additional Selling Agent's obligations under Section 1(d) hereof or (iii) the indemnification obligations under Section 7 hereof. 9. Confidentiality (a) The Lead Selling Agent hereby covenants and agrees that under no circumstances will it solicit any of the Additional Selling Agent's customers whose names become known to the Lead Selling Agent in connection with the offering of the Units. The Lead Selling Agent agrees that it will take such steps to ensure the confidentiality of the Additional Selling Agent's client list as the Additional Selling Agent may reasonably request. (b) The Additional Selling Agent hereby covenants and agrees that under no circumstances will it solicit any customer of the Lead Selling Agent or any other Additional Selling Agent for the Fund whose name becomes known to the Additional Selling Agent in connection with the offering of the Units. The Additional Selling Agent agrees that it will take such steps to ensure the confidentiality of the Lead Selling Agent's or any other Additional Selling Agent's client list as -10- the owner of such list may reasonably request. The Additional Selling Agent further covenants and agrees not to solicit any selling agent which has been introduced to the Lead Selling Agent by any Wholesaler or any other Additional Selling Agent. 10. Miscellaneous (a) This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto; provided, however, that a party hereto may not assign any rights, obligations, or liabilities hereunder without the prior written consent of the other parties. (b) All notices required or desired to be delivered under this Agreement shall be in writing and shall be effective when delivered personally on the day delivered or, when given by registered mail, postage prepaid, return receipt requested, on the day of receipt, addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): if to the Lead Selling Agent: ProFutures Financial Group, Inc. 11612 Bee Cave Road Suite 100 Austin, Texas 78733 if to the Additional Selling Agent: _____________________ _____________________ _____________________ (c) This Agreement shall be governed by, and construed in accordance with, the law of the State of New York without regard to the principles of choice of law thereof. (d) All captions used in this Agreement are for convenience only, are not a part hereof, and are not to be used in construing or interpreting any aspect hereof. (e) This Agreement may be executed in counterparts, each such counterpart to be deemed an original, but which all together shall constitute one and the same instrument. (f) This Agreement may not be amended except by the express written consent of the parties hereto. No waiver of any provision of this Agreement may be implied from any course of dealing between or among any of the parties hereto or from any failure by any party hereto to assert its rights under this Agreement on any occasion or series of occasions. (g) The provisions of this Agreement shall survive the termination of this Agreement with respect to any matter arising while this Agreement was in effect. -11- If the foregoing is in accordance with your understanding of our agreement, please sign and return a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between us in accordance with its terms. Very truly yours, PROFUTURES FINANCIAL GROUP, INC. By: ------------------------------- Name: ------------------------- Title: ------------------------ CONFIRMED AND ACCEPTED [ADDITIONAL SELLING AGENT] By: ------------------------------- Name: ------------------------- Title: ------------------------ HAMPTON INVESTORS, INC. (with respect to Section 7(b) hereof) By: ------------------------------- Name: ------------------------- Title: ------------------------ -12- EX-23.01 10 CONSENT OF SIDLEY & AUSTIN EXHIBIT 23.01 SIDLEY & AUSTIN A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS DALLAS One First National Plaza WASHINGTON, D.C. ------ Chicago, Illinois 60603 ------ LOS ANGELES Telephone 312 853 7000 LONDON ------ Facsimile 312 853 7036 ------ NEW YORK SINGAPORE Founded 1866 ------ TOKYO September 9, 1998 CONSENT OF SIDLEY & AUSTIN Sidley & Austin hereby consents to all references made to it in the Registration Statement on Form S-1 of ProFutures Bull & Bear Fund, L.P. as filed with the Securities and Exchange Commission on or about September 10, 1998. SIDLEY & AUSTIN EX-23.02 11 CONSENT OF ARTHUR F. BELL JR. & ASSO. EXHIBIT 23.02 INDEPENDENT AUDITOR'S CONSENT We consent to the use in this Registration Statement of ProFutures Bull & Bear Fund, L.P. on Form S-1 filed on or about September 10, 1998 of our report dated March 9, 1998 on the financial statements of ProFutures Bull & Bear Fund, L.P. as of December 31, 1997 and for the period August 21, 1997 (inception) to December 31, 1997 and of our report dated August 21, 1998 on the balance sheet of ProFutures, Inc., as of June 30, 1998, appearing in the Prospectus, which is a part of such Registration Statement, and to the reference to us under the heading "General" in such Prospectus. ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. September 9, 1998 Lutherville, Maryland EX-27 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Statements of Financial Condition, Statements of Operations and Statements of Changes in Partners' Capital and is qualified in its entirety by reference to such financial statements. 7-MOS DEC-31-1998 JAN-01-1998 JUL-31-1998 6,036,905 0 0 0 0 7,992,641 0 0 7,992,641 37,229 0 0 0 0 0 7,992,641 0 944,459 0 0 287,171 0 0 657,288 0 657,288 0 0 0 657,288 164.50 164.50
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