Item 1. Business --------
(a) General Development of Business -------------------------------
The Four Seasons Fund II L.P. (the "Partnership") is a limited partnership organized on February 13, 1992 pursuant to a Limited Partnership Agreement (the "Limited Partnership Agreement") and under the Delaware Revised Uniform Limited Partnership Act. The Partnership was funded through an offering of Units of Limited Partnership Interest ("Units"). Limited Partners are referred to herein as "Unitholders." The Partnership implements asset allocation strategies by trading approximately 13% of its original assets in the futures, forward and options markets through an affiliated limited partnership (the "Trading Company") of which the Partnership is the sole limited partner, while maintaining its remaining assets in a guaranteed distribution pool.
The public offering of Units began on approximately September 8, 1992 and was completed on January 31, 1993. The offering was registered under the Securities Act of 1933, as amended, and Kidder, Peabody & Co. Incorporated acted as selling agent. A total of 11,226.272 Units were sold to the public during the public offering.
James River Management Corp. (formerly named Kidder Peabody Futures Management Corp.) (the "General Partner"), a Delaware corporation, is the General Partner of the Partnership and, in that capacity, performs various administrative services. The General Partner was organized in 1992 to serve as a commodity pool operator. Until January 1, 1995, the General Partner was a direct wholly-owned subsidiary of Kidder, Peabody Group Inc. and an indirect wholly-owned subsidiary of General Electric Company. Effective as of such date, all of the stock of the General Partner was sold to Paul H. Saunders and Kevin M. Brandt, the senior officers of the General Partner, and the General Partner is no longer affiliated with Kidder, Peabody & Co. Incorporated or its affiliates. In connection with such sale, all of the directors of the General Partner other than Messrs. Saunders and Brandt resigned as directors.
ED&F Man International Inc. acts as the futures commission merchant or commodity broker (the "Commodity Broker"), although Kidder, Peabody & Co. Incorporated was the commodity broker until January 30, 1995. The Commodity Broker is not an affiliate of the General Partner or the Partnership. The General Partner and the Commodity Broker perform various services related to the
Partnership pursuant to the Partnership's Limited Partnership Agreement and the customer agreement with the Commodity Broker. The General Partner's investment in the Partnership at the outset of trading was $120,000. The General Partner had $26,967 invested as of December 31, 2000. The General Partner also invested $20,000 directly into the Trading Company. The General Partner's investment in the Trading Company was worth $4,566 at December 31, 2000.
RXR Inc., a New York corporation (the "Trading Advisor"), is the Trading Company's Trading Advisor. The Trading Advisor is not an affiliate of the Partnership or the General Partner. The Trading Advisor directs the Partnership's futures, forward and options trading pursuant to an Advisory Agreement with the Trading Company.
The Trading Advisor receives an incentive fee of 15% of New Trading Profit achieved by the Trading Company as of the end of each calendar quarter, and a monthly management fee of 0.0833 of 1% of the Partnership's month-end Net Assets (1% per annum). New Trading Profits and Net Assets are each determined pursuant to formulas set forth in the Advisory Agreement.
Brokerage commissions are payable by the Trading Company at a flat rate of 0.2083 of 1% of the Partnership's month-end Net Assets (2.5% per annum) plus give-up fees of approximately $2 per round-turn trade. Brokerage commissions are split between the Commodity Broker, the General Partner and the Partnership's selling agents.
The Trading Company also pays to the General Partner a sponsor fee of 0.0625 of 1% of the Partnership's month-end Net Assets (0.75% per annum).
At the commencement of trading, the Partnership's assets were allocated as follows: approximately 18% was invested in the Trading Company and approximately 82% was invested in United States Treasury Strip Notes as the Partnership's guaranteed distribution pool. The guaranteed distribution pool is intended to assure each investor a 4% annual distribution and return of initial net capital contribution at the end of the Partnership's approximately 10-year time horizon.
The Trading Advisor's trading method is highly systematic and technical. The Trading Advisor's program has four components, namely stock index futures, bond futures, managed futures and short-term interest rate futures. The objective of the trading method is to maintain an optimum asset mix in a fully diversified portfolio, while integrating a managed futures component to achieve significant capital gains through speculative trading in the futures, forward and options markets.
Regulation - ----------
Under the Commodity Exchange Act, as amended (the "Act"), commodity exchanges and futures trading are subject to regulation by the Commodity Futures Trading Commission (the "CFTC"). The National Futures Association ("NFA"), "a registered futures association" under the Act, is the only non-exchange self- regulatory organization for futures industry professionals. The CFTC has delegated to the NFA responsibility for the registration of "commodity trading advisors," "commodity pool operators," "futures commission merchants," "introducing brokers" and their respective associated persons and "floor brokers." The Act requires "commodity pool operators," such as the General Partner, "commodity trading advisors," such as the Trading Advisor, and commodity brokers or "futures commission merchants," such as the Commodity Broker, to be registered and to comply with various reporting and recordkeeping requirements. The General Partner, the Trading Advisor and the Commodity Broker are all members of NFA. The CFTC may suspend a commodity pool operator's or a trading advisor's registration if the CFTC finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. In the event that the registration of the General Partner as a commodity pool operator or the Trading Advisor's registration as a commodity trading advisor was terminated or suspended, the General Partner and the Trading Advisor, respectively, would be unable to continue to manage the business of the Partnership. Should the General Partner's registration be suspended, termination of the Partnership might result.
As members of NFA, the General Partner, the Trading Advisor and the Commodity Broker are subject to NFA standards relating to fair trade practices, financial condition and customer protection. As the self-regulatory body of the futures industry, the NFA promulgates rules governing the conduct of futures industry professionals and disciplines those professionals which do not comply with such standards.
In addition to such registration requirements, the CFTC and certain futures exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular futures. The CFTC has adopted a rule requiring all domestic futures exchanges to submit for approval speculative position limits for all futures contracts traded on such exchanges. Many exchanges also limit the changes in some futures contract prices that may occur during a single trading day. The Trading Company may trade on foreign commodity exchanges which are not subject to regulation by any United States Government agency.
(b) Financial Information About Segments ------------------------------------
For financial reporting purposes, the Partnership's business constitutes only one segment, speculative trading of forward, futures, and options on futures contracts. The Partnership does not engage in sales of goods and services. The Partnership's revenue, operating results and total assets for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 are set forth under "Item 6. Selected Financial Data." See Exhibit 13(a) containing the Financial Statements of the Partnership.
(c) Narrative Description of Business --------------------------------- (1) See Items 1(a) and (b) above. (i) through (xii) - not applicable. (xiii) - the Partnership has no employees.
(d) Financial Information About Geographic Areas ---------------------------------------------
The Partnership does not engage in material operations in foreign countries (although it does trade on foreign exchanges and in foreign currency futures contracts), nor is a material portion of its revenues derived from foreign customers. See "Item 1(b). Financial Information About Segments." ------------------------------------
Item 2.
Item 2. Properties ----------
The Partnership does not own any properties. Under the terms of the Limited Partnership Agreement, the General Partner performs the following services for the Partnership:
(1) Manages the business of the Partnership. Pursuant to this authority, the General Partner has entered into an Advisory Agreement with the Trading Advisor (under which the Trading Advisor has complete discretion with respect to determination of the Trading Company's trading decisions) and a Customer Agreement with the Commodity Broker (pursuant to which the Commodity Broker executes all trades on behalf of the Trading Company based on the instructions of the Trading Advisor).
(2) Maintains the Partnership's books and records, which Unitholders or their duly authorized representatives may inspect during normal business hours for any proper purpose upon reasonable written notice to the General Partner.
(3) Furnishes each Unitholder with a monthly statement describing the performance of the Partnership, which sets forth the brokerage commissions,
management fee, sponsor fee and other expenses incurred or accrued and any incentive fees allocable to the Trading Advisor for the month.
(4) Forwards annual audited financial statements (including a statement of financial condition and statement of operations) to each Unitholder.
(5) Provides to each Unitholder tax information necessary for the preparation of his/her annual federal income tax return and such other information as the CFTC may by regulation require.
(6) Performs secretarial and other clerical duties and furnishes office space, equipment and supplies as may be necessary for supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
(8) Administers the annual distribution.
Item 3.
Item 3. Legal Proceedings -----------------
The General Partner is not aware of any pending legal proceedings to which the General Partner, the Partnership or the Trading Company is a party or to which any of their respective assets are subject. In the ordinary course of its business, the Commodity Broker is involved in certain legal actions. However, no pending proceeding affects the Commodity Broker's ability to provide its services to the Partnership. None of the Trading Advisor, the General Partner, the Partnership or the Trading Company has any connection with such litigation.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
None.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder ----------------------------------------------------------------- Matters -------
(a) Market Information. There is no trading market for the Units, and none is likely to develop. Units are transferable only after written notice has been given to and approved by the General Partner. Units may be redeemed effective as of the close of business on the last business day of any calendar quarter, and only in whole Units, at Net Asset Value per Unit (less any redemption fee, if applicable, as described below) calculated as of the close of business (as determined by the General Partner) on the effective date of redemption. Units redeemed on or prior to the end of the fourth full calendar
quarter of the Partnership's operations were subject to a redemption charge of 2%, 1% or 0% depending on the amount of selling commissions paid by the Unitholder. Requests for redemption must be received by the General Partner ten days before the redemption date. For the year ended December 31, 2000 there were no redemption charges paid to the Partnership.
Holders. As of December 31, 2000 there were __ holders of Units.
Dividends. The Partnership made a $40 per Unit annual distribution on February 22, 1999 to Unitholders of record on February 18, 1999 and on March 3, 2000 to Unitholders of record on February 16, 2000. Except for the $40 per Unit annual distribution, no other dividends have been made or are contemplated.
Securities Sold. None. Items (b) through (f) of item 701 of Regulation S- K are not applicable.
(b) Not Applicable.
Item 6.
Item 6. Selected Financial Data -----------------------
The following is a summary of operations and total assets of the Partnership for the years ended December 31, 2000, 1999, 1998, 1997 and 1996. For this purpose, the U.S. Treasury securities held in the guaranteed distribution pool are valued at the lower of (1) cost plus accrued interest or (2) market value.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations -------------
Reference is made to "Item 6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary Data." The information contained therein is essential to, and should be read in conjunction with, the following analysis.
Liquidity ---------
Most United States commodity exchanges limit fluctuations in some futures contract prices during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits." During a single trading day, no trades may be executed at prices beyond the daily limit. Once the price of a futures contract has reached the daily limit for that day, positions in that
contract can neither be taken nor liquidated. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Trading Company from promptly liquidating unfavorable positions and subject the Trading Company to substantial losses which could exceed the margin initially committed to such trades. In addition, even if futures prices have not moved the daily limit, the Trading Company may not be able to execute futures trades at favorable prices if little trading in such contracts is taking place. Other than these limitations on liquidity, which are inherent in the Trading Company's futures trading operations, the Partnership's assets are highly liquid and are expected to remain so.
Capital Resources -----------------
The Partnership does not intend to raise any additional capital through borrowing and, because it is a closed-end fund, it cannot sell any more Units unless it undertakes a new public offering, which would require another registration with the Securities and Exchange Commission. Due to the nature of the Partnership's business, it will make no significant capital expenditures and substantially all of its assets are and will be represented by U.S. Treasury Strip Notes and investments in futures, forwards and options.
Results of Operations ---------------------
For the year ended December 31, 2000, operating results show a gain of $99,804 and the Net Asset Value per Unit was $1,187.10. The significant components of this aggregate gain were increases in the market value and interest on U.S. Treasury securities. The gain in the market value of zero coupon Treasury strips in the guaranteed distribution pool totaled $6,847 (combined realized and unrealized); the gain in accrued interest on same securities equaled $114,351. The net gain on trading in futures and options on futures was $74,920 (combined realized and unrealized) for the year, with the largest gains in 10-year Treasury note contracts, U.S. bond contracts , and 5- year CBOT note contracts. These gains were partially offset by losses generated in the trading of S&P 500 futures contracts. Other smaller trading gains were achieved in the energy and currencies sectors, with approximately forty markets traded overall. The combined gain of these operating activities of $196,118, less operating expenses of $96,851, plus the allocation of minority interest in the affiliated Trading Company of $537, equals the total aggregate Partnership gain of $99,804.
For the year ended December 31, 1999, operating results show a gain of $9,167 and the Net Asset Value per Unit was $1,161.87. The significant components of this aggregate gain were increases in the market value and interest on U.S. Treasury securities. The gain in the market value of zero coupon Treasury strips in the guaranteed distribution pool totaled $5,757 (combined realized and unrealized); the gain in accrued interest on same securities equaled $127,103. The net loss on trading in futures and options on futures was -$11,767 (combined realized and unrealized) for the year, with the largest declines in 10-year U.S. T-note contracts, 5-year U.S. T-note contracts and New Zealand/U.S. dollar cross-rate contracts. These losses were off-set in significant part by gains in futures trading due to S&P 500 index contracts, Soybean oil contracts and Euro Currency Unit contracts. The remaining loss was the net result of smaller trading gains and losses in approximately forty-two other markets. The combined gain of these operating activities of $121,093, less operating expenses of $114,127, plus the allocation of minority interest in the affiliated Trading Company of $2,201, equals the total aggregate Partnership gain of $9,167.
Operating results showed a gain of $264,694 for the year ended December 31, 1998, with the Net Asset Value per Unit as of December 31, 1998 at $1,196.92. The significant components of this aggregate gain were profits on trading in futures. The net gain on trading in futures and options on futures was $217,965 (combined realized and unrealized) for the year, with the largest declines in British pound futures contracts, Australian 3-year bond contracts and 3-month Canadian Banker's Acceptance contracts, and the most significant increases due to S&P 500 index contracts, Japanese Government Bond contracts and 5-year U.S. T-note contracts. The remaining gain was the net result of smaller trading gains and losses in approximately forty-five other markets. The increase in the market value of zero coupon Treasury strips in the guaranteed distribution pool totaled $34,961 (combined realized and unrealized); the increase in accrued interest on same securities was $152,631. The combined gain of these operating activities of $405,557, less operating expenses of $137,635, less the allocation of minority interest in the affiliated Trading Company of ($3,228), equals the total aggregate Partnership gain of $264,694.
As disclosed in the Prospectus of the Partnership, there is a risk of loss inherent in the speculative nature of the futures and options trading activity. Past performance is not necessarily indicative of future prospects for profitability. As also disclosed in the Prospectus of the Partnership, the value of the bonds in the guaranteed distribution pool is subject to interim declines in market value. However, if an investment in the Partnership is held to the end of its defined time horizon, thereby allowing all bonds in the
guaranteed distribution pool to liquidate upon maturity, an investor will realize an annual 4% distribution plus a full return of his/her initial capital investment.
Inflation is not a significant factor in the Partnership's profitability.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ----------------------------------------------------------
Not applicable pursuant to the "small business issuer" exemption from the disclosure requirements of Regulation S-K.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
Financial statements required by this Item are included in the Exhibit 13(a) filed herewith.
The following summarized quarterly financial information presents the results of operations and other data for the three-month periods ended March 31, June 30, September 30 and December 31, 2000 and 1999. Such information, which has not been audited, is presented in thousands, except for unit and per unit data.
There were no extraordinary, unusual or infrequently occurring items recognized in any quarter within the two most recent fiscal years, and the Partnership has not disposed of any segments of its business. There have been no year-end adjustments that are material to the results of any fiscal quarter reported above.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
Arthur Andersen LLP has served as the Partnership's independent public accountants since 1995. There have been no changes in or disagreements with the accountants on accounting or financial disclosure.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
(a,b) Identification of Directors and Executive Officers. The Partnership and the Trading Company have no directors or executive officers. There are no "significant employees" of the Partnership or the Trading Company. The Partnership and the Trading Company are managed by the General Partner. In January 1995, all directors of the General Partner other than Paul H. Saunders and Kevin M. Brandt resigned as directors in connection with the sale of the General Partner to Mr. Saunders and Mr. Brandt. Trading decisions for the Trading Company are made by the Trading Advisor.
The General Partner is a commodity pool operator registered with the National Futures Association. The Trading Advisor and its respective principals
have been trading commodities accounts for investors pursuant to their respective trading methods for several years.
(c) Identification of Certain Significant Employees. None. -----------------------------------------------
(d) Family relationships. None. ---------------------
(e) Business Experience. See "Item 1 (a)" and "Item 10 (a,b)" above. --------------------
(f) Involvement in Certain Legal Proceedings. None. -----------------------------------------
(g) Promoters and Control Persons. Not applicable. ------------------------------
Item 405 of Regulation S-K is not applicable.
Item 11.
Item 11. Executive Compensation ----------------------
The Partnership and the Trading Company have no directors or officers. The General Partner performs the services described in "Item 2. Properties" herein and receives a portion of the brokerage commission and the sponsor fee described in "Item 1(a) General Development of Business." The General Partner participates in any appreciation in the net assets of the Partnership in proportion to its investment. ED&F Man International Inc. acts as the Partnership's commodity broker pursuant to the Customer Agreement described in "Item 1(a). General Development of Business."
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
Security Ownership of Certain Beneficial Owners -----------------------------------------------
The Partnership knows of 6 Unitholders who own beneficially more than 5% of the Units. All beneficial ownership is direct ownership.
Security Ownership of Management --------------------------------
Under the terms of the Limited Partnership Agreement, the Partnership's affairs are managed by the General Partner and the Trading Advisor has discretionary authority over futures, forward and options trading. The General Partner owned 22.717 Units valued at $26,967 as of December 31, 2000, 1.53% of the Partnership's total equity. The General Partner also owned a $4,566 interest in the Trading Company as of such date.
Changes in Control ------------------
None.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
See "Item 1. Business," "Item 2. Properties," "Item 11. Executive Compensation" and "Item 12. Security Ownership of Certain Beneficial Owners and Management."
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ----------------------------------------------------------------
(a)1. Financial Statements (found in Exhibit 13(a)) ---------------------------------------------
The required financial statements are included in the 2000 Annual Report, a copy of which is filed herein as Exhibit 13(a).
(a)2. Financial Statement Schedules -----------------------------
All Schedules are omitted for the reason that they are not required, are not applicable, or because equivalent information has been included in the financial statements or the notes thereto.
(a)3. Exhibits as required by Item 601 of Regulation S-K --------------------------------------------------
(3) Articles of Incorporation and By-laws -------------------------------------
a. Limited Partnership Agreement of the Partnership dated as of February 13, 1992, amended and restated as of September 8, 1992.
b. Amended and Restated Certificate of Limited Partnership of the Partnership.
c. Certificate of Amendment to Certificate of Limited Partnership of the Partnership.
(10) Material Contracts ------------------
a. Advisory Agreement between the Trading Company and RXR Inc.
b. Customer Agreement between the Partnership and Kidder, Peabody & Co. Incorporated.
c. Guarantee of The RXR Group Inc.
d. Assignment and Assumption Agreement among certain commodity pools (including the Partnership), Kidder, Peabody Co. Incorporated and ED&F Man International Inc.
The above exhibits are incorporated herein by reference from the Registration Statement filed by the Partnership on Form S-1 (Reg. No. 33-45938) and declared effective as of September 8, 1992, except that (1) the Limited Partnership Agreement is incorporated by reference from the Prospectus dated September 8, 1992 filed pursuant to Rule 424(b), (2) the Certificate of Amendment to Certificate of Limited Partnership of the Partnership is incorporated by reference from the Partnership's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1994 and (3) the Assignment and Assumption Agreement is incorporated by reference from the Partnership's Annual Report on 10-K for the Fiscal Year Ended December 31,1994.
(13) 2000 Annual Report and Independent Auditors' Report -- filed herewith as Exhibit 13(a).
(b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the fourth quarter of 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE FOUR SEASONS FUND II L.P.
By: James River Management Corp.,
General Partner
By: /s/ PAUL H. SAUNDERS -------------------- Paul H. Saunders Chairman and Chief Executive Officer
Date: March 27, 2001
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
(Being the principal executive officer, the principal financial and accounting officer, and a majority of the directors of James River Management Corp.)
JAMES RIVER MANAGEMENT CORP. General Partner March 27, 2001 of Registrant By: /s/ KEVIN M. BRANDT ------------------- Kevin M. Brandt President
THE FOUR SEASONS FUND II L.P.
2000 FORM 10-K
INDEX TO EXHIBITS -----------------
EXHIBIT PAGE ------- ----
Exhibit 13(a) 2000 Annual Report and Independent Auditors' Reports E-1