Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
IDS MANAGED FUTURES II, L.P.
(Exact name of registrant as specified in its charter)
| Delaware | 06-1207252 |
|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
233 South Wacker Drive
Suite 2300
Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
(312) 460-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 or the Exchange Act). |_| Yes |X| No
The number of units outstanding, as of March 31, 2004, is 8,693.62.
Following are Financial Statements for the fiscal quarter ended March 31, 2004 and the additional time frames as noted:
| Fiscal Quarter Ended 03/31/04 |
Year to Date Ended 03/31/04 |
Fiscal Year Ended 12/31/03 |
Fiscal Quarter Ended 03/31/03 |
Year to Date Ended 03/31/03 |
|
|---|---|---|---|---|---|
| Statements of Financial Condition | X | X | |||
| Statements of Operations | X | X | X | X | |
| Statements of Changes in Partners' Capital | X | ||||
| Notes to Financial Statements | X | ||||
| Mar. 31, 2004 | Dec. 31, 2003 | ||||
|---|---|---|---|---|---|
| (unaudited) | |||||
| Assets | |||||
| Assets: | |||||
| Equity in commodity futures trading accounts: | |||||
| Cash on deposit with Brokers | $ | 5,053,207 | $ | 4,770,784 | |
| Unrealized (loss) gain on open contracts | (65,295) | 272,081 | |||
| Investment in other commodity pools | 2,454,179 | 2,325,047 | |||
| 7,442,091 | 7,367,912 | ||||
| Interest Receivable | 3,405 | 2,827 | |||
| Redemptions receivable from other commodity pools | 67,382 | 43,163 | |||
| Total assets | 7,512,878 | 7,413,902 | |||
| Liabilities and Partners' Capital | |||||
| Liabilities: | |||||
| Accrued commissions | 9,049 | 6,045 | |||
| Accrued exchange, clearing and NFA fees | 70 | 74 | |||
| Accrued management fees | 8,281 | 8,373 | |||
| Accrued incentive fees | 11,915 | 187 | |||
| Accrued operating expenses | 27,694 | 32,000 | |||
| Accrued General Partner fees | 473 | 188 | |||
| Redemptions payable | 133,620 | 85,731 | |||
| Total liabilities | 191,102 | 132,598 | |||
| Partners' Capital: | |||||
| Limited partners (8,317.05 units outstanding at March 31, 2004,
and 8,680.82 units outstanding at December 31, 2003) |
7,004,629 | 6,978,577 | |||
| General partners (376.57 units outstanding at
March 31, 2004 and December 31, 2003) |
317,147 | 302,727 | |||
| Total parters' capital | 7,321,776 | 7,281,304 | |||
| Total liabilities and partners' capital | $ | 7,512,878 | $ | 7,413,902 | |
| Net asset value per outstanding unit of parternship interest | $ | 842.20 | $ | 803.91 | |
| See accompanying notes to financial statements. | |||||
| Jan. 1, 2004 through Mar. 31, 2004 |
Jan. 1, 2004 through Mar. 31, 2004 |
Jan. 1, 2003 through Mar. 31, 2003 |
Jan. 1, 2003 through Mar. 31, 2003 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||||||
| Gain (loss) on trading of: | |||||||||||||
| Realized gain on closed positions | $ | 484,180 | $ | 484,180 | $ | 1,187,587 | $ | 1,187,587 | |||||
| Change in unrealized loss on open contracts | (337,378) | (337,378) | (529,808) | (529,808) | |||||||||
| Interest income | 9,338 | 9,338 | 11,031 | 11,031 | |||||||||
| Income from investment in other commodity pools | 291,341 | 291,341 | 187,108 | 187,108 | |||||||||
| Foreign currency transaction gain | 2,227 | 2,227 | 3,040 | 3,040 | |||||||||
| Total revenues | 449,708 | 449,708 | 858,958 | 858,958 | |||||||||
| Expenses: | |||||||||||||
| Commissions | 51,630 | 51,630 | 45,528 | 45,528 | |||||||||
| Exchange, clearing and NFA fees | 283 | 283 | 230 | 230 | |||||||||
| Management fees | 25,815 | 25,815 | 25,609 | 25,609 | |||||||||
| Incentive fees | 13,460 | 13,460 | 62,067 | 62,067 | |||||||||
| Administrative fee | 1,689 | 1,689 | 2,026 | 2,026 | |||||||||
| Operating expenses | 8,000 | 8,000 | 8,000 | 8,000 | |||||||||
| Total expenses | 100,877 | 100,877 | 143,460 | 143,460 | |||||||||
| Net income | $ | 348,831 | $ | 348,831 | $ | 715,498 | $ | 715,498 | |||||
| PROFIT PER UNIT OF PARTNERSHIP INTEREST | $ | 38.29 | $ | 38.29 | $ | 72.14 | $ | 72.14 | |||||
| See accompanying notes to financial statements. | |||||||||||||
| Units* | Limited Partners |
General Partners |
Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Partners' capital at January 1, 2004 | 8,680.82 | $ | 6,978,577 | $ | 302,727 | $ | 7,281,304 | |||||||
| Net profit | 334,411 | 14,420 | 348,831 | |||||||||||
| Redemptions | (363.77) | (308,359) | 0 | (308,359) | ||||||||||
| Partners' capital at March 31, 2004 | 8,317.05 | $ | 7,004,629 | $ | 317,147 | $ | 7,321,776 | |||||||
| Net asset value per unit January 1, 2004 | 803.91 | 803.91 | ||||||||||||
| Net profit per unit | 38.29 | 38.29 | ||||||||||||
| Net asset value per unit March 31, 2004 | $ | 842.20 | $ | 842.20 | ||||||||||
| * Units of limited partnership interest. | ||||||||||||||
| See accompanying notes to financial statements. | ||||||||||||||
March 31, 2004
IDS Managed Futures II, L.P. (the Partnership), a limited partnership organized in April 1987 under the Delaware Revised Uniform Limited Partnership Act, was formed to engage in the speculative trading of commodity interests including futures contracts, forward contracts, physical commodities, and related options thereon pursuant to the trading instructions of independent trading advisors. The general partners are IDS Futures Corporation (IDSFC) and CIS Investments, Inc. (CISI) (collectively, the General Partners). The clearing broker is Cargill Investor Services, Inc. (Clearing Broker or CIS), the parent company of CISI. The broker for forward contracts is CIS Financial Services, Inc. (CISFS or Forwards Currency Broker), an affiliate of CISI. The Clearing Broker and the Forwards Currency Broker will collectively be referred to as the Brokers.
The Partnership shall be terminated on December 31, 2007 if none of the following occur prior to that date: (1) investors holding more than 50% of the outstanding units notify the General Partners to dissolve the Partnership as of a specific date; (2) disassociation of the General Partners with the Partnership; (3) bankruptcy of the Partnership; (4) decrease in the net asset value (NAV) to less than $1,500,000; (5) the Partnership is declared unlawful; or (6) the NAV per unit declines to less than $125 per unit and the Partners elect to terminate the Partnership.
The accounting and reporting policies of the Partnership conform to accounting principles generally accepted in the United States of America and to general practices within the commodities industry. The following is a description of the more significant of those policies that the Partnership follows in preparing its financial statements.
Commodity futures contracts, forward contracts, physical commodities, and related options are recorded on the trade date. All such transactions are recorded on the identified cost basis and marked to market daily. Unrealized gain on open futures contracts reflected in the statements of financial condition represents the difference between original contract amount and market value (as determined by exchange settlement prices for futures contracts) as of the last business day of the year or as of the last date of the financial statements.
The Partnership earns interest on 100% of the Partnership’s average monthly cash balance on deposit with the Brokers at a rate equal to 80% of the average 91-day Treasury bill rate for U.S. Treasury bills issued during that month.
A Limited Partner may cause any or all of his or her units to be redeemed by the Partnership effective as of the last trading day of any month. Redemptions are based on the NAV per unit as of the last day of the month and require ten days’ written notice to the General Partners. Payment will be made within ten business days of the effective date of the redemption. The Partnership’s Limited Partnership Agreement contains a full description of redemption and distribution procedures.
Brokerage commissions and National Futures Association (NFA) clearing and exchange fees are accrued on a half-turn basis on open commodity futures contracts. The Partnership pays CIS commissions on trades executed on its behalf at a rate of $29.375 per half-turn contract. The Partnership pays these commissions directly to CIS and CISFS, and CIS then reallocates the appropriate portion to American Express Financial Advisors, Inc. (AEFA).
Trading accounts in foreign currency denominations are susceptible to both movements in the underlying contract markets as well as fluctuations in currency rates. Foreign currencies are translated into U.S. dollars for closed positions at an average exchange rate for the period, while period-end balances are translated at the period-end currency rates. The impact of the translation is reflected in the statements of operations.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Management fees are accrued and paid monthly and incentive fees are accrued monthly and paid quarterly. Trading decisions for the period of these financial statements were made by John W. Henry & Company, Inc. (JWH).
Under signed agreement, JWH receives a monthly management fee of 0.166% of 2% of the month-end NAV of the Partnership under its management and an incentive fee of 20% of the Partnership’s new trading profits, if any, attributable to its management. For the periods ending March 31, 2004 and 2003, JWH was managing approximately 67% of the Partnership’s assets while Sunrise Capital Partners, LLC was indirectly managing 33% of the Partnership’s assets.
No provision for Federal income taxes has been made in the accompanying financial statements as each partner is responsible for reporting income (loss) based on such partner’s pro rata share of the profits or losses of the Partnership. The Partnership is responsible for the Illinois State Partnership Information and Replacement Tax based on the operating results of the Partnership. Such tax amounted to $0 for the quarters ended March 31, 2004 and 2003 and is included in operating expenses in the statements of operations.
The Partnership’s investment in other commodity pools are recorded at fair value and are subject to the market and credit risks of financial instruments and commodity contracts held or sold short by those entities. The Partnership bears the risk of loss only to the extent of the market value of its respective investments.
The Partnership engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts, and forward contracts (collectively derivatives). These derivatives include both financial and non-financial contracts held as part of a diversified trading strategy. The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.
The purchase and sale of futures contracts and options on futures contracts requires margin deposits with a Futures Commission Merchant (FCM). Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act (CE Act) requires a FCM to segregate all customer transactions and assets from the FCM’s proprietary activities. A customer’s cash and other property, such as U.S. Treasury bills, deposited with a FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements. In the event of a FCM’s insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.
The Partnership has cash on deposit with an affiliated interbank market maker in connection with its trading of forward contracts. In the event of the interbank market maker’s insolvency, recovery of the Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits. In the normal course of business, the Partnership does not require collateral from such interbank market maker. Because forward contracts are traded in unregulated markets between principals, the Partnership also assumes a credit risk.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option.
The notional amounts of open contracts at March 31, 2004, as disclosed in the Condensed Schedule of Investments, do not represent the Partnership’s risk of loss due to market and credit risk, but rather represent the extent of the Partnership’s involvement in derivatives at the date of the statements of financial condition.
Net trading results from derivatives for the quarter ended March 31, 2004 and 2003, are reflected in the statements of operations and equal gains (losses) from trading less brokerage commissions. Such trading results reflect the net gain arising from the Partnership’s speculative trading of futures contracts, options on futures contracts, and forward contracts.
The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments.
In December 2001, the Partnership invested in another commodity pool, IDS Managed Fund LLC (IDSMF). The investment is subject to the terms of the respective advisory contract and other agreements of this commodity pool.
Income (loss) is net of the Partnership’s proportionate share of fees and expenses incurred or charged by IDSMF. During 2004, IDSMF charged monthly management fees of 1/12 of 2% of the NAV and a quarterly incentive fee of 20% of new trading profits.
Investment value in IDSMF is based on the proportionate share of units the Partnership has in IDSMF at the end of each month. The Partnership’s risk of loss in its investee pool is limited to its investment. The Partnership may make additional contributions to or withdrawals from its investment in IDSMF as of the last day of any month.
Summarized information reflecting the Partnership’s investment in, and the operations of, the investee pool is as shown in the following table.
| Investment in IDSMF, January 1, 2004 | $ | 2,325,047 |
| Results of operations of IDSMF: | ||
| Revenues | 1,740,605 | |
| Management and incentive fees | (380,076) | |
| Other expenses | (46,852) | |
| Net income before allocation to members | 1,313,677 | |
| Special allocation to the other members | 1,022,336 | |
| Partnership's income from investment in IDSMF | 291,341 | |
| Partnership's redemptions in IDSMF | (162,209) | |
| Net asset value of the Partnership's investment in IDSMF, March 31, 2004 | 2,454,179 |
|
The following table is a summary of IDSMF’s net assets, at March 31, 2004.
| Number of
contracts |
Principal/
notional value |
Value/open
trade equity |
|||||
|---|---|---|---|---|---|---|---|
Long positions |
|||||||
| Futures positions (7.52%) | |||||||
| Agriculture | 87 | 2,050,205 | 233,438 | ||||
| Energy | 74 | 2,646,240 | (28,580) | ||||
| Interest rates | 158 | $ | 19,578,962 | 241,238 | |||
| Metals | 104 | 4,134,776 | 340,616 | ||||
| Indices | 28 | 2,504,333 | 45,094 | ||||
| 30,914,516 | 831,806 | ||||||
| Forward positions (1.29%) | |||||||
| Currencies | 24 | 7,914,980 | 142,346 | ||||
| Total long positions | $ | 38,829,496 | 974,152 | ||||
| Short positions |
|||||||
| Futures positions (0.06%) | |||||||
| Agriculture | 15 | $ | 465,750 | 21,830 | |||
| Metals | 22 | 745,131 | (14,878) | ||||
| 1,210,881 | 6,952 | ||||||
| Forward positions (-1.59%) | |||||||
| Currencies | 11 | 5,028,138 | (175,762) | ||||
| Total short positions | $ | 6,239,019 | (168,810) | ||||
| Total open contracts (7.28%) | $ | 805,342 | |||||
| Cash on deposit with brokers (98.73%) | 10,921,106 | ||||||
| Other assets in excess of liabilities (-6.01%) | (664,652) | ||||||
| Net assets (100%) | $ | 11,061,796 | |||||
The following financial highlights show the Partnership’s financial performance for the three-month period ended March 31, 2004. Total return is calculated as the change in a theoretical limited partner’s investment over the entire period and is not annualized. Total return is calculated based on the aggregate return of the Partnership taken as a whole.
| Total Return: | ||
| Total return before incentive fees | 4.89% | |
| Less incentive fee allocation | 0.13% | |
| Total Return | 4.76% |
|
| Ratio to average net assets: | ||
| Net income | 4.70% | |
| Expenses: | ||
| Expenses | 1.18% | |
| Incentive fees | 0.18% | |
| Total expenses | 1.36% |
|
The net income and expense ratios are computed based upon the weighted average net assets for the Partnership for the three-month period ended March 31, 2004. Ratios do not reflect income or expenses related to investment in other commodity pools.
| Number of
contracts |
Principal
(notional) |
Value (OTE) | |||||
|---|---|---|---|---|---|---|---|
| Long positions | |||||||
| Futures positions (3.11%) | |||||||
| Interest rates | 215 | $ | 32,501,755 | $ | 166,243 | ||
| Metals | 32 | 1,535,940 | 30,245 | ||||
| Indices | 9 | 1,014,989 | 31,045 | ||||
| 35,052,684 | 227,533 | ||||||
| Forward positions (3.55%) | |||||||
| Currencies | 26 | $ | 13,650,359 | $ | 259,850 | ||
| Total long positions | $ | 46,703,043 | $ | 487,383 | |||
| Short positions | |||||||
| Futures positions (-0.56%) | |||||||
| Interest Rates | 2 | $ | 2,635,926 | $ | (8,911) | ||
| Metals | 7 | 302,138 | (12,863) | ||||
| Indices | 40 | 1,272,616 | (18,899) | ||||
| 4,210,680 | (40,673) | ||||||
| Forward positions (-6.99%) | |||||||
| Currencies | 19 | 14,102,217 | (512,006) | ||||
| Total short positions | $ | 18,312,897 | $ | (552,679) | |||
| Total open contracts (-0.89%) | $ | (65,295) | |||||
| Cash on deposit with brokers (69.02%) | 5,053,207 | ||||||
| Investment in other commodity pools (33.52%) | 2,454,179 | ||||||
| Other assets in excess of liabilities (-1.65%) | (120,315) | ||||||
| Net assets (100%) | $ | 7,321,776 | |||||
The Partnership’s capital resources fluctuate based upon the redemption of units and the gains and losses of the Partnership’s trading activities. For the period-ended March 31, 2004, Limited Partners redeemed a total of 363.77 units for $308,358.95 and for the period-ended March 31, 2003, Limited Partners redeemed a total of 184.55 units for $142,115.
The Partnership’s involvement in the futures and forward markets exposes the Partnership to both market risk – the risk arising from changes in the market value of the futures and forward contracts held by the Partnership – and credit risk – the risk that another party to a contract will fail to perform its obligations according to the terms of the contract. The Partnership is exposed to a market risk equal to the value of the futures and forward contracts purchased and theoretically unlimited risk of loss on contracts sold short. The Partnerships commodity trading advisors (Advisors) monitor the Partnership’s trading activities and attempt to control the Partnership’s exposure to market risk by, among other things, refining their trading strategies, adjusting position sizes of the Partnership’s futures and forward contacts and re-allocating Partnership assets to different market sectors. The Partnership’s primary exposure to credit risk is its exposure to the non-performance of the Forwards Currency Broker. The Forwards Currency Broker generally enters into forward contracts with large, well-capitalized institutions and then enters into a back-to-back contract with the Partnership. The Partnership also may trade on exchanges that do not have associated clearing houses whose credit supports the obligations of its members and operate as principals markets, in which case the Partnership will be exposed to the credit risk of the other party to such trades.
The Partnership’s trading activities involve varying degrees of off-balance sheet risk whereby changes in the market values of the futures and forward contracts underlying the financial instruments or the Partnership’s satisfaction of the obligations may exceed the amount recognized in the statement of financial condition of the Partnership.
The Partnership borrows only to a limited extent and only on a strictly short-term basis in order to finance losses on non-U.S. dollar denominated trading positions pending the conversion of the Partnership’s dollar deposits. These borrowings are at a prevailing short-term rate in the relevant currency. They have been i