1. What exactly is an interest in Bayou City Capital?
Bayou City Capital, L.P. ("Bayou City") is a commodity pool structured as a limited partnership that trades futures and options on the S&P 500 Index. An investor in Bayou City Capital is considered a limited partner. A limited partner owns a percentage of the limited partnership and shares in its profits and losses. Omni Trading, L.L.C., is the General Partner of Bayou City. Omni Trading is the manager and advisor and has the responsibility for determining what trades to make.
2. What types of investors invest in commodity pools?
Traditionally, investors in commodity pools have been institutions and high net-worth individuals seeking the profit opportunities of futures trading without the responsibility and demands of daily account management. Recently, growing numbers of a wide array of investors, including pension funds, have been allocating portions of their total portfolio assets to specially designed and professionally managed futures trading programs.
4. Tax Treatment - Tax Benefits of Section 1256 Contract
Bayou City invests in S&P 500 futures and futures options contracts that are considered Section 1256 Contracts under the Internal Revenue Service Code. The effective maximum tax rate for gains on futures is 27.6%. The 20% long-term maximum tax rate x 60% = 12%, and the 39% short-term maximum tax rate x 40% = 15.6%. The two added together equals the effective maximum rate of 27.6%, much lower than the current maximum tax rate of 35% on short-term capital gains on securities which can add up to substantial tax savings.
5. Why an account with Bayou City?
There are several reasons;
Efficiency - Futures are highly efficient securities and transaction costs are quite low.
Favorable Tax Treatment - The margin treatment for futures is very efficient for the type of strategy used by the Fund. Tax advantages that are not available to investors in the equity side of the market can add to substantial improvements in after-tax return to investors.
Ability to Liquidate Positions Very Quickly - The S&P 500 Index futures is one of the most liquid and heavily traded futures market in the world, thus ensuring good price discovery and tight bid/ask spreads.
6. Can I lose more money than I have invested?
No - an investment in Bayou City is in the form of a limited partnership interest and therefore the limited partner has limited liability. The Partnership document specifically states that an investor has limited liability and therefore cannot lose more than what he or she has invested.
7. What are the risks involved in Bayou City?
Trading in futures may involve significant risk. The same leverage and price movements that can produce significant trading profits can produce significant trading losses.
8. How important is an advisor's past trading performance - the "track record"?
Past performance is not indicative of future results. Although Bayou City has had positive performance since its inception it may perform poorly in the future. Nonetheless, a track record does confirm historical performance and can provide other information about performance during a broad variety of market conditions. Some considerations of the Fund‘s track record include (i) length and consistency of performance, and (ii) performance during difficult market conditions.
9. How aggressive is Bayou City?
The Fund is and should be considered to be aggressive. It is designed to significantly outperform the S&P 500 Index during certain market conditions.
13. Are there any restrictions on withdrawing funds from the account?
No – the Fund offers monthly liquidity. Requests for redemptions must be received 10 days prior to the end of each month. Redemption payments will be made immediately after the Administrator calculates the end of month partnership valuations, normally by the 10th of each month.