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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-50728
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 52-1627106
------------------------ -----------------------------------
(State of Incorporation) (IRS Employer Identification No.)
c/o Steben & Company, Inc.
2099 Gaither Road, Suite 200
Rockville, Maryland 20850
-------------------------
(Address of Principal Executive Office)(zip code)
240) 631-9808
-------------
Registrant's telephone number, including area code:
-------------------------
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 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.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
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Table of Contents
Item 1. Financial Statements
Statements of Financial Condition
March 31, 2004 (Unaudited) and December 31, 2003 (Audited)
Condensed Schedule of Investments
March 31, 2004 (Unaudited)
Condensed Schedule of Investments
December 31, 2003 (Audited)
Statements of Operations
For the Three Months Ended March 31, 2004 and 2003 (Unaudited)
Statements of Cash Flows
For the Three Months Ended March 31, 2004 and 2003 (Unaudited)
Statements of Changes In Partners' Capital (Net Asset Value) - For the
Three months Ended March 31, 2004 and 2003 (Unaudited)
Notes to Financial Statements For Three Months Ended March 31, 2004
and 2003 (Unaudited)
Statements of Financial Condition
June 30, 2004 (Unaudited) and December 31, 2003 (Audited)
Condensed Schedule of Investments
June 30, 2004 (Unaudited)
Condensed Schedule of Investments
December 31, 2003 (Audited)
Statements of Operations
For the Three Months and Six Months Ended June 30, 2004 and 2003
(Unaudited)
Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003 (Unaudited)
Statements of Changes in Partners' Capital (Net Asset Value) - For
the Six months Ended June 30, 2004 and 2003 (Unaudited)
Notes to Financial Statements for the Six Months Ended June 30, 2004
and 2003 (Unaudited)
i
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Market Risk
Item 4. Controls and Procedures
ii
ITEM 1: Financial Statements
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
March 31, 2004 (Unaudited) and December 31, 2003 (Audited)
-----------------
March 31, December 31,
2004 2003
---- ----
ASSETS
Equity in broker trading accounts
Cash $ 53,524,306 $ 14,155,901
United States government securities 40,742,708 56,225,381
Unrealized gain on open futures contracts 7,031,411 6,241,625
--------------- ---------------
Deposits with brokers 101,298,425 76,622,907
Cash 43,272,750 11,197,196
Unrealized gain (loss) on open forward currency contracts (282,464) 797,823
---------------- ----------------
Total assets $144,288,711 $ 88,617,926
============ =============
LIABILITIES
Accounts payable $ 133,938 $ 86,600
Commissions and other trading fees
on open contracts 39,110 30,210
General Partner management fee 317,601 129,471
General Partner 1% allocation 111,608 51,410
Advisor management fees 204,264 94,910
Advisor incentive fees 4,290,399 1,678,712
Selling agents fee 274,761 97,499
Redemptions payable 292,502 186,717
Subscriptions received in advance 26,642,096 8,496,538
-------------- ---------------
Total liabilities 32,306,279 10,852,067
-------------- --------------
PARTNERS' CAPITAL (Net Asset Value)
Class A Interests - 22,310.6979 and 16,350.3885 units
outstanding at March 31, 2004 and December 31, 2003 84,794,173 55,901,105
Class B Interests - 6,051.5942 and 5,435.3839 units
outstanding at March 31, 2004 and December 31, 2003 27,188,259 21,864,754
-------------- --------------
Total partners' capital
(Net Asset Value) 111,982,432 77,765,859
------------- --------------
$144,288,711 $ 88,617,926
============ =============
1
See accompanying notes.
2
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
March 31, 2004
(Unaudited)
=================
UNITED STATES GOVERNMENT SECURITIES
- -----------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$16,000,000 06/03/04 U.S. Treasury Bill $ 15,971,566 14.26 %
12,300,000 05/06/04 U.S. Treasury Bill 12,287,590 10.97 %
6,500,000 04/01/04 U.S. Treasury Bill 6,499,827 5.81 %
6,000,000 07/18/04 U.S. Treasury Bill 5,983,725 5.34 %
--------------- ----------
Total United States government securities
(cost, including accrued interest, -
$40,742,708) $ 40,742,708 36.38 %
============= =========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 2,930,199 2.62 %
Currency 81,890 0.07 %
Energy 15,968 0.02 %
Interest rate 2,318,307 2.07 %
Metal 1,524,869 1.36 %
Stock index 292,504 0.26 %
-------------- ----------
Total long futures contracts $ 7,163,737 6.40 %
-------------- ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 147,815 0.13 %
Currency (9,500) (0.01)%
Energy (8,051) (0.01)%
Interest rate 21,827 0.02 %
Metal (237,748) (0.21)%
Stock Index (46,669) (0.04)%
--------------- ----------
Total short futures contracts $ (132,326) (0.12)%
--------------- ----------
Total futures contracts $ 7,031,411 6.28 %
============== ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 784,404 0.70 %
Short forward currency contracts (1,066,868) (0.95)%
--------------- ----------
Total forward currency contracts $ (282,464) (0.25)%
=============== ==========
See accompanying notes.
3
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2003
(Audited)
-------------
UNITED STATES GOVERNMENT SECURITIES
- -----------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$16,000,000 06/03/04 U.S. Treasury Bill $15,931,137 20.49 %
12,300,000 05/06/04 U.S. Treasury Bill 12,256,220 15.76 %
10,000,000 02/19/04 U.S. Treasury Bill 9,985,990 12.84 %
6,500,000 04/01/04 U.S. Treasury Bill 6,484,069 8.34 %
5,000,000 03/11/04 U.S. Treasury Bill 4,990,348 6.42 %
Other U.S. Treasury Bills 6,577,617 8.45 %
------------- ----------
Total United States government securities
(cost, including accrued interest, -
$56,225,381) $56,225,381 72.30 %
=========== =========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 578,883 0.74 %
Currency 3,393,879 4.36 %
Energy 115,841 0.15 %
Interest rate (210,196) (0.27)%
Metal 2,888,152 3.72 %
Stock index 910,629 1.17 %
-------------- ----------
Total long futures contracts $ 7,677,188 9.87 %
------------ ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (25,120) (0.03)%
Currency (1,006,522) (1.30)%
Interest rate (111,541) (0.14)%
Metal (292,380) (0.38)%
-------------- ----------
Total short futures contracts $ (1,435,563) (1.85)%
------------ ----------
Total futures contracts $ 6,241,625 8.02 %
============ ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 894,946 1.15 %
Short forward currency contracts (97,123) (0.12)%
-------------- ----------
Total forward currency contracts $ 797,823 1.03 %
============== ==========
See accompanying notes.
4
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
===================
2004 2003
---- ----
TRADING GAINS
Gain (loss) from trading
Realized $ 17,180,331 $ 2,576,142
Change in unrealized (290,501) (975,585)
Brokerage commissions (205,624) (18,135)
--------------- ----------------
Gain from trading 16,684,206 1,582,422
------------- --------------
NET INVESTMENT (LOSS)
Income
Interest income 195,589 36,908
--------------- ----------------
Expenses
General Partner management fee 503,099 50,802
General Partner 1% allocation 111,608 11,586
Advisor management fees 309,649 37,937
Advisor incentive fees 4,283,609 298,543
Selling agents fee 420,708 47,936
Operating expenses 201,901 25,727
--------------- ----------------
Total expenses 5,830,574 472,531
-------------- ---------------
Net investment (loss) (5,634,985) (435,623)
-------------- ---------------
NET INCOME $ 11,049,221 $ 1,146,799
============ =============
2004 2003
------------------ -----------------
Class A Class B Class A Class B
------- ------- ------- -------
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the period) $ 390.97 $ 474.52 $ 216.60 $ 403.11
======== ======== ======== ========
INCREASE IN NET ASSET
VALUE PER UNIT $ 381.66 $ 470.07 $ 363.22 $ 437.18
======== ======== ======== ========
See accompanying notes.
5
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
================
2004 2003
---- ----
Cash flows from (for) operating activities
Net income $ 11,049,221 $ 1,146,799
Adjustments to reconcile net income to net cash
from (for) operating activities
Net change in unrealized 290,501 975,585
Increase in accounts payable and
accrued expenses 3,202,869 318,571
Net proceeds (purchases) of investments in
United States government securities 15,482,673 (4,482,664)
-------------- ---------------
Net cash from (for) operating activities 30,025,264 (2,041,709)
-------------- ---------------
Cash flows from (for) financing activities
Addition of units 15,857,173 3,724,133
Subscriptions received in advance 26,421,993 3,151,626
Redemption of units (860,471) (75,000)
---------------- -----------------
Net cash from financing activities 41,418,695 6,800,759
-------------- ---------------
Net increase in cash 71,443,959 4,759,050
Cash and cash equivalents
Beginning of period 25,353,097 4,678,337
-------------- ---------------
End of period $ 96,797,056 $ 9,437,387
============== ===============
End of period cash consists of:
Cash in broker trading accounts $ 53,524,306 $ 6,299,852
Cash 43,272,750 3,137,535
-------------- ---------------
Total end of period cash $ 96,797,056 $ 9,437,387
============= ==============
See accompanying notes.
6
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
====================
Class A Interests Class B Interests
----------------- -----------------
Units Value Units Value Total
----- ----- ----- ----- -----
Three Months Ended March 31, 2004
Balances at
December 31, 2003 16,350.3885 $ 55,901,105 5,435.3839 $ 21,864,754 $ 77,765,859
Net income for the three months
ended March 31, 2004 8,233,898 2,815,323 11,049,221
Additions 6,219.4985 21,630,253 665.9654 2,723,458 24,353,711
Redemptions (189.8033) (707,367) (59.4756) (258,889) (966,256)
Transfers (69.3858) (263,716) 9.7205 43,613 (220,103)
--------------- ----------------- -------------- --------------- ----------------
Balances at
March 31, 2004 22,310.6979 $ 84,794,173 6,051.5942 $ 27,188,259 $111,982,432
=============== ================= ============== =============== ================
Class A Interests Class B Interests
----------------- -----------------
Units Value Units Value Total
----- ----- ----- ----- -----
Three Months Ended March 31, 2003
Balances at
December 31, 2002 1,240.5575 $ 3,680,442 1,832.4761 $ 6,277,366 $ 9,957,808
Net income for the three months
ended March 31, 2003 365,769 781,030 1,146,799
Additions 888.4691 3,043,397 224.2307 884,709 3,928,106
Redemptions (6.0060) (20,000) (20.0708) (76,000) (96,000)
---------------- ----------------- --------------- ----------------- -----------------
Balances at
March 31, 2003 2,123.0206 $ 7,069,608 2,036.6360 $ 7,867,105 $ 14,936,713
================ ================ =============== ================ ==================
Net Asset Value Per Unit
----------------------------------------------------------------------------------------------------------------
March 31, 2004 December 31, 2003 March 31, 2003 December 31, 2002
-------------- ----------------- -------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
$3,800.61 $4,492.74 $3,418.95 $4,022.67 $3,329.98 $3,862.79 $2,966.76 $3,425.61
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes.
7
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2004 and 2003
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
Futures Portfolio Fund, Limited Partnership (the Partnership)
is a Maryland limited partnership which operates as a
commodity investment pool. The Partnership utilizes
professional trading advisors to engage in the trading of
futures contracts, forward currency contracts and other
financial instruments.
B. Regulation
The Partnership is a registrant with the Securities and
Exchange Commission (SEC) pursuant to the Securities Exchange
Act of 1934 (the Act). As a registrant, the Partnership is
subject to the regulations of the SEC and the informational
requirements of the Act. As a commodity pool, the Partnership
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 where the Partnership executes
transactions. Additionally, the Partnership is subject to the
requirements of Futures Commission Merchants (brokers) and
interbank market makers through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in
accordance with accounting principles generally accepted in
the United States of America, which require the use of certain
estimates made by the Partnership's management. Gains or
losses are realized when contracts are liquidated. Unrealized
gains and losses on open contracts (the difference between
contract trade price and market price) are reported in the
statement of financial condition as a net gain or loss, as
there exists a right of offset of unrealized gains or losses
in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to
Certain Contracts." Any change in net unrealized gain or loss
from the preceding period is reported in the statement of
operations. United States government securities are stated at
cost plus accrued interest, which approximates market value.
For purposes of both financial reporting and calculation of
redemption value, net asset value per Class A or Class B unit
is calculated by dividing the net asset value of Class A or
Class B by the number of outstanding units of Class A or Class
B.
D. Brokerage Commissions
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
E. Income Taxes
The Partnership prepares calendar year U.S. and applicable
state information tax returns and reports to the partners
their allocable shares of the Partnership's income, expenses
and trading gains or losses.
8
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
F. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar;
however, it transacts business in currencies other than
the U.S. dollar. Assets and liabilities denominated in
currencies other than the U.S. dollar are translated into
U.S. dollars at the rates in effect at the date of the
statement of financial condition. Income and expense items
denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect during
the period. Gains and losses resulting from the translation
to U.S. dollars are reported in income currently.
G. Classes of Interests
The Partnership has two classes of limited partnership
interests ("Interests"), Class A and Class B. The General
Partner may offer additional classes at its discretion. Both
Class A and Class B Interests are traded pursuant to identical
trading programs and differ only in respect to the General
Partner's management fee and selling agents fee. Class B
Interests are issued only at the General Partner's discretion
and are intended for investors who are participating in fee
based investment advisory programs. All items of income or
loss, except for the General Partner management fee and
selling agents fee, are allocated pro rata between Class A and
Class B Interests. The General Partner management fee and
selling agents fee applicable to each class of Interest is
then charged to each class. All items of income or loss
allocated to each class of Interest is then allocated pro rata
to each Limited Partner within each class.
H. Reclassification
Certain amounts in the December 31, 2003 statement of
financial condition were reclassified to conform with the
March 31, 2004 presentation.
Note 2. GENERAL PARTNER
The General Partner of the Partnership is Steben & Company, Inc.,
which conducts and manages the business of the Partnership. During
the three months ended March 31, 2004 and 2003, the General Partner
did not maintain a capital balance in the Partnership, however, the
sole shareholder of the General Partner has an investment in Class B
Interests of the Partnership.
During the three months ended March 31, 2004 and 2003, the General
Partner received the following compensation:
o Class A Interests paid a monthly management fee equal to
1/12 of 2% (2% per annum) of the net asset value of the
Class A Interests as of the last day of each month.
o Class A Interests paid a monthly selling agents fee equal to
1/12 of 2% (2% per annum) of the net asset value of the Class
A Interests as of the last day of each month. The General
Partner, in turn, pays substantially all of the selling agents
fee to the respective selling agent. If the General Partner
was the selling agent, the General Partner retains that
portion of the selling agents fee.
o Commencing May 1, 2003, Class B Interests paid a monthly
management fee equal to 1/12 of 1.95% (1.95% per annum) of
the net asset value of the Class B Interests as of the last
day of each month.
9
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
o Commencing May 1, 2003, Class B Interests paid a monthly
selling agents fee equal to 1/12 of .20% (.20% per annum) of
the net asset value of the Class B Interests as of the last
day of each month. The General Partner, in turn, pays
substantially all of the selling agents fee to the respective
selling agent. If the General Partner was the selling agent,
the General Partner retains that portion of the selling agents
fee.
o Prior to May 1, 2003, Class B Interests paid a monthly
management fee equal to 1/12 of 1.15% (1.15% per annum) of
the net asset value of the Class B Interests as of the last
day of each month.
o Prior to May 1, 2003, Class B Interests paid a monthly selling
agents fee equal to 1/12 of 1.00% (1.00% per annum) of the net
asset value of the Class B Interests as of the last day of
each month. The General Partner, in turn, pays substantially
all of the selling agents fee to the respective selling agent.
If the General Partner was the selling agent, the General
Partner retains that portion of the selling agents fee.
The General Partner also receives, at the time of subscription, a
subscription fee equal to 1% of the subscription amount. The General
Partner may reduce or waive this fee in its sole discretion.
Additions in the statement of changes in partners' capital (net asset
value) are reflected net of such subscription fee.
Pursuant to the terms of the Limited Partnership Agreement, the
General Partner receives 1% of any increase or decrease in the
Partnership's net assets. Such amount is reflected as the General
Partner 1% allocation in the statement of financial condition and the
statement of operations.
Note 3. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has Advisory Agreements with three commodity trading
advisors, pursuant to which the Partnership pays each commodity
trading advisor a monthly management fee equal to 1/12 of 1% (1% per
annum) of the allocated net assets (as defined in each respective
Advisory Agreement) at the end of the month and a quarterly incentive
fee equal to 25% of Trading Profits (as defined in each respective
Advisory Agreement). In addition, the Partnership has an Advisory
Agreement with a fourth commodity trading advisor, pursuant to which
the Partnership pays the commodity trading advisor a monthly
management fee equal to 1/12 of 2% (2% per annum) of the account's
net assets (as defined in the Advisory Agreement) at the end of the
month and a quarterly incentive fee equal to 20% of Trading Profits
(as defined in the Advisory Agreement).
Note 4. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with brokers, subject to Commodity
Futures Trading Commission regulations and various exchange and
broker requirements. Margin requirements are satisfied by the deposit
of U.S. Treasury bills and cash with such brokers. The Partnership
earns interest income on its assets deposited with the brokers.
10
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 5. OPERATING EXPENSES
------------------
The Partnership is responsible for all of its operating expenses
such as legal, accounting, auditing, record keeping, administration,
computer, clerical expenses, printing and duplication expenses,
mailing expenses, costs of researching and performing due diligence
on advisors for the Partnership, etc. Pursuant to the terms of the
Limited Partnership Agreement, operating expenses that exceed 1% of
the average month-end net assets of the Partnership are the
responsibility of the General Partner.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. Units are sold at the
net asset value per Class A or Class B unit as of the close of
business on the last day of the month in which the subscription is
accepted. Prior to May 1, 2003, investors who subscribed through a
selling agent were subject to an up-front sales commission of up to
4% of the subscription amount. If the General Partner acted as the
selling agent, the General Partner was entitled to the up-front sales
commission, however, during 2003 the General Partner elected not to
charge such up-front sales commission to which it was entitled.
Additions in the statement of changes in partners' capital (net asset
value) are reflected net of such commissions to selling agents.
Investors whose subscriptions are accepted are admitted as Limited
Partners as of the beginning of the month following the month in
which their subscriptions were accepted. At March 31, 2004 and
December 31, 2003, the Partnership had received subscriptions of
$26,642,096 and $8,496,538, respectively, which will be additions to
the Partnership effective April 1, 2004 and January 1, 2004,
respectively.
The Partnership 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 Class A or Class B units owned,
subject to restrictions in the Limited Partnership Agreement.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts and forward currency contracts
(collectively, "derivatives"). 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.
Purchase and sale of futures contracts requires margin deposits with
the brokers. 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 Partnership trades forward currency contracts in unregulated
markets between principals and assumes the risk of loss from
counterparty nonperformance. Accordingly, the risks associated with
forward currency contracts are generally greater than those
associated with exchange traded contracts because of the greater risk
of counterparty default. Additionally, the trading of forward
currency contracts typically involves delayed cash settlement.
11
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
The Partnership has a substantial portion of its assets on deposit
with financial institutions in connection with its trading of forward
currency contracts and its cash management activities. In the event
of a financial institution's insolvency, recovery of Partnership
assets on deposit may be limited to account insurance or other
protection afforded such deposits.
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 notional contract value of futures and forward currency
contracts purchased and unlimited liability on such contracts sold
short.
The unrealized gain (loss) on open futures and forward currency
contracts is comprised of the following:
Futures Contracts Forward Currency Contracts
(exchange traded) (non-exchange traded)
March 31, December 31, March 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Gross unrealized gains $ 8,258,049 $ 8,128,348 $ 1,964,924 $ 1,129,789
Gross unrealized losses (1,226,638) (1,886,723) (2,247,388) (331,966)
-------------- -------------- -------------- ---------------
Net unrealized gain (loss) $ 7,031,411 $ 6,241,625 $ (282,464) $ 797,823
============= ============= ============== ==============
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. 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 8. INTERIM FINANCIAL STATEMENTS
----------------------------
The statement of financial condition as of March 31, 2004, including
the March 31, 2004 condensed schedule of investments, and the
statements of operations, cash flows and changes in partners' capital
(Net Asset Value) for the three months ended March 31, 2004 and 2003
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 March 31, 2004, and the results of operations and cash
flows for the three months ended March 31, 2004 and 2003.
12
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance
data and other supplemental financial data for the three months ended
March 31, 2004 and 2003. This information has been derived from
information presented in the financial statements.
Three months ended March 31,
2004 2003
(Unaudited) (Unaudited)
--------- ---------
Class A Class B Class A Class B
Interests Interests Interests Interests
--------- --------- --------- ---------
Per Unit Performance
(for a unit outstanding throughout the entire period)
- -----------------------------------------------------
Net asset value per unit at beginning of period $3,418.95 $4,022.67 $2,966.76 $3,425.61
---------- ---------- --------- ---------
Income from operations:
Gain from trading (1) 587.49 689.21 463.49 574.63
Net investment (loss) (1) (205.83) (219.14) (100.27) (137.45)
---------- ---------- ----------- -----------
Total income from operations 381.66 470.07 363.22 437.18
---------- ---------- ----------- -----------
Net asset value per unit at end of period $3,800.61 $4,492.74 $3,329.98 $3,862.79
========== ========== ========== ==========
Total Return (3) 11.16% 11.69% 12.24% 12.76%
========== ========== ========== ==========
Supplemental Data
Ratios to average net asset value:
Expenses prior to advisor incentive fees (4) 6.64% 4.73% 6.30% 4.65%
Advisor incentive fees (3) 4.29% 4.22% 1.72% 2.74%
--------- --------- --------- ---------
Total expenses 10.93% 8.95% 8.02% 7.39%
========= ========== ========= =========
Net investment (loss) (2), (4) (5.86)% (3.95)% (5.16)% (3.51)%
========= ========== ========= =========
Total returns are calculated based on the change in value of a unit
during the period. An individual partner's total returns and ratios
may vary from the above total returns and ratios based on the timing
of additions and redemptions.
----------------------------
(1) The net investment (loss) per unit is calculated by dividing
the net investment (loss) by the average number of units
outstanding during the period. Gain from trading is a
balancing amount necessary to reconcile the change in net
asset value per unit with the other per unit information.
(2) Excludes advisor incentive fees.
(3) Not annualized.
(4) Annualized.
13
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
June 30, 2004 (Unaudited) and December 31, 2003 (Audited)
=======================
June 30, December 31,
2004 2003
---- ----
ASSETS
Equity in broker trading accounts
Cash $ 27,589,574 $ 14,155,901
United States government securities 114,612,779 56,225,381
Unrealized gain (loss) on open futures contracts (1,773,368) 6,241,625
--------------- ---------------
Deposits with brokers 140,428,985 76,622,907
Cash 49,020,027 11,197,196
Unrealized gain (loss) on open forward currency contracts (1,455,217) 797,823
General Partner 1% allocation 115,895 0
---------------- ---------------------
Total assets $188,109,690 $ 88,617,926
============ =============
LIABILITIES
Accounts payable $ 242,787 $ 86,600
Commissions and other trading fees
on open contracts 40,650 30,210
General Partner management fee 273,356 129,471
General Partner 1% allocation 0 51,410
Advisor management fees 222,770 94,910
Advisor incentive fees 0 1,678,712
Selling agents fee 220,142 97,499
Redemptions payable 424,813 186,717
Subscriptions received in advance 22,585,258 8,496,538
-------------- ---------------
Total liabilities 24,009,776 10,852,067
-------------- --------------
PARTNERS' CAPITAL (Net Asset Value)
Class A Interests - 39,294.0426 and 16,350.3885 units
outstanding at June 30, 2004 and December 31, 2003 127,937,152 55,901,105
Class B Interests - 9,352.9027 and 5,435.3839 units
outstanding at June 30, 2004 and December 31, 2003 36,162,762 21,864,754
-------------- --------------
Total partners' capital
(Net Asset Value) 164,099,914 77,765,859
------------- --------------
$188,109,690 $ 88,617,926
============ =============
See accompanying notes.
14
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
----------------
UNITED STATES GOVERNMENT SECURITIES
- -----------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$32,000,000 12/02/04 U.S. Treasury Bill $ 31,804,060 19.38 %
31,000,000 07/08/04 U.S. Treasury Bill 30,993,851 18.89 %
27,000,000 11/04/04 U.S. Treasury Bill 26,882,550 16.38 %
25,000,000 10/07/04 U.S. Treasury Bill 24,932,318 15.19 %
-------------- ---------
Total United States government securities
(cost, including accrued interest,
- $114,612,779) $114,612,779 69.84 %
============== ==========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (95,663) (0.06)%
Energy 112,746 0.07 %
Interest rate 30,796 0.02 %
Metal (274,465) (0.17)%
Stock index 405,217 0.25 %
---------------- ----------
Total long futures contracts $ 178,631 0.11 %
--------------- ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 437,603 0.26 %
Currency (13,950) (0.01)%
Energy 28,435 0.02 %
Interest rate (1,527,224) (0.93)%
Metal (854,116) (0.52)%
Stock Index (22,747) (0.01)%
----------------- ----------
Total short futures contracts $ (1,951,999) (1.19)%
-------------- ----------
Total futures contracts $ (1,773,368) (1.08)%
============== ==========
LONG FORWARD CURRENCY CONTRACTS
- -------------------------------
Range of % of Net
Expiration Dates Description Value Asset Value
----------------- ----------- ----- -----------
07/21/04 - 09/15/04 British Pounds $ (10,435,973) (6.36)%
Other long forward currency contracts 861,375 0.53 %
---------------- ----------
Total long forward currency contracts $ (9,574,598) (5.83)%
-------------- ----------
SHORT FORWARD CURRENCY CONTRACTS
- --------------------------------
Range of % of Net
Expiration Dates Description Value Asset Value
---------------- ----------- ----- -----------
07/21/04 - 09/15/04 British Pounds $ 9,794,880 5.97 %
Other short forward currency contracts (1,675,499) (1.02)%
--------------- ----------
Total short forward currency contracts $ 8,119,381 4.95 %
-------------- ----------
Total forward currency contracts $ (1,455,217) (0.88)%
============== ==========
See accompanying notes.
15
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2003
(Audited)
--------------
UNITED STATES GOVERNMENT SECURITIES
- -----------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$16,000,000 06/03/04 U.S. Treasury Bill $15,931,137 20.49 %
12,300,000 05/06/04 U.S. Treasury Bill 12,256,220 15.76 %
10,000,000 02/19/04 U.S. Treasury Bill 9,985,990 12.84 %
6,500,000 04/01/04 U.S. Treasury Bill 6,484,069 8.34 %
5,000,000 03/11/04 U.S. Treasury Bill 4,990,348 6.42 %
Other U.S. Treasury Bills 6,577,617 8.45 %
------------- ----------
Total United States government securities
(cost, including accrued interest,
- $56,225,381) $56,225,381 72.30 %
=========== =========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 578,883 0.74 %
Currency 3,393,879 4.36 %
Energy 115,841 0.15 %
Interest rate (210,196) (0.27)%
Metal 2,888,152 3.72 %
Stock index 910,629 1.17 %
-------------- ----------
Total long futures contracts $ 7,677,188 9.87 %
-------------- ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (25,120) (0.03)%
Currency (1,006,522) (1.30)%
Interest rate (111,541) (0.14)%
Metal (292,380) (0.38)%
--------------- ----------
Total short futures contracts $ (1,435,563) (1.85)%
--------------- ----------
Total futures contracts $ 6,241,625 8.02 %
=============== ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 894,946 1.15 %
Short forward currency contracts (97,123) (0.12)%
---------------- ----------
Total forward currency contracts $ 797,823 1.03 %
================ ===========
See accompanying notes.
16
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2004 and 2003
(Unaudited)
---------------
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
---- ---- ---- ----
TRADING GAINS (LOSSES)
Gain (loss) from trading
Realized $(10,771,960) $ 596,095 $ 6,408,371 $ 3,172,237
Change in unrealized (9,977,532) (330,129) (10,268,033) (1,305,714)
Brokerage commissions (291,354) (36,765) (496,978) (54,900)
--------------- ---------------- --------------- ----------------
Gain (loss) from trading (21,040,846) 229,201 (4,356,640) 1,811,623
--------------- ---------------- --------------- -----------------
NET INVESTMENT (LOSS)
Income
Interest income 380,081 56,747 575,670 93,655
--------------- ---------------- --------------- ----------------
Expenses
General Partner management fee 726,958 97,851 1,230,057 148,653
General Partner 1% allocation (227,503) (917) (115,895) 10,669
Advisor management fees 532,942 52,804 842,591 90,741
Advisor incentive fees (197) 124,942 4,283,412 423,485
Selling agents fee 576,270 68,801 996,978 116,737
Operating expenses 253,588 33,287 455,489 59,014
--------------- ---------------- --------------- ----------------
Total expenses 1,862,058 376,768 7,692,632 849,299
--------------- ---------------- --------------- ----------------
Net investment (loss) (1,481,977) (320,021) (7,116,962) (755,644)
--------------- ----------------- --------------- ----------------
NET INCOME (LOSS) $(22,522,823) $ (90,820) $(11,473,602) $ 1,055,979
================ ================= ============== ================
Three Months Ended June 30, Six Months Ended June 30,
2004 2003 2004 2003
---- ---- ---- ----
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- -------- --------- ------- ------- -------- --------
NET INCOME (LOSS) PER UNIT
(based on weighted average number of
units outstanding during the period) $(523.38) $(611.15) $ (26.91) $ 0.52 $(335.00) $(332.85) $ 107.15 $ 365.19
========= ========= ========== ======== ========= ========= ======== ========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $(544.72) $(626.27) $ 1.20 $ 19.20 $(163.06) $(156.20) $ 364.42 $ 456.38
========= ========= ========== ======== ========= ========= ======== =========
See accompanying notes.
17
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
-----------------
2004 2003
---- ----
Cash flows from (for) operating activities
Net income (loss) $ (11,473,602) $ 1,055,979
Adjustments to reconcile net income (loss) to net
cash (for) operating activities
Net change in unrealized 10,268,033 1,305,714
(Increase) in General Partner 1% allocation
receivable (115,895) 0
Increase (decrease) in accounts payable and
accrued expenses (1,169,107) 208,461
Net (purchases) of investments in United States
government securities (58,387,398) (10,723,483)
-------------- --------------
Net cash (for) operating activities (60,877,969) (8,153,329)
-------------- ---------------
Cash flows from (for) financing activities
Addition of units 91,199,904 11,879,404
Subscriptions received in advance 22,561,614 4,122,594
Redemption of units (1,627,045) (270,183)
--------------- ----------------
Net cash from financing activities 112,134,473 15,731,815
------------- --------------
Net increase in cash 51,256,504 7,578,486
Cash and cash equivalents
Beginning of period 25,353,097 4,678,337
-------------- ---------------
End of period $ 76,609,601 $ 12,256,823
============== ===============
End of period cash consists of:
Cash in broker trading accounts $ 27,589,574 $ 8,004,012
Cash 49,020,027 4,252,811
-------------- ---------------
Total end of period cash $ 76,609,601 $ 12,256,823
============== ===============
See accompanying notes.
18
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
Class A Interests Class B Interests
----------------- ------------------
Units Value Units Value Total
----- ----- ----- ----- -----
Six Months Ended June 30, 2004
- ------------------------------
Balances at
December 31, 2003 16,350.3885 $ 55,901,105 5,435.3839 $ 21,864,754 $ 77,765,859
Net (loss) for the six months
ended June 30, 2004 (9,063,144) (2,410,458) (11,473,602)
Additions 23,527.5290 83,182,094 3,875.9521 16,514,348 99,696,442
Redemptions (361.6514) (1,293,453) (139.9521) (571,688) (1,865,141)
Transfers (222.2235) (789,450) 181.5188 765,806 (23,644)
-------------- ---------------- -------------- ---------------- -----------------
Balances at
June 30, 2004 39,294.0426 $127,937,152 9,352.9027 $ 36,162,762 $164,099,914
============== ================ ============== ================= =================
Class A Interests Class B Interests
----------------- ------------------
Units Value Units Value Total
----- ----- ----- ----- -----
Six Months Ended June 30, 2003
- ------------------------------
Balances at
December 31, 2002 1,240.5575 $ 3,680,442 1,832.4761 $ 6,277,366 $ 9,957,808
Net income for the six months
ended June 30, 2003 273,723 782,256 1,055,979
Additions 2,686.8698 9,128,795 746.3750 2,954,583 12,083,378
Redemptions (15.0117) (50,000) (63.8973) (251,183) (301,183)
--------------- ---------------- ------------- ---------------- ----------------
Balances at
June 30, 2003 3,912.4156 $ 13,032,960 2,514.9538 $ 9,763,022 $ 22,795,982
=============== ================ ============= =============== ===============
Net Asset Value Per Unit
-------------------------------------------------------------------------------------------------------------
June 30, 2004 December 31, 2003 June 30, 2003 December 31, 2002
------------- ----------------- ------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
$3,255.89 $3,866.47 $3,418.95 $4,022.67 $3,331.18 $3,881.99 $2,966.76 $3,425.61
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes.
19
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
For the Six Months Ended June 30 2004 and 2003
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
Futures Portfolio Fund, Limited Partnership (the Partnership)
is a Maryland limited partnership which operates as a
commodity investment pool. The Partnership utilizes
professional trading advisors to engage in the trading of
futures contracts, forward currency contracts and other
financial instruments.
B. Regulation
The Partnership is a registrant with the Securities and
Exchange Commission (SEC) pursuant to the Securities Exchange
Act of 1934 (the Act). As a registrant, the Partnership is
subject to the regulations of the SEC and the informational
requirements of the Act. As a commodity pool, the Partnership
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 where the Partnership executes
transactions. Additionally, the Partnership is subject to the
requirements of Futures Commission Merchants (brokers) and
interbank market makers through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in
accordance with accounting principles generally accepted in
the United States of America, which require the use of certain
estimates made by the Partnership's management. Gains or
losses are realized when contracts are liquidated. Unrealized
gains and losses on open contracts (the difference between
contract trade price and market price) are reported in the
statement of financial condition as a net gain or loss, as
there exists a right of offset of unrealized gains or losses
in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to
Certain Contracts." Any change in net unrealized gain or loss
from the preceding period is reported in the statement of
operations. United States government securities are stated at
cost plus accrued interest, which approximates market value.
For purposes of both financial reporting and calculation of
redemption value, net asset value per Class A or Class B unit
is calculated by dividing the net asset value of Class A or
Class B by the number of outstanding units of Class A or Class
B.
D. Brokerage Commissions
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
E. Income Taxes
The Partnership prepares calendar year U.S. and applicable
state information tax returns and reports to the partners
their allocable shares of the Partnership's income, expenses
and trading gains or losses.
20
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
F. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar;
however, it transacts business in currencies other than
the U.S. dollar. Assets and liabilities denominated in
currencies other than the U.S. dollar are translated into
U.S. dollars at the rates in effect at the date of the
statement of financial condition. Income and expense items
denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect during
the period. Gains and losses resulting from the translation
to U.S. dollars are reported in income currently.
G. Classes of Interests
The Partnership has two classes of limited partnership
interests ("Interests"), Class A and Class B. The General
Partner may offer additional classes at its discretion. Both
Class A and Class B Interests are traded pursuant to identical
trading programs and differ only in respect to the General
Partner's management fee and selling agents fee. Class B
Interests are issued only at the General Partner's discretion
and are intended for investors who are participating in fee
based investment advisory programs. All items of income or
loss, except for the General Partner management fee and
selling agents fee, are allocated pro rata between Class A and
Class B Interests. The General Partner management fee and
selling agents fee applicable to each class of Interest is
then charged to each class. All items of income or loss
allocated to each class of Interest is then allocated pro rata
to each Limited Partner within each class.
H. Reclassification
Certain amounts in the December 31, 2003 statement of
financial condition were reclassified to conform with the June
30, 2004 presentation.
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is Steben & Company, Inc.,
which conducts and manages the business of the Partnership. During
the three months and six months ended June 30, 2004 and 2003, the
General Partner did not maintain a capital balance in the
Partnership, however, the sole shareholder of the General Partner has
an investment in Class B Interests of the Partnership.
During the three months and six months ended June 30, 2004 and 2003,
the General Partner received the following compensation:
o Class A Interests paid a monthly management fee equal to
1/12 of 2% (2% per annum) of the net asset value of the
Class A Interests as of the last day of each month.
o Class A Interests paid a monthly selling agents fee equal to
1/12 of 2% (2% per annum) of the net asset value of the Class
A Interests as of the last day of each month. The General
Partner, in turn, pays substantially all of the selling agents
fee to the respective selling agent. If the General Partner
was the selling agent, the General Partner retains that
portion of the selling agents fee.
o Commencing May 1, 2003, Class B Interests paid a monthly
management fee equal to 1/12 of 1.95% (1.95% per annum) of
the net asset value of the Class B Interests as of the last
day of each month.
21
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
o Commencing May 1, 2003, Class B Interests paid a monthly
selling agents fee equal to 1/12 of .20% (.20% per annum) of
the net asset value of the Class B Interests as of the last
day of each month. The General Partner, in turn, pays
substantially all of the selling agents fee to the respective
selling agent. If the General Partner was the selling agent,
the General Partner retains that portion of the selling agents
fee.
o Prior to May 1, 2003, Class B Interests paid a monthly
management fee equal to 1/12 of 1.15% (1.15% per annum) of
the net asset value of the Class B Interests as of the last
day of each month.
o Prior to May 1, 2003, Class B Interests paid a monthly selling
agents fee equal to 1/12 of 1.00% (1.00% per annum) of the net
asset value of the Class B Interests as of the last day of
each month. The General Partner, in turn, pays substantially
all of the selling agents fee to the respective selling agent.
If the General Partner was the selling agent, the General
Partner retains that portion of the selling agents fee.
The General Partner also receives, at the time of subscription, a
subscription fee equal to 1% of the subscription amount. The General
Partner may reduce or waive this fee in its sole discretion.
Additions in the statement of changes in partners' capital (net asset
value) are reflected net of such subscription fee.
Pursuant to the terms of the Limited Partnership Agreement, the
General Partner receives 1% of any increase or decrease in the
Partnership's net assets. Such amount is reflected as the General
Partner 1% allocation in the statement of financial condition, the
statement of operations and the statement of cash flows.
Note 3. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has Advisory Agreements with three commodity trading
advisors, pursuant to which the Partnership pays each commodity
trading advisor a monthly management fee equal to 1/12 of 1% (1% per
annum) of the allocated net assets (as defined in each respective
Advisory Agreement) at the end of the month and a quarterly incentive
fee equal to 25% of Trading Profits (as defined in each respective
Advisory Agreement). In addition, the Partnership has an Advisory
Agreement with a fourth commodity trading advisor, pursuant to which
the Partnership pays the commodity trading advisor a monthly
management fee equal to 1/12 of 2% (2% per annum) of the account's
net assets (as defined in the Advisory Agreement) at the end of the
month and a quarterly incentive fee equal to 20% of Trading Profits
(as defined in the Advisory Agreement).
Note 4. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with brokers, subject to Commodity
Futures Trading Commission regulations and various exchange and
broker requirements. Margin requirements are satisfied by the deposit
of U.S. Treasury bills and cash with such brokers. The Partnership
earns interest income on its assets deposited with the brokers.
22
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 5. OPERATING EXPENSES
------------------
The Partnership is responsible for all of its operating expenses such
as legal, accounting, auditing, record keeping, administration,
computer, clerical expenses, printing and duplication expenses,
mailing expenses, costs of researching and performing due diligence
on advisors for the Partnership, etc. Pursuant to the terms of the
Limited Partnership Agreement, operating expenses that exceed 1% of
the average month-end net assets of the Partnership are the
responsibility of the General Partner.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. Units are sold at the
net asset value per Class A or Class B unit as of the close of
business on the last day of the month in which the subscription is
accepted. Prior to May 1, 2003, investors who subscribed through a
selling agent were subject to an up-front sales commission of up to
4% of the subscription amount. If the General Partner acted as the
selling agent, the General Partner was entitled to the up-front sales
commission, however, during 2003 the General Partner elected not to
charge such up-front sales commission to which it was entitled.
Additions in the statement of changes in partners' capital (net asset
value) are reflected net of such commissions to selling agents.
Investors whose subscriptions are accepted are admitted as Limited
Partners as of the beginning of the month following the month in
which their subscriptions were accepted. At June 30, 2004 and
December 31, 2003, the Partnership had received subscriptions of
$22,585,258 and $8,496,538, respectively, which will be additions to
the Partnership effective July 1, 2004 and January 1, 2004,
respectively.
The Partnership 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 Class A or Class B units owned,
subject to restrictions in the Limited Partnership Agreement.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts and forward currency contracts
(collectively, "derivatives"). 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.
Purchase and sale of futures contracts requires margin deposits with
the brokers. 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.
23
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
The Partnership trades forward currency contracts in unregulated
markets between principals and assumes the risk of loss from
counterparty nonperformance. Accordingly, the risks associated with
forward currency contracts are generally greater than those
associated with exchange traded contracts because of the greater risk
of counterparty default. Additionally, the trading of forward
currency contracts typically involves delayed cash settlement.
The Partnership has a substantial portion of its assets on deposit
with financial institutions in connection with its trading of forward
currency contracts and its cash management activities. In the event
of a financial institution's insolvency, recovery of Partnership
assets on deposit may be limited to account insurance or other
protection afforded such deposits.
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 notional contract value of futures and forward currency
contracts purchased and unlimited liability on such contracts sold
short.
The unrealized gain (loss) on open futures and forward currency
contracts is comprised of the following:
Futures Contracts Forward Currency Contracts
(exchange traded) (non-exchange traded)
June 30, December 31, June 30, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Gross unrealized gains $ 2,057,177 $ 8,128,348 $ 10,874,778 $ 1,129,789
Gross unrealized losses (3,830,545) (1,886,723) (12,329,995) (331,966)
-------------- -------------- ------------- ---------------
Net unrealized gain (loss) $ (1,773,368) $ 6,241,625 $ (1,455,217) $ 797,823
============= ============= ============= ==============
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. 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 8. INTERIM FINANCIAL STATEMENTS
----------------------------
The statement of financial condition as of June 30, 2004, including
the June 30, 2004 condensed schedule of investments, the statements
of operations for the three months and six months ended June 30, 2004
and 2003, and the statements of cash flows and changes in partners'
capital (Net Asset Value) for the six months ended June 30, 2004 and
2003 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 June 30, 2004, and the results of operations for the
three months and six months ended June 30, 2004 and 2003, and cash
flows for the six months ended June 30, 2004 and 2003.
24
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance
data and other supplemental financial data for the three months and
six months ended June 30, 2004 and 2003. This information has been
derived from information presented in the financial statements.
Three months ended June 30,
2004 2003
(Unaudited) (Unaudited)
Class A Class B Class A Class B
Interests Interests Interests Interests
--------- --------- --------- ---------
Per Unit Performance
(for a unit outstanding throughout the entire period)
----------------------------------------------------
Net asset value per unit at beginning of period $3,800.61 $4,492.74 $3,329.98 $3,862.79
--------- --------- --------- ---------
Income from operations:
Gain (loss) from trading (1) (506.77) (599.65) 58.88 71.51
Net investment (loss) (1) (37.95) (26.62) (57.68) (52.31)
------------ ------------ ------------ ------------
Total income (loss) from operations (544.72) (626.27) 1.20 19.20
------------ ----------- ------------- ------------
Net asset value per unit at end of period $3,255.89 $3,866.47 $3,331.18 $3,881.99
============ =========== ============= ============
Total Return (3) (14.33)% (13.94)% 0.04% 0.50%
============ =========== ============= =============
Supplemental Data
Ratios to average net asset value:
Expenses prior to advisor incentive fees (4) 5.26 % 3.54 % 5.62 % 3.80 %
Advisor incentive fees (3) 0.00 % 0.00 % 0.56 % 0.64 %
--------- --------- --------- ---------
Total expenses 5.26 % 3.54 % 6.18 % 4.44 %
========= ========= ========= =========
Net investment (loss) (2), (4) (4.27)% (2.54)% (4.54)% (2.71)%
========= ========= ========= =========
Total returns are calculated based on the change in value of a unit
during the period. An individual partner's total returns and ratios
may vary from the above total returns and ratios based on the timing
of additions and redemptions.
-------------------------------
(1) The net investment (loss) per unit is calculated by dividing the
net investment (loss) by the average number of units outstanding
during the period. Gain (loss) from trading is a balancing
amount necessary to reconcile the change in net asset value
per unit with the other per unit information.
(2) Excludes advisor incentive fees.
(3) Not annualized.
(4) Annualized.
25
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 9. FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------
Six months ended June 30,
2004 2003
(Unaudited) (Unaudited)
--------- ---------
Class A Class B Class A Class B
Interests Interests Interests Interests
--------- --------- --------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
---------------------------------------------------
Net asset value per unit at beginning of period $3,418.95 $4,022.67 $2,966.76 $3,425.61
--------- --------- --------- ---------
Income from operations:
Gain (loss) from trading (1) 43.53 54.77 507.93 638.00
Net investment (loss) (1) (206.59) (210.97) (143.51) (181.62)
----------- ----------- ----------- -----------
Total income (loss) from operations (163.06) (156.20) 364.42 456.38
----------- ----------- ----------- -----------
Net asset value per unit at end of period $3,255.89 $3,866.47 $3,331.18 $3,881.99
========= ========= ========= =========
Total Return (3) (4.77)% (3.88)% 12.28% 13.32%
========= ========= ======== ========
Supplemental Data
Ratios to average net asset value:
Expenses prior to advisor incentive fees (4) 5.80% 4.03% 5.84% 4.17%
Advisor incentive fees (3) 3.35% 3.47% 1.88% 3.14%
--------- --------- --------- ---------
Total expenses 9.15% 7.50% 7.72% 7.31%
========= ========= ========= =========
Net investment (loss) (2), (4) (4.90)% (3.12)% (4.74)% (3.07)%
========== ========= ========= =========
Total returns are calculated based on the change in value of a unit
during the period. An individual partner's total returns and ratios
may vary from the above total returns and ratios based on the timing
of additions and redemptions.
----------------------
(1) The net investment (loss) per unit is calculated by dividing the
net investment (loss) by the average number of units outstanding
during the period. Gain (loss) from trading is a balancing
amount necessary to reconcile the change in net asset value per
unit with the other per unit information.
(2) Excludes advisor incentive fees.
(3) Not annualized.
(4) Annualized.
26
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Futures Portfolio Fund (the "Fund") is a Maryland limited partnership, formed on
May 11, 1989, that utilizes professional trading advisors to engage in the
trading of commodity futures contracts, other commodity interests, options,
securities and forward contracts. The Fund began trading on January 2, 1990. The
Fund is an actively managed account with speculative trading profits as its
objective.
The Fund currently trades in the U.S. and international futures and forward
markets. Specifically, the Fund trades a portfolio focused on financial futures
and forwards, energy, stock indices, agricultural products and metals.
Gains or losses are realized when contracts are liquidated. Net unrealized gains
or losses on open contracts (the difference between contract price and market
price) are reflected in the statement of financial condition. Any change in net
unrealized gain or loss from the preceding period is reported in the statement
of operations. United States government securities are stated at cost plus
accrued interest, which approximates market value. For purposes of both
financial reporting and calculation of redemption value, Net Asset Value per
Unit is calculated by dividing Net Asset Value by the number of outstanding
Units.
As of June 30, 2004, the aggregate capitalization of the Fund was $164,099,914
of which $127,937,152 was in A units and $36,162,762 was in B units. A units and
B units differ only with regard to lower General Partner and Selling Agent fees
for the B units. The net asset value per unit of limited partnership interest
("Unit") for A units as of June 30, 2004 was $3,255.89 and for B units was
$3,866.47.
Critical Accounting Policies
The Fund's financial statements are presented in accordance with accounting
principles generally accepted in the United States of America, which require the
use of certain estimates made by management. Gains or losses are realized when
contracts are liquidated. Unrealized gains or losses on open contracts (the
difference between contract trade price and market price) are reported in the
statement of financial condition as a net gain or loss, as there exists a right
of offset of unrealized gains or losses in accordance with Financial Accounting
Standards Board Interpretation No. 39 -"Offsetting of Amounts Related to Certain
Contracts." The market value of futures (exchange-traded) contracts is
determined by the various futures exchanges, and reflects the settlement price
for each contract as of the close of the last business day of the reporting
period. Any change in net unrealized gain or loss from the preceding period is
reported in the statement of operations. United States government securities are
stated at cost plus accrued interest, which approximates market value.
For purposes of both financial reporting and calculation of redemption value,
net asset value per Class A or Class B unit is calculated by dividing the net
asset value of Class A or Class B by the number of outstanding units of Class A
or Class B.
27
Capital Resources
The Fund will raise additional capital only through the sale of Units offered
pursuant to the continuing offering, and does not intend to raise any capital
through borrowing. Due to the nature of the Fund's business, it will make no
capital expenditures and will have no capital assets, which are not operating
capital or assets.
Liquidity
Most United States commodity exchanges limit fluctuations in commodity futures
contracts 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. Commodity futures prices have occasionally
moved to the daily limit for several consecutive days with little or no trading.
Similar occurrences could prevent the Fund from promptly liquidating unfavorable
positions and subject the Fund to substantial losses which could exceed the
margin initially committed to such trades. In addition, even if commodity
futures prices have not moved the daily limit, the Fund 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 Fund's commodity futures trading operations, the Fund's assets are
expected to be highly liquid.
The entire offering proceeds, without deductions, will be credited to the Fund's
bank and brokerage accounts to engage in trading activities and as reserves for
that trading. The Fund meets its margin requirements by depositing U.S.
government securities with the futures broker and the over-the-counter
counterparties. In this way, substantially all of the Fund's assets, whether
used as margin for trading purposes or as reserves for such trading, can be
invested in U.S. government securities and time deposits with U.S. banks.
Investors should note that maintenance of the Fund's assets in U.S. government
securities and banks does not reduce the risk of loss from trading futures and
forward contracts. The Fund receives all interest earned on its assets. No other
person shall receive any interest or other economic benefits from the deposit of
Fund assets.
Approximately 10% to 30% of the Fund's assets normally are committed as required
margin for futures contracts and held by the futures broker, although the amount
committed may vary significantly. Such assets are maintained in the form of cash
or U.S. Treasury bills in segregated accounts with the futures broker pursuant
to the Commodity Exchange Act and regulations there under. Approximately 10% to
30% of the Fund's assets are deposited with over-the-counter counterparties in
order to initiate and maintain forward contracts. Such assets are not held in
segregation or otherwise regulated under the Commodity Exchange Act, unless such
over-the-counter counterparty is registered as a futures commission merchant.
These assets are held either in U.S. government securities or short-term time
deposits with U.S.-regulated bank affiliates of the over-the-counter
counterparties. The remaining 40% to 80% of the Fund's assets will normally be
invested in cash equivalents, such as U.S. Treasury bills, and held by the
futures broker or the over-the-counter counterparties.
The Fund's assets are not and will not be, directly or indirectly, commingled
with the property of any other person in violation of law or invested with or
loaned to Steben & Company or any affiliated entities.
28
Results of Operations
The total return for the six months ended June 30, 2004 was -4.77 % and -3.88%
for A units and B units, respectively. The total return for the six months ended
June 30, 2003 was 12.28 % and 13.32 % for A units and B units, respectively.
January 2004
Fund performance in January remained positive despite some late price reversals
in the US dollar and US interest rates sensitive markets. The Federal Open
Market Committee introduced some minor language changes to its policy statement,
suggesting to some that the Federal Reserve might be setting the stage to
increase short term rates. This caused the US dollar to rise sharply against
major foreign currencies and it caused prices on long term US interest rate
instruments to fall, reflecting a rise in long term rates. Overall, the fund
benefited from net profits in virtually all market sectors including foreign
currencies, equities, agricultural, energy and metals. Only the fund's long
positions in interest rate sensitive instruments, including the 30 year Treasury
bond and 10 year Treasury note, experienced a loss.
February 2004
In February the Fund benefited from gains across all market sectors including
interest rates, energy, energy, currencies, agricultural commodities, metals and
equities. The Fund's strongest returns came from long positions on interest rate
instruments as futures prices on several European and US medium term instruments
trended higher in anticipation of possible rate cuts in the euro zone. In the
energy sector, the Fund's long positions in crude oil continued to show profits.
The Organization of Petroleum Exporting Countries (OPEC) is maintaining tight
production controls in spite of strong demand, which is pushing oil prices close
to the highs observed just before the invasion of Iraq.
March 2004
Fund performance was virtually unchanged for the month of March with losses from
the energy and foreign currency markets edging out gains from metals, interest
rate instruments and agricultural commodities. The strongest returns came from
long positions in soybean futures as heavy demand from China continued to push
prices higher. Metals were profitable due to a continuing upward trend in
silver. The US dollar was mixed for the month with small gains against most of
the major currencies but losing ground to the Japanese yen. The overseas bombing
in Madrid along with lackluster US economic data, created additional volatility
in the energy markets that led to modest losses in the Fund's long positions.
April 2004
After showing positive returns for the first quarter, price trend reversals in
the fixed income, metals and currency markets produced losses for the Fund. The
energy market, which profited from long positions in both light crude and
unleaded gas, was the only positive performing sector in the month. Medium and
long-term interest rate instruments fell sharply after the release of U.S.
non-farm payroll numbers which supported growing sentiment that the US economy
was on a stronger footing. Reaction to the Federal Reserve's comments to
Congress and growing anticipation that the Fed will raise short-term interest
rates caused upward trends in metal prices to reverse. The U.S. dollar rallied
against major currencies energized by stronger U.S. economic reports which
created additional losses for the Fund.
May 2004
During May, many of the world's financial markets traded in a tight range as
market participants wrestled with the outlook for U.S. interest rates,
inflation, corporate earnings and events in the Middle East. Profits were
generated by the fund's long positions in the energy and agricultural sectors,
especially in
29
crude oil (which went to record highs), unleaded gas, heating oil and
soybeans. However, late month production announcements by the Saudi
government led to a brief reversal in oil futures prices and some pull back in
our energy related profits. Consequently, our profits in energy were
overshadowed by losses from foreign exchange positions, including the Australian
dollar and British pound after a mid-month reversal in the US dollar.
June 2004
June was a turbulent month for interest rate and energy markets. Prices for
short-term interest rate instruments and petroleum products reversed sharply
while long-term bonds and the US dollar continued to vacillate ahead of the
FOMC's decisions on interest rates. Choppy market conditions and extended
periods of price consolidation, such as those experienced over the past few
months, typically result in losses for trend following systems and June was no
exception. The largest realized losses for the fund were in light crude oil, the
Australian dollar and unleaded gas. The largest profits were in cotton, the
ten-year Japanese government bond and the Nikkei 225 Index.
Off-Balance Sheet Risk
The term "off-balance sheet risk" refers to an unrecorded potential liability
that, even though it does not appear on the balance sheet, may result in future
obligation or loss. The Fund trades in futures and forward contracts and is
therefore a party to financial instruments with elements of off-balance sheet
market and credit risk. In entering into these contracts there exists a risk to
the Fund, market risk, that such contracts may be significantly influenced by
market conditions, such as interest rate volatility, resulting in such contracts
being less valuable. If the markets should move against all of the futures
interests positions of the Fund at the same time, and if the commodity trading
advisors were unable to offset futures interests positions of the Fund, the Fund
could lose all of its assets and the Limited Partners would realize a 100% loss.
Steben & Company, the General Partner, minimizes market risk through
diversification of the portfolio allocations to multiple trading advisors, and
maintenance of a margin-to-equity ratio that rarely exceeds 30%.
In addition to market risk, in entering into futures and forward contracts there
is a credit risk that a counterparty will not be able to meet its obligations to
the Fund. The counterparty for futures contracts traded in the United States and
on most foreign exchanges is the clearinghouse associated with such exchange. In
general, clearinghouses are backed by the corporate members of the clearinghouse
who are required to share any financial burden resulting from the
non-performance by one of their members and, as such, should significantly
reduce this credit risk. In cases where the clearinghouse is not backed by the
clearing members, like some foreign exchanges, it is normally backed by a
consortium of banks or other financial institutions.
In the case of forward contracts, which are traded on the inter-bank market
rather than on exchanges, the counterparty is generally a single bank or other
financial institution, rather than a group of financial institutions; thus there
may be a greater counterparty credit risk. Steben & Company utilizes only those
counterparties that it believes to be creditworthy for the Fund. All positions
of the Fund are valued each day on a mark-to-market basis. There can be no
assurance that any clearing member, clearinghouse or other counterparty will be
able to meet its obligations to the Fund.
Disclosures about Certain Trading Activities that Include Non-exchange Traded
Contracts Accounted for at Fair Value
The Fund invests in futures and forward currency contracts. The market value of
futures (exchange-traded) contracts is determined by the various futures
exchanges, and reflects the settlement price for each contract as of the close
of the last business day of the reporting period. The market value of forward
(non-exchange traded) contracts is extrapolated on a forward basis from the spot
prices quoted as of 5:00 P.M. (E.T.) of the last business day of the reporting
period.
Item 3. Market Risk
Introduction
Past performance is not indicative of future results.
The Fund is a speculative commodity pool that utilizes professional trading
advisors with systematic, proprietary trading and risk management methods for
trading commodity futures contracts, other commodity interests, options,
securities and forward contracts. The market sensitive instruments held by it
are acquired for speculative trading purposes, and all or a substantial amount
of the Fund's assets are subject to the risk of trading loss. Unlike an
operating company, the risk of market sensitive instruments is integral, not
incidental, to the Fund's business.
Market movements result in frequent changes in the fair market value of the
Fund's open positions and consequently, in its earnings and cash flow. The
Fund's market risk is influenced by a wide variety of factors, including the
level and volatility of exchange rates, interest rates, equity price levels, the
market value of financial instruments and contracts, market prices for base and
precious metals, energy complexes and other commodities, the diversification
effects among the Fund's open positions and the liquidity of the markets in
which it trades.
The Fund rapidly acquires and liquidates both long and short positions in a wide
range of different markets. Consequently, it is not possible to predict how a
particular future market scenario will affect
30
performance. The Fund's current trading advisors all employ strategies that
rely on sustained movements in price. Erratic, choppy, sideways trading
markets and sharp reversals in movements can materially and adversely affect
the Fund's results. The Fund's past performance is not indicative of its
future results.
Value at risk is one measure of the maximum amount that a trading advisor
could reasonably be expected to lose in a given market sector in a given day.
These measures and calculations are performed by each trading advisor, are
proprietary in nature and vary between each of the Fund's trading advisors.
However, the inherent uncertainty of the Fund's speculative trading and the
recurrence in the markets traded by the Fund of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond
any calculated value at risk or the Fund's experience to date. In light of the
foregoing as well as the risks and uncertainties intrinsic to all future
projections, any qualification of risk should not be considered to constitute
any assurance or representation that the Fund's losses in any market sector
will be limited to value at risk or by the Fund's attempts to manage its
market risk. Materiality as used in this section, is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage and multiplier features of the
Fund's market sensitive instruments.
The following disclosures regarding the Fund's market risk exposures
contain forward-looking statements. All disclosures in this section are deemed
to be forward-looking statements, except for statements of historical fact and
descriptions of how the Fund manages its risk exposure. The Fund's primary
market risk exposures, as well as the strategies used and to be used by its
trading advisors for managing such exposures are subject to numerous
uncertainties, contingencies and risks which could cause the actual results of
the Fund's risk controls to differ materially from the objectives of such
strategies. Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new market participants,
increased regulation and many other factors could result in material losses as
well as in material changes to the risk exposures and the risk management
strategies of the Fund. The Fund's current market exposure and/or risk
management strategies may not be effective in either the short-or long-term and
may change materially. Therefore, you should be prepared to lose all or
substantially all of your investment in the Fund.
Trading Risk
The following were the primary trading risk exposures of the Fund as of
June 30, 2004, by market sector.
Interest Rates
Interest rate risk is the principal market exposure of the Fund.
Interest rate movements directly affect the price of the futures positions held
by the Fund and indirectly the value of its stock index and currency positions.
Interest rate movements in one country as well as relative interest rate
movements between countries materially impact the Fund's profitability. The
Fund's primary interest rate exposure is to interest rate fluctuations in the
United States and the other G-7 countries. However, the Fund also takes futures
positions on the government debt of smaller nations.
Currencies
Exchange rate risk is a significant market exposure of the Fund. The
Fund's currency exposure is to exchange rate fluctuations, primarily
fluctuations that disrupt the historical pricing relationships between
31
different currencies and currency pairs. These fluctuations are influenced by
interest rate changes as well as political and general economic conditions.
The Fund trades in a large number of currencies, including cross-rates, which
are positions between two currencies other than the U.S. dollar.
Energy
The Fund's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East. Oil
and gas prices can be volatile and substantial profits and losses have been and
are expected to continue to be experienced in this market.
Stock Indices
The Fund's primary equity exposure is to equity price risk in the G-7
countries as well as other countries. The stock index futures contracts traded
by the Fund currently are generally limited to futures on broadly based indices,
although the Fund may trade narrow-based stock index futures contracts in the
future. The Fund is primarily exposed to the risk of adverse price trends or
static markets in the major U.S., European and Japanese indices. Static markets
would not cause major market changes but would make it difficult for the Fund to
avoid being "whipsawed" into numerous small losses.
Metals
The Fund's metals market exposure is to fluctuations in the price of
both precious metals, including gold and silver, as well as base metals
including aluminum, copper, nickel and zinc.
Agricultural
The Fund's primary commodities exposure is to agricultural price
movements, which are often directly affected by severe or unexpected weather
conditions.
Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Fund as of
June 30, 2004.
Foreign Currency Balances
The Fund's primary foreign currency balances are in Japanese yen,
British pounds, Euros and Australian dollars. The advisors regularly convert
foreign currency balances to U.S. dollars in an attempt to control the Fund's
non-trading risk.
Cash Management
The Fund maintains a substantial portion of its available assets in
Treasury bills held at the clearing broker. Violent fluctuations in prevailing
interest rates could cause immaterial mark-to-market losses on the Fund's cash
management income, although substantially all of these short-term investments
are held to maturity.
Item 4: Controls and Procedures
Steben & Company, Inc., the General Partner of the Fund, with the participation
of the General Partner's Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-15(e) or 15d-15(e)) with respect to the Fund as of the end of the period
covered by this quarterly report. Based on their evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that these disclosure
controls and procedures are effective. There were no changes in the General
Partner's internal control over financial reporting applicable to the Fund
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter
that have materially affected, or is reasonably likely to materially affect,
internal control over financial reporting applicable to the Fund.
32
PART II-OTHER INFORMATION
Item 1: Legal Proceedings.
None
Item 2: Changes in Securities and Use of Proceeds
None
Item 3: Defaults Upon Senior Securities
Not applicable.
Item 4: Submissions of Matters to a vote of Security Holders.
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description:
Certification of Kenneth E. Steben, Chief Executive Officer, pursuant to Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934.
Certification of Michael D. Bulley, Chief Financial Officer, pursuant to Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934.
Certification of Kenneth E. Steben, Chief Executive Officer, pursuant to 18
U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of
2002.
Certification of Michael D. Bulley, Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of
2002.
(b) Reports.
None.
33
SIGNATURES
Pursuant to the requirements 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.
Futures Portfolio Fund Limited Partnership
(Registrant)
By: Steben & Company, Inc.
General Partner
Date: August 23, 2004 By: /s/ Michael D. Bulley
---------------------
Michael D. Bulley
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description of Document Page Number
31.01 Certification by Chief Executive Officer E2
31.02 Certification by Chief Financial Officer E4
32.01 Certification by Chief Executive Officer E6
32.02 Certification by Chief Financial Officer E7
E-1