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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 March 31, 2005
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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
Aggregate market value of the voting and non-voting common equity held by
non-affiliates: the registrant is a limited partnership; as of March 31, 2005,
61,132.7385 Class A units and 17,648.6196 Class B units with an aggregate
value of $ 199,106,970 and $ 69,198,501 respectively, were outstanding.
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Table of Contents
Part I: Financial Information
Item 1. Financial Statements
Statements of Financial Condition
March 31, 2005 (Unaudited) and December 31, 2004 (Audited)
Condensed Schedule of Investments
March 31, 2005 (Unaudited)
Condensed Schedule of Investments
December 31, 2004 (Audited)
Statements of Operations
For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
Statements of Changes in Partners' Capital (Net Asset Value) - For
the Three months Ended March 31, 2005 and 2004 (Unaudited)
Notes to Financial Statements for the Three Months Ended March 31,
2005 and 2004 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II: Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
i
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
March 31, 2005 (Unaudited) and December 31, 2004 (Audited)
---------------
March 31, December 31,
2005 2004
---- ----
ASSETS
Equity in broker trading accounts
Cash $236,217,590 $177,902,239
Interest receivable 610,606 0
United States government securities
(cost, including accrued interest, -
$0 and $35,992,200) 0 35,992,200
Unrealized gain on open contracts 8,733,062 8,261,541
--------------- ---------------
Deposits with brokers 245,561,258 222,155,980
Cash and cash equivalents 34,376,882 33,448,634
United States government agency securities
(cost, including accrued interest, -
$10,058,583 and $9,944,295) 10,058,583 9,944,295
Unrealized (loss) on open forward
currency contracts (1,558,263) (1,572,160)
General Partner 1% allocation 103,986 0
--------------- ---------------
Total assets $288,542,446 $263,976,749
=============== ===============
LIABILITIES
Accounts payable $ 489,360 $ 5,365
Commissions and other trading fees
on open contracts 94,285 90,930
General Partner management fee 433,894 425,845
General Partner 1% allocation 0 21,822
Advisor management fees 954,203 823,369
Advisor incentive fees 206,511 672,681
Selling agents fee 349,230 336,382
Redemptions payable 2,891,437 1,492,430
Subscriptions received in advance 14,818,055 5,306,668
--------------- ---------------
Total liabilities 20,236,975 9,175,492
--------------- ---------------
PARTNERS' CAPITAL (Net Asset Value)
Class A Interests - 61,132.7385 and 56,716.3746 units
outstanding at March 31, 2005 and December 31, 2004 199,106,970 194,513,666
Class B Interests - 17,648.6196 and 14,666.9737 units
outstanding at March 31, 2005 and December 31, 2004 69,198,501 60,287,591
--------------- ---------------
Total partners' capital
(Net Asset Value) 268,305,471 254,801,257
--------------- ---------------
$288,542,446 $263,976,749
=============== ===============
See accompanying notes.
-1-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
March 31, 2005
(Unaudited)
---------------
UNITED STATES GOVERNMENT AGENCY SECURITIES
- ------------------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- -------- ----------- ----- -----------
$10,215,000 09/23/05 Federal Home Loan Bank Discount
Note (cost, including accrued interest,
- $10,058,583) $10,058,583 3.75 %
=========== ===========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 1,787,323 0.66 %
Currency (291,805) (0.11)%
Energy 2,416,428 0.90 %
Interest rate 2,809,884 1.05 %
Metal 1,616,399 0.60 %
Stock index (948,365) (0.35)%
------------ ----------
Total long futures contracts $ 7,389,864 2.75 %
============ ==========
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 7,235 0.00 %
Currency 237,238 0.09 %
Energy (126,680) (0.05)%
Interest rate 1,536,574 0.57 %
Metal (306,196) (0.11)%
Stock Index (4,973) 0.00 %
------------ ----------
Total short futures contracts $ 1,343,198 0.50 %
------------ ----------
Total futures contracts $ 8,733,062 3.25 %
============ ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $(6,726,062) (2.51)%
Short forward currency contracts 5,167,799 1.93 %
------------ ----------
Total forward currency contracts $(1,558,263) (0.58)%
============ ==========
See accompanying notes.
-2-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2004
(Audited)
---------------
UNITED STATES GOVERNMENT AND AGENCY SECURITIES
- ----------------------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- -------- ----------- ----- -----------
$10,000,000 03/22/05 Federal Home Loan Mortgage Corporation
Discount Note $ 9,944,295 3.90 %
36,000,000 01/06/05 U.S. Treasury Bill 35,992,200 14.13 %
------------ -----------
Total United States government and agency securities
(cost, including accrued interest, - $45,936,495) $45,936,495 18.03 %
============ ===========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 961,451 0.38 %
Currency 1,754,893 0.69 %
Energy (198,627) (0.08)%
Interest rate 1,715,930 0.67 %
Metal 2,491,362 0.98 %
Stock index 2,189,269 0.86 %
------------ -----------
Total long futures contracts $ 8,914,278 3.50 %
------------ -----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (51,895) (0.02)%
Energy 775,428 0.30 %
Interest rate 394,937 0.16 %
Metal (1,771,207) (0.70)%
------------ -----------
Total short futures contracts $ (652,737) (0.26)%
------------ -----------
Total futures contracts $ 8,261,541 3.24 %
============ ===========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 8,968,638 3.52 %
Short forward currency contracts (10,540,798) (4.14)%
------------ -----------
Total forward currency contracts $ (1,572,160) (0.62)%
============ ===========
See accompanying notes.
-3-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
---------------
2005 2004
---- ----
TRADING GAINS (LOSSES)
Gain (loss) from trading
Realized $(10,537,483) $ 17,180,331
Change in unrealized 485,418 (290,501)
Brokerage commissions (430,194) (205,624)
--------------- ---------------
Gain (loss) from trading (10,482,259) 16,684,206
--------------- ---------------
NET INVESTMENT (LOSS)
Income
Interest income 1,994,049 195,589
--------------- ---------------
Expenses
General Partner management fee 1,244,668 503,099
General Partner 1% allocation (125,809) 111,608
Advisor management fees 1,081,914 309,649
Advisor incentive fees 206,630 4,283,609
Selling agents fee 1,001,469 420,708
Operating expenses 980,345 201,901
--------------- ---------------
Total expenses 4,389,217 5,830,574
Operating expenses waived (422,368) 0
--------------- ---------------
Net total expenses 3,966,849 5,830,574
--------------- ---------------
Net investment (loss) (1,972,800) (5,634,985)
--------------- ---------------
NET INCOME (LOSS) $(12,455,059) $ 11,049,221
=============== ===============
2005 2004
------------------ -------------------
Class A Class B Class A Class B
NET INCOME (LOSS) PER UNIT
(based on weighted average number of
units outstanding during the period) $(163.31) $(163.76) $ 390.97 $ 474.52
======== ======== ======== ========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $(172.63) $(189.53) $ 381.66 $ 470.07
======== ======== ======== ========
See accompanying notes.
-4-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
---------------
2005 2004
---- ----
Cash flows from (for) operating activities
Net income (loss) $ (12,455,059) $ 11,049,221
Adjustments to reconcile net income (loss) to net
cash from operating activities
Net change in unrealized (485,418) 290,501
(Increase) in interest receivable (610,606) 0
(Increase) in General Partner 1% allocation receivable (103,986) 0
Increase in accounts payable and
accrued expenses 151,089 3,202,869
Net proceeds from investments in United States
government and agency securities 35,877,912 15,482,673
-------------- --------------
Net cash from operating activities 22,373,932 30,025,264
-------------- --------------
Cash flows from (for) financing activities
Addition of units 27,226,543 15,857,173
Subscriptions received in advance 14,792,692 26,421,993
Redemption of units (5,149,568) (860,471)
-------------- --------------
Net cash from financing activities 36,869,667 41,418,695
-------------- --------------
Net increase in cash and cash equivalents 59,243,599 71,443,959
Cash and cash equivalents
Beginning of period 211,350,873 25,353,097
-------------- --------------
End of period $ 270,594,472 $ 96,797,056
============== ==============
End of period cash and cash equivalents consists of:
Cash in broker trading accounts $ 236,217,590 $ 53,524,306
Cash and cash equivalents 34,376,882 43,272,750
-------------- --------------
Total end of period cash and cash equivalents $ 270,594,472 $ 96,797,056
============== ==============
See accompanying notes.
-5-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
---------------
Class A Interests Class B Interests
----------------------------- -----------------------------
Units Value Units Value Total
------------ ------------ ------------ ------------- ------------
Three Months Ended March 31, 2005
- ---------------------------------
Balances at
December 31, 2004 56,716.3746 $194,513,666 14,666.9737 $ 60,287,591 $254,801,257
Net (loss) for the three months
ended March 31, 2005 (9,791,682) (2,663,377) (12,455,059)
Additions 6,154.3629 20,004,703 3,228.3613 12,528,508 32,533,211
Redemptions (1,700.2618) (5,498,475) (271.5557) (1,050,100) (6,548,575)
Transfers (37.7372) (121,242) 24.8403 95,879 (25,363)
------------ ------------ ------------ ------------- ------------
Balances at
March 31, 2005 61,132.7385 $199,106,970 17,648.6196 $ 69,198,501 $268,305,471
============ ============ ============ ============= ============
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
============ ============ ============ ============= ============
Net Asset Value Per Unit
-------------------------------------------------------------------------------------------------------------
March 31, 2005 December 31, 2004 March 31, 2004 December 31, 2003
-------------- ----------------- -------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
$3,256.96 $3,920.90 $3,429.59 $4,110.43 $3,800.61 $4,492.74 $3,418.95 $4,022.67
========= ========= ========= ========= ========= ========= ========= =========
See accompanying notes.
-6-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(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 and agency 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. Cash and Cash Equivalents
Cash and cash equivalents includes cash and an investment in
a money market mutual fund.
E. Brokerage Commissions
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
-7-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
F. 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.
G. 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.
H. 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 generally 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.
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, 2005 and 2004, 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.
-8-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
During the three months ended March 31, 2005 and 2004, the General
Partner received the following compensation:
o Commencing December 1, 2004, Class A 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 A Interests as of
the last day of each month.
o For the period January 1, 2003 through November 30, 2004,
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 the selling agents fee to the
respective selling agent. If the selling agents fee is not
paid to the selling agent, or the General Partner was the
selling agent, such portion of the selling agents fee is
retained by the General Partner.
o 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.
o 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 the selling agents fee to the
respective selling agent. If the selling agents fee is not
paid to the selling agent, or the General Partner was the
selling agent, such portion of the selling agent fee is
retained by the General Partner.
For the period January 1, 2003 through November 30, 2004, the
General Partner also received, at the time of subscription, a
subscription fee equal to 1% of the subscription amount. The
General Partner could reduce or waive this fee in its sole
discretion. Additions in the statements of changes in partners'
capital (net asset value) are reflected net of such subscription
fee. Effective December 1, 2004, the General Partner no longer
charges a 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
statement of operations.
Note 3. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has Advisory Agreements with various commodity
trading advisors, pursuant to which the Partnership pays each
commodity trading advisor a monthly or quarterly management fee
equal to 1% or 2% per annum of allocated net assets (as separately
defined in each respective Advisory Agreement) and a quarterly
incentive fee equal to 20% or 25% of Trading Profits (as separately
defined in each respective Advisory Agreement).
-9-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
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.
Note 5. OPERATING EXPENSES
------------------
The Partnership is responsible for all of its operating expenses
such as accounting, audit, legal, administrative, marketing and
offering expenses, etc. Operating expenses also include salary and
administrative costs incurred by the General Partner relating to
marketing and administration of the Partnership, such as salaries
and commissions of General Partner marketing personnel and
administrative employee salaries and related costs. 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. For the three months
ended March 31, 2005 and 2004, actual operating expenses exceeded
0.25% (pro rated operating expense limitation) of average month-end
net assets of the Partnership by $344,719 and $0, respectively,
with such amounts reflected as operating expenses waived in the
statement of operations. Additionally, during the three months
ended March 31, 2005 and 2004, the General Partner voluntarily paid
$77,649 and $0, respectively, of operating expenses of the
Partnership, with such amounts also reflected as operating expenses
waived in the statement of operations. For the three months ended
March 31, 2005 and 2004, operating expenses, net of waived
operating expenses, were 0.22% and 0.20%, respectively, of the
average month-end net assets.
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. 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, 2005
and December 31, 2004, the Partnership had received subscriptions
of $14,818,055 and $5,306,668, respectively, which were additions
to the Partnership effective April 1, 2005 and January 1, 2005,
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.
-10-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
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.
The Partnership has a substantial portion of its assets on deposit
with interbank market makers and other financial institutions in
connection with its trading of forward currency contracts and its
cash management activities. In the event of an interbank market
maker's or 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,
2005 2004 2005 2004
---- ---- ---- ----
Gross unrealized gains $ 11,860,155 $ 11,621,802 $ 8,705,471 $ 11,813,827
Gross unrealized losses (3,127,093) (3,360,261) (10,263,734) (13,385,987)
------------- ------------- ------------- -------------
Net unrealized gain (loss) $ 8,733,062 $ 8,261,541 $ (1,558,263) $ (1,572,160)
============= ============= ============= =============
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.
-11-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
Note 8. GUARANTEES
----------
In the normal course of business, the Partnership enters into
contracts and agreements that contain a variety of representations
and warranties and which provide general indemnifications. The
Partnership's maximum exposure under these arrangements is unknown,
as this would involve future claims that may be made against the
Partnership that have not yet occurred. The Partnership expects the
risk of any future obligation under these indemnifications to be
remote.
Note 9. INTERIM FINANCIAL STATEMENTS
----------------------------
The statement of financial condition, including the condensed
schedule of investments, as of March 31, 2005, and the statements
of operations, cash flows and changes in partners' capital (net
asset value) for the three months ended March 31, 2005 and 2004 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, 2005, and the results of operations, cash flows and
changes in partners' capital (net asset value) for the three months
ended March 31, 2005 and 2004.
-12-
FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
---------------
Note 10. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance
data and other supplemental financial data for the three months
ended March 31, 2005 and 2004. This information has been derived
from information presented in the financial statements.
Three months ended March 31,
2005 2004
(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 $3,429.59 $4,110.43 $3,418.95 $4,022.67
--------- --------- --------- ---------
Income from operations:
Gain (loss) from trading/(1)/ (144.34) (172.54) 587.49 689.21
Net investment (loss)/(1)/ (28.29) (16.99) (205.83) (219.14)
--------- --------- --------- ---------
Total income (loss) from operations (172.63) (189.53) 381.66 470.07
--------- --------- --------- ---------
Net asset value per unit at end of period $3,256.96 $3,920.90 $3,800.61 $4,492.74
========= ========= ========= =========
Total Return/(3)/ (5.03)% (4.61)% 11.16 % 11.69 %
========= ========= ========= =========
Supplemental Data
Ratios to average net asset value:
Expenses prior to advisor incentive fees/(4), (6)/ 6.20 % 4.47 % 6.64 % 4.73 %
Advisor incentive fees/(3)/ 0.08 % 0.08 % 4.29 % 4.22 %
--------- --------- --------- ---------
Total expenses/(6)/ 6.28 % 4.55 % 10.93 % 8.95 %
========= ========= ========= =========
Net investment (loss)/(2), (4), (5), (6)/ (3.14)% (1.40)% (5.86)% (3.95)%
========= ========= ========= =========
Total returns are calculated based on the change in value of a
Class A or Class B 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 Class A
or Class B 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. Such balancing amount may differ from the
calculation of gain (loss) from trading per unit due to the
timing of trading gains and losses during the year relative
to the number of units outstanding.
(2) Excludes advisor incentive fees.
(3) Not annualized.
(4) Annualized.
(5) The net investment (loss) includes interest income and
excludes gain (loss) from trading activities as shown on the
statement of operations. The total amount is then reduced by
all expenses other than advisor incentive fees. The
resulting amount is divided by the average net asset value
for the period.
(6) All of the ratios under the supplemental data are computed
net of voluntary and involuntary waivers of operating
expenses. For the three months ended March 31, 2005 and
2004, the ratios are net of the 0.03% and 0.00% effect of
the voluntary waiver of operating expenses, respectively.
Both the nature and the amounts of the waivers are more
fully explained in Note 5.
-13-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Reference is made to Item 1, "Financial Statements," the information contained
therein is essential to, and should be read in connection with the following
analysis.
Introduction
Futures Portfolio Fund Limited Partnership (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 futures and
forward contracts in currencies, interest rate instruments, 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 March 31, 2005 the aggregate capitalization of the Fund was $268,305,471
of which $199,106,970 was in A units and $69,198,501 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 March 31, 2005 was $3,256.96 and for B
units was $3,920.90.
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.
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.
-14-
Off-Balance Sheet Arrangements
The term "off-balance sheet arrangements" 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
interest 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 interbank 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.
Contractual Obligations
The Fund does not have any contractual obligations of the type contemplated by
Regulation S-K 303(a)(5). The Fund's sole business is trading futures and
forward currency contracts, both long (contracts to buy) and short (contracts
to sell).
Liquidity
Most United States commodity exchanges limit fluctuations in 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. Futures prices have occasionally moved
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
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 futures trading operations, the Fund's assets are expected to be
highly liquid. Redemptions may be made by a Limited Partner as of the last
trading day of any month at the Net Asset Value of the redeemed Units (or
portion thereof) on that date, on 15 days prior written notice to the General
Partner. Partial redemptions must be for at least $1,000, unless such
requirement is waived by the General Partner. In addition, the Limited
Partner, if making a partial redemption, must maintain at least
-15-
$10,000 or his original investment amount, whichever is less, in the Fund
unless such requirement is waived by the General Partner.
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.
Results of Operations
2005
The total return for the three months ended March 31, 2005 was -5.03% and
- -4.61% for A units and B units, respectively. The total return for the three
months ended March 31, 2004 was 11.16% and 11.69% for A units and B units,
respectively.
January 2005
- ------------
A Units of the Fund were down 6.62% for the month of January 2005 and B Units
were down 6.48%. A strong, abrupt rally in the U.S. dollar along with a
sell-off in metals and equity indices resulted in significant losses for the
Fund in January. The dollar's reversal strengthened after official minutes
from the Fed's December policy meeting were released early in the month. The
minutes revealed that several key members were far more concerned about
inflationary pressures than was previously known, which suggested to some that
the Fed could become more aggressive with its short term rate hikes. The
currency markets reacted sending the dollar sharply higher against major
foreign currencies, including the euro, yen and British pound. In the metals
sector, aluminum and copper price trends also reversed sharply as demand for
raw materials continued to decline, in part due to China's softening economy.
The Fund did earn some profits this month from its positions in the interest
rate sector, including gains from short-term and long-term bond instruments.
February 2005
- ------------
A Units of the Fund were up .39% for the month of February 2005 and B Units
were up .54%. The Fund finished flat this month with profits from energy,
equity indices, agricultural commodities and metals edging out losses from
long term interest rate instruments. Profits in energy resulted from the
Fund's long positions in crude oil, gas and heating oil where renewed trends
pushed crude oil prices past $50/barrel for the first time since November.
Equity prices trended
-16-
higher across many international exchanges benefiting the Fund's long
positions in indices. Tightening coffee supplies led coffee prices to a near
five year high, which also generated profits. However, while the Fund's long
positions in medium to long term interest rate instruments have generated
steady profits in recent months, yields began reversing this month, generating
losses in several contracts including the 10 year T-Note, Japanese government
bond, long gilt and euro bund.
March 2005
- ----------
A Units of the Fund were up 1.30% for the month of March 2005 and B Units were
up 1.45%. Gains from the energy, interest rate and metals sectors offset
losses from the Fund's positions in foreign currencies and equity indices.
Futures prices in heating oil, unleaded gas and crude oil continued their
upward trends this month, benefiting the Fund's long positions. Analysts
suggested the rally was a continuation of bullish momentum supported by strong
demand and tight supply in gasoline and crude oil ahead of the high-demand
summer season. Concerns that rising energy costs might slow industrial growth
weakened international equity prices and pushed European bond prices higher.
This benefited Fund's positions in long term interest rate instruments but
hurt the Fund's long positions in equity indices. Renewed concerns over
inflation coupled with an expected short term rate hike by the Federal
Reserve, fueled a rally in the U.S. dollar that hurt some of the Fund's
positions in foreign currencies. Profits from agricultural commodities and
base metals including aluminum and copper, helped to end the month with
positive returns.
2004
The returns for A units for the years ended December 31, 2004, 2003 and 2002
were .31%, 15.24% and 19.59% respectively. The returns for B units for the
years ended December 31, 2004, 2003 and 2002 were 2.18 %, 17.43 % and 21.86 %,
respectively. Further analysis of the trading gains and losses is provided
below.
A Units of the Fund were up 1.97% for the month of January 2004 and B Units
were up 2.13%. Fund performance in January was positive despite some late
price reversals in the U.S. dollar and U.S. interest rate 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 U.S. dollar to
rise sharply against major foreign currencies and it caused prices on long
term U.S. interest rate instruments to fall, reflecting a rise in long term
interest 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.
A Units of the Fund were up 9.03% for the month of February 2004 and B Units
were up 9.21%. The Fund benefited from gains across all market sectors in
February including interest rates, 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 U.S. 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 profit. The Organization of Petroleum Exporting
Countries (OPEC) maintained tight production controls in spite of strong
demand, which pushed oil prices close to the highs observed before the
invasion of Iraq.
A Units of the Fund were down 0.02% for the month of March 2004 and B Units
were up .13%. Fund performance was virtually flat for the month 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 U.S. dollar was
-17-
mixed for the month with small gains against most of the major currencies but
losing ground to the Japanese yen. An overseas bombing in Madrid along with
lackluster U.S. economic data, created additional volatility in the energy
markets that led to modest losses in the Fund's long positions.
A Units of the Fund were down 8.49% for the month of April 2004 and B Units
were down 8.35%. After showing positive returns for the first quarter, price
trend reversals in the fixed income, metals and currency markets produced
losses for the Fund during the month. The energy market, which profited from
long positions in both light crude and unleaded gas, was the only positive
performing sector in April. 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 U.S. 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.
A Units of the Fund were down 1.01% for the month of May 2004 and B Units were
down 0.86%. 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 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. A mid-month reversal in the direction of
the U.S. dollar resulted in our profits in energy being overshadowed by losses
from foreign exchange positions, including the Australian dollar and British
pound.
A Units of the Fund were down 5.42% for the month of June 2004 and B Units
were down 5.28%. June was a turbulent month for interest rate and energy
markets. Prices for short-term interest-rate instruments and petroleum
products reversed sharply this month while long-term bonds and the U.S. dollar
continued to vacillate ahead of the FOMC's decision 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.
A Units of the Fund were down 1.50% for the month of July 2004 and B Units
were down 1.35%. Interest rates, currencies and global equity indices drifted
without significant trends in July leading to a loss in the Fund for the
month. Although upbeat comments from the Federal Reserve temporarily pushed
interest rates and the U.S. dollar higher, the same markets reversed following
a weaker than expected durable goods report. Precious metals also experienced
intra-month reversals. Energy and agricultural markets were profitable
however, which partially offset the losses from the other sectors. Oil and
gasoline prices continued to rise to historical highs on supply concerns from
Russian based Yukos Oil. The Fund's short positions in cotton and corn
contracts also produced profits.
A Units of the Fund were down 2.42% for the month of August 2004 and B Units
were down 2.27% for the month. In August, several market sectors continued to
drift without major trends. The U.S. dollar
-18-
whipsawed in reaction to news events, including economic reports that failed
to provide any clear direction for the U.S. economy. Oil prices declined
sharply from all time highs late in the month resulting in losses from the
Fund's long positions in crude oil. Profits from short positions in natural
gas however helped to stem the loss in the energy sector. Sugar and cotton
prices reversed this month resulting in losses from the agricultural sector.
The Fund continued to profit from its long positions in interest rate
instruments, partially offsetting the losses in the other sectors.
A Units of the Fund were up 0.05% for the month of September 2004 and B Units
were up 0.21% for the month. The Fund finished virtually unchanged for the
month despite solid gains in the energy and agricultural commodity sectors.
Prices across the energy sector trended higher as concerns about oil supply in
the wake of hurricane Ivan and possible production disruptions in Russia,
Nigeria and Iraq pushed crude oil prices to record highs. However, losses from
interest rate instruments offset most of the energy profits after bond prices
reversed in reaction to comments and actions by the Federal Reserve. Losses
also came from equity indices on fears that higher fuel costs might begin to
impact corporate earnings and hurt economic growth.
A Units of the Fund were up 5.39% for the month of October 2004 and B Units
were up 5.55%. The Fund profited from solid trends across multiple market
sectors including energy, foreign currency and fixed income. Worries over
world oil supplies pushed energy prices higher including crude oil, which
posted another record high. Rising energy prices and a report on the growing
U.S. trade deficit indicated to the financial markets a possible slowdown in
the U.S. economy. As a result bond prices moved higher and the U.S. dollar
declined which benefited the Fund's positions in those sectors. The Fund
experienced some losses in metals as copper and nickel prices reversed their
strong upward trend in reaction to speculation that China's economy was
cooling and that Chinese imports were declining.
A Units of the Fund were up 4.54% for the month of November 2004 and B Units
were up 4.70%. In November the Fund profited from trends in most market
sectors including foreign exchange, metals, interest rate instruments and
equity indices. Long positions in foreign exchange contracts generated the
Fund's strongest gains as the U.S. dollar continued to decline against most
major foreign currencies. The weakness in the dollar also led to higher prices
in precious metals which benefited the Fund's long positions in gold and
silver. Long positions in long term interest rate instruments including the
Euro Bund and British Long Gilt were also profitable. The Fund's losing
positions included natural gas and heating oil.
A Units of the Fund were down 0.58% for the month of December 2004, ending the
year up 0.31%. B Units were down 0.43% for the month and up 2.18% for the
year. Performance was mixed in December with losses from the metals, energy
and currency sectors edging out profits from equity, interest rate and
agricultural market contracts. Global stock indices and bond markets finished
the month higher, generating profits for the Fund's long positions in those
markets. The Fund lost ground on its long positions in precious metals after
gold and silver contracts fell sharply in response to a rebound in the U.S.
dollar. In addition, the energy sector went through volatile periods after the
release of several inventory announcements, which led to significant
whipsawing in those markets. For the year the Fund's strong fourth quarter
performance offset the mid-year drawdown leaving the Fund positive for 2004.
-19-
2003
A Units of the Fund were up 11.19% for the month of January 2003 and B Units
were up 11.37%. The trends that created opportunity for the Fund in 2002
continued into January 2003. Profits were earned in every sector other than
stock indices. However, the environment was one where the prospect of war with
Iraq significantly affected the Fund's whole portfolio.
A Units of the Fund were up 8.12% for the month of February 2003 and B Units
were up 8.28%. The Fund was positive again in February with metals being the
only negative sector. Strong momentum in energy, fixed income, currencies and
stock indices continued, largely as a result of the troubled global
geopolitical outlook.
A Units of the Fund were down 6.63% for the month of March 2003 but up 12.25%
for the quarter. B Units were down 6.49% for the month but up 12.77% for the
quarter. A market reversal occurred in March. Initially energy, precious
metals and fixed income markets all sold off sharply, while equities and the
U.S. dollar rallied. Several days into this correction, these markets all sold
off suddenly, as anticipation of a quick resolution in Iraq subsided. Although
the Fund sustained losses, they were relatively modest, giving the Fund a
positive first quarter.
A Units of the Fund were up 1.23% for the month of April 2003 and B Units were
up 1.39%. In April many markets had calmed significantly at this time, but
uncertainty was still prevalent in global markets due to the many unresolved
geopolitical issues. A strong performance in the currencies sector was
partially offset by negative performances in the metals, stock index and
agricultural sectors.
A Units of the Fund were up 3.64% for the month of May 2003 and B Units were
up 3.80%. In May, the uncertainty that remained in April dominated the markets
the Fund trades and led to another positive month. While corporate earnings
looked stronger, unemployment, overcapacity and the ongoing threat of
terrorism still loomed large over the global financial markets. The U.S.
dollar weakened further against the other major currencies despite the concern
expressed by the United States' trade partners over the impact this would have
on global trade. Interest rates were the best performing sector for the Fund
particularly at the long end of the yield curve, where higher prices reflected
lower rates. Currency cross rates were also positive, while losses in the
energy, stock index, agricultural and currency sectors offset some of those
gains.
A Units of the Fund were down 4.65% for the month of June 2003 but relatively
flat at +.04% for the quarter. B Units were down 4.51% for the month but up
..50% for the second quarter. With a negative result for June, the Fund
finished the first half of 2003 with solid returns. Profits for the month were
earned in the currency sector while long-term interest rates lost value as
yield curves steepened, particularly the Japanese government bond. Short-term
interest rates and stock index sectors contributed modest gains for the month,
while the energy, metals, agricultural and currency cross-rates contributed
small losses.
A Units of the Fund were down 5.63% for the month of July 2003 and B Units
were down 5.49%. July performance was down as the largest positions suffered
significant reversals. Currencies and cross rates were the poorest performers
as the U.S. dollar rallied strongly. The surprisingly sharp sell-off in long
term bonds also resulted in losses, but short term interest rates were only
slightly negative. Equity indices produced the best sector performance in
July, reflecting growing investor confidence in the economic recovery and the
potential for improved growth. Despite July's reversal, returns remain
positive for the year, and have kept pace with the major equity indices other
than the NASDAQ.
-20-
A Units of the Fund were up 1.94% for the month of August 2003 and B Units
were up 2.14% for the month. Performance rebounded in August despite a
tumultuous market environment. Trading volumes are typically thin in August
because of summer vacations in Europe and North America. This loss of
liquidity tends to exaggerate price action and volatility, and often provides
good trading opportunities. Stock indices were the best performer of the month
as the equity markets posted their sixth straight month of gains. Much of this
can be attributed to improving consumer confidence and higher disposable
income arising from the federal tax cuts. Sharply increased defense spending
is also stimulating economic growth. The energy sector contributed solid
positive returns as crude oil remained above the thirty dollar level on
continuing supply concerns. Industrial and precious metals trading results
were relatively flat.
A Units of the Fund were down 1.26% for the month of September 2003 and down
5.01% for the quarter. B Units were down 1.11% for the month and 4.54% for the
third quarter. The currency sector was the star performer again in September,
as short dollar positions benefited from continued weakness in the U.S.
dollar. After showing positive returns for most of the month, sudden reversals
in the fixed income, equity and energy markets put the Fund into negative
territory late in the month. The energy sector rallied sharply as OPEC
surprised the markets with unexpected production cuts. Equity indices were
lower following poor consumer confidence numbers. The safe haven of government
bonds lured investors away from equities and back into the treasury sector,
resulting in a fall in the higher yields seen in August.
A Units of the Fund were up 3.71% for the month of October 2003 and B Units
were up 3.87%. The continued but orderly decline of the U.S. dollar against
the other major currencies provided good trending opportunities during
October, but an unexpectedly sharp decline in the Yen at the end of the month
took some of the shine off what could have been a really strong month. On the
negative side, currency cross rates, interest rates and energies all resulted
in losses. The energy markets were particularly volatile, with natural gas
prices whipsawing on shifting weather predictions, while crude oil declined
sharply from the high end of its recent trading range. A surprise in third
quarter GDP lent strong upward momentum to U.S. equities, while an improvement
in M&A and IPO activity provided additional positive news for potential
recovery. On the negative side, consumer spending opinions remain mixed, while
concerns persist about a weak labor market ahead of the U.S. employment
numbers in November.
A Units of the Fund were down 1.30% for the month of November 2003 and B Units
were down 1.15%. Although there were good profits in November with currencies
and stock indices they were offset by losses in energy and interest rates. As
global equity prices continued to strengthen, the U.S. dollar weakened,
reaching 10 and 5 year lows against the Canadian dollar and Sterling
respectively, while the Euro made an all time high late in the month. There is
growing concern over Japan and China's stubborn resistance to market pressures
that want their currencies to strengthen, while in the U.S., the combination
of a potentially strong recovery and continuing low short-term interest rates
are raising inflationary concerns. Despite recent strength in U.S. equity
prices, this could ultimately discourage the buying of U.S. equities,
particularly from the Euro-zone.
A Units of the Fund were up 5.56% for the month of December, 8.05% for the
quarter and 15.24% for 2003. B Units were up 5.72% for the month, 8.55% for
the fourth quarter and 17.43% for 2003. There was a strong finish to an
interesting year in which the simultaneous fall in the U.S. dollar and the
rise in U.S. equity prices surprised many traders and analysts. A substantial
portion of the Fund's first quarter gains were generated from the market
response to concerns about the impending war with Iraq, but an initial calming
in the second quarter ended with one of the most dramatic drops in the prices
of U.S. Treasuries in 20 years, wiping out almost all of our gains in the
interest rates sector. In the second half of
-21-
2003, profits were derived primarily from short positions in the U.S. dollar
and long positions in global equity indices. These positions were also
responsible for most of the gains for the full year.
Past Performance is Not Indicative of Future Results.
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. Quantitative and Qualitative Disclosures About Market Risk
The Fund is a speculative commodity pool. 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 main line of 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, the
diversification effects among the Fund's open positions and the liquidity of
the markets in which it trades.
The Fund 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 performance, and the Fund's past
performance is not indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could
reasonably be expected to lose in a given market sector. 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 the indicated
Value at Risk or the Fund's experience to date (i.e., "risk of ruin"). Risk of
ruin is defined to be no more than a 5% chance of losing 20% or more on a
monthly basis. In light of the foregoing as well as the risks and
uncertainties intrinsic to all future projections, the inclusion of the
quantification included in this section 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.
Standard of Materiality
Materiality as used in this section, "Quantitative and Qualitative Disclosures
About Market Risk," 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.
-22-
Quantifying the Fund's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor, except for
statements of historical fact (such as the dollar amount of maintenance margin
required for market risk sensitive instruments held at the end of the
reporting period).
The Fund's risk exposure in the various market sectors traded by the
Fund's Trading Advisors is quantified below in terms of Value at Risk. Due to
mark-to-market accounting, any loss in the fair value of the Fund's open
positions is directly reflected in the Fund's earnings (realized or
unrealized).
Exchange maintenance margin requirements have been used by the Fund as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95% - 99% of any one-day
interval. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
Maintenance margin has been used rather than the more generally available
initial margin, because initial margin includes a credit risk component which
is not relevant to Value at Risk.
In the case of market sensitive instruments which are not exchange-traded
(which includes currencies and some energy products and metals in the case of
the Fund), the margin requirements for the equivalent futures positions have
been used as Value at Risk. In those cases in which a futures-equivalent
margin is not available, dealers' margins have been used.
In the case of contracts denominated in foreign currencies, the Value at
Risk figures include foreign margin amounts converted into U.S. dollars with
an incremental adjustment to reflect the exchange rate risk inherent to the
dollar-based Fund in expressing Value at Risk in a functional currency other
than dollars.
In quantifying the Fund's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Fund's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
Value at Risk as calculated herein may not be comparable to similarly
titled measures used by others.
-23-
The Fund's Trading Value at Risk in Different Market Sectors
The following tables indicate the trading Value at Risk associated with
the Fund's open positions by market category as of March 31, 2005. All open
position trading risk exposures of the Fund have been included in calculating
the figures set forth below. As of January 31, February 28 and March 31, 2005,
the Fund's total capitalization was approximately $241.8 million, $252.6
million, and $268.3 million respectively.
1Q 2005
Jan % Total Feb % Total Mar % Total
Market Sector VaR Capitalization VaR Capitalization VaR Capitalization
Energy $1,916,699 .79% $2,870,128 1.14% $4,774,973 1.78%
Stock Indices $5,959,047 2.46% $7,767,317 3.07% $6,178,712 2.30%
Agricultural
Commodities $2,457,060 1.02% $2,549,948 1.01% $3,072,673 1.15%
Metals $2,428,433 1.00% $3,506,886 1.39% $3,483,426 1.30%
Currencies $21,139,464 8.74% $20,882,407 8.27% $22,696,821 8.46%
Interest Rates $ 9,771,305 4.04% $7,715,714 3.05% $3,072,373 3.77%
Total $43,672,008 18.06% $45,292,400 17.93% $50,309,619 18.75%
Of the -5.03% return for the quarter ended March 31, 2005 for A Units,
approximately -4.21% was due to trading gains (after commissions) and
approximately .73% was due to interest income, offset by approximately -1.55%
in performance fees, management fees, selling agent fees and operating costs
borne by the Fund. Of the -4.61% return for the year ended March 31, 2005 for
B Units, approximately -4.20% was due to trading gains (after commissions) and
approximately .73% was due to interest income, offset by approximately -1.14%
in performance fees, management fees, selling agent fees and operating costs
borne by the Fund.
Material Limitations on Value at Risk as an Assessment of Market Risk.
The face value of the market sector instruments held by the Fund is
typically many times the applicable maintenance margin requirement
(maintenance margin requirements generally ranging between approximately 1%
and 10% of contract face value) as well as many times the capitalization of
the Fund. The magnitude of the Fund's open positions creates a "risk of ruin"
not typically found in most other investment vehicles. Because of the size of
its positions, certain market conditions - unusual, but historically recurring
from time to time - could cause the Fund to incur severe losses over a short
period of time. The foregoing Value at Risk tables - as well as the past
performance of the Fund - gives no indication of this "risk of ruin."
Non-Trading Risk
The Fund has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as the market risk they
represent) are immaterial. The Fund also has non-trading market risk as a
result of investing a substantial portion of its available assets in U.S.
Treasury Bills, U.S. Agencies and high grade commercial paper. The market risk
represented by these investments is immaterial.
-24-
Qualitative Disclosures Regarding Primary Trading Risk Exposures.
The following qualitative disclosures regarding the Fund's market risk
exposures - except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Fund manages its primary market risk
exposures - constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. The Fund's primary market risk exposures as well as the strategies used
and to be used by the Fund's Trading Advisors for managing such exposures are
subject to numerous uncertainties, contingencies and risks, any one of 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.
There can be no assurance that the Fund's current market exposure and/or risk
management strategies will not change materially or that any such strategies
will be effective in either the short- or long-term. Investors must be
prepared to lose all or substantially all of their investment in the Fund.
The following were the primary trading risk exposures of the Fund as of
March 31, 2005, by market sector.
Currencies
Exchange rate risk is the principal market exposure of the Fund. The
Fund's currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships between
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 - i.e.,
positions between two currencies other than the U.S. Dollar. The General
Partner does not anticipate that the risk profile of the Fund's currency
sector will change significantly in the future.
Interest Rates
Interest rate risk is a significant market exposure of the Fund. Interest
rate movements directly affect the price of the sovereign bond 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. The General
Partner anticipates that G-7 interest rates will remain the primary market
exposure of the Fund for the foreseeable future.
Stock Indices
The Fund's primary equity exposure is to equity price risk in many
countries other than the United States. The stock index futures traded by the
Fund are limited to futures on broadly based indices. 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.)
-25-
Energy
The Fund's primary energy market exposure is to gas and oil price
movements, often resulting from political developments and ongoing conflicts
in the Middle East. As of March 31, 2005, crude oil, heating oil and unleaded
gas are the dominant energy market exposures of the Fund. 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.
Metals
The Fund's metals market exposure is to fluctuations in the price of
aluminum, copper, gold, nickel and zinc.
Agricultural
During 2005, the Fund's agricultural exposure was to soybeans, wheat,
corn, coffee and cotton.
Qualitative Disclosures Regarding Non-Trading Risk Exposure.
The following were the only non-trading risk exposures of the Fund as of
March 31, 2005.
Foreign Currency Balances
The Fund's primary foreign currency balances are in Euros, Japanese Yen,
British Pounds, Australian Dollars, Hong Kong dollars and Canadian dollars.
The Fund controls the non-trading risk of these balances by regularly
converting these balances back into U.S. dollars (no less frequently than once
a week).
Treasury Bill and Commercial Paper Positions
The Fund utilizes UBS Financial Services, Inc. as its cash management
securities broker for the investment of some margin excess amounts into
short-term fixed income instruments including high grade commercial paper
(interest bearing with some credit risk), U.S. Agency securities and Treasury
Bills (interest bearing and credit risk free) with durations no longer than
one year. Violent fluctuations in prevailing interest rates could cause
immaterial mark-to-market losses on the Fund's Treasury Bills, although
substantially all of these short-term investments are held to maturity.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Fund and the Fund's Trading Advisors, severally,
attempt to manage the risk of the Fund's open positions is essentially the
same in all market categories traded. The Fund's Trading Advisors apply risk
management policies to their respective trading which generally limit the
total exposure that may be taken. In addition, the Trading Advisors generally
follow proprietary diversification guidelines (often formulated in terms of
the balanced volatility between markets and correlated groups), as well as
imposing "stop-loss" points at which open positions must be closed out.
-26-
The Fund is unaware of any (i) anticipated known demands, commitments or
capital expenditures; (ii) material trends, favorable or unfavorable, in its
capital resources; or (iii) trends or uncertainties that will have a material
effect on operations. From time to time, certain regulatory agencies have
proposed increased margin requirements on futures contracts. Because the Fund
generally will use a small percentage of assets as margin, the Fund does not
believe that any increase in margin requirements, as proposed, will have a
material effect on the Fund's operations.
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 Comptroller
(principal executive officer and principal financial officer, respectively),
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 Comptroller 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.
-27-
PART II-OTHER INFORMATION
Item 1: Legal Proceedings.
None
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Between January, 2005 and March 31, 2005, the Fund issued Units at monthly
closings as set forth in the following chart. However, pursuant to Regulation
ss. 229.701. Item 701(d), the Fund enjoys the private offering exemption
within the Securities Exchange Act of 1933 ss. 4(2). The Fund is privately
offered and sold to "accredited investors" as defined in Securities Exchange
Act of 1933 Rule 501(a).
Schedule on Number and Dollar Amount of Interests
(Additions)
(Includes both A and B Units)
- ----------------------------- -------------------- --------------------------
Month Dollar Amount of Number of Additional
Interests Sold Units Sold
- ----------------------------- -------------------- --------------------------
January 2005 $5,248,379 1,468.5828
- ----------------------------- -------------------- --------------------------
February 2005 $12,407,471 3,638.0902
- ----------------------------- -------------------- --------------------------
March 2005 $14,877,361 4,276.0512
- ----------------------------- -------------------- --------------------------
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.
(a) Exhibits and Index.
The following exhibits filed herewith.
Exhibit No. Description of Document Page No.
31.01 Certification of Kenneth E. Steben, Chief Executive Officer, E-2
pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange
Act of 1934.
-28-
31.02 Certification of Barbara Rittenhouse, Comptroller, pursuant E-4
to Rules 13a-14 and 15d-14 of the Securities Exchange Act of
1934.
32.01 Certification of Kenneth E. Steben, Chief Executive Officer, E-6
pursuant to 18 U.S.C. Section 1350, as enacted by Section 906
of The Sarbanes-Oxley Act of 2002.
32.02 Certification of Barbara Rittenhouse, Comptroller, pursuant E-7
to 18 U.S.C. Section 1350, as enacted by Section 906 of
The Sarbanes-Oxley Act of 2002.
(b) Reports.
None.
-29-
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: May 13, 2005 By: /s/Barbara Rittenhouse
Barbara Rittenhouse
Comptroller (Principal Financial Officer)
E-1