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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: SEPTEMBER 30, 2004
|_| 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: 0-50316
GRANT PARK FUTURES FUND
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3596839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O DEARBORN CAPITAL MANAGEMENT, L.L.C.
550 WEST JACKSON BOULEVARD, SUITE 1300
CHICAGO, ILLINOIS 60661
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (312) 756-4450
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 Securities Exchange Act of 1934). Yes |_|
No |X|
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GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
QUARTER ENDED SEPTEMBER 30, 2004
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 2
Statements of Financial Condition as of September 30, 2004
(unaudited) and December 31, 2003 (audited) 2
Condensed Schedule of Investments as of September 30, 2004
(unaudited) 3
Condensed Schedule of Investments as of December 31, 2003
(audited) 4
Statements of Operations for the three months and nine months
ended September 30, 2004 and 2003 (unaudited) 5
Statements of Changes in Partners' Capital (Net Asset Value)
for the nine months ended September 30, 2004 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 22
PART II - OTHER INFORMATION 22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
Item 6. Exhibits 24
SIGNATURES 25
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
(UNAUDITED)
ASSETS
Equity in brokers' trading accounts:
U.S. Government securities, at market value........................................ $ 34,461,629 $ 7,494,683
Cash............................................................................... (1,495,045) 5,815,172
Unrealized gain on open contracts, net............................................. 11,911,728 5,563,659
------------ -----------
Deposits with broker............................................................ 44,878,312 18,873,514
Cash and cash equivalents............................................................. 206,072,209 68,985,354
Interest receivable................................................................... 573,067 2,872
------------ -----------
TOTAL ASSETS.................................................................... $251,523,588 $87,861,740
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Brokerage commission payable....................................................... $ 1,538,095 $ 436,522
Accrued incentive fees............................................................. 528,202 1,140,443
Organization and offering costs payable............................................ 146,750 28,975
Accrued operating expenses......................................................... 71,007 43,353
Other accrued expenses............................................................. - 96,469
Pending partner additions.......................................................... 7,797,081 18,295,637
Redemptions payable................................................................ 1,193,271 402,295
------------ -----------
TOTAL LIABILITIES............................................................... 11,274,406 20,443,694
============ ===========
Partners' Capital
General Partner (2,237.98 and 707.62 units outstanding at September 30, 2004 and
December 31, 2003, respectively)................................................. 2,221,360 844,919
Limited Partners
Class A (58,594.49 and 27,275.54 units outstanding at September 30, 2004 and
December 31, 2003, respectively).............................................. 58,159,541 32,567,704
Class B (202,302.31 and 31,586.19 units outstanding at September 30, 2004 and
December 31, 2003, respectively).............................................. 179,868,281 34,005,423
------------ -----------
TOTAL PARTNERS' CAPITAL...................................................... 240,249,182 67,418,046
------------ -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL...................................... $251,523,588 $87,861,740
============ ===========
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
2
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
UNREALIZED UNREALIZED
EXPIR- GAIN/(LOSS) ON PERCENT OF GAIN(LOSS) ON PERCENT OF NET UNREALIZED PERCENT OF
ATION OPEN LONG PARTNERS' OPEN SHORT PARTNERS' GAIN(LOSS) ON PARTNERS'
DATES CONTRACTS CAPITAL CONTRACTS CAPITAL OPEN CONTRACTS CAPITAL
----- --------- ------- --------- ------- -------------- -------
FUTURES CONTRACTS
U.S. Futures Positions:
Currencies................... $ 1,712,386 0.7% $ (96,597) * $ 1,615,789 0.7%
Energy....................... 1,471,069 0.6 (125) * 1,470,944 0.6%
Grains....................... (5,500) * 971,145 0.4% 965,645 0.4%
Interest rates............... 1,009,114 0.4% (4,168) * 1,004,946 0.4%
Meats........................ 133,895 0.1% 4,950 * 138,845 0.1%
Metals....................... 693,525 0.3% (78,385) * 615,140 0.3%
Soft commodities............. 509,210 0.2% 26,854 * 536,064 0.2%
Stock indices................ (54,250) * 331,518 0.1% 277,268 0.1%
----------- ----------- -----------
Total U.S. Futures Positions.... 5,469,449 1,155,192 6,624,641
Foreign Futures Positions:
Energy....................... 862,670 0.4% - * 862,670 0.4%
Interest rates............... 3,366,635 1.4% (24,918) * 3,341,717 1.4%
Metal........................ 2,994,900 1.2% (1,245,332) (0.5)% 1,749,568 0.7%
Soft commodities............. - * 6,161 * 6,161 *
Stock indices................ 143,036 0.1% 34,240 * 177,276 0.1%
----------- ----------- -----------
Total Foreign Futures
Positions.................... 7,367,241 (1,229,849) 6,137,392
----------- ----------- -----------
TOTAL FUTURES CONTRACTS......... $12,836,690 $ (74,657) 12,762,033 5.4%
=========== =========== =========== ====
FORWARD CONTRACTS
Currencies................... 2,479,453 1.0% (3,329,759) (1.4)% (850,305) (0.4)%
----------- ----------- -----------
TOTAL FORWARD CONTRACTS......... $ 2,479,453 $(3,329,759) $ (850,305) (0.4)%
=========== =========== =========== ====
- ------------------
* Percentage is less than 0.1% of partners' capital.
U.S. Government Securities:
PERCENT OF
FACE VALUE VALUE PARTNERS' CAPITAL
- ---------- ----- -----------------
$34,500,000 U.S. Treasury Bills, October 28, 2004 $34,461,629 14.3%
-----------
Total U.S. Government Securities (cost $34,464,046) $34,461,629
===========
The accompanying notes are an integral part of these financial statements.
3
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
UNREALIZED UNREALIZED NET
NO. OF GAIN/(LOSS) PERCENT GAIN/(LOSS) PERCENT UNREALIZED
EXPIR- CONTRACTS ON OPEN OF ON OPEN OF GAIN/(LOSS) PERCENT OF
ATION ------------ LONG PARTNERS' SHORT PARTNERS' ON OPEN PARTNERS'
DATES LONG SHORT CONTRACTS CAPITAL CONTRACTS CAPITAL CONTRACTS CAPITAL
----- ---- ----- ----------- --------- ------------ --------- ----------- ----------
FUTURES CONTRACTS
U.S. Futures Positions:
Currencies............ $ 492,319 0.7% $ (67,674) (0.1)% $ 424,645 0.6%
Energy................ (141,842) (0.2)% - * (141,842) (0.2)%
Grains................ 91,733 0.1% - * 91,733 0.1%
Interest rates........ 47,864 0.1% - * 47,864 0.1%
Meats................. - * 1,520 * 1,520 *
Metals................ 892,100 1.3% - * 892,100 1.3%
Soft commodities...... 7,387 * 4,697 * 12,084 *
Stock indices......... 529,577 0.8% 181,080 0.3% 710,657 1.1%
---------- --------- ----------
Total U.S.Futures
Positions................ 1,919,138 119,623 2,038,761
Foreign Futures
Positions:
Energy................ 22,375 * - * 22,375 *
Interest rates........ 205,525 0.3% (40,589) (0.1)% 164,936 0.2%
Metals:
01/04-
Nickel............. 03/04 54 14 1,166,825 1.7% (310,426) (0.1)% 856,399 1.6%
Other Metals....... 769,188 1.1% (207,925) (0.3)% 561,263 0.8%
Soft commodities...... - * 4,077 * 4,077 *
Stock indices......... 459,768 0.7% (773) * 458,995 0.7%
---------- --------- ----------
Total Foreign Futures
Positions............. 2,623,681 (555,636) 2,068,045
---------- --------- --------- ----
TOTAL FUTURES CONTRACTS.. $4,542,819 $(436,013) $4,106,806 6.1%
========== ========= ========== ====
FORWARD CONTRACTS
British Pounds........ 03/04 $ 683,371 1.0% $ (94,050) (0.1)% $ 589,321 0.9%
Other currencies...... 1,118,240 1.7% (250,708) (0.4)% 867,532 1.3%
---------- --------- ---------- ----
TOTAL FORWARD CONTRACTS.. $1,801,611 $(344,758) $1,456,853 2.2%
========== ========= ========== ====
- ------------------
* Percentage is less than 0.1% of partners' capital.
U.S. Government Securities:
PERCENT OF
FACE VALUE VALUE PARTNERS' CAPITAL
---------- ----- -----------------
$7,500,000 U.S. Treasury Bills, January 29, 2004 $7,494,683 11.1%
----------
Total U.S. Government Securities (cost $7,481,450) $7,494,683
==========
The accompanying notes are an integral part of these financial statements.
4
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ---------------------------
2004 2003 2004 2003
------------- ------------ ------------ ----------
(UNAUDITED) UNAUDITED)
INCOME.................................................
Trading gains (losses)..............................
Realized.......................................... ($13,944,593) $(1,390,464) $(36,334,285) $2,678,973
Change in unrealized.............................. 12,641,237 1,943,934 6,348,069 797,201
------------ ----------- ------------ ----------
Net gains/(losses) from trading.............. (1,303,356) 553,470 (29,986,216) 3,476,174
Interest income..................................... 895,521 44,576 1,775,785 141,158
------------ ----------- ------------ ----------
TOTAL INCOME/(LOSS).......................... (407,835) 598,046 (28,210,431) 3,617,332
------------ ----------- ------------ ----------
EXPENSES
Brokerage commission................................ 4,665,385 334,707 10,942,657 334,707
Commissions......................................... -- 45,157 -- 307,423
Management fees..................................... -- 65,478 -- 427,892
Incentive fees...................................... 528,202 114,812 2,234,926 444,814
Operating expenses.................................. 202,900 51,804 550,351 173,910
------------ ----------- ------------ ----------
TOTAL EXPENSES............................... 5,396,487 611,958 13,727,934 1,688,746
------------ ----------- ------------ ----------
NET INCOME/(LOSS)............................ $(5,804,322) $ (13,912) $(41,938,365) $1,928,586
============ =========== ============ ==========
The accompanying notes are an integral part of these financial statements.
5
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED PARTNERS LIMITED PARTNERS
-------------------- -----------------------
GENERAL PARTNER CLASS A CLASS B
-------------------- -------------------- -----------------------
NUMBER NUMBER NUMBER
OF UNITS AMOUNT OF UNITS AMOUNT OF UNITS AMOUNT TOTAL AMOUNT
-------- ------ -------- ------ -------- ------ ------------
Partners' capital,
December 31, 2003............ 707.62 $ 844,919 27,275.54 $32,567,704 31,586.19 $ 34,005,423 $ 67,418,046
Contributions................ 276.34 340,000 11,739.46 14,538,273 58,935.69 65,654,373 80,532,646
Redemptions.................. -- -- (583.12) (721,576) (112.96) (128,916) (850,492)
Offering Costs............... -- -- -- (11,088) -- (171,991) (183,079)
Net income/(loss)............ -- 63,043 -- 2,370,371 -- 3,821,031 6,254,445
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
March 31, 2004 (unaudited)... 983.96 $1,247,962 38,431.88 $48,743,684 90,408.92 $103,179,920 $153,171,566
Contributions................ 844.55 987,500 19,025.66 22,125,537 71,083.42 74,736,805 97,849,842
Redemptions.................. -- -- (799.12) (838,529) (379.56) (362,721) (1,201,250)
Offering Costs............... -- -- -- (28,403) -- (304,694) (333,097)
Net income/(loss)............ -- (371,254) -- (12,237,521) -- (29,779,713) (42,388,488)
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
June 30, 2004 (unaudited).... 1,828.51 $1,864,208 56,658.42 $57,764,768 161,112.78 $147,469,597 $207,098,573
Contributions................ 409.47 410,000 4,595.64 4,603,643 43,020.24 38,600,823 43,614,466
Redemptions.................. -- -- (2,659.57) (2,624,255) (1,830.71) (1,619,561) (4,243,816)
Offering Costs............... -- -- -- (30,291) -- (385,428) (415,719)
Net income/(loss)............ -- (52,848) -- (1,554,324) -- (4,197,150) (5,804,322)
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
September 30, 2004
(unaudited).................. 2,237.98 $2,221,360 58,594.49 $58,159,541 202,302.31 $179,868,281 $240,249,182
======== ========== ========= =========== ========== ============ ============
Net asset value per unit at
January 1, 2004.............. $ 1,194.03 $ 1,076.59
=========== ============
Net asset value per unit at
September 30, 2004
(unaudited).................. $ 992.58 $ 889.11
=========== ============
Decrease in net asset value
per unit for the period
January 1 to
September 30, 2004
(unaudited)................. $ (201.45) $ (187.48)
=========== ============
The accompanying notes are an integral part of these financial statements.
6
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Grant Park Futures Fund Limited Partnership (the
"Partnership") was organized as a limited partnership in Illinois in August 1988
and will continue until December 31, 2027, unless sooner terminated as provided
for in its Limited Partnership Agreement. As a commodity investment 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
the various commodity exchanges where the Partnership executes transactions.
Additionally, the Partnership is subject to the requirements of futures
commission merchants ("FCMs") and interbank and other market makers through
which the Partnership trades. Effective June 30, 2003, the Partnership became
registered with the Securities and Exchange Commission ("SEC"), accordingly, as
a registrant, the Partnership is subject to the regulatory requirements under
the Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934.
The General Partner and the Limited Partners share in profits or losses
of the Partnership in the ratio that their respective capital accounts bear to
the total capital of the Partnership.
The Partnership is a multi-advisor pool that carries out its purpose
through trading by independent professional commodity trading advisors retained
by the General Partner and the Partnership. Through these trading advisors, the
Partnership's business is to trade, buy, sell, margin or otherwise acquire, hold
or dispose of futures and forward contracts for commodities, financial
instruments or currencies, any rights pertaining thereto and any options
thereon, or on physical commodities. The Partnership may also engage in hedge,
arbitrage and cash trading of commodities and futures.
The Partnership has elected not to provide statements of cash flows as
permitted by Statement of Financial Accounting Standards No. 102, Statements of
Cash Flows - Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.
Offerings of securities and use of proceeds: On June 30, 2003, the
Securities and Exchange Commission declared effective the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-104317), pursuant to which the
Partnership registered for public offering $20,000,000 in aggregate amount of
Class A Limited Partnership Units and $180,000,000 in aggregate amount of Class
B Limited Partnership Units. Also as of June 30, 2003, the Partnership adopted
the Third Amended and Restated Limited Partnership Agreement. On April 1, 2004,
the Securities and Exchange Commission declared effective the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-113297), pursuant to which the
Partnership registered for public offering an additional $50,500,000 in
aggregate amount of Class A Limited Partnership Units and an additional
$177,000,000 in aggregate amount of Class B Limited Partnership Units.
Class A Limited Partnership Units and Class B Limited Partnership Units
are publicly offered at a price equal to the net asset value per unit as of the
close of business on each applicable closing date, which is the last business
day of each month. The proceeds of the offering are deposited in the
Partnership's bank and brokerage accounts for the purpose of engaging in trading
activities in accordance with the Partnership's trading policies and its trading
advisors' respective trading strategies.
Through February 28, 2003, the Partnership issued and sold its limited
partnership interests in an offering exempt under the Securities Act pursuant to
Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder.
Similar reliance was placed on available exemptions from securities
qualification requirements under applicable state securities laws. The
recipients of securities in such offering made representations as to their
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof, as to their ability to
hold such securities indefinitely and generally, as to their qualification as
accredited investors under the Securities Act and Regulation D promulgated
thereunder. Further, such securities were restricted as to their
transferability.
The Partnership considered the following accounting policies as
significant to it:
Presentation of financial information: The financial statements include
the accounts of Grant Park Futures Fund Limited Partnership. In our opinion, the
accompanying interim, unaudited, financial statements contain all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position as of September 30, 2004 and the results of operations for
the nine months ended September 30, 2004 and 2003.
Revenue recognition: Futures, options on futures, and forward contracts
are recorded on the trade date and realized gains or losses are recognized 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 the Financial
Accounting Standards Board Interpretation No. 39 -- "Offsetting of
7
Amounts Related to Certain Contracts." Any change in net unrealized gain or loss
from the preceding period is reported in the statement of operations. Market
value of exchange-traded contracts is based upon exchange settlement prices.
Market value of non-exchange-traded contracts is based on third party quoted
dealer values on the Interbank market.
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: Cash and cash equivalents include cash,
overnight investments, U.S. treasury bills and short-term investments in
interest-bearing demand deposits with banks and cash managers with maturities of
three months or less. The Partnership maintains deposits with high quality
financial institutions in amounts that are in excess of federally insured
limits; however, the Partnership does not believe it is exposed to any
significant credit risk.
Income taxes: No provision for income taxes has been made in these
financial statements as each partner is individually responsible for reporting
income or loss based on its respective share of the Partnership's income and
expenses as reported for income tax purposes. For the year ended December 31,
2003, the Partnership was subject to an Illinois replacement tax of 1.5% of
taxable income related to those limited partners who are not otherwise subject
to the tax. For the year ended December 31, 2003, this tax has been included in
operating expenses on the statement of operations.
Organization and offering costs: All expenses incurred in connection
with the organization and the initial and ongoing public offering of partnership
interests are paid by Dearborn Capital Management, L.L.C. ("General Partner")
and are reimbursed to the General Partner by the Partnership. This reimbursement
is made monthly. In no event, however, does the monthly reimbursement from
the Partnership to the General Partner exceed 0.083%, or 1.0% annually, of the
net asset value of the Partnership. In its discretion, the General Partner may
require the Partnership to reimburse the General Partner in any subsequent
calendar year for amounts that exceed these limits in any calendar year,
provided that the maximum amount reimbursed by the Partnership does not exceed
the overall limit set forth above. Amounts reimbursed by the Partnership with
respect to the initial and ongoing public offering expenses are charged against
partners' capital at the time of reimbursement or accrual. Any amounts
reimbursed by the Partnership with respect to organization expenses are expensed
at the time the reimbursement is incurred or accrued. If the Partnership
terminates prior to completion of payment of the calculated amounts to the
General Partner, the General Partner will not be entitled to any additional
payments, and the Partnership will have no further obligation to the General
Partner. At September 30, 2004, the amount of unreimbursed organization and
offering costs incurred by the General Partner is $710,010.
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.
NOTE 2. EQUITY IN BROKERS' TRADING ACCOUNTS
As of September 30, 2004, the negative cash balance in Equity in
brokers' trading accounts represents a margin call. The cash balance in the
brokers' trading accounts fluctuates daily as a result of trading activity. In
the case of a margin call, such call is satisfied the next business day through
a transfer of funds.
NOTE 3. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
Dearborn Capital Management, L.L.C. is the General Partner of the
Partnership. The General Partner shall at all times, so long as it remains a
general partner of the Partnership, own Units in the Partnership: (i) in an
amount sufficient, in the opinion of counsel for the Partnership, for the
Partnership to be taxed as a partnership rather than as an association taxable
as a corporation; and (ii) during such time as the Units are registered for sale
to the public, in an amount at least equal to the greater of: (a) 1% of all
capital contributions of all Partners to the Partnership; or (b) $25,000; or
such other amount satisfying the requirements then imposed by the NASAA
Guidelines. Further, during such time as the Units are registered for sale to
the public, the General Partner shall, so long as it remains a general partner
of the Partnership, maintain a net worth (as such term may be defined in the
NASAA Guidelines) at least equal to the greater of: (i) 5% of the total capital
contributions of all partners and all limited partnerships to which it is a
general partner (including the Partnership) plus 5% of the Units being offered
for sale in the Partnership; or (ii) $50,000; or such other amount satisfying
the requirements then imposed by the NASAA Guidelines. In no event, however,
shall the General Partner be required to maintain a net worth in excess of
$1,000,000 or such other maximum amount satisfying the requirements then imposed
by the NASAA Guidelines.
8
Effective June 1, 2003, 10% of the General Partner limited partnership
interest in the Grant Park Futures Fund Limited Partnership will be
characterized as a general partnership interest. Notwithstanding, the general
partnership interest will continue to pay all fees associated with a limited
partnership interest.
Prior to August 1, 2003, brokerage commissions and other trading fees
paid to clearing FCMs are included in commissions on the Statement of
Operations, and for the three months ended September 30, 2003, totaled $45,157
and for the nine months ended September 30, 2003, totaled $307,423.
Prior to August 1, 2003, the Partnership paid the General Partner a
management fee of 2% per annum of the Partnership net assets, as defined. This
fee, which was accrued monthly and paid quarterly, amounted to $33,876 for the
three months ended September 30, 2003 and $221,750 for the nine months ended
September 30, 2003.
Effective August 1, 2003, the Partnership paid the General Partner a
brokerage commission up to 8.1% per annum of the Partnership net assets, as
defined. Effective April 1, 2004, the brokerage commission decreased to 7.9% per
annum for Class A units and remained at 8.1% per annum for Class B units. The
charge, which is accrued monthly, amounted to $4,665,385 for the three months
ended September 30, 2004, $10,942,656 for the nine months ended
September 30, 2004 and $334,707 for the two months ended September 30, 2003. The
components of the brokerage commission are as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
2004 2003* 2004 2003 *
---------------- -------------- ---------- --------------
(UNAUDITED) (UNAUDITED)
Fees paid to the General Partner and its selling agents $2,912,570 $220,107 $ 6,686,885 $220,107
Management fees paid to commodity trading advisors 883,245 68,433 2,245,297 68,433
Commissions paid clearing FCMs 869,570 46,167 2,010,474 46,167
---------- -------- ----------- --------
Total $4,665,385 $334,707 $10,942,656 $334,707
========== ======== =========== ========
* Includes amounts paid for the two-month period ended September 30, 2003.
Effective November 1, 2004, the brokerage commission decreased to 7.75%
per annum for Class A units and 8.0% per annum for Class B units.
NOTE 4. COMMODITY TRADING ADVISORS
The Partnership has entered into advisory contracts with Rabar Market
Research, Inc., EMC Capital Management, Inc., Eckhardt Trading Co., Graham
Capital Management, L.P., Winton Capital Management Limited and Saxon Investment
Corporation to act as the Partnership's commodity trading advisors (the
"Advisors"). Effective August 1, 2003, the Advisors receive a quarterly
management fee ranging from 0 percent to 2 percent per annum of the
Partnership's month-end allocated net assets, which amounted to fees of $883,245
for the three months ended September 30, 2004 and $2,245,297 for the nine months
ended September 30, 2004. For the two months ended September 30, 2003, the
quarterly management fee amounted to $68,433.
Prior to the change on August 1, 2003, the Advisors received a
quarterly management fee ranging from 1 percent to 2.5 percent per annum of the
Partnership's month-end allocated net assets, which amounted to fees of $31,602
for the three months ended September 30, 2003 and $206,142 for the nine months
ended September 30, 2003.
Additionally, the Advisors receive a quarterly incentive fee ranging
from 20 percent to 24 percent of the new trading profits on the allocated net
assets of the Advisor, which amounted to fees of $528,202 and $114,812 for the
three months ended September 30, 2004 and 2003, respectively, and $2,234,926 and
$444,814 for the nine months ended September 30, 2004 and 2003, respectively.
NOTE 5. REDEMPTIONS
Limited Partners have the right to redeem units as of any month-end
upon ten (10) days' prior written notice to the Partnership. The General
Partner, however, may permit earlier redemptions in its discretion. There are no
redemption fees applicable to Class A Limited Partners or to Class B Limited
Partners who redeem their units on or after the one-year anniversary of their
subscription. Class B Limited Partners who redeem their units prior to the
one-year anniversary of their subscriptions for the redeemed units will pay the
applicable early redemption fee. Redemptions will be made on the last day of the
month for an amount equal to the net assets, as defined, represented by the
units to be redeemed.
In addition, the General Partner may at any time cause the redemption
of all or a portion of any Limited Partner's units upon 15 days written notice.
The General Partner may also immediately redeem any Limited Partner's units
without notice if the General Partner believes that (i) the redemption is
necessary to avoid having the assets of the Partnership deemed Plan Assets under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii)
the Limited Partner made a misrepresentation in connection with its subscription
for the units, or (iii) the redemption is necessary to avoid a violation of law
by the Partnership or any Partner.
9
NOTE 6. FINANCIAL HIGHLIGHTS
The following financial highlights reflect activity related to the
Partnership. Total return is based on the change in value during the period of a
theoretical investment made at the beginning of each calendar month during the
period. Individual investor's ratios may vary from these ratios based on various
factors, including and among others, the timing of capital transactions.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
-------------- ------------- ------------- -----------
(UNAUDITED) (UNAUDITED)
Total return - A Units (2.64)% (0.17)% (16.87)% 11.47%
Total return - B Units** (2.86)% 0.19% (17.41)% 0.19%
Ratios as a percentage of average net assets:
Interest income * 1.65% 0.85% 1.48% 1.00%
Expenses * 9.92% 11.79% 11.42% 12.04%
*Annualized
**The Partnership converted its interests to units effective April 1, 2003, with
all existing Limited Partners at that date converting to Class A Units. B Units
began trading August 1, 2003.
The interest income and total expense ratios above are computed based
upon the weighted average net assets of the Partnership for the three and nine
months ended September 30, 2004 and 2003 (annualized).
The following per unit performance calculations reflect activity
related to the Partnership for the period January 1, 2004 to September 30, 2004.
A UNITS B UNITS
--------- ---------
Per Unit Performance
(for unit outstanding throughout the entire period):
Net asset value per unit at beginning of period.............. $1,194.03 $1,076.59
--------- ---------
Income from operations:
Net realized and change in unrealized gain/(loss) from )
trading.............................................. (121.84) (113.07)
Expenses net of interest income.......................... (78.13) (67.39)
--------- ---------
Total income/(loss) from operations.................. (199.97) (180.46)
Organization and offering costs.............................. (1.48) (7.02)
--------- ---------
Net asset value per unit at end of period.................... $ 992.58 $ 889.11
========= =========
- ------------------
Expenses net of interest income per unit and organization and offering
costs per unit are calculated by dividing the expenses net of interest
income and organization and offering costs by the average number of
units outstanding during the period from January 1, 2004 to September
30, 2004. The net realized and change in unrealized gain from trading is
a balancing amount necessary to reconcile the change in net asset value
per unit with the other per unit information.
NOTE 7. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts, and forward
contracts (collectively, derivatives). These derivatives include both financial
and nonfinancial contracts held as part of a diversified trading strategy. The
Partnership is exposed to both market risk, the risk arising from changes in the
market value of the contracts; and credit risk, the risk of failure by another
party to perform according to the terms of a contract.
The purchase and sale of futures and options on futures contracts
require margin deposits with FCMs. Additional deposits may be necessary for any
loss on contract value. The Commodity Exchange Act requires an FCM to segregate
all customer transactions and assets from the FCM's proprietary activities. A
customer's cash and other property (for example, U.S. Treasury bills) deposited
with an FCM are considered commingled with all other customer funds subject to
the FCM's segregation requirements. In the event of an FCM's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than the total of cash and
other property deposited.
10
Net trading results from derivatives for the three and nine months
ended September 30, 2004 and 2003, are reflected in the statements of
operations. Such trading results reflect the net gain arising from the
Partnership's speculative trading of futures contracts, options on futures
contract, and forward contracts.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk equal to
the value of futures and forward contracts purchased and unlimited liability on
such contracts sold short. As both a buyer and seller of options, the
Partnership pays or receives a premium at the outset and then bears the risk of
unfavorable changes in the price of the contract underlying the option. Written
options expose the Partnership to potentially unlimited liability; for purchased
options the risk of loss is limited to the premiums paid.
In addition to market risk, in entering into commodity interest
contracts there is a credit risk that a counterparty will not be able to meet
its obligations to the Fund. The counterparty for futures and options on futures
contracts traded in the United States and on most non-U.S. futures 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 nonperformance 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 non-U.S. exchanges, it is normally backed by a consortium of banks or
other financial institutions.
In the case of forward contracts, over-the-counter options contracts or
swap contracts, which are traded on the interbank or other institutional market
rather than on exchanges, the counterparty is generally a single bank or other
financial institution, rather than a clearinghouse backed by a group of
financial institutions; thus, there likely will be greater counterparty credit
risk. The Partnership trades only with those counterparties that it believes to
be creditworthy. All positions of the Partnership 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
Partnership.
The General Partner has established procedures to actively monitor and
minimize market and credit risks. 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. SUBSEQUENT EVENT
From October 1, 2004 to November 1, 2004, there were aggregate
contributions to and redemptions from the Partnership totaling approximately
$8,078,000 and $515,000, respectively.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Grant Park is a multi-advisor commodity pool organized to pool assets
of its investors for purposes of investing those assets in U.S. and
international commodity futures and forward contracts and other commodity
interests, including options contracts on futures, forwards and commodities,
spot contracts, swap contracts and security futures. The commodities underlying
these contracts may include stock indices, interest rates, currencies or
physical commodities, such as agricultural products, energy products or metals.
Grant Park has been in continuous operation since it commenced trading on
January 1, 1989. Grant Park's general partner, commodity pool operator and
sponsor is Dearborn Capital Management, L.L.C., an Illinois limited liability
company. The managing member of Dearborn Capital Management, L.L.C. is Dearborn
Capital Management, Ltd., an Illinois corporation whose sole shareholder is
David M. Kavanagh.
Grant Park invests through independent professional commodity trading
advisors retained by the general partner. Rabar Market Research, Inc., EMC
Capital Management, Inc., Eckhardt Trading Company, or ETC, and Graham Capital
Management, L.P., serve as Grant Park's commodity trading advisors. Effective
August 1, 2004, Grant Park added two additional trading advisors, Winton Capital
Management Limited and Saxon Investment Corporation. Each of the trading
advisors is registered as a commodity trading advisor under the Commodity
Exchange Act and is a member of the NFA. Each trading advisor uses its own
proprietary trading program and each is a full-time commodity trading advisor
with an established performance record and a dedicated staff of experienced
alternative investment professionals. As of September 30, 2004, the general
partner allocated Grant Park's net assets among the trading advisors as follows:
23% to Rabar, 23% to EMC, 6% to ETC, 25% to Graham, 12% to Winton and 9% to
Saxon. Grant Park anticipates that it will allocate no more than approximately
20% of its assets to each of Winton and Saxon at any one time. The general
partner may terminate or replace the trading advisors or retain additional
trading advisors in its sole discretion.
On June 30, 2003, the SEC declared effective Grant Park's Registration
Statement on Form S-1 through which it registered up to $20 million in aggregate
amount of Class A limited partnership units and $180 million in aggregate amount
of Class B limited partnership units. Subsequently, on April 1, 2004, the SEC
declared effective Grant Park's Registration Statement on Form S-1 through which
it registered an additional $50.5 million in aggregate amount of Class A limited
partnership units and an additional $177 million in aggregate amount of Class B
limited partnership units. Pursuant to the Registration Statement, Class A
Limited Partnership Units and Class B Limited Partnership Units are publicly
offered on a continuous basis at a price equal to the net asset value per unit
as of the close of business on each applicable closing date, which is the last
business day of each month. The proceeds of the offering are deposited in Grant
Park's bank and brokerage accounts for the purpose of engaging in trading
activities in accordance with Grant Park's trading policies and its trading
advisors' respective trading strategies.
CRITICAL ACCOUNTING POLICIES
Grant Park's only critical accounting policy is the valuation of its
assets invested in U.S. and international futures and forward contracts, options
contracts and other interests in commodities. The substantial majority of the
investments are exchange-traded contracts, valued based upon exchange settlement
prices. The remainder of its investments is non-exchange-traded contracts with
valuation of those investments based on third-party quoted dealer values on the
Interbank market. With the valuation of the investments easily obtained, there
is little or no judgment or uncertainty involved in the valuation of
investments, and accordingly, it is unlikely that materially different amounts
would be reported under different conditions using different but reasonably
plausible assumptions.
CAPITAL RESOURCES
Grant Park plans to raise additional capital only through the sale of
units pursuant to the continuous offering and does not intend to raise any
capital through borrowing. Due to the nature of Grant Park's business, it will
make no capital expenditures and will have no capital assets that are not
operating capital or assets.
LIQUIDITY
Most U.S. futures exchanges limit fluctuations in some futures and
options contract prices during a single day by regulations referred to as daily
price fluctuation limits or daily limits. During a single trading day, no trades
may be executed at prices beyond the daily limit. Once the price of a contract
has reached the daily limit for that day, positions in that contract can neither
be taken nor liquidated. Futures prices have occasionally moved to the daily
limit for several consecutive days with little or no trading. Similar
occurrences could prevent Grant Park from promptly liquidating unfavorable
positions and subject Grant Park to substantial losses that could exceed the
margin initially committed to those trades. In addition, even if futures or
options prices do not move to the daily limit, Grant Park may not be able to
execute trades at favorable prices, if little trading in the contracts is taking
place. Other than these limitations on liquidity, which are inherent in Grant
Park's futures and options trading operations, Grant Park's assets are expected
to
12
be highly liquid.
RESULTS OF OPERATIONS
Grant Park's net return, which consists of Grant Park's trading gains
plus interest income less brokerage fees, performance fees, operating costs and
offering costs borne by Grant Park, for the quarter ended September 30, 2004 was
approximately (2.64)% for the Class A units and (2.86)% for the Class B units.
The net asset value at September 30, 2004 was approximately $240.2 million, at
December 31, 2003 was approximately $67.4 million and at September 30, 2003 was
approximately $29.4 million.
The table below sets forth Grant Park's trading gains or losses by
sector for the three and nine month periods ended September 30, 2004 and 2003.
% GAIN (LOSS)
----------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- -----------------------
SECTOR 2004 2003 2004 2003
- ----------------- ---------- --------- ---------- ----------
Interest Rates 0.6% 0.2% (3.0)% 8.7%
Currencies (2.3) 0.2 (7.0) 10.6
Stock Indices (2.0) 0.7 (5.1) 1.5
Energy 2.2 (1.2) 3.4 1.0
Agriculturals 0.5 2.3 2.9 0.9
Metals 0.6 (0.3) 0.9 (1.6)
Softs (0.1) 0.1 (1.1) (0.9)
Meats 0.0 0.0 0.2 0.0
Miscellaneous (0.3) 0.2 (0.6) (0.1)
---- ---- ---- ----
Total (0.8)% 2.2% (9.4)% 20.1%
==== ==== ==== ====
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
For the three months ended September 30, 2004, Grant Park had a
negative return of approximately 2.6% for the Class A units and 2.9% for the
Class B units. On a combined unit basis prior to expenses, approximately 0.8%
resulted from trading losses which was offset by 0.4% of interest income. These
trading losses were further increased by approximately 2.4% in brokerage fees,
performance fees and operating and offering costs borne by Grant Park. For the
same period in 2003, Grant Park had a negative return of approximately 0.2% for
the Class A units and a positive return of 0.2% for the Class B units. On a
combined unit basis, approximately 2.2% resulted from trading gains and
approximately 0.2% was due to interest income. An offset of approximately 2.6%
was the result of brokerage fees, performance fees and operating and offering
costs borne by Grant Park.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003
For the first nine months of 2004, Grant Park had a negative return of
approximately 16.9% for the Class A units and 17.4% for the Class B units. On a
combined unit basis prior to expenses, approximately 9.4% resulted from trading
losses which was offset by 0.9% of interest income. These trading losses were
further increased by approximately 8.7% in brokerage fees, performance fees and
operating and offering costs borne by Grant Park. For the nine months ended
September 30, 2003, Grant Park had a positive net return of 11.5% for the Class
A units and 0.2% for the Class B units. Of this increase on a combined unit
basis, approximately 20.1% resulted from trading gains and approximately 0.7%
was due to interest income. These gains were offset by approximately 9.3% in
combined total brokerage fees, performance fees and operating and offering costs
borne by Grant Park.
Nine months ended September 30, 2004
The third quarter continued the losses sustained in the second quarter
as Grant Park Class A units declined 2.6% and Class B units declined 2.9%.
Fortunately, volatility in the markets subsided as the quarter progressed. After
starting the quarter with another losing month, some normalcy returned to the
markets and Grant Park finished the quarter with a positive month. The
overriding theme of the quarter was a lack of direction and a significant
reduction in the violent random volatility the futures markets had been
experiencing in the previous quarter. Despite interest rate hikes by the Federal
Reserve earlier in the quarter, interest rate contracts perversely began to
rally by quarter's end resulting in losses. Energy prices experienced
significant choppiness but eventually finished the quarter at their all time
highs. Additionally, both the U.S. dollar and the metals also experienced
choppiness throughout the quarter but ended at or near the extremes of their
moves.
13
Key trading developments for Grant Park during the first nine months of
2004 include the following:
The first month of 2004 was slightly profitable for the Grant Park
Futures Fund. Grant Park Class A units were up 0.38% while Class B units were up
0.31% for the month. The month was a volatile one, with modest profits generated
in the agricultural, metal and currency sectors. These gains collectively offset
significant losses in the fixed income sector. Gains in the agricultural and
metal sectors continued to be fueled by tight supplies amid surging Chinese
demand, while gains in the currency sector were largely attributable to a surge
in the British pound, which hit an 11 year high against the U.S. dollar, amidst
continuing signs of strong growth in the British economy. Losses in the fixed
income sector were largely attributable to the omission of "considerable period"
in the U.S. Federal Reserve January statement release in referencing the
maintenance of current interest rate levels. This omission was a clear shift in
sentiment and shifted the market's expectations for a sooner rather than later
rise in U.S. interest rates.
February's performance was strong with Class A units posting a 7.33%
gain and Class B units up 7.25% on the month. Gains were driven largely by the
continued weakness in the U.S. dollar, with gains experienced in the grains,
energy, currency and fixed income markets. Copper prices reached an 8-year high,
rising 18% in February alone. Continued global demand coupled with a decrease in
warehouse supply levels contributed to the continued strength in this market.
Soybean prices rallied 15% on the month amidst concerns of a weaker-than-
expected South American crop and continued growth of Chinese demand. Crude oil
and related products rose after a greater-than-expected decrease in U.S.
gasoline inventories. The British pound continued to strengthen, rising to its
highest level against the U.S. dollar since 1992, as expectations of continued
interest rate hikes were priced into the market. Finally, gains were experienced
in long global interest rate positions in response to comments by Alan Greenspan
suggesting that an interest rate hike by the Federal Reserve was not imminent.
Losses were incurred in short positions in British and Australian interest rate
futures, which rose as part of a global rally in bonds following the U.S. lead.
Additional losses were incurred in long coffee positions and long euro
positions.
Grant Park's performance was negative for March with Class A units down
1.40% on the month and Class B units down 1.47%. The month was volatile with the
currency, fixed income and equity index sectors particularly volatile as a
result of apparent policy shifting by many of the world's central banks. Grant
Park suffered losses in long British Pound positions as the pound declined
against the U.S. dollar as an improving U.S. economic outlook fueled speculation
that the Federal Reserve could raise U.S. interest rates in the near future.
Additional losses were generated in short Japanese yen positions as the yen rose
against the U.S. dollar amid anticipation that the Bank of Japan would curtail
its sales of its currency following the end of the Japanese fiscal year.
Additional losses were suffered in the industrial metals, including nickel, zinc
and aluminum, as the U.S. dollar's strength resulted in reduced demand from
European buyers. Additional losses were generated in sugar, Japanese Government
Bonds and the Hang Seng Index. The Fund's largest profits were earned in silver,
which hit a 16-year high at the end of the month. Additional profits were
generated in long positions in soybeans and soybean meal, as limited U.S.
supplies and a bitter strike at Brazil's main grain port combined to send soy
prices to a 16-year high as well.
April was a difficult trading month for trend trading and our portfolio
of traders in particular. Grant Park Class A units were down 11.66% for the
month and Class B units were down 11.72% for the month. Major trends across
several market sectors (which normally exhibit little correlation) reversed
collectively as they were struck by three major fundamental factors. The first
was surprisingly positive U.S. employment news. On the second day of the month
it was announced that the U.S. economy added 308,000 new jobs during the month
of March. Forecasts by economists were predicting an increase in the vicinity of
120,000. The workforce additions marked the biggest one-month increase in
payrolls in four years. The second factor was the strength of the U.S. dollar,
reflecting both a brightening U.S. economic outlook and the likelihood of a
Federal Reserve rate hike occurring sooner than previously anticipated. Finally,
the third factor was China's tightening of its monetary policy. The Chinese
Central Bank raised its banking reserve requirements for the third time in nine
months, amidst concerns that the torrid pace of economic growth would lead to
excess capacity and inflation. With this action, the central bank is attempting
to restrict and reduce bank lending, money supply growth, and potentially
excessive rates of economic expansion. As a result, Grant Park incurred losses
in both long U.S. and European interest rate futures. Prices for U.S. fixed
income prices fell sharply as a result of the positive March labor report. In
fact, within minutes of the release of the report, prices for 30-year bonds
collapsed five full points, which was the biggest one-day drop in the history of
the 30-year bond. A positive durable goods report released in the second week of
the month added to the sell-off. European interest rate futures responded in
kind. Additional losses were incurred in long positions in the metals markets,
as precious and industrial metal prices plunged in response to the prospects of
higher interest rates combined with a stronger U.S. dollar and further depressed
by speculation that the Chinese central bank's new reserve requirements would
reduce Chinese demand for industrial metals. The strong dollar and the Chinese
central bank policy changes also put pressure on grain prices as well,
generating additional losses in long positions in both corn and soybean markets.
Equity markets also proved difficult. Grant Park posted losses in short
positions in the FTSE, Dax, Nasdaq, and S&P 500. Long positions in the Hang Seng
were also unprofitable. The only sector posting moderate gains for the month was
long positions in the energy sector as prices rallied on OPEC's decision to
lower output.
Unfortunately, markets remained choppy and volatile throughout the
month of May with simultaneous "start-stop" markets in currencies, fixed income
and equities. Grant Park Class A units were down 4.75% for the month while Class
B units were down 4.82% for the month. In general, markets seemed to lack any
clear economic backdrop and exhibited little directional rhythm. As a result,
Grant Park's overall market exposure remained light. Losses were incurred in
short positions in the British pound, euro and Swiss franc as prices all rose
against the U.S. dollar. Weaker-than-expected U.S. economic data coupled with
the assassination of
14
Izzedine Salim, the head of the interim Iraqi governing council, resulted in a
sell-off for the U.S. dollar. Long positions in the grain sector also posted
losses as wet weather in the Midwest alleviated fears that previously dry
conditions would damage the newly planted crop. Additional losses were incurred
in long positions in the Nikkei index, which dropped sharply following a strong
U.S. jobs report released on May 7th. Grant Park continued to profit from long
positions in the energy sector, as prices continued their upward climb. The
situation in the Middle East, lingering supply concerns and unprecedented demand
for crude from the Chinese government, all contributed to strengthening prices.
Finishing a difficult quarter for the Grant Park Futures Fund, June's
performance was again negative. Class A units were down 4.47% for the month
while Class B units were down 4.55%. June market conditions proved to be even
more volatile than the difficult trend reversals in April and May. The lack of
any sustained directional price patterns and significant short-term volatility
created a very unfriendly environment for our trend following portfolio of
traders. Losses were incurred across almost all trading sectors. Short positions
across the bond yield curve here in the U.S. were largely unprofitable for the
month as confusion reigned, as the path to higher rates in the U.S. remained
unclear. Indications from Alan Greenspan early in the month led investors to
believe the Fed was prepared to act decisively on inflations fears, causing a
sell off. One week later, however, investors were surprised by lower than
expected Consumer Price Index data, sending interest rates lower and prices
higher. Additional losses were experienced in short British interest rate
futures as concerns mounted that earlier rate hikes there were causing softness
in the housing market, leading to speculation that the Bank of England may be
less aggressive in announcing future rate hikes. Previously profitable long
positions in the energy sector posted losses on news that OPEC decided to
increase its production quotas as of August 1st. Prices continued to decline
after the U.S.-led coalition restored Iraqi sovereignty two days ahead of
schedule. Furthermore, trading in the currency markets was mixed for the month
with the overall sector posting losses. Generally, major currencies have been
caught in choppy (start-stop) ranges, a result of market uncertainty over how
aggressively the Fed will raise interest rates. Profits were earned in the soft
sector, in both cotton and sugar. Short positions in the cotton market profited
amidst slack demand from China and bearish overall U.S. export numbers.
Conversely, long positions in the sugar market were helped by a surprising USDA
report noting that sugar stocks would be down an estimated 30.3 million tons, or
21%.
July performance was negative for the Grant Park Fund. Class A units
were down 3.36% for the month while Class B units were down 3.44%. Grant Park's
portfolio of traders encountered another difficult trading environment for their
trend following programs in the global fixed income, currency and equity
sectors. Short positions in European interest rates incurred losses, as
short-term instruments rallied after the European Central Bank declined to raise
interest rates. Prices continued to move higher in the wake of a
weaker-than-expected U.S. employment report, which created concerns that global
economic growth may be slowing. This same report also caused U.S. interest rates
to rally, generating additional losses in Grant Park's short positions.
Additional losses accumulated in the currency sector as the U.S. Dollar rallied.
Short positions in the U.S. Dollar index and long positions in the British Pound
produced losses. The dollar strength was attributed to comments made mid-month
by Alan Greenspan in his appearance before Congress, suggesting that U.S.
economic growth, despite recent signs of weakness, was still strong enough to
warrant additional interest rate hikes by the Federal Reserve. The dollar
rallied further following a report showing that U.S. consumer confidence hit a
two-year high. Finally, long positions in equity markets suffered as prices
weakened amidst weak earnings reports and higher energy prices. Equity markets
were further weakened by investor concerns surrounding the possibility of
another terrorist attack before the November elections in the U.S. Losses were
partially offset by gains in long positions in the energy sector, as prices
continued to rally. Supply concerns and the Yukos scandal in Russia continued to
boost prices. Additional gains were made in short positions in grains as ideal
weather conditions prevailed, suggesting record crops for the year.
Grant Park Futures Fund generated losses in the month of August. Class
A units lost 0.32% while Class B units were down 0.40% for the month. August saw
the continuation of erratic behavior in the markets, lacking any sustained
trends in most market sectors. Losses were suffered in the currency,
agricultural, stock indices and energy sectors while profits were generated in
the interest rate sector. Losses accumulated throughout the currency sector, as
prices moved up and down throughout the month on mixed economic data, volatile
energy prices, and fear of another terrorist attack in the United States at the
Republican National Convention. Positions in the sector were difficult to
establish for any length of time as price behavior was erratic. Short positions
in grains suffered as a surprise cold spell in the northern Midwest raised
worries about possible crop damage and reduction in yields. Parts of North
Dakota and Iowa reported near-freezing temperatures, while temperatures
throughout the month of August approached record historic lows. Additional
losses were generated in long sugar positions as reports of a larger than
expected Brazilian crop prompted prices to drop 6% on the month. Short positions
in orange juice also suffered losses as the damage to the Florida crop from
Hurricane Charley became clear. Losses were also generated in short positions in
stock indices. Global stock indices rallied as crude oil retreated from a
mid-month high of $50 to just over $43 at month's end. Finally, losses were
reported in long positions in crude oil, heating oil and unleaded gas as prices
came off sharply from their mid-month highs amidst reports of increased U.S.
inventories of both gasoline and heating oil and upon the peaceful resolution to
the standoff at the Imam Ali Mosque in Najaf between U.S. forces and followers
of Iraqi cleric Moqtada al-Sadr. On a positive note, interest rates were the
only profitable sector for the month. Long positions in both U.S. and European
bonds generated profits as prices moved higher on weak employment figures
reported in the U.S and additional economic reports suggesting the economy is
not growing as fast as many had anticipated.
After several losing months, performance for the Grant Park Futures
Fund was positive for the month of September. Class A units gained 1.07% while
Class B units gained 0.99% for the month. High energy prices consumed the
economic news for the month as crude oil closed the month at $49.64 per barrel,
up $7.53 for the month. As a result, Grant Park's most significant gains were in
the
15
energy, metals and currency sectors. Long positions in the energy sector
provided Grant Park with its largest gains as prices continued to trend steadily
upward. Declines in U.S. inventories, ongoing disruptions in Iraqi production,
hurricane damage to the refineries in the Gulf of Mexico, as well as growing
civil unrest in Nigeria all contributed to higher prices. Additional profits
accumulated in long positions in the base metals including copper, nickel and
aluminum. Prices moved higher amid evidence of renewed demand from China and
were further supported by a weakening U.S. dollar. Positions in the currency
markets also provided profits as mixed economic reports out of the U.S.
continued to weaken the U.S. dollar. Long positions in both the Euro currency
and Canadian dollar generated profits. Profits generated in the sectors noted
above were partially offset by losses suffered in both the interest rate and
stock indices sectors. Mixed economic reports and uncertainty surrounding the
future of interest rate hikes in both the U.S. and Europe gave way to volatility
in both sectors, generating losses.
Nine months ended September 30, 2003
The third quarter ended September 30, 2003 left Grant Park's portfolio
essentially unchanged with Class A units down 0.17% and Class B units up 0.19%.
The stock indices contributed to the bulk of the profits for the quarter as
better than expected economic statistics and rising corporate earnings fueled
markets globally. The majority of the profits were offset by choppy markets in
the dollar, fixed income, energy and the metals. Consequently, by quarter's end
there were few market opportunities to profit from.
Key trading developments for Grant Park during the first nine months of
2003 include the following:
January was a positive month for Grant Park, as it earned a net return
of approximately 2.72%. The most profitable position for the month was short the
U.S. dollar against global currencies. Geopolitical worries were the primary
cause of the U.S. currency's decline, as the U.S. continued to prepare for
military action in Iraq. These concerns, as well as a continued Venezuelan oil
strike and extended cold weather in the U.S. also led to firm energy prices,
which was profitable for Grant Park's long energy positions. Other profits were
made via gold and European interest rate positions. Losses were incurred in the
soybean complex, which declined in response to a Department of Agriculture
report showing higher-than-expected U.S. production levels. Additional losses
were incurred in U.S. equity and interest rate markets, which fell amid the
growing likelihood of war with Iraq.
February was a strong positive month for Grant Park, as it earned a net
return of approximately 5.77%. Energy was the leading sector as natural gas
posted a 25-month high near the end of the month due to unreasonably cold
weather and inventory depletion. The rest of the energy sector pushed higher
amid supply concerns due to the increased probability of a U.S.-led invasion of
Iraq. These war concerns also spurred safe-haven buying of U.S. and European
government debt prices, which proved to be profitable for Grant Park. Losses for
the month were incurred in gold, the British pound and cocoa.
Grant Park posted a significant loss in March due to the launch of the
war with Iraq, earning a negative net return of 7.47%. Previously profitable
long positions in the energy sector experienced a sharp reversal, as crude oil
dropped 24% in only six trading sessions. Natural gas fell rapidly alongside
crude oil, leading to further losses. Established trends in the government debt
and currency sectors also reversed, forcing liquidations of long-held positions.
Grant Park was able to make some profits in the 10-year Japanese government
bond, U.S. and European interest rate futures, the Canadian dollar and the South
African rand.
Performance for Grant Park was positive during the month of April, with
a net return of 2.57%. A long soybean position proved profitable as the U.S.
Department of Agriculture estimated that domestic physical stocks would reach a
seven-year low before the present crop is harvested in the fall. The rally was
also fueled by speculation that aggressive planting of corn may reduce the
acreage available for soybeans, which would further exacerbate the existing
supply concerns. Profits were also garnered in stock indices, as the U.S.-led
military campaign in Iraq came to a quick conclusion. Losses for the month were
incurred in cotton, which declined amid fears that the spread of SARS in China,
the largest purchaser of U.S. exports, could result in substantially reduced
demand. Additional losses were incurred in corn, which fell as favorable weather
conditions in the midwest caused the planting of the U.S. crop to accelerate.
Grant Park had an exceptionally strong month in May as Grant Park
produced a net return of 9.68%. In the bond market, so-called bull-flattening
trades, involving the purchase of long maturities and the sale of short ones in
belief the long issues will rally, were a developing trend. The federal reserve
expressed concern that the economy was more at risk to deflationary rather than
inflationary pressures, which further triggered the rally in the long-end of the
yield curve. Gains were also made via short positions in the U.S. dollar as
Treasury Secretary Snow made comments perceived to be supportive of a weak U.S.
dollar policy. The Euro in particular showed strength, reaching a four year high
against the dollar. Losses for the month were in corn, as prices reversed when
excessive rain early in the month gave way to more favorable planting conditions
later in the month. The Japanese yen produced additional losses, which fell as a
decrease in industrial production led to new recession fears for the Japanese
economy.
June proved to be a challenging month for the managed futures industry
generally and Grant Park in particular. For June, Grant Park earned a negative
net return of 1.26%. Sharp reversals in the bond market proved costly for most
managers. Grant Park suffered additional losses in the European currencies as
both the Euro and Swiss franc fell against the U.S. dollar amid evidence of an
improving U.S. economy and the Federal Reserve's decision to cut interest rates
by only a quarter-point rather than the point many market participants had
expected. Natural gas also led to losses as the Energy Department reported
record growth in the U.S.
16
inventory levels due to moderate weather throughout the U.S. and historically
high prices. Some losses were offset by profits in the Nikkei, which rallied
amid hopes that an economic recovery in the U.S. would lead to increased
consumer demand for Japanese exports. Additional profits were earned in the S&P
500 as assets moved out of bonds and into stocks.
Grant Park experienced a modest loss for July, with a net loss of
0.49%. The month was highlighted by very few significant losses or gains in any
one particular market or sector. The currency sector however, was our worst
performer with significant losses occurring in Japanese yen trading as choppy
markets led to reversals in our short positions just before the Bank of Japan,
or BOJ, announced they would not allow a strong yen to continue. The BOJ sold 30
Billion yen in July, making it the largest monthly intervention on record.
Additional losses were incurred in New Zealand, Australian and Canadian dollars
as well as the British pound and Euro currency. Profits were generated in long
positions in Stock Indices including the Nikkei, DAX, NASDAQ and the Taiwanese
stock index. The entire global stock index sector continued to climb because of
a mix of better than expected economic statistics, rising corporate earnings and
an improved outlook for the U.S. economy.
August performance was slightly positive with Grant Park posting a
0.19% return for Class A units and 0.12% for Class B units. Upbeat economic data
here in the U.S. led to a surge in global stock prices and supported the U.S.
dollar against most major currencies. Profits were generated in global stock
indices, as the Dow Jones posted its sixth straight monthly gain. This
increasing confidence in the U.S. markets led to strength abroad, particularly
in the Asian markets. The improving economic picture in the U.S. also led to
gains in both long dollar positions and short short-term global fixed income
positions. Losses were incurred in both the base and precious metals with long
positions in zinc proving the most costly. Zinc prices fell in response to an
increase in warehouse inventories. Additional losses were incurred in soybean
oil.
September was another slightly positive month for Grant Park, wrapping
up a quiet quarter. Grant Park's net return for Class A units was 0.13% and
0.06% for Class B units. The Grant Park's diversification across market sectors
and across trading managers played a role this month in Grant Park's slightly
positive performance. Positions in agriculturals and softs proved profitable,
while positions in the financial and energy sectors generated losses. Three of
our four traders posted modest profits while one (Graham) posted a net loss. Our
most profitable trades were in long positions in the soy complex, cotton and the
Japanese yen. Losses were incurred in the fixed income sector and the energy
sector.
OFF-BALANCE SHEET RISK
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. Grant Park trades in futures and other commodity interest
contracts and is therefore a party to financial instruments with elements of
off-balance sheet market and credit risk. In entering into these contracts,
Grant Park faces the market risk that these 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 commodity interest positions of Grant Park at the same time, and if Grant
Park were unable to offset positions, Grant Park could lose all of its assets
and the limited partners would realize a 100% loss. Grant Park minimizes market
risk through real-time monitoring of open positions, diversification of the
portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 25%.
All positions of Grant Park are valued each day on a mark-to-market basis.
In addition to market risk, in entering into commodity interest
contracts there is a credit risk that a counterparty will not be able to meet
its obligations to Grant Park. The counterparty for futures and options on
futures contracts traded in the United States and on most non-U.S. futures
exchanges is the clearing organization associated with such exchange. In
general, clearing organizations are backed by the corporate members of the
clearing organization 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 clearing organization is not backed by the clearing
members, like some non-U.S. exchanges, it is normally backed by a consortium of
banks or other financial institutions.
In the case of forward contracts, over-the-counter options contracts or
swap contracts, which are traded on the interbank or other institutional market
rather than on exchanges, the counterparty is generally a single bank or other
financial institution, rather than on exchanges, the counterparty is generally a
single bank or other financial institution, rather than a central clearing
organization backed by a group of financial institutions. As a result, there
likely will be greater counterparty credit risk in these transactions. Grant
Park trades only with those counterparties that it believes to be creditworthy.
Nonetheless, the clearing member, clearing organization or other counterparty to
these transactions may not be able to meet its obligations to Grant Park, in
which case Grant Park could suffer significant losses on these contracts.
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
Grant Park 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 Grant Park'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 Grant Park's business.
Market movements result in frequent changes in the fair market value of
Grant Park's open positions and, consequently, in its earnings and cash flow.
Grant Park'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 Grant Park's open positions and the liquidity of the markets in
which it trades.
Grant Park 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 performance.
Grant Park's current trading advisors all employ trend-following strategies that
rely on sustained movements in price. Erratic, choppy, sideways trading markets
and sharp reversals in movements can materially and adversely affect Grant
Park's results. Grant Park's past performance is not necessarily indicative of
its future results.
Value at risk is a measure of the maximum amount that Grant Park could
reasonably be expected to lose in a given market sector in a given day. However,
the inherent uncertainty of Grant Park's speculative trading and the recurrence
in the markets traded by Grant Park of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated value at risk or Grant Park's experience to date. This risk is often
referred to as the risk of ruin. 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 Grant Park's losses in any market sector
will be limited to value at risk or by Grant Park's attempts to manage its
market risk. Moreover, value at risk may be defined differently as used by other
commodity pools or in other contexts.
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 Grant
Park's market sensitive instruments.
The following quantitative and qualitative disclosures regarding Grant
Park's market risk exposures contain forward-looking statements. All
quantitative and qualitative disclosures in this section are deemed to be
forward-looking statements, except for statements of historical fact and
descriptions of how Grant Park manages its risk exposure. Grant Park'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, any one of which could cause the actual
results of Grant Park'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 Grant Park. Grant Park's current market exposure
and/or risk management strategies may not be effective in either the short- or
long-term and may change materially.
QUANTITATIVE MARKET RISK
TRADING RISK
Grant Park's approximate risk exposure in the various market sectors
traded by its trading advisors is quantified below in terms of value at risk.
Due to Grant Park's mark-to-market accounting, any loss in the fair value of
Grant Park's open positions is directly reflected in Grant Park's earnings,
realized or unrealized.
Exchange maintenance margin requirements have been used by Grant Park
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 5% to 99% of any one-day
interval. The maintenance margin levels are established by brokers, 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 that is not relevant to value at
risk.
In the case of market sensitive instruments that are not
exchange-traded, including currencies and some energy products and metals in the
case of Grant Park, the margin requirements for the equivalent futures positions
have been used as value at risk. In those
18
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 currency margin amounts converted into U.S.
dollars with an incremental adjustment to reflect the exchange rate risk
inherent to Grant Park, which is valued in U.S. dollars, in expressing value at
risk in a functional currency other than U.S. dollars.
In quantifying Grant Park'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 Grant Park's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
VALUE AT RISK BY MARKET SECTORS
The following tables indicate the trading value at risk associated with
Grant Park's open positions by market category as of September 30, 2004 and
December 31, 2003 and the trading gains/losses by market category for the nine
months ended September 30, 2004 and the year ended December 31, 2003. All open
position trading risk exposures of Grant Park have been included in calculating
the figures set forth below. As of September 30, 2004, Grant Park's net asset
value was approximately $240.2 million. As of December 31, 2003, Grant Park's
net asset value was approximately $67.4 million.
AS OF SEPTEMBER 30, 2004
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN(LOSS)
- ------------- ------------- -------------- ----------
Interest Rates $10,982,055 4.2% (3.0)%
Currencies 5,754,812 2.2 (7.0)
Stock Indices 6,682,086 2.6 (5.1)
Energy 2,533,200 1.0 3.4
Agriculturals 675,700 0.3 2.9
Metals 4,934,349 1.9 0.9
Softs 753,541 0.3 (1.1)
Meats 107,650 0.0 0.2
----------- ---- ----
Total $32,423,393 12.5% (8.8)%
=========== ==== ====
AS OF DECEMBER 31, 2003
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)
- ------------- ------------- -------------- ----------
Interest Rates $ 2,173,842 3.2% 6.3%
Currencies 2,363,583 3.5 17.9
Energy 1,164,900 1.7 (0.2)
Stock Indices 3,595,518 5.3 3.6
Agriculturals 367,150 0.5 1.7
Metals 1,411,432 2.1 4.3
Softs 166,804 0.3 (0.4)
Meats 8,000 0.0 (0.3)
----------- ---- ----
Total $11,251,229 16.6% 32.9%
=========== ==== ====
MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by Grant Park is
typically many times the applicable maintenance margin requirement, which
generally range between approximately 1% and 10% of contract face value, as well
as many times the capitalization of Grant Park. The magnitude of Grant Park'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 Grant Park to incur severe losses over a short period of time. The value
at risk table above, as well as the past performance of Grant Park, gives no
indication of this risk of ruin.
NON-TRADING RISK
Grant Park 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. Grant Park also has non-trading market risk as a
result of investing a substantial portion of its available assets in U.S.
Treasury bills and Treasury repurchase agreements. The market risk represented
by these investments is also immaterial.
19
QUALITATIVE MARKET RISK
TRADING RISK
The following were the primary trading risk exposures of Grant Park as
of September 30, 2004, by market sector. It should be noted that due to the
depth of the recent drawdown, the leverage employed by Grant Park has been
reduced significantly from that which was employed as of December 31, 2003 as
illustrated in the trading value at risk table on the previous page.
Interest Rates
Interest rate risk is the principal market exposure of Grant Park.
Interest rate movements directly affect the price of the futures positions held
by Grant Park 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 Grant Park's profitability.
Grant Park's primary interest rate exposure is due to interest rate fluctuations
in the United States and the other G-7 countries. However, Grant Park also takes
futures positions on the government debt of smaller nations, such as Australia.
The general partner anticipates that G-7 interest rates will remain the primary
market exposure of Grant Park for the foreseeable future. As of September 30,
2004, Grant Park's interest rate exposure was predominantly long positions in a
variety of G-7 countries. Despite recent rate hikes, both intermediate and
long-term interest rate future prices have moved higher.
Currencies
Exchange rate risk is a significant market exposure of Grant Park.
Grant Park's currency exposure is due to exchange rate fluctuations, primarily
fluctuations that 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. Grant Park
trades in a large number of currencies, including cross-rates, which are
positions between two currencies other than the U.S. dollar. The general partner
anticipates that the currency sector will remain one of the primary market
exposures for Grant Park for the foreseeable future. As of September 30, 2004,
Grant Park was positioned to benefit from the effects of a weakening dollar
against most major and minor currencies.
Energy
Grant Park's primary energy market exposure is due to gas and oil price
movements, often resulting from political developments in the Middle East,
Nigeria, Russia and Venezuela. As of September 30, 2004, the energy market
exposure of Grant Park consisted of minor long positions in crude oil, natural
gas and crude products. These positions were approximately equally weighted. 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
Grant Park's primary equity exposure is due to equity price risk in the
G-7 countries as well as other jurisdictions including Hong Kong, Taiwan, and
Australia. The stock index futures contracts currently traded by Grant Park are
generally limited to futures on broadly based indices, although Grant Park may
trade narrow-based stock index futures contracts in the future. As of September
30, 2004, Grant Park's primary exposures were in the Hang Seng (long), FTSE
(long) and Australian (long) stock indices. Grant Park is primarily exposed to
the risk of adverse price trends or static markets in the major U.S., European
and Asian indices. Static markets would not cause major market changes but would
make it difficult for Grant Park to avoid being "whipsawed" into numerous small
losses.
Metals
Grant Park's metals market exposure is due to fluctuations in the price
of both precious metals, including gold and silver, as well as base metals
including aluminum, copper, nickel and zinc. As of September 30, 2004, long
positions in gold and silver accounted for Grant Park's metal exposure in the
precious metals while long positions in both copper and aluminum represented
Grant Park's significant exposure in the base metals.
Agricultural / Softs
Grant Park's primary commodities exposure is to agricultural price
movements, which are often directly affected by severe or unexpected weather
conditions. The soybean complex and corn accounted for Grant Park's short
commodity exposure while sugar accounted for Grant Park's only long position as
of September 30, 2004.
20
NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of Grant Park as
of September 30, 2004.
Foreign Currency Balances
Grant Park's primary foreign currency balances are in Japanese yen,
British pounds, Euros and Australian dollars. The trading advisors regularly
convert foreign currency balances to U.S. dollars in an attempt to control Grant
Park's nontrading risk.
Cash Management
Grant Park maintains a portion of its assets at its clearing brokers,
as well as at Harris Trust & Savings Bank and Lake Forest Bank & Trust Company.
These assets, which may range from 5% to 25% of the fund's value, are held in
U.S. Treasury securities and/or Treasury repurchase agreements. The balance of
Grant Park's assets, which range from 75% to 95%, are invested in investment
grade money market investments purchased at Horizon Cash Management, LLC which
are held in a separate, segregated account at Northern Trust Company. Violent
fluctuations in prevailing interest rates could cause immaterial mark-to-market
losses on Grant Park's cash management income.
MANAGING RISK EXPOSURE
The general partner monitors and controls Grant Park's risk exposure on
a daily basis through financial, credit and risk management monitoring systems
and, accordingly, believes that it has effective procedures for evaluating and
limiting the credit and market risks to which Grant Park is subject.
The general partner monitors Grant Park's performance and the
concentration of its open positions and consults with the trading advisors
concerning Grant Park's overall risk profile. If the general partner felt it
necessary to do so, the general partner could require the trading advisors to
close out individual positions as well as enter positions traded on behalf of
Grant Park. However, any intervention would be a highly unusual event. The
general partner primarily relies on the trading advisors' own risk control
policies while maintaining a general supervisory overview of Grant Park's market
risk exposures. The trading advisors apply their own risk management policies to
their trading. The trading advisors often follow diversification guidelines,
margin limits and stop loss points to exit a position. The trading advisors'
research of risk management often suggests ongoing modifications to their
trading programs.
As part of the general partner's risk management, the general partner
periodically meets with the trading advisors to discuss their risk management
and to look for any material changes to the trading advisors' portfolio balance
and trading techniques. The trading advisors are required to notify the general
partner of any material changes to their programs.
GENERAL
From time to time, certain regulatory or self-regulatory organizations
have proposed increased margin requirements on futures contracts. Because Grant
Park generally will use a small percentage of assets as margin, Grant Park does
not believe that any increase in margin requirements, as proposed, will have a
material effect on Grant Park's operations.
21
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the general partner
carried out an evaluation, under the supervision and with the participation of
the general partner's management, including its principal executive officer and
principal financial officer, of the effectiveness of the design and operation of
Grant Park's disclosure controls and procedures as contemplated by Rule 13a-15
of the Securities Exchange Act, as amended. Based on and as of the date of that
evaluation, the general partner's principal executive officer and principal
financial officer concluded that Grant Park's disclosure controls and procedures
are effective, in all material respects, in timely alerting them to material
information relating to Grant Park required to be included in the reports filed
or submitted by Grant Park under the Securities Exchange Act of 1934.
There was no change in Grant Park's internal control over financial
reporting in the quarter ended September 30, 2004 that has materially affected
or is reasonably likely to materially affect Grant Park's internal control over
financial reporting.
PART II- OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 30, 2003, the Securities and Exchange Commission declared
effective Grant Park's Registration Statement on Form S-1 (Reg. No.
333-104317), pursuant to which Grant Park registered for public
offering $20,000,000 in aggregate amount of Class A Limited Partnership
Units and $180,000,000 in aggregate amount of Class B Limited
Partnership Units. Also as of June 30, 2003, Grant Park adopted the
Third Amended and Restated Limited Partnership Agreement, which
included modifications required under the Guidelines for the
Registration of Commodity Pool Programs promulgated by the North
American Securities Administrators Association, Inc. and requested by
various state securities regulators in connection with Grant Park's
public offering. On April 1, 2004, the Securities and Exchange
Commission declared effective the Partnership's Registration Statement
on Form S-1 (Reg. No. 333-113297), pursuant to which the Partnership
registered for public offering an additional $50,500,000 in aggregate
amount of Class A Limited Partnership Units and an additional
$177,000,000 in aggregate amount of Class B Limited Partnership Units.
Class A Limited Partnership Units and Class B Limited Partnership Units
are being offered on a continuous basis at subsequent closing dates at
a price equal to the net asset value per unit as of the close of
business on each applicable closing date, which is the last business
day of each month. The close of business on July 31, 2003 marked the
initial closing date of the public offering. The lead selling agents
for the offering are UBS Financial Services Inc., A.G. Edwards & Sons,
Inc. and Oppenheimer & Co. Inc. As of the close of business on July 1,
2004, the Class A Limited Partnership Units were offered at $1,019.53
with 2,497.57 units being sold, and the Class B Limited Partnership
Units were offered at $915.32 with 19,520.62 units being sold. As of
the close of business on August 1, 2004, the Class A Limited
Partnership Units were offered at $985.24 with 1,482.99 units being
sold, and the Class B Limited Partnership Units were offered at $883.87
with 12,790.61 units being sold. As of the close of business on
September 1, 2004, the Class A Limited Partnership Units were offered
at $982.09 with 1,024.55 units being sold, and the Class B Limited
Partnership Units were offered at $880.38 with 10,709.00 units being
sold. Expenses incurred in connection with the organization and
offering of the units, which are paid by the general partner and then
reimbursed by Grant Park on a monthly basis (with such reimbursement
limited to 0.1% annually through March 31, 2004 and 0.2% annually after
April 1, 2004 of the net asset value of the Class A Units and 0.9%
annually of the Class B Units) amounted to a total of approximately
$387,535 for the three months ended September 30, 2004 and $878,246 for
the nine months ended September 30, 2004. The proceeds of the offering
are deposited in Grant Park's bank and brokerage accounts for the
purpose of engaging in trading activities in accordance with Grant
Park's trading policies and its trading advisors' respective trading
strategies.
22
ISSUER PURCHASES OF EQUITY SECURITIES
(e) The following table provides information regarding the total Class A and
Class B units redeemed by Grant Park during the three months ended September 30,
2004.
(A) (B) (A) (B) (C) (D)
MAXIMUM
TOTAL NUMBER OF NUMBER OF UNITS
TOTAL NUMBER TOTAL NUMBER UNITS REDEEMED AS THAT MAY YET BE
OF CLASS A AVERAGE OF CLASS B AVERAGE PART OF PUBLICLY REDEEMED UNDER
UNITS PRICE PAID UNITS PRICE PAID ANNOUNCED PLANS OR THE
PERIOD REDEEMED PER UNIT REDEEMED PER UNIT PROGRAMS (1) PLANS/PROGRAM(1)
07/01/04 1,942.85 $985.24 537.73 $883.87 2,480.58 (2)
through
07/31/04
08/01/04 126.58 $982.09 609.70 $880.38 736.28 (2)
through
08/31/04
09/01/04 590.14 $992.58 683.28 $889.11 1,273.42 (2)
through -------- ------- -------- ------- --------
09/30/04
TOTAL 2,659.57 $986.64 1,830.71 $884.45 4,490.28 (2)
======== ======= ======== ======= ========
_________________
(1) As previously disclosed, pursuant to Grant Park's Limited Partnership
Agreement, investors in Grant Park may redeem their units for an amount equal to
the net asset value per unit at the close of business on the last business day
of any calendar month if at least 10 days prior to the redemption date, or at an
earlier date if required by the investor's selling agent, the General Partner
receives a written request for redemption from the investor. The General Partner
may permit earlier redemptions in its discretion.
(2) Not determinable.
23
ITEM 6. EXHIBITS
(A) EXHIBITS
31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT
TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT
OF 1934
31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT
TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT
OF 1934
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
24
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.
GRANT PARK FUTURES FUND
LIMITED PARTNERSHIP
Date: November 15, 2004 by: Dearborn Capital Management, L.L.C.
its general partner
By: /s/ David M. Kavanagh
-------------------------
David M. Kavanagh
President
(principal executive officer)
By: /s/ Maureen O'Rourke
-------------------------
Maureen O'Rourke
Chief Financial Officer
(principal financial and accounting officer)
25