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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2005
|_| 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.
555 WEST JACKSON BOULEVARD, SUITE 600
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 MARCH 31, 2005
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Statements of Financial Condition as of March 31, 2005 (unaudited) 1
and December 31, 2004 (audited)
Condensed Schedule of Investments as of March 31, 2005 (unaudited) 2
Condensed Schedule of Investments as of December 31, 2004 (audited) 3
Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited) 4
Statements of Changes in Partners' Capital (Net Asset Value) 5
for the three months ended March 31, 2005 (unaudited)
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 23
PART II - OTHER INFORMATION 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 6. Exhibits 25
SIGNATURES 26
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2005 2004
-------------------- ------------------
(UNAUDITED)
ASSETS
Equity in brokers' trading accounts:
U.S. Government securities, at market value................. $ 59,879,600 $ 57,437,059
Cash (Margin)............................................... (5,394,304) 943,051
Unrealized gain on open contracts, net...................... 7,366,099 4,511,895
------------ ------------
Deposits with broker...................................... 61,851,395 62,892,005
Cash and cash equivalents...................................... 243,489,260 240,897,745
Interest receivable............................................ 734,906 842,052
------------ ------------
TOTAL ASSETS.............................................. $306,075,561 $304,631,802
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Brokerage commission payable................................ $ 1,881,645 $ 1,813,714
Accrued incentive fees...................................... 671,156 1,529,181
Organization and offering costs payable..................... 184,897 178,827
Accrued operating expenses.................................. 87,443 85,541
Pending partner additions................................... 6,063,337 9,831,841
Redemptions payable......................................... 3,477,524 1,538,667
------------ ------------
TOTAL LIABILITIES......................................... 12,366,002 14,977,771
============ ============
Partners' Capital
General Partner (2,702.81 and 2,512.60 units outstanding at
March 31, 2005 and December 31, 2004, respectively)...... 2,885,847 2,772,714
Limited Partners
Class A (59,673.15 and 60,634.01 units outstanding at
March 31, 2005 and December 31, 2004, respectively).... 63,714,383 66,911,179
Class B (238,587.31 and 223,055.67 units outstanding at
March 31, 2005 and December 31, 2004, respectively).... 227,109,329 219,970,138
------------ ------------
TOTAL PARTNERS' CAPITAL................................ 293,709,559 289,654,031
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL................ $306,075,561 $304,631,802
============ ============
The accompanying notes are an integral part of these financial statements.
2
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
MARCH 31, 2005
(UNAUDITED)
NET UNREALIZED
UNREALIZED GAIN/(LOSS) UNREALIZED GAIN/(LOSS) GAIN/(LOSS) ON OPEN
ON OPEN LONG CONTRACTS ON OPEN SHORT CONTRACTS CONTRACTS
---------------------- ----------------------- -------------------
FUTURES CONTRACTS *
U.S. Futures Positions:
Currencies............................ $(2,222,550) $1,072,789 $(1,149,761)
Energy................................ 1,478,352 1,110 1,479,462
Grains................................ 1,060,282 (5,902) 1,054,380
Interest rates........................ 3,227 3,594,851 3,598,078
Meats................................. (56,540) (6,870) (63,410)
Metals................................ 99,943 (186,335) (86,392)
Soft commodities...................... 1,586,966 (47,034) 1,539,932
Stock indices......................... (102,725) (114,972) (217,697)
----------- ---------- -----------
Total U.S. Futures Positions............. 1,846,955 4,307,637 6,154,592
Foreign Futures Positions:
Energy................................ 564,595 - 564,595
Interest rates........................ 1,644,696 1,865,220 3,509,916
Metal................................. 1,064,853 (166,956) 897,897
Soft commodities...................... 5,898 (3,710) 2,188
Stock indices......................... (957,049) (44,747) (1,001,796)
----------- ---------- -----------
Total Foreign Futures Positions.......... 2,322,993 1,649,807 3,972,800
----------- ---------- -----------
TOTAL FUTURES CONTRACTS.................. $ 4,169,948 $5,957,444 $10,127,392
=========== ========== ===========
FORWARD CONTRACTS, *
Currencies............................ $(3,984,916) $1,223,623 $(2,761,293)
=========== ========== ===========
TOTAL FUTURES AND FORWARD CONTRACTS...... $ 185,032 $7,181,067 $ 7,366,099
=========== ========== ===========
- ------------------------------------
* No futures and forward contract positions constituted greater than 1
percent of partners' capital. Accordingly, the number of contracts and
expiration dates are not presented.
U.S. Government Securities:
PERCENT OF
FACE VALUE VALUE PARTNERS' CAPITAL
- ---------- ----------- -----------------
$60,000,000 U.S. Treasury Bills, April 28, 2005 $59,879,600 20.4%
-----------
Total U.S. Government Securities (cost $59,650,921) $59,879,600
===========
The accompanying notes are an integral part of these financial statements.
3
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
NET UNREALIZED
ON OPEN LONG CONTRACTS ON OPEN SHORT CONTRACTS CONTRACTS
---------------------- ----------------------- -------------------
FUTURES CONTRACTS *
U.S. Futures Positions:
Currencies.................. $ 684,199 $ 2,981 $ 687,180
Energy...................... - 453,758 453,758
Grains...................... 13,245 (90,050) (76,805)
Interest rates.............. (71,700) 186,450 114,750
Meats....................... 113,140 - 113,140
Metals...................... (603,600) 48,505 (555,095)
Soft commodities............ 1,408,061 (58,098) 1,349,963
Stock indices............... 2,205,125 (12,170) 2,192,955
----------- ----------- -----------
Total U.S. Futures Positions... 3,748,470 531,376 4,279,846
Foreign Futures Positions:
Energy...................... 187 66,220 66,407
Interest rates.............. 419,624 (4,782) 414,842
Metals...................... 2,036,320 (1,447,590) 588,730
Soft commodities............ - 3,396 3,396
Stock indices............... 2,707,305 - 2,707,305
----------- ----------- -----------
Total Foreign Futures
Positions................... 5,163,436 (1,382,756) 3,780,680
----------- ----------- -----------
TOTAL FUTURES CONTRACTS........ $ 8,911,906 $ (851,380) $ 8,060,526
=========== =========== ===========
FORWARD CONTRACTS, *
Currencies.................. $ 2,755,856 $(6,304,487) $(3,548,631)
=========== =========== ===========
TOTAL FUTURES AND
FORWARD CONTRACTS........... $11,667,762 $(7,155,867) $ 4,511,895
=========== =========== ===========
- ------------------------------------
* No futures and forward contract positions constituted greater than 1
percent of partners' capital. Accordingly, the number of contracts and
expiration dates are not presented.
U.S. Government Securities:
PERCENT OF
FACE VALUE VALUE PARTNERS' CAPITAL
- ---------- ----------- -----------------
$57,516,000 U.S. Treasury Bills, January 27, 2005 $57,437,059 19.8%
-----------
Total U.S. Government Securities (cost $57,444,344) $57,437,059
===========
The accompanying notes are an integral part of these financial statements.
4
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2005 2004
----------- -----------
(UNAUDITED)
INCOME.........................................
Trading gains (losses)......................
Realized.................................. $(7,352,581) $ 9,811,263
Change in unrealized...................... 2,854,203 605,735
----------- -----------
Net gains/(losses) from trading...... (4,498,378) 10,416,998
Interest income............................. 1,651,711 272,073
----------- -----------
TOTAL INCOME/(LOSS).................. (2,846,667) 10,689,071
----------- -----------
EXPENSES.......................................
Brokerage commission........................ 5,828,405 2,413,105
Incentive fees.............................. 671,156 1,706,724
Operating expenses.......................... 256,876 314,797
----------- -----------
TOTAL EXPENSES....................... 6,756,437 4,434,626
----------- -----------
NET INCOME/(LOSS).................... $(9,603,104) $ 6,254,445
=========== ===========
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 TOTAL
OF UNITS AMOUNT OF UNITS AMOUNT OF UNITS AMOUNT AMOUNT
--------- --------- --------- ---------- ---------- ------------ ------------
Partners' capital,
December 31, 2004............ 2,512.60 $2,772,714 60,634.01 $66,911,179 223,055.67 $219,970,138 $289,654,031
Contributions................ 190.21 205,000 2,659.95 2,913,020 21,242.39 20,342,052 23,460,072
Redemptions.................. -- -- (3,620.81) (3,848,370) (5,710.75) (5,413,043) (9,261,413)
Offering Costs............... -- -- -- (34,432) -- (505,595) (540,027)
Net income/(loss)............ -- (91,867) -- (2,227,014) -- (7,284,223) (9,603,104)
-------- ----------- --------- ----------- ---------- ------------ ------------
Partners' capital,
March 31, 2005 (unaudited)... 2,702.81 $2,885,847 59,673.15 $63,714,383 238,587.31 $227,109,329 $293,709,559
Net asset value per unit at
January 1, 2005.............. $ 1,103.53 $ 986.17
=========== ============
Decrease in net asset value per
unit for the period
January 1 to March 31, 2005
(unaudited)................... (35.81) (34.28)
----------- ------------
Net asset value per unit
at March 31, 2005
(unaudited).................. $ 1,067.72 $ 951.89
=========== ============
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 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 million in aggregate amount of
Class A Limited Partnership Units and $180 million 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. The Partnership
subsequently registered up to an additional $200 million in aggregate of Class A
and Class B units for sale on a Registration Statement on Form S-1 (Reg. No.
333-113297) on March 30, 2004, and an additional $700 million in aggregate of
Class A and Class B units for sale on a Registration Statement on Form S-1 (File
No. 333-119338) on December 1, 2004 (the "Registration Statement").
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 of 1933, as
amended (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 purchasers of units in such offering made representations
as to their intention to acquire the units 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 units indefinitely and generally, as to their qualification
as accredited investors under the Securities Act and Regulation D promulgated
thereunder. Further, such units were restricted as to their transferability.
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 March 31, 2005 and the results of operations for the
three months ended March 31, 2005 and 2004.
The Partnership considered the following accounting policies as
significant to it:
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 unrealized 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
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.
7
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.
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. Effective April 1, 2004, Class A units bear organization and
offering expenses at an annual rate of 20 basis points (0.20 percent) of the
adjusted net assets of the Class A units, calculated and payable monthly on the
basis of month-end adjusted net assets. Class B units bear these expenses at an
annual rate of 90 basis points (0.90 percent) of the adjusted net assets of the
Class B units, calculated and payable monthly on the basis of month-end adjusted
assets. "Adjusted net assets" is defined as the month-end net assets of the
particular class before accruals for fees and expenses and redemptions. 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 March 31, 2005, the amount of unreimbursed
organization and offering costs incurred by the General Partner is $289,308.
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 March 31, 2005, 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. 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"). The Advisors are paid a quarterly management fee ranging from 0
percent to 2 percent per annum of the Partnership's month-end allocated net
assets and a quarterly incentive fee ranging from 20 percent to 24 percent of
the new trading profits on the allocated net assets of the Advisor.
NOTE 4. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
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 North American Securities
Administrators Association, Inc. (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 percent of the total capital contributions of all partners and
all limited partnerships to which it is a general partner (including the
Partnership) plus 5 percent 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
8
net worth in excess of $1,000,000 or such other maximum amount satisfying the
requirements then imposed by the NASAA Guidelines.
Effective June 1, 2003, 10 percent of the General Partner limited
partnership interest in the Grant Park Futures Fund Limited Partnership is
characterized as a general partnership interest. Notwithstanding, the general
partnership interest will continue to pay all fees associated with a limited
partnership interest.
The Partnership pays the General Partner a monthly brokerage commission
equal to one twelfth of 7.75 percent (7.75 percent annualized) of month-end net
assets for Class A units and one twelfth of 8.00 percent (8.00 percent
annualized) of month-end net assets for Class B units. Included in the brokerage
commission are amounts paid to the clearing brokers for execution and clearing
costs, management fees paid to the Advisors, compensation to the selling agents
and an amount to the General Partner for management services rendered.
NOTE 5. OPERATING EXPENSES
Operating expenses of the Partnership are limited by the Amended
Agreement of Limited Partnership to 0.35 percent per year of the average
month-end net assets of the Partnership.
NOTE 6. 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 7. 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 MARCH 31,
--------------------------------
2005 2004
-------------- --------------
(UNAUDITED)
Total return - A Units (3.24)% 6.22%
Total return - B Units (3.48)% 6.01%
Ratios as a percentage of average net assets:
Interest income * 2.30% 1.20%
Expenses * 9.42% 19.60%
*Annualized
The interest income and total expense ratios above are computed based
upon the weighted average net assets of the Partnership for the three months
ended March 31, 2005 and 2004 (annualized).
The following per unit performance calculations reflect activity
related to the Partnership for the period January 1, 2005 to March 31, 2005.
A UNITS B UNITS
--------- -------
Per Unit Performance
(for unit outstanding throughout the entire period):
Net asset value per unit at beginning of period.............. $1,103.53 $986.17
--------- -------
Income (loss) from operations:
Net realized and change in unrealized gain/(loss) from
trading................................................ (16.91) (15.03)
Expenses net of interest income........................... (18.35) (17.05)
-------- -------
Total income/(loss) from operations.................... (35.26) (32.09)
Organization and offering costs.............................. (0.55) (2.19)
--------- -------
Net asset value per unit at end of period.................... $1,067.72 $951.89
========= =======
- ------------------------------------
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, 2005 to March 31,
2005. 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 8. 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.
Net trading results from derivatives for the three months ended March
31, 2005 and 2004, 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.
10
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 Partnership. 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 9. SUBSEQUENT EVENT
From April 1, 2005 to May 16, 2005, there were aggregate contributions
to and redemptions from the Partnership totaling approximately $12,240,000 and
$5,904,000, 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, Graham Capital
Management, L.P., Winton Capital Management Limited and Saxon Investment
Corporation serve as Grant Park's commodity trading advisors. Each of the
trading advisors is registered as a commodity trading advisor under the
Commodity Exchange Act and is a member of the NFA. As of March 31, 2005, the
general partner allocated Grant Park's net assets among the trading advisors as
follows: 21% to Rabar, 20% to EMC, 8% to ETC, 21% to Graham, 19% to Winton and
11% 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. Grant Park subsequently registered up to
an additional $200 million in aggregate of Class A and Class B units for sale on
a Registration Statement on Form S-1 on March 30, 2004, and an additional $700
million in aggregate of Class A and Class B units for sale on a Registration
Statement on Form S-1 on December 1, 2004. 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 are 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 does
not make any capital expenditures and does not have any 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 be highly liquid.
12
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 March 31, 2005 was
approximately (3.24)% for the Class A units and (3.48)% for the Class B units.
The net asset value at March 31, 2005 was approximately $293.7 million, at
December 31, 2004 was approximately $289.7 million and at March 31, 2004 was
approximately $153.2 million.
The table below sets forth Grant Park's trading gains or losses by
sector for the three month periods ended March 31, 2005 and 2004.
% GAIN (LOSS)
----------------------------------
THREE MONTHS ENDED
MARCH 31
----------------------------------
SECTOR 2005 2004
- ------------------ ---------------- ---------------
Interest Rates 1.6% 2.9%
Currencies (4.2) (1.3)
Stock Indices (0.5) (0.3)
Energy 0.9 0.9
Agriculturals 1.0 4.8
Metals (0.6) 3.1
Softs 0.6 0.1
Meats (0.2) 0.1
Miscellaneous (0.1) (0.1)
---- ----
Total (1.5)% 10.2%
==== ====
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004
For the three months ended March 31, 2005, Grant Park had a negative
return of approximately 3.2% for the Class A units and 3.5% for the Class B
units. On a combined unit basis prior to expenses, approximately 1.5% resulted
from trading losses which was offset by 0.6% of interest income. These trading
losses were further increased by approximately 2.5% in brokerage fees,
performance fees and operating and offering costs borne by Grant Park. For the
same period in 2004, Grant Park had a positive return of approximately 6.2% for
the Class A units and a positive return of 6.0% for the Class B units. On a
combined unit basis prior to expenses, approximately 10.2% resulted from trading
gains and approximately 0.2% was due to interest income. An offset of
approximately 4.3% was the result of brokerage fees, performance fees and
operating and offering costs borne by Grant Park.
Three months ended March 31, 2005
During the first quarter of 2005, Grant Park Class A units suffered
losses of 3.24% while Class B units lost 3.48%. The bulk of the quarter's losses
were attributable to the currency markets. Having finished 2004 with a strong
fourth quarter, Grant Park entered the new year positioned to benefit from
continued dollar weakness. During the quarter, however, Grant Park saw the
dollar rally substantially. A Central Bank official from Hong Kong reiterated
the dollar's position as a reserve currency. Simultaneously, polls out of Europe
saw support for the European constitution slipping, indicating the Euro might
become a currency without a "country". This dollar strength also gave rise to
weaknesses in the precious metals as they had been rallying in sympathy with the
weak dollar.
Profits were made in the energy markets as crude continued its rally on
Goldman Sachs' prediction of the possibility of a price spike of up to $105 a
barrel. Initially, the soybean complex offset some losses as the markets
rallied. Poor growing conditions in Brazil and strong USDA export numbers
coupled with the potential of a "rust" (soybean fungus) problem facing the US
crop provided a bid to the soybean and soybean oil markets.
Key trading developments for Grant Park during the first three months
of 2005 include the following:
Grant Park's performance was negative for the first month of the New
Year. Class A units were down 5.96% for the month while Class B units were down
6.04%. Losses were sustained across most sectors, with the most significant
losses sustained in the currency and stock index sectors. Short U.S. dollar/long
European currency positions were hit hard as the U.S. dollar saw its largest
gain against the euro since May of 2001 and finished the month up 3.8% over the
euro. The U.S. dollar strengthened as economic data released throughout the
month provided evidence that the U.S. economy would grow faster than its
European counterparts. The dollar was further strengthened following the release
of the FOMC (Federal Open Market Committee) minutes from December, which proved
more hawkish than prior market expectations, suggesting that the Fed may be more
aggressive in tightening interest rates. As a result, positions in the currency
sector were pared back and/or reversed going in to February. U.S. stock indices
retreated as the threat of higher interest rates weighed heavily on investors'
minds. Long positions in both the S&P 500 Index
13
and the Nasdaq 100 posted losses. Long Hang Seng positions also were
unprofitable as shares sold off on worries of capital outflows following the
swift U.S. dollar rebound. Additional losses occurred in the metals, energy and
agricultural/soft sectors, while modest profits were posted in the financial
(fixed income) sector.
Grant Park was profitable for the month of February. Grant Park A units
were up 3.42% for the month while the B units were up 3.34% for the month.
Profits were concentrated in the stock indices and agricultural/softs sectors,
with additional profits in the metals and currency sectors. Losses were
attributed to the fixed income sector, while the energy sector was virtually
flat. Long positions in global stock indices benefited as strong gains in oil
and mining stocks dominated index returns. Net long positions in the grain
markets also proved profitable as prices rose amidst forecasts of a continued
hot and dry weather pattern across Brazil's primary growing regions, which would
harm crop yields. Additionally, at month's end the USDA reported a stronger than
expected export number which also contributed to higher prices. Soybeans and
soybean oil led the rally, increasing more than 17% for the month. Dollar
weakness helped support metal prices, adding modest gains to the Fund's long
positions. The continued weakness in the U.S. dollar also benefited the Fund's
currency positions, with the most notable winning positions in the sector being
long the "commodity" currencies including the Mexican Peso, Australian Dollar
and New Zealand Dollar. While short-term interest rate positions were
profitable, long term rate positions experienced significant losses creating net
losses for the fixed income sector as a whole. The yield curve in the U.S.
finally steepened after Alan Greenspan's testimony before Congress about the
"conundrum" posed by the decline in forward rates, generating losses for the
Fund's long positions in both the 30-year and 10-year bond.
March performance was slightly negative for Grant Park. Class A units
were down 0.51% while the B units were down 0.59%. Grant Park's most significant
losses were in the currency sector. Long positions in foreign currencies
accumulated losses as concerns over inflation sparked a massive rally in the
U.S. dollar near month's end. After the Fed raised short-term interest rates
another quarter point on the 22nd of the month, the markets focused on the
statements made by the Fed indicating that they are more concerned by the threat
of raising inflation than was previously thought. This increased speculation
that the Fed may become more aggressive and less "measured" in its approach to
increasing interest rates in the near future. Long positions in stock indices
also sustained losses as a result of the Fed's comments and as higher energy
prices weighed on the indices. U.S. equities were further damaged by news that
General Motors' 2005 earnings would fall short of estimates, as well as the
accounting scandal being uncovered at American International Group. Additional
losses were incurred in the metals markets, most notably in long positions in
silver and gold as the stronger U.S. dollar made them less attractive holdings.
Profits were generated in long positions in the energy sector as prices ended
the month stronger. Prices were boosted on the last day of the month following
comments from Goldman Sachs warning that ongoing resilient demand could push
crude prices as high as $105 per barrel. Additional profits were generated in
the interest rate sector, particularly in short positions in U.S short-term
interest rate positions, as prices fell following the seventh consecutive
interest rate hike by the Fed, as noted above.
Three months ended March 31, 2004
The first quarter of 2004 proved profitable as the Grant Park Fund A
units earned 6.22% while the B units earned 6.01%. The dominant themes in a
volatile three month period were the weakness in the US dollar and Chinese
demand for industrial metals and commodities. Early in the quarter the US dollar
continued its downward spiral as the British Pound made an 11 year high against
the US currency. At the same time, the Chinese economy continued its strong
expansion. This expansion continued to fuel demand for grains, base metals and
energy. Late in the quarter, however, factors that had contributed to earlier
profits were beginning to ease causing reversals in some of the Fund's
profitable positions. Perceptions that the Federal Reserve could raise interest
rates caused a reversal in the dollar's weakness. The dollar's strength resulted
in losses in the Fund's currency positions and its base metals positions. Market
participants perceived a weakening of demand for the base metals as their dollar
dominated price started to increase. Additionally, there were fears that the
long time monetary easing by central banks around the globe was finally coming
to an end which would in turn translate into a possible slow down in demand for
a wide range of commodities and metals.
Key trading developments for Grant Park during the first three months
of 2004 include the following:
The first month of 2004 was slightly profitable for Grant Park. 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
14
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.
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 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.
15
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 95% 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
16
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 March 31, 2005 and December
31, 2004 and the trading gains/losses by market category for the three months
ended March 31, 2005 and the year ended December 31, 2004. All open position
trading risk exposures of Grant Park have been included in calculating the
figures set forth below. As of March 31, 2005, Grant Park's net asset value was
approximately $293.7 million. As of December 31, 2004, Grant Park's net asset
value was approximately $289.7 million.
AS OF MARCH 31, 2005
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)
- -------------------- ------------------ --------------- -----------
Interest Rates $10,607,147 3.6% 1.6%
Currencies 5,268,056 1.8 (4.2)
Stock Indices 10,692,106 3.6 (0.5)
Energy 4,173,950 1.4 0.9
Agriculturals 1,980,775 0.7 1.0
Metals 4,540,977 1.6 (0.6)
Softs 2,139,948 0.7 0.6
Meats 71,400 0.0 (0.2)
----------- ---- ----
Total $39,474,359 13.4% (1.4)%
=========== ==== ====
AS OF DECEMBER 31, 2004
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)
- -------------------- ------------------ --------------- -----------
Interest Rates $ 8,943,877 3.1% (1.0)%
Currencies 7,401,073 2.6 1.3
Energy 2,164,690 0.7 3.2
Stock Indices 15,487,840 5.3 (1.2)
Agriculturals 1,252,525 0.4 2.1
Metals 3,211,874 1.1 (1.0)
Softs 1,800,497 0.6 (1.0)
Meats 194,000 0.1 0.3
----------- ---- ----
Total $40,456,376 13.9% 2.7%
=========== ==== ====
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 ranges 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.
17
QUALITATIVE MARKET RISK
TRADING RISK
The following were the primary trading risk exposures of Grant Park as
of March 31, 2005, by market sector.
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 March 31, 2005,
Grant Park's interest rate exposure varied depending on the continent. Short
positions across the curve can be found in both Australia and the USA,
anticipating rising interest rate levels. However, in Europe positions are
predominantly long across the curve, anticipating lower interest rates.
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 March 31, 2005, Grant
Park was positioned to benefit from the effects of a strengthening 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 March 31, 2005, the energy market exposure
of Grant Park consisted of minor long positions in crude oil, natural gas and
crude products. 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 March 31,
2005, Grant Park's primary exposures were in the Paris CAC-40 (long), Australian
Index 200 (long), Hang Seng (short), FTSE (long), Nikkei (long), NASDAQ (short)
and Euro Stoxx (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 March 31, 2005, modest short
positions in gold 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, corn, orange juice and coffee accounted for
Grant Park's long commodity exposure while sugar accounted for Grant Park's
short positions as of March 31, 2005.
NON-TRADING RISK EXPOSURE
18
The following were the only non-trading risk exposures of Grant Park as
of March 31, 2005.
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 non-trading risk.
Cash Management
Grant Park maintains a portion of its assets at its clearing brokers as
well as at Lake Forest Bank & Trust Company. These assets, which may range from
5% to 25% of Grant Park'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.
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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 of 1934, 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 required to be filed or submitted by Grant Park with the SEC under the
Exchange Act.
There was no change in Grant Park's internal control over financial
reporting in the quarter ended March 31, 2005 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 million in aggregate amount of Class A Limited Partnership
Units and $180 million 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. Grant Park subsequently registered up to an additional
$200 million in aggregate amount of Class A and Class B Limited
Partnership Units for sale on a Registration Statement on Form S-1
(Reg. No. 333-113297) on March 30, 2004, and an additional $700 million
in aggregate amount of Class A and Class B Limited Partnership Units
for sale on a Registration Statement on Form S-1 (File No. 333-119338)
on December 1, 2004.
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 January
1, 2005, the Class A Limited Partnership Units were offered at
$1,103.53 with 2,198.42 units being sold, and the Class B Limited
Partnership Units were offered at $986.17 with 7,509.71 units being
sold. As of the close of business on February 1, 2005, the Class A
Limited Partnership Units were offered at $1,037.73 with 210.08 units
being sold, and the Class B Limited Partnership Units were offered at
$926.63 with 6,908.87 units being sold. As of the close of business on
March 1, 2005, the Class A Limited Partnership Units were offered at
$1,073.23 with 441.66 units being sold, and the Class B Limited
Partnership Units were offered at $957.57 with 6,823.81 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 0.2% annually 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 $258,912 for the three months ended March 31, 2005. 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.
20
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 March 31,
2005.
(a) (b) (a) (b) (c) (d)
MAXIMUM
NUMBER
OF
TOTAL NUMBER TOTAL NUMBER TOTAL NUMBER OF UNITS UNITS THAT MAY YET
OF CLASS A AVERAGE OF CLASS B AVERAGE REDEEMED AS PART OF BE REDEEMED UNDER
UNITS PRICE PAID UNITS PRICE PAID PUBLICLY ANNOUNCED THE
PERIOD REDEEMED PER UNIT REDEEMED PER UNIT PLANS OR PROGRAMS(1) PLANS/PROGRAM(1)
- ------------- ------------- ------------- ------------- ------------- ----------------------- --------------------
01/01/05
through
01/31/05 864.29 $1,037.73 1,378.41 $926.63 2,242.70 (2)
02/01/05
through
02/28/05 1,501.72 $1,073.23 2,086.55 $957.57 3,588.27 (2)
03/01/05
through
03/31/05 1,254.80 $1,067.72 2,245.79 $951.89 3,500.59 (2)
-------- --------- -------- ------- --------
Total 3,620.81 $1,059.56 5,710.75 $945.36 9,331.56 (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.
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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
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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: May 16, 2005 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)
23