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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended: October 31, 2003
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0-9202
THE FUTURE FUND
---------------
(Exact name of registrant as specified in its charter)
Illinois 36-3033727
---------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o HEINOLD ASSET MANAGEMENT, INC.
440 South LaSalle, 20th Floor
Chicago, Illinois 60605
-----------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(312) 663-7500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
Indicate by check mark whether the registrant (1) 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes [ ] No [X]
The registrant is a limited partnership and, accordingly, has no voting stock
held by nonaffiliates or otherwise.
Documents Incorporated by Reference:
See Part IV, Item 15.
1
PART I
Item 1. Business.
(a) General development of business. The Future Fund (the
"Partnership") is a limited partnership organized on November 30, 1978 pursuant
to a Limited Partnership Agreement (the "Limited Partnership Agreement") and
under the Uniform Limited Partnership Act of the State of Illinois. On July 31,
1987, the Partnership elected to be governed under the Illinois Revised Uniform
Limited Partnership Act. The Partnership was formed to engage in the speculative
trading of futures, options on futures and forward contracts.
Heinold Asset Management, Inc., a Delaware corporation, is the
General Partner of the Partnership and, in that capacity, performs various
administrative services. The General Partner was organized in 1982 to serve as
the general partner and pool operator for public and private commodity pools
sponsored by Heinold Commodities, Inc., an affiliate. Until March 31, 1996, the
General Partner was a wholly owned subsidiary of Geldermann, Inc., an Illinois
corporation ("Geldermann"). On March 31, 1996, the General Partner became a
wholly owned subsidiary of Man Group USA Inc. (formerly, E.D. & F. Man Inc.), a
New York corporation with headquarters in New York, New York. References herein
to the "General Partner" refer to Heinold Commodities, Inc. for the periods
prior to November 1, 1988 and to Heinold Asset Management, Inc. for periods on
and after November 1, 1988.
Until June 1, 1995, Geldermann acted as the Partnership's
futures commission merchant or commodity broker. On that date, Man Financial Inc
(the "Commodity Broker") replaced Geldermann as the Partnership's commodity
broker. The General Partner and the Commodity Broker perform various services
related to the Partnership's trading pursuant to a Customer Agreement. The
Partnership conducts its forward contract trading through its affiliates, Man
Capital LLC and Man Financial Ltd, as well as other unaffiliated dealers
pursuant to various Customer Account Agreements.
The General Partner invested $128,000 in the Partnership at
the outset of trading and purchased additional Units for $6,500 during fiscal
year 1985. The net asset value of the General Partner's interest in the
Partnership, after the redemption of 583 Unit-equivalents for $355,239 on
October 1, 1988, 379 Unit-equivalents for $248,362 on November 1, 1991 and 111
Unit-equivalents for $91,757 on October 31, 1994, was $254,485 as of October 31,
2003.
The Partnership's trading manager from the inception of
trading until August 1, 1988 had been Millburn Partners, a New Jersey
partnership. On August 1, 1988, Millburn Ridgefield Corporation, a Delaware
corporation whose sole shareholders consisted of the former partners of Millburn
Partners, became the commodity trading advisor for all public commodity pools
previously managed by Millburn Partners.
Effective January 1, 1990, the General Partner replaced
Millburn Ridgefield Corporation as the Partnership's trading manager with
Baldwin Financial Corporation, a Delaware corporation. The Management Contract
with Baldwin Financial Company was
2
assigned to MC Baldwin Financial Company as of January 1, 1992. MC Baldwin
Financial Company served as trading manager for the Partnership until December
31, 1995.
Effective January 1, 1996, the General Partner entered into a
Trading Manager Agreement whereby it assumed the role of trading manager for the
Partnership (the "Trading Manager"). The Partnership is a multi-advisor
commodity pool and the Trading Manager allocates the assets of the Partnership
among several trading advisors to direct the Partnership's futures and forward
trading. References to the Trading Manager from the inception of the
Partnership's trading through December 31, 1989 refer to Millburn Ridgefield
Corporation, from January 1, 1990 through January 1, 1996 to MC Baldwin
Financial Company and on and after January 1, 1996 to Heinold Asset Management,
Inc.
The Trading Manager receives a monthly management fee at an
annual rate of 4% of the month-end Net Asset Value of the Partnership. The
Trading Manager in turn will pay to each trading advisor a management fee equal
to 2% to 3% of the assets allocated to each trading advisor to be calculated and
paid monthly. The Trading Manager will also receive an incentive fee equal to
20% of any New Trading Profit, as defined in the Partnership's offering
document, attributable to each trading advisor to be calculated and paid
quarterly or annually. The Trading Manager in turn will pay to each trading
advisor an incentive fee equal to 15% to 20% of any New Trading Profit
attributable to each trading advisor to be calculated and paid quarterly or
annually.
On April 1, 1996, the Partnership, pursuant to an exemption
from the Commodity Futures Trading Commission (the "CFTC"), was permitted to
cease trading on a stand-alone basis. On that date, the Partnership elected to
continue to allocate a portion of its assets to managed accounts with commodity
trading advisors and to trade the remaining assets through participation in a
series of private general partnerships ("Account Partnerships") formed together
with other pools of which the General Partner acts as general partner. Only
pools of which the General Partner acts as general partner are permitted to
participate in these Account Partnerships, and all such pools share pro rata in
the profits and losses of the Account Partnerships based on the capital that
each pool commits to each such Account Partnership. Because the Account
Partnerships combine the assets of numerous pools, they make it possible for
even the smaller pools to have access to a number of commodity trading advisors
without need of meeting each commodity trading advisors' minimum account size
requirements. Although the General Partner has agreed to various incremental
accounting procedures, the operation of the Account Partnerships is effectively
transparent to the Unitholders. Subsequent to December 1, 1997, substantially
all of the Partnership's assets were allocated to the Account Partnerships.
The Partnership pays commodity brokerage commissions to the
Commodity Broker at an annual rate of 7% of month-end Net Assets per year, plus
National Futures Association ("NFA") and give-up fees.
3
Regulation
Under the Commodity Exchange Act, as amended (the "Act"),
commodity exchanges and futures trading are subject to regulation by the CFTC.
The National Futures Association, a "registered futures association" under the
Act, is the only non-exchange self-regulatory organization for futures industry
professionals. The CFTC has delegated to the NFA responsibility for the
registration of "commodity trading advisors," "commodity pool operators,"
"futures commission merchants," "introducing brokers" and their respective
associated persons and "floor brokers." The Act requires "commodity pool
operators," such as the General Partner, "commodity trading advisors," such as
the Trading Manager and the Trading Advisors, and commodity brokers or "futures
commission merchants," such as the Commodity Broker, to be registered and to
comply with various reporting and record keeping requirements. The General
Partner, the Trading Advisors, and the Commodity Broker are all members of the
NFA. The CFTC may suspend a commodity pool operator's or commodity trading
advisor's registration if it finds that its trading practices tend to disrupt
orderly market conditions or in certain other situations. In the event that the
registration of the General Partner as a commodity pool operator or the Trading
Advisors' registrations as commodity trading advisors were terminated or
suspended, the General Partner and the Trading Advisors would be unable to
continue to manage the business of the Partnership, select the Trading Advisors
and direct the Partnership's futures and forward trading, respectively. Should
the General Partner's registration be suspended, termination of the Partnership
might result.
As members of the NFA, the General Partner, the Trading
Manager, the Trading Advisors and the Commodity Broker are subject to NFA
standards relating to fair trade practices, financial condition and customer
protection. As the self-regulatory body of the futures industry, the NFA
promulgates rules governing the conduct of futures industry professionals and
disciplines those professionals which do not comply with such standards.
In addition to such registration requirements, the CFTC and
certain futures exchanges have established limits on the maximum net long or net
short position which any person may hold or control in particular futures
contracts. The CFTC has adopted a rule requiring all domestic futures exchanges
to submit for approval speculative position limits for all futures contracts
traded on such exchanges. Many exchanges also limit the changes in futures
contract prices that may occur during a single trading day. The Partnership may
trade on foreign commodity exchanges that are not subject to regulation by any
United States government agency.
(b) Financial information about industry segments. The
Partnership's business constitutes only one segment for financial reporting
purposes; speculative trading of futures, options on futures and forward
contracts. The Partnership does not engage in sales of goods or services. The
Partnership's revenue, operating profit and total assets for each of the five
fiscal years in the period ended October 31, 2003 are set forth under "Item 6.
Selected Financial Data."
4
(c) Narrative description of business.
(1) See Items 1(a) and (b) above.
(xiii) -- the Partnership has no employees.
(d) Financial information about foreign and domestic
operations and export sales. The Partnership does not engage in sales of goods
or services. See "Item 1(b). Financial information about industry segments."
Item 2. Properties.
The Partnership does not own any properties. Under the terms
of the Limited Partnership Agreement, the General Partner performs the following
services for the Partnership:
(1) Manages the business of the Partnership. Pursuant to this
authority, the General Partner has entered into a Management Agreement with the
Partnership (under which the Trading Manager will serve as trading manager and
will retain trading advisors who will have complete discretion with respect to
determination of the Partnership's trading decisions) and a Customer Agreement
with the Commodity Broker (pursuant to which the Commodity Broker executes all
trades on behalf of the Partnership based on instructions of the trading
advisors selected by the Trading Manager).
(2) Maintains the Partnership's books and records, which
Limited Partners or their duly authorized representatives may inspect during
normal business hours for any proper purpose upon 10 days' written notice to the
General Partner.
(3) Furnishes each Limited Partner with a monthly statement
describing the performance of the Partnership which sets forth aggregate
incentive fee allocations, brokerage commissions and other expenses incurred or
accrued by the Partnership during the month.
(4) Forwards annual audited financial statements to each
Limited Partner.
(5) Provides to each Limited Partner tax information necessary
for the preparation of his or her annual federal income tax return.
(6) Performs secretarial and other clerical responsibilities
and furnishes office space, equipment and supplies as may be necessary for
supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
5
Item 3. Legal Proceedings.
The General Partner is not aware of any pending legal
proceedings to which the Partnership is a party or to which any of its assets
are subject. In addition, there are no pending material proceedings involving
the General Partner.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. There is no trading market for the
Units, and none is likely to develop. The Units are transferable only after
written notice has been given to and approved by the General Partner. Units may
be and have been redeemed upon 10 days' notice at their Net Asset Value as of
the end of any month, as provided in the Limited Partnership Agreement. In the
event that all Units for which redemption is requested cannot be redeemed as of
any redemption date, Units will be redeemed in the order that requests for
redemption have been received by the General Partner.
(b) Holders. As of November 1, 2003, there were 377 holders of
Units.
(c) Dividends. No distributions or dividends have been made on
the Units and the General Partner has no present intention to make any.
Item 6. Selected Financial Data.
The following is a summary of operations of the Partnership
for each of the five fiscal years in the period ended October 31, 2003.
6
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net gain (loss) on
trading of futures
and forward contracts $ 1,103,325 $ 379,060 $ 3,411,109 $ (130,950) $ (482,764)
Interest income 68,668 108,814 319,986 471,942 433,133
------------ ------------ ------------ ------------ ------------
Total income (loss) 1,171,993 487,874 3,731,095 340,992 (49,631)
============ ============ ============ ============ ============
Brokerage commissions 621,866 621,027 686,884 718,235 896,686
Management fees 344,570 349,622 386,975 403,524 505,109
Incentive fees 27,355 35,822 208,825 0 21,155
Other 57,000 29,494 31,394 26,600 49,200
------------ ------------ ------------ ------------ ------------
Total expenses 1,050,771 1,035,965 1,314,078 1,148,359 1,472,150
============ ============ ============ ============ ============
Net income (loss) $ 121,222 $ (548,091) $ 2,417,017 $ (807,367) $ (1,521,781)
============ ============ ============ ============ ============
Net income (loss) allocated to:
General Partner $ 3,868 $ (13,347) $ 59,613 $ (17,420) $ (30,133)
============ ============ ============ ============ ============
Limited Partners $ 117,354 $ (534,744) $ 2,357,404 $ (789,947) $ (1,491,648)
============ ============ ============ ============ ============
Net income (loss) for a unit
of partnership interest
(for a unit outstanding
throughout each year) $ 17.58 $ (60.66) $ 270.96 $ (79.19) $ (136.96)
============ ============ ============ ============ ============
Total assets $ 8,536,063 $ 8,977,562 $ 10,331,944 $ 8,918,596 $ 11,083,035
============ ============ ============ ============ ============
7
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Reference is made to "Item 6. Selected Financial Data." and
"Item 8. Financial Statements and Supplementary Data." The information contained
therein is essential to, and should be read in conjunction with, the following
analysis.
Critical Accounting Policies
Asset Valuation
The Partnership's investments in Account Partnerships are valued at fair value
as determined by the General Partner. In determining fair value, the General
Partner utilizes the valuations of the affiliated general partnerships which are
based entirely on the investments of the affiliated general partnerships. The
affiliated general partnerships value their underlying financial instruments on
a mark-to-market basis of accounting, using daily settlement prices established
by the exchange on which the instruments are traded.
Revenue Recognition
The Partnership recognizes equity in income (loss) of the Account Partnerships,
which represents the Partnership's pro-rata share of profits and losses arising
from its investment in these Account Partnerships. The Account Partnerships
recognize realized and unrealized trading gains and losses on futures and
forward contracts, which represent the difference between cost and selling price
or quoted value, in the current period. All trading activities are accounted for
on a trade-date basis. Assets, liabilities, gains and losses denominated in
foreign currencies are translated at end-of-period spot exchange rates. The
resulting net realized and unrealized foreign exchange gains and losses are not
material and are reflected as equity in income (loss) of affiliated general
partnerships on the statements of operations.
Income and Expenses
Income consists of interest income, which is recognized on an accrual basis.
Expenses consist of those as described in Note 3 of the financial statements and
are recorded on an accrual basis. Net income (loss) per unit of Partnership
interest is equal to the change in net asset value per unit from the beginning
of the year to the end of the year. The Account Partnerships incur no expenses.
Recent Accounting Pronouncement
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46").
FIN 46 addresses consolidation by business enterprises of variable interest
entities. In August 2003, the FASB delayed the effective date of FIN 46 for
non-registered investment companies that currently account for their investments
in accordance with the specialized accounting guidance in the AICPA Audit and
Accounting Guide, Audits of Investment Companies (the "Audit Guide"). The
Partnership accounts for its investments in this manner and thus is subject to
the deferral. The FASB delayed the effective date while the AICPA finalizes its
Statement of Position ("SOP") on the clarification of the scope of the Audit
Guide and accounting by the parent companies and equity method investors for
investments in investment companies. When the AICPA issues the
8
final SOP, the FASB will consider modifying paragraph 4(e) of Interpretation 46
to provide an exception for companies that apply the Audit Guide as revised by
the SOP. As General Partner of the Partnership, Heinold Asset Management, Inc.
has not yet determined if the Partnership would be required to consolidate
certain affiliated General Partnerships if FIN 46 becomes effective for the
Partnership. Each of these related party entities are described in further
detail in Note 4 of the financial statements. The General Partner estimates that
the Partnership's maximum exposure to loss as a result of its involvement with
these affiliated General Partnerships is limited to their carrying value as
recorded in the Statement of Financial Condition.
Capital Resources
The Partnership does not intend to raise any additional
capital through borrowing and because it is a closed-end fund, it cannot sell
any additional Units unless it undertakes a new public offering, which would
require a registration statement to be filed with the Securities and Exchange
Commission. Due to the nature of the Partnership's business, it will make no
significant capital expenditures, and substantially all its assets are and will
be represented by cash, U.S. Treasury securities and investments in futures,
options on futures and forward contracts.
Liquidity
Many United States commodity exchanges limit fluctuations in
futures 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
futures contract has reached the daily limit for that day, positions in that
contract can neither be taken nor liquidated. Futures prices have occasionally
moved the daily limit for several consecutive days with little or no trading.
Similar occurrences could prevent the Partnership from promptly liquidating
unfavorable positions and subject the Partnership to substantial losses that
could exceed the margin initially committed to such trades. In addition, even if
futures prices have not moved the daily limit, the Partnership may not be able
to execute futures trades at favorable prices if little trading in such
contracts is taking place. Generally, forward contracts can be closed out
(offset) at the discretion of the Trading Advisor. However, if the market is not
liquid, it could prevent the timely closeout of an unfavorable position until
the delivery date, regardless of the changes in their value or the Trading
Advisors' investment strategies. Other than these limitations on liquidity,
which are inherent in the Partnership's trading operations, the Partnership's
assets are highly liquid and are expected to remain so. On an operational basis,
the Partnership maintains cash significant to fund commissions and other
ordinary expenses incurred.
Results of Operations
Operating results showed a profit for the fiscal year ended
October 31, 2003, a loss for the fiscal year ended October 31, 2002 and a profit
for the fiscal year ended October 31, 2001.
9
The Net Asset Value per Unit as of October 31, 2003, October
31, 2002 and October 31, 2001 was $1,156.75, $1,139.17 and $1,199.83,
respectively. The increase for the fiscal year ended October 31, 2003
represented an increase of 1.54%.
The net realized trading gains (losses) on closed contracts
for the fiscal years ended October 31, 2003, October 31, 2002 and October 31,
2001 were $796,377, $1,125,630 and $2,705,630, respectively.
Fiscal Year 2003
During the first quarter, gains were seen in both agricultural
products and metals, most notably long gold positions as the demand for gold
increased due to renewed interest as a safe investment in uncertain times. Long
positions on crude oil were also profitable, as the price for oil rose due to
tensions in the Middle East. As the weakening US Dollar continued to decline in
light of the anticipated conflict with Iraq and potential problems with North
Korea, short US Dollar positions against other major currencies such as the Euro
and the Swiss Franc created significant profits.
During the second quarter, the Partnership netted a loss.
Volatility due to international tensions and economic worries kept the markets
from getting a general sense of direction. As a result, the Partnership showed
both gains and losses in various commodities, finishing the period with a slight
loss. Gains on long crude oil positions due to oil prices reaching highs in
February were turned to losses in March, as prices dropped considerably. Trading
in currencies also showed both gains and losses as prolonged anxiety about the
war was reflected in narrow price changes in most major currencies. US Treasury
positions posted losses, then gains, while long Euro Bond positions posted
negative returns after sharp price falls.
The Partnership began the third quarter by posting strong
gains in the currency and interest rate sectors. The continued downtrend of the
US Dollar caused the Euro to hit four-year highs against the Dollar, the Yen and
the British Pound. The Partnership recognized considerable profits in short US
Dollar positions against the Euro, as well as long Euro positions against the
Yen. Mid-quarter, performance turned towards the negative, as unfavorable
conditions in other market sectors such as agricultural futures, metals, and
equity indices posted losses for the month. Long gold positions performed
poorly, while the energy and bond sectors also recorded losses. Towards the end
of the quarter, losses were posted in part due to highly volatile currency
markets. The US Dollar started to rise, causing the short US Dollar positions
which were extremely profitable earlier in the period to decline. A surge in the
Yen also hurt performance in the currency sector.
During the fourth quarter, the most influential factor
affecting trading seemed to be the mixed economic data released throughout the
period. Early in the quarter, losses were posted on S&P futures, Treasury Bonds
and 10-year Note futures, as economic data was less optimistic than data
published earlier in the summer. Later in the quarter, the Partnership saw
profits with long positions on the S&P as much awaited positive economic data
drove the
10
markets higher. Metals also showed mixed results. Trading was unprofitable in
precious metals such as gold and silver as the improving global economic outlook
made safer investments less appealing, while industrial metals, particularly
long copper positions, showed profits which offset losses as copper climbed to
multi-year highs in October. Losses were posted overall in crude oil, as early
profits from long positions were later offset as crude fell sharply in
September, then again surged upward due to OPEC's announcement of future
production cuts. The agricultural sector was consistently profitable throughout
the period, as cold weather forcasts across the Midwest and tight supplies
pushed prices higher. The Partnership showed gains on soybeans, soymeal, and
cotton, most notably long soybean positions, as prices reached their highest
levels since 1995.
Fiscal Year 2002
During the first half of fiscal year 2002, the Partnership was
hindered by short positions in Aluminum, Copper and Nickel. These short metal
positions were unprofitable as worldwide demand continued to be strong for
industrial metals. Also, losses were incurred in short foreign currency
positions due to the continued decline of the US Dollar resulting from weak
economic data and the uncertain direction of interest rates.
During the second half of fiscal year 2002, the Net Asset
Value of the Partnership increased by 14.77%. Gains resulted during the period
due to long positions in British-Pounds, Euro Dollars, Swiss Franc, and the
Japanese Yen. These long positions were profitable as investors began
reconsidering their expectations of future interest rate hikes causing the US
dollar to decline against major foreign currencies. Further gains were earned in
the financial sectors as domestic bond yields continued to fall, enabling the
portfolios to benefit from its long bond exposure in US 2-year notes, 5-year
notes, and 10-year notes.
Also, gains were realized from long positions in Crude Oil,
Heating Oil, Unleaded Gas, and Natural Gas as energy prices continued their
upward trends.
11
Fiscal Year 2001
For fiscal year 2001, the Partnership's Net Asset Value per
Unit increased from $928.87 at October 31, 2000 to $1,199.83 at October 31,
2001. This increase resulted in a 29.17% increase for the fiscal year. The
majority of the gains resulted from trading activities in November and December
where the Partnership's Net Asset Value per Unit increased 14.95%. Gains
resulted during this period due to long positions in the Euro Dollar, Swiss
Franc, British Pound and the Eurex E-Bund. These gains resulted from the
continued decline in the US Dollar based on changed expectations of future
levels of US interest rates.
Additional profits were realized from short S&P 500 Index
positions as the Index declined by over 12% due primarily to the continued weak
US economy and the terrorist attacks against the US on September 11, 2001. The
Partnership realized further gains in long agricultural positions.
The Partnership experienced losses in long positions in fixed
income instruments as global interest rates slightly increased during the year.
Further losses were incurred in short precious metals positions as prices edged
upwards. Such losses, however, were not enough to offset the Partnership's
profits.
Inflation is not a significant factor in the Partnership's
profitability.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is a commodity pool which invests in, and is a
general partner of, a series of Account Partnerships as discussed in Item 1. The
Account Partnerships engage exclusively in the speculative trading of futures,
options on futures and forward contracts. The market-sensitive instruments held
by the underlying Account Partnerships are acquired for speculative trading
purposes only and, as a result, all or substantially all of the Partnership's
assets are at risk of trading loss. Unlike an operating company, the risk of
market-sensitive instruments is integral, not incidental, to the Partnership's
main business activities.
The futures and forwards traded by the Partnership involve
varying degrees of related market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange rates, and prices
of financial instruments and commodities. Fluctuations in market risk based upon
these factors result in frequent changes in the fair value of the Partnership's
open positions, and consequently in its earnings.
The Partnership's total market risk is influenced by a wide
variety of factors, including, but not limited to, the diversification among the
Partnership's open positions, the volatility present within the markets, and the
liquidity of the markets. At different times, each of these factors may act to
increase or decrease the market risk associated with the Partnership.
12
The Partnership's past performance is not necessarily
indicative of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its speculative
trading. The Partnership's speculative trading may cause future losses and
volatility that far exceed the Partnership's experience to date or any
reasonable expectations based upon historical changes in market value. While the
Partnership has general partner liability with respect to the Account
Partnerships, as a limited partnership, each of the Partnership's limited
partners' risk is limited to the amount of their respective investments. The
General Partner of the Partnership would be liable for any losses exceeding the
carrying value of the investments for the Partnership as a whole.
Notwithstanding, the General Partner estimates that the Partnership's maximum
exposure to loss as a result of its investments with the Account Partnerships is
limited to their carrying value as recorded in the Statement of Financial
Condition.
Item 8. Financial Statements and Supplementary Data.
Financial statements are listed on page F-1 of this report.
Selected unaudited quarterly financial information is as
follows:
Net Income (Loss)
Total Income (Loss) Net Income (Loss) per Unit
------------------ ---------------- -----------------
October 31, 2003 $ 173,989 $ (75,348) $ (10.20)
July 31, 2003 $ 257,072 $ (10,717) $ (1.49)
April 30, 2003 $ (38,901) $ (286,828) $ (38.25)
January 31, 2003 $ 779,833 $ 494,115 $ 67.52
October 31, 2002 $ 368,645 $ 9,378 $ 1.18
July 31, 2002 $ 1,449,551 $ 1,175,412 $ 145.45
April 30, 2002 $ (218,157) $ (452,665) $ (54.81)
January 31, 2002 $ (1,112,165) $ (1,280,216) $ (152.48)
13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Partnership filed a Form 8-K on September 13, 2002
indicating a change in auditors for the fiscal year ended October 31, 2002. Such
Form 8-K is herein incorporated by reference. A report from Ernst & Young LLP
dated December 7, 2001 related to their audit of the financial statements for
the period ended October 31, 2001 is filed as part of the financial statements
to this report.
Item 9A. Controls and Procedures.
(a) As of the end of the period covered by this report, the
General Partner, on behalf of the Partnership, carried out an evaluation, under
the supervision and with the participation of the General Partner's management,
including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Partnership's disclosure controls and procedures required
by Exchange Act Rule 13a-15(e) and 15d-15(e). Based upon that evaluation, the
General Partner's Chief Executive Officer and Chief Financial Officer have
concluded that the Partnership's disclosure controls and procedures are
effective.
(b) There have been no significant changes in the
Partnership's internal controls or in other factors that materially affected or
could materially affect these controls subsequent to the date of their
evaluation.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers. The
Partnership is managed by its General Partner. There are no "significant
employees" of the Partnership.
The General Partner is a commodity pool operator registered
with the NFA.
Item 11. Executive Compensation.
The Partnership has no directors or officers. The General
Partner performs the services described in "Item 2. Properties." herein. Man
Financial Inc. acts as the Partnership's commodity broker pursuant to the
Customer Agreement described in "Item 1(a). General development of business."
Man Capital L.L.C. and Man Financial Ltd. act as the Partnership's forward
dealer pursuant to the Customer Account Agreements described in "Item 1(a).
General development of business."
The General Partner participates in any appreciation in the
net assets of the Partnership in proportion to its investment in it.
14
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners.
The Partnership knows of no person who owns beneficially more
than 5% of the Units.
(b) Security ownership of management.
Under the terms of the Limited Partnership Agreement, the
Partnership's affairs are managed by the General Partner. The Trading Manager
who also acts as General Partner, pursuant to its Management Agreement with the
Partnership, enters into Management Contracts with the Trading Advisors who have
discretionary authority over the Partnership's futures and forward contract
trading. The General Partner owned 220 Unit-equivalents valued at $254,485 as of
October 31, 2003, 3.02% of the Partnership's total equity.
(c) Changes in control.
None
Item 13. Certain Relationships and Related Transactions.
See "Item 11. Executive Compensation" and "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
Item 14. Principal Accounting Fees and Services.
(a) Audit Fees.
The aggregate fees billed for each of the last two fiscal
years for services rendered by the Partnership's principal auditor,
PricewaterhouseCoopers LLP ("PWC"), for the audit of the Partnership's annual
financial statements and review of financial statements included in the
Partnership's Form 10-Q and services that are normally provided in connection
with statutory and regulatory filings or engagements for those fiscal years were
as follows:
2002 $ 34,200
2003 $ 48,750
Of the amounts listed above, the Partnership was allocated
$11,200 and $26,250 for the years ended 2002 and 2003, respectively. The
remaining amounts were paid by the General Partner.
The aggregate fees billed for fiscal year 2001 for services
rendered by the Partnership's former principal auditor, Ernst & Young LLP, for
the audit of the Partnership's 2001 financial statements and review of the
financial statements included in the Partnership's
15
Form 10-Q for the first two quarters of 2002, was $12,000. Of this amount, the
Partnership was allocated $8,500. The remaining amount was paid by the General
Partner.
(b) Audit-Related Fees.
The aggregate fees billed for each of the last two fiscal
years for assurance and related services by PWC that are reasonably related to
the performance of the audit or review of the Partnership's financial statements
and are not reported in Item 14 (a) Audit Fees were as follows:
2002 $ 0
2003 $ 12,500
These fees related to services provided by PWC in connection
with comment letters from the Securities and Exchange Commission relating to the
Partnership's Form 10-K for the fiscal year ended October 31, 2002. The entire
amount of the fees above were paid by the General Partner.
(c) Tax Fees.
There were no fees billed for each of the last two fiscal
years for professional services rendered by PWC for tax compliance, tax advice,
and tax planning.
(d) All Other Fees.
There were no fees billed for each of the last two fiscal
years for products and services provided by PWC other than the services reported
in Item 14 (a) Audit Fees and Item 14 (b) Audit-Related Fees.
(e) Procedures for Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditor
The Board of Directors of the Partnership's General Partner is
responsible for reviewing and approving, in advance, any audit and any
permissible non-audit engagement or relationship between the Partnership and its
independent auditors. PWC's engagement to conduct the audit of the Partnership
was approved by the Board of Directors on November 13, 2002.
16
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a)(1) Financial Statements:
See Index to Financial Statements, infra.
(a)(2) Financial Statement Schedules:
All Schedules are omitted for the reason that they are not
required, are not applicable, or because equivalent information has been
included in the financial statements or the notes thereto.
(a)(3) Exhibits as required by Item 601 of
Regulation S-K:
(3) Articles of Incorporation and By-Laws:
(a) Limited Partnership Agreement dated as of November 27,
1978, as amended on February 15, 1979.
(b) Certificate of Limited Partnership of the Partnership as
filed with the Cook County Recorder of Deeds on November 30, 1978.
The above exhibits are incorporated by reference from the Form
10-K Annual Report filed by the Partnership for the period ended October 31,
1978.
(c) Form LP-1205 of the Partnership, as filed with the
Illinois Secretary of State on July 31, 1987, electing to be governed under the
Illinois Revised Uniform Limited Partnership Act.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(10) Material Contracts:
(a) Joint Venture Agreement dated as of April 1, 1987 between
the Partnership and Millburn Partners.
(b) Customer Agreement dated as of April 1, 1987 between the
Joint Venture and Geldermann.
17
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(c) Amendment No. 1 to the Joint Venture Agreement between the
Partnership and Millburn Partners dated December 31, 1987.
(d) Amendment No. 1 to the Customer Agreement between the
Joint Venture and Geldermann dated December 31, 1987.
(e) Amendment No. 2 to the Joint Venture Agreement between the
Partnership and Millburn Ridgefield Corporation dated December 31, 1988.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the Fiscal Year ended October 31, 1988.
(f) Management Agreement dated December 14, 1989 between the
Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 16, 1990.
(g) Amendment No. 1 to the Management Contract dated December
31, 1991 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 8-K filed on January 28, 1991.
(h) Amendment No. 2 to the Management Contract dated December
31, 1992 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1993.
(i) Amendment No. 3 to the Management Contract dated December
31, 1993 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1994.
(j) Amendment No. 4 to the Management Contract dated December
31, 1994 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1995.
18
(k) Trading Manager Agreement dated January 1, 1996 among the
Partnership and the Trading Manager.
(l) Form of General Partnership Agreement among various
commodity pools of which Heinold Asset Management, Inc. acts as sole general
partner.
(m) Form of Management Contract among each Account Partnership
and each trading advisor.
(n) Form of Management Contract among the Partnership and each
trading advisor.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1996.
(o) Back Office Service Agreement dated November 1, 1996 among
Managed Asset Service Corp., the General Partner and the Partnership.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 28, 1997.
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
The above exhibits are filed herewith.
19
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during
the quarter ended October 31, 2003.
(d) Financial Statements of Subsidiaries
(1) Heinold General Partnership Account III
(2) Heinold General Partnership Account IV
(3) Heinold General Partnership Account V
(4) Heinold General partnership Account IX
(5) Consent of Ernst & Young LLP
The above exhibits are filed herewith.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the
City of Chicago and State of Illinois on the 13th day of January, 2004.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC.
General Partner
By /s/ Thomas M. Harte
-------------------
Thomas M. Harte
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the General Partner of the Registrant in the capacities and on the date
indicated.
Title with
Signature General Partner Date
- --------- --------------- ----
/s/ Thomas M. Harte President (chief operating January 13, 2004
- ----------------------- officer) and Director
Thomas M. Harte
/s/ Ira Polk Chief Financial Officer January 13, 2004
- ------------------ (principal accounting officer)
Ira Polk and Director
(Being the principal executive officer, the principal
financial and accounting officer, and a majority of the directors of Heinold
Asset Management, Inc.)
HEINOLD ASSET General Partner of January 13, 2004
MANAGEMENT, INC. Registrant
By /s/ Thomas M. Harte
-------------------
Thomas M. Harte
President
21
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
INDEX
OCTOBER 31, 2003, 2002, AND 2001
PAGE(S)
-------
REPORTS OF INDEPENDENT AUDITORS............ 1-2
FINANCIAL STATEMENTS
Statements of Financial Condition.......... 3
Statements of Operations................... 4
Statements of Changes in Partners' Equity.. 5
Statements of Cash Flows................... 6
Notes to Financial Statements.............. 7-13
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Partners of the Future Fund:
In our opinion, the accompanying statements of financial condition and the
related statements of operations, changes in partners' equity and cash flows
present fairly, in all material respects, the financial position of the Future
Fund (the "Partnership") at October 31, 2003 and 2002, and the results of its
operations, the changes in its partners' equity and its cash flows for each of
the two years in the period ended October 31, 2003 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Partnership's General Partner; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates by the General Partner, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
January 13, 2004 /s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois PricewaterhouseCoopers LLP
1
REPORT OF INDEPENDENT AUDITORS
The Partners
The Future Fund
We have audited the accompanying statements of operations, changes in partners'
equity, and cash flows of The Future Fund (the Partnership) for the year ended
October 31, 2001. These financial statements are the responsibility of the
Partnership's General Partner. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of The Future
Fund for the year ended October 31, 2001, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 7, 2001
2
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
OCTOBER 31, 2003 AND 2002
2003 2002
ASSETS
Investment in affiliated general partnerships $4,912,003 $6,323,951
Due from affiliated broker 3,618,402 2,653,611
Other assets 5,658 -
---------- ----------
Total assets $8,536,063 $8,977,562
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Brokerage commissions payable to Affiliate $ 49,703 $ 52,230
Redemptions payable 24,789 11,346
Management fees payable to Trading Manager 28,045 29,486
Other liabilities 15,523 23,832
========== ==========
Total liabilities 118,060 116,894
---------- ----------
Partners' equity
Limited partners (7,057 and 7,558 units outstanding
at October 31, 2003 and 2002, respectively) 8,163,518 8,610,051
General partner (220 unit equivalents outstanding) 254,485 250,617
---------- ----------
Total partners' equity 8,418,003 8,860,668
---------- ----------
Total liabilities and partners' equity $8,536,063 $8,977,562
========== ==========
Net asset value per outstanding unit of partnership interest $ 1,156.75 $ 1,139.17
========== ==========
The accompanying notes are an integral part of the financial statements.
3
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 2003, 2002, AND 2001
2003 2002 2001
EQUITY IN INCOME (LOSS) OF AFFILIATED
GENERAL PARTNERSHIPS
Net realized trading gains on
closed contracts $ 796,377 $ 1,125,630 $ 2,705,630
Change in net unrealized gains (losses) on
open contracts 306,948 (746,570) 705,479
----------- ----------- -----------
1,103,325 379,060 3,411,109
Interest income 68,668 108,814 319,986
----------- ----------- -----------
1,171,993 487,874 3,731,095
----------- ----------- -----------
EXPENSES
Brokerage commissions paid to Affiliate 621,866 621,027 686,884
Management fees paid to Trading Manager 344,570 349,622 386,975
Incentive fees paid to Trading Manager 27,335 35,822 208,825
Other administrative expenses 57,000 29,494 31,394
----------- ----------- -----------
1,050,771 1,035,965 1,314,078
=========== =========== ===========
Net income (loss) $ 121,222 $ (548,091) $ 2,417,017
=========== =========== ===========
NET INCOME (LOSS) FOR A UNIT OF PARTNERSHIP
INTEREST (FOR A UNIT OUTSTANDING THROUGHOUT
EACH YEAR)
General partner $ 17.58 $ (60.66) $ 270.96
=========== =========== ===========
Limited partners $ 17.58 $ (60.66) $ 270.96
=========== =========== ===========
NET INCOME (LOSS) ALLOCATED TO
General partner $ 3,868 $ (13,347) $ 59,613
=========== =========== ===========
Limited partners $ 117,354 $ (534,744) $ 2,357,404
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
4
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED OCTOBER 31, 2003, 2002, AND 2001
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
PARTNERS' EQUITY AT OCTOBER 31, 2000 $ 8,452,667 $ 204,351 $ 8,657,018
Redemption of 898 units of limited
partnership interest (969,013) - (969,013)
Net income 2,357,404 59,613 2,417,017
------------ ------------ ------------
PARTNERS' EQUITY AT OCTOBER 31, 2001 9,841,058 263,964 10,105,022
Redemption of 644 units of limited
partnership interest (696,263) - (696,263)
Net loss (534,744) (13,347) (548,091)
------------ ------------ ------------
PARTNERS' EQUITY AT OCTOBER 31, 2002 8,610,051 250,617 8,860,668
Redemption of 501 units of limited
partnership interest (563,887) - (563,887)
Net income 117,354 3,868 121,222
------------ ------------ ------------
PARTNERS' EQUITY AT OCTOBER 31, 2003 $ 8,163,518 $ 254,485 $ 8,418,003
============ ============ ============
The accompanying notes are an integral part of the financial statements.
5
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2003, 2002, AND 2001
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 121,222 $ (548,091) $ 2,417,017
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Change in assets and liabilities:
Investment in affiliated general partnerships 1,411,948 (860,443) (1,388,615)
Due from affiliated broker (964,791) 2,190,258 (26,012)
Other assets (5,658) 24,567 1,279
Brokerage commissions payable to Affiliate (2,527) (8,032) 8,321
Management fees payable to Trading Manager (1,441) (4,619) 4,945
Incentive fees payable to Trading Manager - (91,719) 91,719
Other liabilities (8,309) 22,435 (12,979)
=========== =========== ===========
Net cash provided by operating
activities 550,444 724,356 1,095,675
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of limited partnership interests (550,444) (724,356) (1,095,675)
----------- ----------- -----------
Net cash used in financing activities (550,444) (724,356) (1,095,675)
----------- ----------- -----------
Net change in cash - - -
CASH
Beginning of year - - -
----------- ----------- -----------
End of year $ - $ - $ -
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
6
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
1. ORGANIZATION OF THE PARTNERSHIP
The Future Fund (the "Partnership") was organized in November 1978,
under the Illinois Uniform Limited Partnership Act, for purposes of
engaging in the speculative trading of futures, options on futures, and
forward contracts. Heinold Asset Management, Inc. ("HAMI" or the
"General Partner"), a wholly owned subsidiary of Man Group USA Inc., is
the general partner of the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
Investments in affiliated general partnerships are valued at fair value
as determined by the General Partner. In determining fair value, the
General Partner utilizes the valuations of the affiliated general
partnerships which are based entirely on the investments of the
affiliated general partnerships. The affiliated general partnerships
value their underlying financial instruments on a mark-to-market basis
of accounting, using daily settlement prices established by the
exchange on which the instruments are traded. The income (loss) from
investments in affiliated general partnerships are presented in the
statements of operations on a pro rata basis.
DUE FROM AFFILIATED BROKER
Due from affiliated broker consists of balances, including interest
receivable, due from Man Financial Inc ("Man"), an affiliate of the
General Partner. Man pays the Partnership interest on the Partnership's
daily balance at a rate generally equal to 90% of the published 90-day
U.S. Treasury bill rate.
Man is registered with the Commodity Futures Trading Commission
("CFTC") as a futures commission merchant and is a member of the
National Futures Association, an industry self-regulatory agency.
EQUITY IN INCOME (LOSS) OF AFFILIATED GENERAL PARTNERSHIPS
Equity in income (loss) of affiliated general partnerships represents
the Partnership's share of profits and losses arising from its
investment in the affiliated general partnerships. The affiliated
general partnerships recognize realized and unrealized trading gains
and losses on futures and forward contracts, which represent the
difference between cost and selling price or quoted value in the
current period. All trading activities are accounted for on a trade
-date basis. Assets, liabilities, gains and losses denominated in
foreign currencies are translated at end-of-period spot exchange rates.
The resulting net realized and unrealized foreign exchange gains and
losses are not material and are reflected as equity in income (loss) of
affiliated general partnerships on the statements of operations.
INCOME AND EXPENSES
Income consists of interest income and is recognized on an accrual
basis. Expenses consist of those as described in Note 3 and are also
recorded on an accrual basis.
INCOME TAXES
Income taxes are not provided for by the Partnership because taxable
income (loss) of the Partnership is includable in the income tax
returns of the partners.
7
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
NET INCOME (LOSS) PER UNIT
Net income (loss) per unit of Partnership interest is equal to the
change in net asset value per unit from the beginning of the year to
the end of the year. Unit amounts are rounded to whole numbers for
financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the General Partner to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CONTINGENCIES
In the normal course of business, the Partnership enters into contracts
that contain a variety of representations and warranties and which
provide general indemnifications. The Partnership's maximum exposure
under these arrangements is unknown, as this would involve future
claims that may be made against the Partnership that have not yet
occurred. However, based on experience, the General Partner expects the
risk of loss to be remote.
RECENT ACCOUNTING PRONOUNCEMENT
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities ("FIN 46"). FIN 46 addresses consolidation by business
enterprises of variable interest entities. In August 2003, the FASB
delayed the effective date of FIN 46 for non-registered investment
companies that currently account for their investments in accordance
with the specialized accounting guidance in the AICPA Audit and
Accounting Guide, Audits of Investment Companies (the "Audit Guide").
The Partnership accounts for its investments in this manner and thus is
subject to the deferral. The FASB delayed the effective date while the
AICPA finalizes its Statement of Position ("SOP") on the clarification
of the scope of the Audit Guide and accounting by the parent companies
and equity method investors for investments in investment companies.
When the AICPA issues the final SOP, the FASB will consider modifying
paragraph 4(e) of Interpretation 46 to provide an exception for
companies that apply the Audit Guide as revised by the SOP. As General
Partner of the Partnership, Heinold Asset Management, Inc. has not yet
determined if the Partnership would be required to consolidate certain
affiliated General Partnerships if FIN 46 becomes effective for the
Partnership. Each of these related party entities are described in
further detail in Note 4. The General Partner estimates that the
Partnership's maximum exposure to loss as a result of its involvement
with these affiliated General Partnerships is limited to their carrying
value as recorded in the Statement of Financial Condition.
3. LIMITED PARTNERSHIP AGREEMENT
The limited partners and the General Partner share in the profits and
losses of the Partnership in proportion to the number of units or unit
equivalents held by each partner. However, no limited partner is liable
for obligations of the Partnership in excess of its capital
contribution and profits, if any.
Distributions (other than redemption of units), if any, are made on a
pro rata basis at the sole discretion of the General Partner.
8
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
Limited partners may redeem any or all of their units as of the end of
any month at net asset value per unit on ten days' prior written notice
to the General Partner. The Partnership is scheduled to be dissolved on
July 1, 2025, or upon the occurrence of certain events as specified in
the limited partnership agreement. The Partnership is closed to new
subscriptions.
The Partnership bears the expenses incurred in connection with its
activities. These expenses include, but are not limited to, brokerage
commissions, trading advisors' management and incentive fees, legal, a
portion of the audit fee, tax return preparation and filing fees.
4. INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
The Partnership invests in a series of private affiliated general
partnerships ("Account Partnerships") formed together with other
limited partnerships of which HAMI acts as General Partner. The Account
Partnerships engage in the speculative trading of futures and forward
contracts based on their respective trading strategies. The Partnership
shares pro rata in profits and losses of such Account Partnerships,
based on the capital that the Partnership commits, as defined in the
offering document, to each Account Partnership.
A separate Account Partnership is utilized for each Commodity Trading
Advisor ("Trading Advisor") that the General Partner selects to trade
Partnership assets. An affiliate of the General Partner is the Trading
Advisor for Heinold General Partnership Account III. Under the terms of
their respective management contracts, each Trading Advisor has sole
responsibility for determining the Account Partnership's trades. Each
Trading Advisor has been directed by HAMI to trade each Account
Partnership based on the level of capital the Partnership commits. As
compensation for these services, each Trading Advisor receives a
monthly management fee paid by HAMI and allocated to the Partnership
based on a percentage of the Partnership's month-end assets, as defined
in the offering document. Each Trading Advisor also receives a
quarterly or annual incentive fee paid by HAMI and allocated to the
Partnership based on a percentage of new trading profits, as defined in
the offering document. The incentive fee is retained by a Trading
Advisor even when trading losses, as defined in the offering document,
occur in subsequent periods; however, no further incentive fees are
payable until such trading losses (other than those attributable to
redemptions) are recouped by the Account Partnership. At October 31,
2003, there were carryforward losses related to the Partnership for
incentive fee purposes as follows: Heinold General Partnership Account
III $54,145, Heinold General Partnership Account IV $96,782 and Heinold
General Partnership Account VI $190,579.
9
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
At October 31, 2003, investments in and capital committed to Account
Partnerships were as follows:
ALLOCATED ASSETS
-----------------------
TOTAL
TRADING
ACCOUNT PARTNERSHIP INVESTMENT CAPITAL
Heinold General Partnership Account III $1,945,630 $2,518,838
Heinold General Partnership Account IV 1,292,829 3,100,418
Heinold General Partnership Account XI 1,673,544 2,794,316
---------- ----------
$4,912,003 $8,413,572
========== ==========
At October 31, 2002, investments in and capital committed to Account
Partnerships were as follows:
ALLOCATED ASSETS
-----------------------
TOTAL
TRADING
ACCOUNT PARTNERSHIP INVESTMENT CAPITAL
Heinold General Partnership Account III $2,450,064 $1,761,312
Heinold General Partnership Account IV 960,532 2,367,643
Heinold General Partnership Account V 1,438,108 2,535,784
Heinold General Partnership Account XI 1,475,247 2,180,869
---------- ----------
$6,323,951 $8,845,608
========== ==========
In the tables above, Investment represents the corresponding amount the
Partnership has invested in each Account Partnership as of the date of
the Statements of Financial Condition. Total Trading Capital represents
the capital committed by the Partnership to the respective Account
Partnership's Trading Advisor to manage. Total Trading Capital for the
Partnership as a whole represents an allocation of substantially all
the Partnership's assets, less amounts withheld to cover current
expenses. The difference between the total capital committed and the
amount invested is additional capital committed from Partnership assets
classified as Due from Affiliated Broker in the Statements of Financial
Condition. At October 31, 2002, the Partnership's investment in Heinold
General Partnership Account III exceeded the amount committed to the
Account Partnership for trading. These funds were not included as part
of the Trading Advisor's allocation and the excess of the Investment
over the Trading Capital was subsequently transferred and is currently
included in Due from Affiliated Broker in the Statement of Financial
Condition.
The Partnership's ownership percentage of the total assets of each
Account Partnership (Investment) as of October 31, 2003 and 2002, and
the proportionate share of Account Partnership income for the months
then ended was 45.74% and 45.86%, respectively. This percentage varies
monthly and is calculated as the ratio of the capital the Partnership
commits to the total amount committed to the Account Partnerships at
the beginning of each month.
10
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
Each of the Account Partnerships had total assets (no liabilities)
consisting of the following at October 31, 2003:
NET
DUE UNREALIZED
FROM GAIN (LOSS)
AFFILIATED ON OPEN
ACCOUNT PARTNERSHIP BROKER CONTRACTS TOTAL
Heinold General Partnership Account III $4,143,995 $ 109,420 $4,253,415
Heinold General Partnership Account IV 2,450,898 375,404 2,826,302
Heinold General Partnership Account XI 3,218,004 440,590 3,658,594
Each of the Account Partnerships had total assets (no liabilities)
consisting of the following at October 31, 2002:
NET
DUE UNREALIZED
FROM GAIN (LOSS)
AFFILIATED ON OPEN
ACCOUNT PARTNERSHIP BROKER CONTRACTS TOTAL
Heinold General Partnership Account III $5,312,318 $ 29,820 $5,342,138
Heinold General Partnership Account IV 2,164,778 (70,429) 2,094,349
Heinold General Partnership Account V 3,057,122 78,539 3,135,661
Heinold General Partnership Account XI 2,992,885 223,754 3,216,639
Each of the Account Partnerships had total income (no expenses) from
net realized and unrealized trading gains consisting of the following
for the years ended October 31, 2003, 2002 and 2001.
ACCOUNT PARTNERSHIP 2003 2002 2001
Heinold General Partnership Account I $ - $ - $ 1,357,112
Heinold General Partnership Account II - - (54,646)
Heinold General Partnership Account III 758,873 62,783 2,083,829
Heinold General Partnership Account IV 777,783 894,668 -
Heinold General Partnership Account V 411,200 397,627 1,435,884
Heinold General Partnership Account XI 500,609 (505,999) 2,567,993
----------- ----------- -----------
$ 2,448,465 $ 849,079 $ 7,390,172
=========== =========== ===========
General Partnership Account V ceased trading as of June 30, 2003. The
Account Partnership's assets were distributed to the equity owners
according to their respective investment balances. The Partnership
received $1,615,483 from the liquidation of this partnership, which is
included in Due from affiliated broker on the Statement of Financial
Condition.
11
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
The Account Partnerships incur no expenses. Each Account Partnership's
funds are held by, and its transactions cleared through, Man. These
funds are used to meet minimum margin requirements for all of the
Account Partnership's open positions as set by the exchange where each
futures contract is traded. These requirements are adjusted, as needed,
due to daily fluctuations in the values of the underlying positions.
Certain positions may be liquidated, if necessary, to satisfy resulting
changes in margin requirements. In the ordinary course of business, the
Account Partnerships enter into forward contracts on an arms-length
basis with Man Financial Ltd and Man Capital LLC, affiliates of the
General Partner.
5. AGREEMENTS
The Partnership has a brokerage contract with Man which provides that
the Partnership pay a monthly brokerage fee of 0.5833% (7% annually) of
the Partnership's month-end net assets, as defined, plus NFA fees and
related give-up charges.
The Trading Manager receives a monthly management fee at an annual rate
of 4% of the month-end Net Asset Value of the Partnership. The Trading
Manager in turn will pay to each trading advisor a management fee equal
to 2% to 3% of the assets allocated to each trading advisor to be
calculated and paid monthly. The Trading Manager will also receive an
incentive fee equal to 20% of any New Trading Profit, as defined in the
Partnership's offering document, attributable to each trading advisor
to be calculated and paid quarterly. The Trading Manager in turn will
pay to each trading advisor an incentive fee equal to 15% to 20% of any
New Trading Profit attributable to each trading advisor to be
calculated and paid quarterly.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Account Partnerships trade derivative financial instruments.
Derivative financial instruments involve varying degrees of market
risk, whereby changes in the level or volatility of interest rates,
foreign currency exchange rates, or market values of the underlying
financial instruments or commodities may result in changes in the value
of the financial instrument in excess of the amounts reflected in the
summarized financial information of each respective General Partnership
in Note 4.
Credit risk arises from the potential inability of counterparties to
perform in accordance with the terms of the contract. Each Account
Partnership's exposure to credit risk associated with counterparty
nonperformance is limited to the current cost to replace all contracts
in which the Account Partnership has gains. Exchange-traded financial
instruments, such as futures and options on futures contracts, give
rise to limited counterparty exposure as the clearing organization acts
as the counterparty to all contracts.
The Partnership has general partner liability with respect to its
interest in each of the Account Partnerships.
The Partnership's and Account Partnership's assets held at Man are in
segregated accounts as required by the Commodity Futures Trading
Commission.
12
THE FUTURE FUND
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2003, 2002, AND 2001
7. FINANCIAL HIGHLIGHTS
The following represents the ratios to average limited partners' equity
and other supplemental information for the year ended October 31, 2003:
PER SHARE OPERATING PERFORMANCE
Beginning net asset value $ 1,139.17
Income (loss) from operations
Net gains on investments in affiliated general partnerships 148.91
Net investment loss* (131.33)
------------
Total from operations 17.58
------------
Ending net asset value $ 1,156.75
============
Total return** 1.54 %
============
RATIOS TO AVERAGE LIMITED PARTNERS' EQUITY
Expenses 12.01 %
============
Net investment loss* (11.23)%
============
* Net investment loss includes all expenses net of interest
income.
** An individual investors' return may vary from this return
based on the timing of capital transactions.
13
OATH OF COMMODITY POOL OPERATOR
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
Heinold Asset Management, Inc.
(Commodity Pool Operator)
The Future Fund
/S/ Ira Polk January 13, 2004
- -------------------------- ----------------
Ira Polk Date
Chief Financial Officer