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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2004
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)
State of jurisdiction or incorporation (Illinois)
IRS EMPLOYER ID NO. #36-3033727
C/0 HEINOLD ASSET MANAGEMENT INC.
ONE FINANCIAL PLACE
440 S. LASALLE ST-20 FLOOR
CHICAGO ILLINOIS 60605
PHONE NUMBER (312) 663-7500
SAME
(Former name, former address and former fiscal year, if changed)
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 shortened 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]
1
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION
4/30/2004 10/31/2003
(UNAUDITED)
ASSETS
Investments in affiliated general partnerships $ 5,687,994 $ 4,912,003
Due from affiliated broker 2,770,940 3,618,402
Other assets - 5,658
------------ ------------
Total assets $ 8,458,934 $ 8,536,063
============ ============
LIABILITIES & PARTNERS' EQUITY
Brokerage commissions payable to Affiliate $ 49,132 $ 49,703
Redemptions payable 177,110 24,789
Management fees payable to Trading Manager 27,668 28,045
Other liabilities 36,313 15,523
------------ ------------
Total liabilities 290,223 118,060
============ ============
Partners' equity:
Limited Partners (6,698 and 7,057 units outstanding
at April 30, 2004 and October 31, 2003) 7,908,950 8,163,518
General Partner (220 units outstanding
at April 30, 2004 and October 31, 2003) 259,761 254,485
------------ ------------
Total partners' equity 8,168,711 8,418,003
------------ ------------
Total liabilities and partners' equity $ 8,458,934 $ 8,536,063
============ ============
Net asset value per outstanding unit of partnership interest $ 1,180.73 $ 1,156.75
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
2
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 2004 and 2003
(UNAUDITED)
2004 2003
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains on closed contracts $ 391,745 $ 421,427
Change in net unrealized gains or losses on open contracts (210,799) (479,251)
----------- -----------
180,946 (57,824)
Interest income 14,957 18,923
----------- -----------
195,903 (38,901)
----------- -----------
Expenses:
Brokerage commissions paid to Affiliate 156,307 159,738
Management fees paid to Trading Manager 87,785 89,740
Incentive fee paid to Trading Manager 107,633 (13,551)
Other administrative expenses 22,500 12,000
----------- -----------
Total expenses 374,225 247,927
----------- -----------
Net loss $ (178,322) $ (286,828)
=========== ===========
Net loss allocated to General Partner $ (5,570) $ (8,411)
Net loss allocated to Limited Partners $ (172,752) $ (278,417)
Net loss for a unit of partnership interest (for a unit
outstanding throughout the period) $ (25.32) $ (38.25)
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
3
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 2004 and 2003
(UNAUDITED)
2004 2003
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains on closed contracts $ 1,201,329 $ 685,339
Change in net unrealized gains or losses on open contracts (407,073) 16,844
------------ ------------
794,256 702,183
Interest income 28,273 38,749
------------ ------------
822,529 740,932
------------ ------------
Expenses:
Brokerage commissions paid to Affiliate 306,325 314,507
Management fees paid to Trading Manager 172,443 177,217
Incentive fee paid to Trading Manager 123,627 16,920
Other administrative expenses 45,000 25,000
------------ ------------
Total expenses 647,395 533,644
------------ ------------
Net income $ 175,134 $ 207,288
============ ============
Net income allocated to General Partner $ 5,276 $ 6,440
Net income allocated to Limited Partners $ 169,858 $ 200,848
Net income for a unit of partnership interest (for a unit
outstanding throughout the period) $ 23.98 $ 29.27
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
FOR THE SIX MONTHS ENDED APRIL 30, 2004
(UNAUDITED)
Limited General
Partners Partner Total
------------ ------------ ------------
Partners' equity at October 31, 2003 $ 8,163,518 $ 254,485 $ 8,418,003
Redemption of 359 units of limited partnership
interest (424,426) - (424,426)
Net income 169,858 5,276 175,134
------------ ------------ ------------
Partners' equity at April 30, 2004 $ 7,908,950 $ 259,761 $ 8,168,711
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
5
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2004 and 2003
(UNAUDITED)
2004 2003
Cash flows from operating activities:
Net income $ 175,134 $ 207,288
Adjustments to reconcile net income to net cash provided by operating
activities:
Change in assets and liabilities:
Investment in affiliated general partnerships (775,991) (675,697)
Due from affiliated broker 847,462 773,352
Other assets 5,658 -
Brokerage commissions payable to Affiliate (571) (603)
Management fees payable to Trading Manager (377) (532)
Other liabilities 20,790 5,761
----------- -----------
Net cash provided by operating activities 272,105 309,569
Cash flows from financing activities:
Redemption of limited partnership interests (272,105) (309,569)
Net change in cash - -
Cash at beginning of period - -
----------- -----------
Cash at end of period $ - $ -
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
6
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO APRIL 30, 2004 FORM 10-Q FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited interim financial statements of the Future Fund (the
"Partnership") included herein have been prepared in conformity with accounting
principles generally accepted in the United States for interim financial
information and rule 10-01 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited interim financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for the fair presentation of financial
position, results of operations, changes in partners' equity and cash flows of
the Partnership for the interim periods presented and are not necessarily
indicative of a full year's results.
In preparing the unaudited interim financial statements, management is required
to make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those estimates.
The financial statements should be read in conjunction with the Partnership's
audited financial statements for the year ended October 31, 2003.
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.
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.
7
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
At April 30, 2004, investments in and capital committed to Account Partnerships
were as follows:
ALLOCATED ASSETS
----------------------------
TOTAL
TRADING
ACCOUNT PARTNERSHIP INVESTMENT CAPITAL
Heinold General Partnership Account III $ 2,030,414 $ 2,342,333
Heinold General Partnership Account IV 1,500,753 2,981,027
Heinold General Partnership Account XI 2,156,827 2,977,237
------------ ------------
$ 5,687,994 $ 8,300,597
============ ============
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
============ ============
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.
8
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
Each of the General Partnerships had total assets (no liabilities) consisting of
the following at April 30, 2004:
NET UNREALIZED
DUE FROM GAIN ON
ACCOUNT PARTNERSHIP AFFILIATED BROKER CONTRACTS TOTAL
Heinold General Partnership Account III $ 4,473,907 $ (19,569) $ 4,454,338
Heinold General Partnership Account IV 3,281,561 10,801 3,292,362
Heinold General Partnership Account XI 4,691,296 40,368 4,731,664
Each of the General Partnerships had total assets (no liabilities) consisting of
the following at October 31, 2003:
NET UNREALIZED
DUE FROM GAIN ON
ACCOUNT PARTNERSHIP AFFILIATED 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
The Partnership's ownership percentage of the total assets of each Account
Partnership as of April 30, 2004 and October 31, 2003, and the proportionate
share of Account Partnership income for the months then ended was 45.58% and
45.74%, respectively.
Each of the General Partnerships had total income (no expenses) from net
realized and unrealized trading gains consisting of the following for the three
months ended April 30, 2004 and 2003:
ACCOUNT PARTNERSHIP 2004 2003
Heinold General Partnership Account III $ (200,046) $ 128,562
Heinold General Partnership Account IV 47,251 4,843
Heinold General Partnership Account V - (60,116)
Heinold General Partnership Account XI 551,243 (197,449)
------------ ------------
$ 398,448 $ (124,160)
============ ============
The Partnership was allocated $180,946 and $(57,824) for the three months ended
April 30, 2004 and 2003, respectively.
9
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FORM 10-Q FINANCIAL STATEMENTS (CONTINUED)
Each of the General Partnerships had total income (no expenses) from net
realized and unrealized trading gains consisting of the following for the six
months ended April 30, 2004 and 2003:
ACCOUNT PARTNERSHIP 2004 2003
Heinold General Partnership Account III $ 200,924 $ 417,044
Heinold General Partnership Account IV 466,062 609,123
Heinold General Partnership Account V - 193,101
Heinold General Partnership Account XI 1,073,070 350,061
----------- -----------
$ 1,740,056 $ 1,569,329
=========== ===========
The Partnership was allocated $794,256 and $702,183 for the six months ended
April 30, 2004 and 2003, respectively.
10
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 2. Management's Discussion and Analysis of Financial Condition as of April
30, 2004 and Operating Results for the Three and Six Months Ended April
30, 2004 and April 30, 2003
Note A:
April 30, 2004
(Unaudited) October 31, 2003
-------------- ----------------
Partners' equity $8,168,711 $8,418,003
Partners' equity at April 30, 2004 decreased from Partners' equity at October
31, 2003 due to redemptions exceeding net income for the period. Net income for
the period of 2.0% and total redemptions of 5.0% caused a net decrease in total
Partner's equity of 3.0% for the period. For the six-month period ending April
30, 2004, the Partnership's Net Asset Value per Unit increased from $1,156.75 at
October 31, 2003 to $1,180.73, representing a 2.1% gain. The slight difference
between the net income percentage and the percentage gain in Net Asset Value per
Unit is due to the timing of capital transactions.
Note B:
Three months Three months
ended 4/30/2004 ended 4/30/2003
(Unaudited) (Unaudited)
--------------- ---------------
Net Realized and Change in Net Unrealized Trading
Gains (Losses) $ 180,946 $ (57,824)
Net Realized and Unrealized Trading Gains for the three months ended April 30,
2004 came from profitable trading in a volatile market, with significant gains
in the first half of the period outweighing significant losses in the second
half. Throughout the period long crude oil positions proved profitable, as
supplies were unable to keep up with demand and prices continued to rise. Grains
also saw a similar situation as tight inventories pushed corn and soybean prices
up. At the beginning of the period, long copper positions benefited as values
reached a multi-year high amid positive economic reports that increased
industrial demand, which also drove aluminum prices up as well. These trends
reversed later, as the global outlook turned less optimistic, causing losses. On
the currency side, long British Pound positions proved profitable early, after
the Bank of England raised interest rates. These increased rates contrasted with
lower interest rates in the US and provided an attractive situation for
investment, which led to capital inflows into the country. This trend also
reversed later in the period, as the British pound dropped back to prior levels
as the US dollar recovered, which also negatively affected long Japanese Yen
positions.
The results for the three months ended April 30, 2003 came from a similarly
volatile market, however resulting in a net trading 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 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.
11
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 2. Management's Discussion and Analysis of Financial Condition as of April
30, 2004 and Operating Results for the Three and Six Months Ended April
30, 2004 and April 30, 2003 (Cont.)
Note C:
Six months Six months
ended 4/30/2004 ended 4/30/2003
(Unaudited) (Unaudited)
--------------- ---------------
Net Realized and Change in Net Unrealized Trading
Gains $ 794,256 $ 702,183
Net Realized and Unrealized Trading Gains for the six months ended April 30,
2004 came from first quarter trading gains of $613,310, combined with second
quarter gains of $180,946, resulting in a total gain of $794,256.
The three months ended January 31, 2004 showed strong profits overall, after
starting out the period with negative results. Losses were posted early in the
quarter, most notably due to volatility in crude oil prices. After rising due to
terrorist attacks overseas being seen as a potential supply threat, the market
plummeted after the US Energy Department reported significant reserves, causing
values to decline amidst heavy selling of crude oil futures, forcing long
positions to be liquidated at a loss. Later in the quarter, gains were posted in
long metals positions due to growing physical demand in industrial metals,
particularly copper. Long positions in precious metals such as gold and silver
were also profitable, partially driven by the continued decline of the US
Dollar. The decreasing power of the dollar against most other major currencies
also created opportunities in foreign exchange trading, particularly short US
Dollar positions and long positions in the Euro, Japanese Yen and British Pound.
S&P 500 Index futures benefited from an upward price trend mid-quarter, as
strong retail sales and increasing economic optimism pushed the equity markets
higher.
Gains continued into the beginning of the three months ended April 30, 2004,
however then reversed, leading to gains significantly lower than those seen in
the first quarter. Please see Note B for a more detailed description of the
trading results for the second quarter.
In the prior year, Net Realized and Unrealized Trading Gains for the six months
ended April 30, 2003 came from first quarter trading gains of $760,007, which
exceeded second quarter losses of $57,824, causing a net trading gain for the
period. 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
then 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.
12
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 4. Controls and Procedures
Management, including the Partnership's Chief Executive Officer and Chief
Financial Officer, has made an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. During the period covered by the report, there was no
change in internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Partnership's
internal control over financial reporting. Based upon the evaluation, the Chief
Executive Officer and Chief Financial officer have concluded, as of the end of
the period covered by this report, that the Partnership's disclosure controls
and procedures are effective to ensure that all material information required to
be filed in this report has been known to them, as appropriate to allow timely
decisions regarding required disclosure.
Item 6. Exhibits
31.1 Certification by Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer 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.
13
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 on the 11th day of June, 2004.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC.
General Partner
By /s/ Thomas M. Harte
-----------------------------
Thomas M. Harte
President and Chief Executive Officer
By /s/ F. Kemper Cagney
-----------------------------
F. Kemper Cagney
Chief Financial Officer
14