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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 JULY 31, 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
7/31/04 10/31/2003
(UNAUDITED)
ASSETS
Investments in affiliated general partnerships $5,155,499 $4,912,003
Due from affiliated broker 2,151,588 3,618,402
Other assets -- 5,658
---------- ----------
Total assets $7,307,087 $8,536,063
========== ==========
LIABILITIES & PARTNERS' EQUITY
Brokerage commissions payable to Affiliate $ 42,332 $ 49,703
Redemptions payable 30,139 24,789
Management fees payable to Trading Manager 23,816 28,045
Other liabilities 50,241 15,523
---------- ----------
Total liabilities 146,528 118,060
========== ==========
Partners' equity:
Limited Partners (6,520 and 7,057 units outstanding
at July 31, 2004 and October 31, 2003) 7,079,131 8,163,518
General Partner (75 and 220 units outstanding
at July 31, 2004 and October 31, 2003) 81,428 254,485
---------- ----------
Total partners' equity 7,160,559 8,418,003
---------- ----------
Total liabilities and partners' equity $7,307,087 $8,536,063
========== ==========
Net asset value per outstanding unit of partnership
interest $ 1,085.70 $ 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 JULY 31, 2004 and 2003
(UNAUDITED)
2004 2003
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains (losses) on closed contracts $(450,727) $ 346,039
Change in net unrealized gains (losses) on open contracts 16,430 (104,491)
--------- ---------
(434,297) 241,548
Interest income 16,224 15,524
--------- ---------
(418,073) 257,072
--------- ---------
Expenses:
Brokerage commissions paid to Affiliate 133,683 159,141
Management fees paid to Trading Manager 75,267 86,233
Incentive fee paid to Trading Manager -- 10,415
Other administrative expenses 19,500 12,000
--------- ---------
Total expenses 228,450 267,789
--------- ---------
Net loss $(646,523) $ (10,717)
========= =========
Net loss allocated to General Partner $ (17,799) $ (329)
Net loss allocated to Limited Partners $(628,724) $ (10,388)
Net loss for a unit of partnership interest (for a unit
outstanding throughout the period) $ (95.03) $ (1.49)
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS
3
THE FUTURE FUND
(An Illinois Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2004 and 2003
(UNAUDITED)
2004 2003
Equity in income (loss) of affiliated general partnerships:
Net realized trading gains on closed contracts $ 750,602 $ 1,031,378
Change in net unrealized losses on open contracts (390,643) (87,647)
----------- -----------
359,959 943,731
Interest income 44,497 54,273
----------- -----------
404,456 998,004
----------- -----------
Expenses:
Brokerage commissions paid to Affiliate 440,008 473,648
Management fees paid to Trading Manager 247,711 263,450
Incentive fee paid to Trading Manager 123,627 27,335
Other administrative expenses 64,500 37,000
----------- -----------
Total expenses 875,846 801,433
----------- -----------
Net income (loss) $ (471,390) $ 196,571
=========== ===========
Net income (loss) allocated to General Partner $ (12,523) $ 6,111
Net income (loss) allocated to Limited Partners $ (458,867) $ 190,460
Net income (loss) for a unit of partnership interest (for a unit
outstanding throughout the period) $ (71.05) $ 27.78
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 NINE MONTHS ENDED JULY 31, 2004
(UNAUDITED)
Limited General
Partners Partner Total
--------------- -------------- -----------
Partners' equity at October 31, 2003 $ 8,163,518 $ 254,485 $ 8,418,003
Redemption of 537 units of limited partnership
interest (625,520) -- (625,520)
Redemption of 145 units of general partnership
interest -- (160,534) (160,534)
Net loss (458,867) (12,523) (471,390)
----------- ----------- -----------
Partners' equity at July 31, 2004 $ 7,079,131 $ 81,428 $ 7,160,559
=========== =========== ===========
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 NINE MONTHS ENDED JULY 31, 2004 and 2003
(UNAUDITED)
2004 2003
Cash flows from operating activities:
Net income (loss) $ (471,390) $ 196,571
Adjustments to reconcile net income to net cash provided by operating
activities:
Change in assets and liabilities:
Investment in affiliated general partnerships (243,496) (544,851)
Due from affiliated broker 1,466,814 703,045
Other assets 5,658 (7,480)
Brokerage commissions payable to Affiliate (7,371) (805)
Management fees payable to Trading Manager (4,229) (4,001)
Other liabilities 34,718 (12,632)
----------- -----------
Net cash provided by operating activities 780,704 329,847
Cash flows from financing activities:
Redemption of limited partnership interests (620,170) (329,847)
Redemption of general partnership interests (160,534) --
----------- -----------
Net cash used by financing activities (780,704) (329,847)
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 JULY 31, 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 July 31, 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 $1,894,832 $2,038,075
Heinold General Partnership Account IV 1,265,961 2,513,623
Heinold General Partnership Account XI 1,994,707 2,593,060
---------- ----------
$5,155,499 $7,144,758
========== ==========
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 July 31, 2004:
NET UNREALIZED
DUE FROM GAIN ON
ACCOUNT PARTNERSHIP AFFILIATED BROKER CONTRACTS TOTAL
Heinold General Partnership Account III $ 4,193,347 $ 36,849 $ 4,230,196
Heinold General Partnership Account IV 2,836,956 (10,709) 2,826,247
Heinold General Partnership Account XI 4,408,989 44,177 4,453,166
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 July 31, 2004 and October 31, 2003, and the proportionate
share of Account Partnership income for the months then ended was 44.79% 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 July 31, 2004 and 2003:
ACCOUNT PARTNERSHIP 2004 2003
Heinold General Partnership Account III $ (224,142) $ 200,913
Heinold General Partnership Account IV (466,115) 95,454
Heinold General Partnership Account V -- 218,098
Heinold General Partnership Account XI (278,498) 15,222
---------- ---------
$ (968,755) $ 529,687
========== =========
The Partnership was allocated $(434,297) and $241,548 for the three months ended
July 31, 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 nine
months ended July 31, 2004 and 2003:
ACCOUNT PARTNERSHIP 2004 2003
Heinold General Partnership Account III $ (23,219) $ 617,956
Heinold General Partnership Account IV (53) 704,578
Heinold General Partnership Account V -- 411,200
Heinold General Partnership Account XI 794,572 365,284
---------- -----------
$ 771,300 $ 2,099,018
========== ===========
The Partnership was allocated $359,959 and $943,731 for the nine months ended
July 31, 2004 and 2003, respectively.
10
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 2. Management's Discussion and Analysis of Financial Condition as of
July 31, 2004 and Operating Results for the Three and Nine Months
Ended July 31, 2004 and July 31, 2003
Note A: July 31, 2004 October 31, 2003
(Unaudited)
------------- ----------------
Partners' equity $ 7,160,559 $ 8,418,003
Partners' equity at July 31, 2004 decreased by $1,257,444 from Partners' equity
at October 31, 2003 due to a net loss of $471,390 and redemptions of $786,054.
For the nine-month period ending July 31 2004, the Partnership's Net Asset Value
per Unit decreased from $1,156.75 at October 31, 2003 to $1,085.70, representing
a 6.1% loss. Included in the aforementioned total redemption amount is $160,534,
which represents 145 units of general partnership interest redeemed on June 30,
2004. The General Partner continues to maintain its required investment under
the terms of the Limited Partnership Agreement of the Partnership.
Note B: Three months Three months
ended 7/31/2004 ended 7/31/2003
(Unaudited) (Unaudited)
--------------- ---------------
Net Realized and Change in Net Unrealized Trading
Gains (Losses) $ (434,297) $ 241,548
Net Realized and Unrealized Trading Losses for the three months ended July 31,
2004 came from unprofitable trading throughout the period. In May, losses came
from negative returns in the stock index and currency sectors. Long positions in
Asian indices showed losses amid concerns that rising interest rates could
weaken US demand for Asian goods. Long US Dollar positions against other major
currencies also proved unprofitable, as the Dollar lost ground against various
currencies, particularly the Euro and Yen. In June, trading in energy and metals
had negative returns, with long crude oil positions causing considerable losses
as the price of oil declined. Long copper positions also created losses as
prices dropped due to demand concerns. In July, losses were less significant
compared to earlier in the period. Shortfalls were again posted in the currency
sector due to significant intra-month price fluctuations, however these were
partially offset by gains on long oil positions, as oil prices climbed back to
record highs.
Net Realized and Change in Net Unrealized Trading Gains for the three months
ended July 31, 2003 came from varied results throughout the period, netting out
to a moderate gain for the period as a whole. The quarter started out strong
with substantial returns in May, but fell off with losses in June and July,
netting to a modest gain for the period. May gains came principally form the
currency and interest rate sectors, as the continued downtrend of the US Dollar
caused the Euro to hit four-year highs. The Partnership recognized considerable
profits in short US Dollar positions against the Euro, as well as long Euro
positions against the Yen. In June, 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. In
July, losses were posted in part due to highly volatile currency markets. The US
dollar started to rise, causing the short US Dollar positions that were
extremely profitable earlier in the period to decline.
11
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 2. Management's Discussion and Analysis of Financial Condition as of
July 31, 2004 and Operating Results for the Three and Nine Months
Ended July 31, 2004 and July 31, 2003 (Cont.)
Note C: Nine months Nine months
ended 7/31/2004 ended 7/31/2003
(Unaudited) (Unaudited)
--------------- ----------------
Net Realized and Change in Net Unrealized Trading
Gains $ 359,959 $ 943,731
Net Realized and Unrealized Trading Gains for the nine months ended July 31,
2004 came from gains of $613,310, and $180,946, for the first and second
quarters, respectively, combined with third quarter losses of $434,297,
resulting in a net gain of $359,959.
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.
Considerable gains continued into the beginning of the three months ended April
30, 2004, however then reversed, netting to gains significantly lower than those
seen in the first quarter. Throughout the period long crude oil positions proved
profitable, as low supplies and high demand drove up prices. 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.
During the three months ended July 31, 2004, the Partnership showed significant
losses. Please see Note B for a more detailed discussion of trading results for
the period.
12
THE FUTURE FUND
(An Illinois Limited Partnership)
Item 2. Management's Discussion and Analysis of Financial Condition as of
July 31, 2004 and Operating Results for the Three and Nine Months
Ended July 31, 2004 and July 31, 2003 (Cont.)
In the previous fiscal period, Net Realized and Change in Net Unrealized Trading
Gains for the nine months ended July 31, 2003 came from first and third quarter
trading gains of $760,007 and $241,548 respectively, combined with second
quarter losses of $57,824, causing a net trading gain of $943,731 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. 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
slight 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. During the
third quarter, the Partnership showed adequate gains. Please see Note B for a
more detailed discussion of trading during the period.
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
32.1 Certification by Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.2 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 8th day of September, 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