Exhibit 13.01
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Partners
Futures Portfolio Fund, Limited Partnership
We have audited the accompanying statements of financial condition of Futures
Portfolio Fund, Limited Partnership, including the condensed schedules of
investments, as of December 31, 2004 and 2003, and the related statements of
operations, cash flows and changes in partners' capital (net asset value) for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. The Partnership is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Partnership's internal
control over financial reporting. Accordingly, we express no such opinion. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futures Portfolio Fund,
Limited Partnership as of December 31, 2004 and 2003, and the results of its
operations, cash flows and the changes in its net asset values for the years
then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
Hunt Valley, Maryland
February 11, 2005
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
December 31, 2004 and 2003
---------------
2004 2003
---- ----
ASSETS
Equity in broker trading accounts
Cash $177,902,239 $ 14,155,901
United States government securities
(cost, including accrued interest, -
$35,992,200 and $56,225,381) 35,992,200 56,225,381
Unrealized gain on open contracts 8,261,541 6,241,625
------------ -------------
Deposits with brokers 222,155,980 76,622,907
Cash and cash equivalents 33,448,634 11,197,196
United States government agency securities
(cost, including accrued interest, - $9,944,295 and $0) 9,944,295 0
Unrealized gain (loss) on open forward
currency contracts (1,572,160) 797,823
------------ -------------
Total assets $263,976,749 $ 88,617,926
============ =============
LIABILITIES
Accounts payable $ 5,365 $ 86,600
Commissions and other trading fees
on open contracts 90,930 30,210
General Partner management fee 425,845 129,471
General Partner 1% allocation 21,822 51,410
Advisor management fees 823,369 94,910
Advisor incentive fees 672,681 1,678,712
Selling agents fee 336,382 97,499
Redemptions payable 1,492,430 186,717
Subscriptions received in advance 5,306,668 8,496,538
------------ -------------
Total liabilities 9,175,492 10,852,067
------------ -------------
PARTNERS' CAPITAL (Net Asset Value)
Class A Interests - 56,716.3746 and 16,350.3885
units outstanding at December 31, 2004 and 2003 194,513,666 55,901,105
Class B Interests - 14,666.9737 and 5,435.3839
units outstanding at December 31, 2004 and 2003 60,287,591 21,864,754
------------ -------------
Total partners' capital
(Net Asset Value) 254,801,257 77,765,859
------------ -------------
$263,976,749 $ 88,617,926
============ =============
See accompanying notes.
2
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2004
---------------
UNITED STATES GOVERNMENT AND AGENCY SECURITIES
- ----------------------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$10,000,000 03/22/05 Federal Home Loan Mortgage Corporation
Discount Note $ 9,944,295 3.90 %
36,000,000 01/06/05 U.S. Treasury Bill 35,992,200 14.13 %
------------ ---------
Total United States government and agency securities
(cost, including accrued interest, - $45,936,495) $45,936,495 18.03 %
=========== =========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 961,451 0.38 %
Currency 1,754,893 0.69 %
Energy (198,627) (0.08)%
Interest rate 1,715,930 0.67 %
Metal 2,491,362 0.98 %
Stock index 2,189,269 0.86 %
------------- ----------
Total long futures contracts $ 8,914,278 3.50 %
------------ ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (51,895) (0.02)%
Energy 775,428 0.30 %
Interest rate 394,937 0.16 %
Metal (1,771,207) (0.70)%
------------- ----------
Total short futures contracts $ (652,737) (0.26)%
-------------- ----------
Total futures contracts $ 8,261,541 3.24 %
============ ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 8,968,638 3.52 %
Short forward currency contracts (10,540,798) (4.14)%
------------- ----------
Total forward currency contracts $ (1,572,160) (0.62)%
============ ==========
3
See accompanying notes.
4
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2003
---------------
UNITED STATES GOVERNMENT SECURITIES
- -----------------------------------
Maturity % of Net
Face Value Date Description Value Asset Value
---------- ---- ----------- ----- -----------
$16,000,000 06/03/04 U.S. Treasury Bill $15,931,137 20.49 %
12,300,000 05/06/04 U.S. Treasury Bill 12,256,220 15.76 %
10,000,000 02/19/04 U.S. Treasury Bill 9,985,990 12.84 %
6,500,000 04/01/04 U.S. Treasury Bill 6,484,069 8.34 %
5,000,000 03/11/04 U.S. Treasury Bill 4,990,348 6.42 %
Other U.S. Treasury Bills 6,577,617 8.45 %
----------- ---------
Total United States government securities
(cost, including accrued interest, - $56,225,381) $56,225,381 72.30 %
=========== =========
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 578,883 0.74 %
Currency 3,393,879 4.36 %
Energy 115,841 0.15 %
Interest rate (210,196) (0.27)%
Metal 2,888,152 3.72 %
Stock index 910,629 1.17 %
----------- ----------
Total long futures contracts $ 7,677,188 9.87 %
----------- ----------
SHORT FUTURES CONTRACTS
- -----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ (25,120) (0.03)%
Currency (1,006,522) (1.30)%
Interest rate (111,541) (0.14)%
Metal (292,380) (0.38)%
----------- ----------
Total short futures contracts $(1,435,563) (1.85)%
----------- ----------
Total futures contracts $ 6,241,625 8.02 %
=========== ==========
FORWARD CURRENCY CONTRACTS
- --------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ 894,946 1.15 %
Short forward currency contracts (97,123) (0.12)%
----------- ----------
Total forward currency contracts $ 797,823 1.03 %
=========== ==========
5
See accompanying notes.
6
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2004 and 2003
---------------
2004 2003
---- ----
TRADING GAINS
Gain (loss) from trading
Realized $ 17,106,196 $ 2,771,942
Change in unrealized (350,067) 6,236,904
Brokerage commissions (1,346,001) (246,478)
------------ -----------
Gain from trading 15,410,128 8,762,368
------------ -----------
NET INVESTMENT (LOSS)
Income
Interest income 1,863,091 339,961
------------ -----------
Expenses
General Partner management fee 3,397,591 655,881
General Partner 1% allocation 21,822 51,412
Advisor management fees 2,517,558 384,029
Advisor incentive fees 4,956,093 2,101,829
Selling agents fee 2,733,183 480,685
Operating expenses 3,233,508 440,770
------------ -----------
Total expenses 16,859,755 4,114,606
Operating expenses waived (1,746,960) (101,857)
------------ -----------
Net total expenses 15,112,795 4,012,749
------------ -----------
Net investment (loss) (13,249,704) (3,672,788)
------------ -----------
NET INCOME $ 2,160,424 $ 5,089,580
============ ===========
2004 2003
---- ----
Class A Class B Class A Class B
------- ------- ------- -------
NET INCOME PER UNIT
(based on weighted average number of
units outstanding during the year) $ 31.53 $ 93.28 $485.93 $588.82
======== ======== ======= =======
INCREASE IN NET ASSET VALUE
PER UNIT $ 10.64 $ 87.76 $452.19 $597.06
======== ======== ======= =======
See accompanying notes.
7
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004 and 2003
---------------
2004 2003
---- ----
Cash flows from (for) operating activities
Net income $ 2,160,424 $ 5,089,580
Adjustments to reconcile net income to net cash
from (for) operating activities:
Net change in unrealized 350,067 (6,236,904)
Increase in accounts payable and accrued expenses 207,582 2,105,824
Net proceeds (purchases) of investments in
United States government and agency securities 10,288,886 (51,481,493)
-------------- -------------
Net cash from (for) operating activities 13,006,959 (50,522,993)
-------------- -------------
Cash flows from (for) financing activities
Subscriptions received in advance 5,306,668 8,496,538
Addition of units 173,667,380 63,566,089
Redemption of units (5,983,231) (864,874)
-------------- -------------
Net cash from financing activities 172,990,817 71,197,753
-------------- -------------
Net increase in cash and cash equivalents 185,997,776 20,674,760
Cash and cash equivalents
Beginning of year 25,353,097 4,678,337
-------------- -------------
End of year $211,350,873 $ 25,353,097
============== =============
End of year cash and cash equivalents consists of:
Cash in broker trading accounts $177,902,239 $ 14,155,901
Cash and cash equivalents 33,448,634 11,197,196
-------------- -------------
Total end of year cash and cash equivalents $211,350,873 $ 25,353,097
============== =============
See accompanying notes.
8
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 2004 and 2003
---------------
Class A Interests Class B Interests
----------------- ------------------
Units Value Units Value Total
----- ----- ----- ----- -----
Balances at
December 31, 2002 1,240.5575 $ 3,680,442 1,832.4761 $ 6,277,366 $ 9,957,808
Net income for the year
ended December 31, 2003 3,199,008 1,890,572 5,089,580
Additions 15,267.5787 49,541,847 3,740.1800 14,228,215 63,770,062
Redemptions (157.7477) (520,192) (137.2722) (531,399) (1,051,591)
------------ ------------- ------------ ------------- ------------
Balances at
December 31, 2003 16,350.3885 55,901,105 5,435.3839 21,864,754 77,765,859
Net income for the year
ended December 31, 2004 1,233,969 926,455 2,160,424
Additions 42,634.5145 145,063,460 9,159.2385 37,100,458 182,163,918
Redemptions (1,093.8480) (3,709,181) (911.8706) (3,579,763) (7,288,944)
Transfers (1,174.6804) (3,975,687) 984.2219 3,975,687 0
----------- ------------- ------------ ------------- ------------
Balances at
December 31, 2004 56,716.3746 $194,513,666 14,666.9737 $ 60,287,591 $254,801,257
============ ============= ============ ============= ============
Net Asset Value Per Unit
----------------------------------------------------------------------------------------------
December 31, December 31, December 31,
2004 2003 2002
---- ---- ----
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
$3,429.59 $4,110.43 $3,418.95 $4,022.67 $2,966.76 $3,425.61
========= ========= ========= ========= ========= =========
See accompanying notes.
9
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
---------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
Futures Portfolio Fund, Limited Partnership (the Partnership)
is a Maryland limited partnership which operates as a commodity
investment pool. The Partnership utilizes professional trading
advisors to engage in the trading of futures contracts, forward
currency contracts and other financial instruments.
B. Regulation
The Partnership is a registrant with the Securities and
Exchange Commission (SEC) pursuant to the Securities Exchange
Act of 1934 (the Act). As a registrant, the Partnership is
subject to the regulations of the SEC and the informational
requirements of the Act. As a commodity pool, the Partnership
is subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.) government
which regulates most aspects of the commodity futures industry;
rules of the National Futures Association, an industry
self-regulatory organization; and the requirements of commodity
exchanges where the Partnership executes transactions.
Additionally, the Partnership is subject to the requirements of
Futures Commission Merchants (brokers) and interbank market
makers through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in
accordance with accounting principles generally accepted in the
United States of America, which require the use of certain
estimates made by the Partnership's management. Gains or losses
are realized when contracts are liquidated. Unrealized gains
and losses on open contracts (the difference between contract
trade price and market price) are reported in the statement of
financial condition as a net gain or loss, as there exists a
right of offset of unrealized gains or losses in accordance
with Financial Accounting Standards Board Interpretation No. 39
- "Offsetting of Amounts Related to Certain Contracts." Any
change in net unrealized gain or loss from the preceding period
is reported in the statement of operations. United States
government and agency securities are stated at cost plus
accrued interest, which approximates market value.
For purposes of both financial reporting and calculation of
redemption value, net asset value per Class A or Class B unit
is calculated by dividing the net asset value of Class A or
Class B by the number of outstanding units of Class A or Class
B.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and an investment in a
money market mutual fund.
E. Brokerage Commissions
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
F. Income Taxes
10
The Partnership prepares calendar year U.S. and applicable
state information tax returns and reports to the partners their
allocable shares of the Partnership's income, expenses and
trading gains or losses.
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
-----------
G. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar;
however, it transacts business in currencies other than the
U.S. dollar. Assets and liabilities denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at
the rates in effect at the date of the statement of financial
condition. Income and expense items denominated in currencies
other than the U.S. dollar are translated into U.S. dollars at
the rates in effect during the period. Gains and losses
resulting from the translation to U.S. dollars are reported in
income currently.
H. Classes of Interests
The Partnership has two classes of limited partnership
interests ("Interests"), Class A and Class B. The General
Partner may offer additional classes at its discretion. Both
Class A and Class B Interests are traded pursuant to identical
trading programs and differ only in respect to the General
Partner's management fee and selling agents fee. Class B
Interests are issued only at the General Partner's discretion
and are generally intended for investors who are participating
in fee based investment advisory programs. All items of income
or loss, except for the General Partner management fee and
selling agents fee, are allocated pro rata between Class A and
Class B Interests. The General Partner management fee and
selling agents fee applicable to each class of Interest is then
charged to each class. All items of income or loss allocated to
each class of Interest is then allocated pro rata to each
Limited Partner within each class.
I. Reclassification
Certain amounts in the December 31, 2003 statement of financial
condition were reclassified to conform with the December 31,
2004 statement of financial condition presentation.
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is Steben & Company, Inc.,
which conducts and manages the business of the Partnership. During
the years ended December 31, 2004 and 2003, the General Partner did
not maintain a capital balance in the Partnership, however, the sole
shareholder of the General Partner has an investment in Class B
Interests of the Partnership.
During the years ended December 31, 2004 and 2003, the General
Partner received the following compensation:
o Commencing December 1, 2004, Class A Interests paid a monthly
management fee equal to 1/12 of 1.95% (1.95% per annum) of the
net asset value of the Class A Interests as of the last day of
each month.
11
o For the period January 1, 2003 through November 30, 2004,
Class A Interests paid a monthly management fee equal to
1/12 of 2% (2% per annum) of the net asset value of the
Class A Interests as of the last day of each month.
o Class A Interests paid a monthly selling agents fee equal to
1/12 of 2% (2% per annum) of the net asset value of the
Class A Interests as of the last day of each month. The
General Partner, in turn, pays the selling agents fee to the
respective selling agent. If the selling agents fee is not
paid to the selling agent, or the General Partner was the
selling agent, such portion of the selling agents fee is
retained by the General Partner.
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
o Commencing May 1, 2003, Class B Interests paid a monthly
management fee equal to 1/12 of 1.95% (1.95% per annum) of the
net asset value of the Class B Interests as of the last day of
each month.
o Commencing May 1, 2003, Class B Interests paid a monthly
selling agents fee equal to 1/12 of .20% (.20% per annum) of
the net asset value of the Class B Interests as of the last day
of each month. The General Partner, in turn, pays the selling
agents fee to the respective selling agent. If the selling
agents fee is not paid to the selling agent, or the General
Partner was the selling agent, such portion of the selling
agent fee is retained by the General Partner.
o For the period January 1, 2003 through April 30, 2003, Class B
Interests paid a monthly management fee equal to 1/12 of 1.15%
(1.15% per annum) of the net asset value of the Class B
Interests as of the last day of each month.
o For the period January 1, 2003 through April 30, 2003, Class B
Interests paid a monthly selling agents fee equal to 1/12 of
1.00% (1.00% per annum) of the net asset value of the Class B
Interests as of the last day of each month. The General
Partner, in turn, pays the selling agents fee to the respective
selling agent. If the selling agents fee is not paid to the
selling agent, or the General Partner was the selling agent,
such portion of the selling agents fee is retained by the
General Partner.
For the period January 1, 2003 through November 30, 2004, the
General Partner also received, at the time of subscription, a
subscription fee equal to 1% of the subscription amount. The General
Partner could reduce or waive this fee in its sole discretion.
Additions in the statements of changes in partners' capital (net
asset value) are reflected net of such subscription fee. Effective
December 1, 2004, the General Partner no longer charges a
subscription fee.
Pursuant to the terms of the Limited Partnership Agreement, the
General Partner receives 1% of any increase or decrease in the
Partnership's net assets. Such amount is reflected as the General
Partner 1% allocation in the statement of financial condition and
the statement of operations.
Note 3. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has Advisory Agreements with various commodity
trading advisors, pursuant to which the Partnership pays each
commodity trading advisor a monthly or quarterly management fee
equal to 1% or 2% per annum of allocated net assets (as separately
defined in each respective Advisory Agreement) and a quarterly
incentive fee equal to 20% or 25% of Trading Profits (as separately
defined in each respective Advisory Agreement).
12
Note 4. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with brokers, subject to Commodity
Futures Trading Commission regulations and various exchange and
broker requirements. Margin requirements are satisfied by the
deposit of U.S. Treasury bills and cash with such brokers. The
Partnership earns interest income on its assets deposited with the
brokers.
Note 5. OPERATING EXPENSES
------------------
The Partnership is responsible for all of its operating expenses
such as accounting, audit, legal, administrative, marketing and
offering expenses, etc. Operating expenses also include salary and
administrative costs incurred by the General Partner relating to
marketing and administration of the Partnership, such as salaries
and commissions of General Partner marketing personnel and
administrative employee salaries and related costs. Pursuant to the
terms of the Limited Partnership Agreement, operating expenses that
exceed 1% of the average month-end net assets of the Partnership are
the responsibility of the General Partner. During 2004 and 2003,
actual operating expenses exceeded 1% of average month-end net
assets of the Partnership by $1,527,551 and $101,857, respectively,
with such amounts reflected as operating expenses waived in the
statement of operations. Additionally, during 2004, the General
Partner voluntarily paid $219,409 of operating expenses of the
Partnership, with such amount also reflected as operating expenses
waived in the statement of operations. For 2004 and 2003, operating
expenses, net of waived operating expenses, were .87% and 1.00%,
respectively, of the average month-end net assets.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership are made by subscription agreement,
subject to acceptance by the General Partner. Units are sold at the
net asset value per Class A or Class B unit as of the close of
business on the last day of the month in which the subscription is
accepted. Prior to May 1, 2003, investors who subscribed through a
selling agent were subject to an up-front sales commission of up to
4% of the subscription amount. If the General Partner acted as the
selling agent, the General Partner was entitled to the up-front
sales commission, however, during the period January 1, 2003 through
April 30, 2003, the General Partner elected not to charge such
up-front sales commission to which it was entitled. Additions in the
statement of changes in partners' capital (net asset value) are
reflected net of such commissions to selling agents. Investors whose
subscriptions are accepted are admitted as Limited Partners as of
the beginning of the month following the month in which their
subscriptions were accepted. At December 31, 2004 and 2003, the
Partnership had received subscriptions of $5,306,668 and $8,496,538,
respectively, which were additions to the Partnership effective
January 1, 2005 and January 1, 2004, respectively.
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of Class A or Class B units owned,
subject to restrictions in the Limited Partnership Agreement.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts and forward currency contracts
(collectively, "derivatives"). The Partnership is exposed to both
market risk, the risk arising from changes in the market value of
the contracts, and credit risk, the risk of failure by another party
to perform according to the terms of a contract.
Purchase and sale of futures contracts requires margin deposits with
the brokers. Additional deposits may be necessary for any loss on
contract value. The Commodity Exchange Act requires
13
a broker to segregate all customer transactions and assets from such
broker's proprietary activities. A customer's cash and other
property (for example, U.S. Treasury bills) deposited with a broker
are considered commingled with all other customer funds subject to
the broker's segregation requirements. In the event of a broker's
insolvency, recovery may be limited to a pro rata share of
segregated funds available. It is possible that the recovered amount
could be less than total cash and other property deposited.
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
The Partnership trades forward currency contracts in unregulated
markets between principals and assumes the risk of loss from
counterparty nonperformance. Accordingly, the risks associated with
forward currency contracts are generally greater than those
associated with exchange traded contracts because of the greater
risk of counterparty default. Additionally, the trading of forward
currency contracts typically involves delayed cash settlement.
The Partnership has a substantial portion of its assets on deposit
with interbank market makers and other financial institutions in
connection with its trading of forward currency contracts and its
cash management activities. In the event of an interbank market
maker's or financial institution's insolvency, recovery of
Partnership assets on deposit may be limited to account insurance or
other protection afforded such deposits.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market
risk equal to the notional contract value of futures and forward
currency contracts purchased and unlimited liability on such
contracts sold short.
The unrealized gain (loss) on open futures and forward currency
contracts is comprised of the following:
Futures Contracts Forward Currency Contracts
(exchange traded) (non-exchange traded)
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Gross unrealized gains $11,621,802 $ 8,128,348 $ 11,813,827 $ 1,129,789
Gross unrealized losses (3,360,261) (1,886,723) (13,385,987) (331,966)
------------ ------------ ------------- --------------
Net unrealized gain (loss) $ 8,261,541 $ 6,241,625 $ (1,572,160) $ 797,823
============ ============ ============= ==============
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. The Limited
Partners bear the risk of loss only to the extent of the market
value of their respective investments and, in certain specific
circumstances, distributions and redemptions received.
Note 8. GUARANTEES
----------
In the normal course of business, the Partnership enters into
contracts and agreements 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. The Partnership expects the
risk of any future obligation under these indemnifications to be
remote.
14
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
---------------
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance
data and other supplemental financial data for the years ended
December 31, 2004 and 2003. This information has been derived from
information presented in the financial statements.
December 31, December 31,
2004 2003
----------------------- -----------------------
Class A Class B Class A Class B
Interests Interests Interests Interests
--------- --------- --------- ---------
Per Unit Performance
(for a unit outstanding throughout the entire year)
---------------------------------------------------
Net asset value per unit at beginning of year $3,418.95 $4,022.67 $2,966.76 $3,425.61
--------- --------- --------- ---------
Income from operations:
Gain from trading (1) 283.67 346.07 834.87 956.32
Net investment (loss) (1) (273.03) (258.31) (382.68) (359.26)
--------- ---------- ---------- ---------
Total income from operations 10.64 87.76 452.19 597.06
--------- ---------- ---------- ---------
Net asset value per unit at end of year $3,429.59 $4,110.43 $3,418.95 $4,022.67
========= ========= ========= =========
Total Return 0.31 % 2.18 % 15.24 % 17.43 %
========= ========= ======== ========
Supplemental Data
Ratios to average net asset value:
Expenses prior to advisor incentive fees (2) 6.37 % 4.52 % 6.40 % 4.41 %
Advisor incentive fees 2.86 % 3.03 % 6.36 % 6.04 %
--------- --------- ---------- ----------
Total expenses (2) 9.23 % 7.55 % 12.76 % 10.45 %
========= ========= ======== ========
Net investment (loss) (2), (3) (5.28)% (3.43)% (5.40)% (3.38)%
========= ========= ========= =========
Total returns are calculated based on the change in value of a Class
A or Class B unit during the year. An individual partner's total
returns and ratios may vary from the above total returns and ratios
based on the timing of additions and redemptions.
--------------------
(1) The net investment (loss) per unit is calculated by dividing
the net investment (loss) by the average number of Class A or
Class B units outstanding during the year. Gain from trading is
a balancing amount necessary to reconcile the change in net
asset value per unit with the other per unit information. Such
balancing amount may differ from the calculation of gain from
trading per unit due to the timing of trading gains and losses
during the year relative to the number of units outstanding.
(2) All of the ratios under the supplemental data are computed net
of voluntary and involuntary waivers of operating expenses. For
2004 and 2003, the ratios are net of the .13% and .00% effect
of the voluntary waiver of operating expenses, respectively.
Both the nature and the amounts of the waivers are more fully
explained in Note 5.
(3) The net investment (loss) includes interest income and excludes
gain from trading activities as shown on the statement of
operations. The total amount is then reduced by all expenses
other than advisor incentive fees. The resulting amount is
divided by the average net asset value for the year.
15
McGladrey & Pullen
Certified Public Accountants
Report of Independent Registered Public Accounting Firm
To the Partners
Futures Portfolio Fund L.P.
Germantown, Maryland
We have audited the accompanying statements of financial condition of Futures
Portfolio Fund L.P. as of December 31, 2002 and 2001, and the related
statements of operations and changes in partners' capital for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futures Portfolio Fund L.P.
as of December 31, 2002 and 2001, and the results of their operations for the
years then ended in conformity with accounting principles generally accepted
in the United States of America.
McGladrey & Pullen, LLP
Chicago, Illinois
February 26, 2003
McGladrey & Pullen, LLP is a member firm of RSM International-
an affiliation of separate and independent legal entities.
FUTURES PORTFOLIO FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2002 and 2001
ASSETS 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Equity in broker trading accounts:
Cash $ 4,467,411 $ 2,661,730
U.S. Government securities, at market value 4,743,888 3,838,300
Unrealized gain on open contracts, net 802,544 265,369
-------------------------------------------------
Deposits with brokers 10,013,843 6,765,399
Cash and cash equivalents 210,926 9,156
Interest receivable - 1,918
-------------------------------------------------
Total assets $ 10,224,769 $ 6,776,473
=================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued management fees $ 30,584 $ 23,828
Accrued selling agent fees 11,412 7,373
Other accrued expenses 20,992 12,907
Pending partner additions 203,973 -
-------------------------------------------------
Total liabilities 266,961 44,108
-------------------------------------------------
Partners' Capital
Limited partners:
Class A (units outstanding 2002 1,240.56; 2001 841.68) 3,680,442 2,087,945
Class B (units outstanding 2002 1,832.48; 2001 1,652.02) 6,277,366 4,644,420
-------------------------------------------------
Total partners' capital 9,957,808 6,732,365
-------------------------------------------------
Total liabilities and partners' capital $ 10,224,769 $ 6,776,473
=================================================
The accompanying notes are an integral part of these financial statements.
2
FUTURES PORTFOLIO FUND L.P.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 and 2001
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income, interest
Total income $ 132,088 $ 274,125
-------------------------------------------------
Expenses:
Management fees 332,734 270,334
Brokerage commissions 55,479 68,452
Incentive fees 494,896 339,957
Administrative 48,693 26,000
-------------------------------------------------
Total expenses 931,802 704,743
-------------------------------------------------
Net investment (loss) (799,714) (430,618)
-------------------------------------------------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain from futures trading 507,933 865,334
Net realized gain from foreign currency trading 1,305,932 857,678
Net increase (decrease) in unrealized appreciation on open futures positions 537,175 (904,956)
-------------------------------------------------
Net realized and unrealized gain from
investments and foreign currency trading 2,351,040 818,056
-------------------------------------------------
Net income $ 1,551,326 $ 387,438
=================================================
Net income allocated to limited partners $ 1,551,326 $ 387,438
=================================================
The accompanying notes are an integral part of these financial statements.
3
FUTURES PORTFOLIO FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Years Ended December 31, 2002 and 2001
Class A Class B
Limited Limited
Partners Partners Total
- ----------------------------------------------------------------------------------------------------------------------------------
Partners' Capital: Limited Partners, 2,437.42 units
outstanding (Class A - 794.48; Class B - 1,642.94),
December 31, 2000 $ 1,880,892 $ 4,327,849 $ 6,208,741
Proceeds from issuance of 125.56 units (Class A - 59.52;
Class B - 66.04) of Limited
Partnership interests (net of sales charges) 148,183 180,000 328,183
Redemptions of 69.28 units (Class A - 12.32;
Class B - 56.96) of Limited Partnership interests (29,986) (162,011) (191,997)
Net income 88,856 298,582 387,438
--------------------------------------------------------------
Partners' Capital: Limited Partners, 2,493.70 units
outstanding (Class A - 841.68; Class B - 1,652.02),
December 31, 2001 2,087,945 4,644,420 6,732,365
Proceeds from issuance of 713.84 units (Class A - 432.61;
Class B - 281.23) of Limited
Partnership interests (net of sales charges) 1,174,784 870,805 2,045,589
Redemptions of 134.50 units (Class A - 33.73;
Class B - 100.77) of Limited Partnership interests (89,248) (282,224) (371,472)
Net income 506,961 1,044,365 1,551,326
--------------------------------------------------------------
Partners' Capital: Limited Partners, 3,073.04 units
outstanding (Class A - 1,240.56; Class B - 1,832.48),
December 31, 2002 $ 3,680,442 $ 6,277,366 $ 9,957,808
==============================================================
Net asset value per limited partner unit, December 31, 2001 $ 2,480.69 $ 2,811.36
=====================================
Net asset value per limited partner unit, December 31, 2002 $ 2,966.76 $ 3,425.61
=====================================
The accompanying notes are an integral part of these financial statements.
4
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Futures Portfolio Fund L.P. (the Partnership) was
organized under the Maryland Revised Uniform Limited Partnership Act in May
1989 and operates as a commodity pool. The Partnership engages in the
speculative trading of futures, options on futures and forward contracts. It
is subject to the regulations of the Commodity Futures Trading Commission
(CFTC), an agency of the U. S. Government that regulates most aspects of the
commodity futures industry, the rules of the National Futures Association
(NFA), an industry self-regulatory organization, and the requirements of
commodity exchanges where the Partnership executes transactions. Additionally,
the Partnership is subject to the requirements of futures commission merchants
(FCMs) through which the Partnership trades.
Each limited partner shares in the profits and losses of the Partnership in
proportion to its respective interests in each partner class of the
Partnership. A limited partner's loss is limited to the amount of its
investment.
The Partnership has elected not to provide statements of cash flows as
permitted by Statement of Financial Accounting Standards No. 102, Statements
of Cash Flows - Exemption of Certain Enterprises and Classification of Cash
Flows from Certain Securities Acquired for Resale.
Significant accounting policies are as follows.
Offering: The offering of the Partnership's units of limited partnership (the
Units) was terminated by the General Partner on September 2, 1991. The
Partnership was reopened to accept new investors effective January 6, 1995. As
of May 1, 1995, units are being offered in two classes of units, Class A and
Class B. These differ only in the General Partner and selling agent ongoing
monthly fees, which are reduced in total by 0.85% and 1% per year,
respectively, for Class B units. Class B units are offered only at the General
Partner's discretion and are intended for larger investments or for groups who
commit to larger investments collectively. Units are offered at the net asset
value per unit as of the end of the month in which the subscription was
received after payment of front-end charges, which may total up to 5%. Such
subscriptions are recorded as pending partners' additions until the first day
of the next month whey they are accepted as limited partners. Selling agents
receive a selling commission up to a maximum amount of 4% of the offering
price. The General Partner receives a 1% fee from new subscriptions.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: Cash and cash equivalents include cash in bank and
interest-bearing demand deposits with banks.
Revenue recognition: Futures contracts are recorded on the trade date and
realized gains or losses are recognized when contracts are liquidated.
Unrealized gains or losses on open contracts (the difference between contract
purchase price and market price) at the date of the statements of financial
condition are included in equity in broker trading accounts. Any change in net
unrealized gain or loss from the preceding period is reported in the
statements of operations. Market value of futures contracts is based upon
exchange settlement prices.
5
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (continued)
The Partnership may enter into forward foreign currency exchange contracts.
When entering into a forward currency contract, the Partnership agrees to
receive or deliver a fixed quantity of foreign currency for an agreed-upon
price on an agreed future date. These contracts are valued daily, and the
Partnership's net equity therein, representing unrealized gain or loss on the
contracts as measured by the difference between the forward foreign exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting date, is included in the statements of financial condition. Realized
and unrealized gains and losses are included in the statements of operations.
Foreign currency transactions: The Partnership's functional currency is the
U.S. dollar; however, it transacts business in currencies other than the U.S.
dollar. Assets and liabilities denominated in currencies other than the U.S.
dollar are translated into U.S. dollars at the rates in effect at the date of
the statement of financial condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.
Income taxes: No provision for income taxes has been made in these financial
statements as each partner is individually responsible for reporting income or
loss based on its respective share of the Partnership's income and expenses as
reported for income tax purposes. The Partnership prepares calendar year U.S.
and state information tax returns and reports to the partners their allocable
shares of the Partnership's income, expenses, and trading gains or losses.
Dissolution of the Partnership: The Partnership will terminate on December 31,
2025, or at an earlier date under certain other circumstances as set forth in
the Limited Partnership Agreement.
Note 2. General Partner and Related Party Transactions
Steben & Company, Inc. is the General Partner of the Partnership. The General
Partner is allocated 1% of any increase or decrease in the Partnership's net
assets. The amount allocated to the General Partner for the years ended
December 2002 and 2001, was $15,670 and $3,913, respectively, and is included
in management fees on the statements of operations. Pursuant to the Limited
Partnership Agreement, the General Partner is not required to contribute or
maintain capital with the Partnership. The sole shareholder of the General
Partner has a limited partner investment with the Partnership.
In consideration for providing administrative services, the Partnership pays
the General Partner .1667% of the monthend net assets of the Partnership (2%
annually) for Class A units and .0958% of the month-end net assets of the
Partnership (1.15% annually) for Class B units. For the years ended December
31, 2002 and 2001, the General Partner received $114,153 and $93,518,
respectively, which is included in management fees on the statements of
operations.
6
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 3. Selling Agents and Commodity Trading Advisors
A monthly fee equal to .1667% (2% annually) for Class A units and .0833% (1%
annually) for Class B units is charged to the Partnership and paid to selling
agents which sold Partnership units. The selling agent fee totaled $106,289
and $86,713 for the years ended December 31, 2002 and 2001, respectively, and
is included in management fees on the statements of operations.
The Partnership has entered into advisory contracts with Campbell and Company,
Inc., Sunrise Capital Partners, LLC, and Willowbridge Associates, Inc.
(collectively, the Trading Advisors), which provide that the Partnership's
trading activity will be conducted in accordance with instructions from the
Trading Advisors. The General Partner is responsible for selecting and
monitoring Trading Advisors and allocating the Fund's assets among the Trading
Advisors.
For the performance of their services, the Trading Advisors receive a monthly
management fee of .0833% (1% annually) based on the month-end net assets
allocated to the respective Trading Advisor. Management fees include $96,622
and $86,190 paid to the Trading Advisors for the years ended December 31, 2002
and 2001, respectively. Management fees are calculated and paid monthly.
The Trading Advisors also receive an incentive fee of 25% based on the net new
trading profits, as defined, that the respective Trading Advisor generates.
Incentive fees are calculated and paid quarterly.
Note 4. Operating Expenses
Brokerage commissions include NFA transaction and exchange fees and are
accrued on a half-turn basis. The Partnership pays brokerage commissions at a
rate of $8.39 to $9.39 per round-turn futures transaction on U.S. exchanges,
higher on foreign exchanges.
The Partnership pays all ongoing administrative expenses. The General Partner
will pay all such costs, other than extraordinary costs, to the extent they
exceed 1.25% of the Partnership's average assets per calendar year. The actual
percentage for the years ended December 31, 2002 and 2001, was .58% and .39%
respectively.
Note 5. Schedule of Investments
At December 31, 2002, the Partnership's assets were primarily cash and U.S.
government securities on deposit with FCMs. The Partnership also had open
futures and forward contracts with an unrealized net gain, at market value, of
$802,544 consisting of various underlying domestic commodities and foreign
currencies with delivery dates in 2003. There are no individual futures or
forward contracts with a market value greater than 5% of partners' capital.
7
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 6. Financial Highlights
The following financial highlights reflect activity related to the limited
partners' classes only. Total return is based on the change in value during
the period of a theoretical investment made at the beginning of each calendar
month during the year. Individual investor's ratios may vary from these ratios
based on various factors, including and among others, the timing of capital
transactions.
Class A Class B
Limited Limited
Partners Partners
------------------------------------------------
Net asset value per unit, January 1, 2001 $ 2,367.45 $ 2,634.21
------------------------------------------------
Income from investment operations:
Net investment (loss) (197.12) (171.13)
Net realized and unrealized gain (loss) on investments and
foreign currency 310.36 348.28
------------------------------------------------
Total from investment operations 113.24 177.15
------------------------------------------------
Net asset value per unit, December 31, 2001 $ 2,480.69 $ 2,811.36
================================================
Total Return 4.77% 6.72%
Ratios as a percentage of average net assets:
Expense 12.29% 9.98%
Net investment (loss) (8.12)% (5.82)%
8
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 6. Financial Highlights (continued)
Class A Class B
Limited Limited
Partners Partners
------------------------------------------------
Net asset value per unit, January 1, 2002 $ 2,480.69 $ 2,811.36
------------------------------------------------
Income from investment operations:
Net investment (loss) (264.05) (317.18)
Net realized and unrealized gain (loss) on investments and
foreign currency 750.03 931.43
------------------------------------------------
Total from investment operations 486.07 614.25
------------------------------------------------
Net asset value per unit, December 31, 2002 $ 2,966.76 $ 3,425.61
================================================
Total Return 19.59% 21.85%
Ratios as a percentage of average net assets:
Expense 11.36% 11.99%
Net investment (loss) (9.75)% (10.29)%
The total expense and net investment (loss) ratios above are computed based
upon the weighted average net assets of the Partnership for the years ended
December 31, 2002 and 2001. Net investment (loss) excludes gain from trading
activities.
Note 7. Deposits with Brokers
The Partnership deposits cash and U.S. Government securities with brokers and
FCMs subject to CFTC regulations and various exchange and broker requirements.
Margin requirements are satisfied by the deposit of cash and securities with
such brokers and FCMs. The Partnership earns interest income on its cash
deposited with the brokers and FCMs.
Note 8. Distributions and Redemptions
The Partnership is not required to make distributions, but may do so at the
sole discretion of the General Partner. The General Partner does not presently
intend to make any such distributions. A limited partner may request and
receive redemption of units owned as of the close of business on the last
business day of any calendar month with a minimum of fifteen days' written
notice. Each unit will be redeemed at the net asset value per unit on the
redemption date, as defined.
9
FUTURES PORTFOLIO FUND L.P.
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Note 9. Trading Activities and Related Risks
The Partnership engages in the speculative trading of U.S. and foreign futures
contracts, options on U.S. and foreign futures contracts, and forward
contracts (collectively, derivatives). These derivatives include both
financial and nonfinancial contracts held as part of a diversified trading
strategy. The Partnership is exposed to both market risk, the risk arising
from changes in the market value of the contracts; and credit risk, the risk
of failure by another party to perform according to the terms of a contract.
These instruments involve market risk, credit risk, or both kinds of risks, in
excess of the amount recognized in the statements of financial condition.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts and from movement in currency and securities values and
interest rates.
The purchase and sale of futures and options on futures contracts require
margin deposits with FCMs. Additional deposits may be necessary for any loss
on contract value. The Commodity Exchange Act (CEAct) requires an FCM to
segregate all customer transactions and assets from the FCM's proprietary
activities. A customer's cash and other property (for example, U.S. Treasury
bills) deposited with an FCM are considered commingled with all other customer
funds subject to the FCM's segregation requirements. In the event of an FCM's
insolvency, recovery may be limited to a pro rata share of segregated funds
available. It is possible that the recovered amount could be less than the
total of cash and other property deposited.
Net trading results from derivatives for the years ended December 31, 2002 and
2001, are reflected in the statements of operations. Such trading results
reflect the net gain arising from the Partnership's speculative trading of
futures contracts, options on futures contract, and forward contracts.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk equal to
the value of futures and forward contracts purchased and unlimited liability
on such contracts sold short. As both a buyer and seller of options, the
Partnership pays or receives a premium at the outset and then bears the risk
of unfavorable changes in the price of the contract underlying the option.
Written options expose the Partnership to potentially unlimited liability; for
purchased options the risk of loss is limited to the premiums paid.
The Partnership's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents. The Partnership
maintains its cash accounts with financial institutions. The total cash
balances of the Partnership are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000 per depositor, per bank. The Partnership had
cash and cash equivalents at December 31, 2002, that exceeded the balance
insured by the FDIC. The Partnership monitors such credit risk and has not
experienced any losses related to such risks.
The General Partner has established procedures to actively monitor and
minimize market and credit risks. The limited partners bear the risk of loss
only to the extent of the market value of their respective investments and, in
certain specific circumstances, distributions and redemptions received.
Note 10. Subsequent Event
In January and February 2003, there were limited partner additions and
redemptions totaling $3,764,500 and $44,000, respectively.
10