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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2004
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 0-50316
GRANT PARK FUTURES FUND
LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
ILLINOIS 36-3596839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O DEARBORN CAPITAL MANAGEMENT, L.L.C.
550 WEST JACKSON BOULEVARD, SUITE 1300
CHICAGO, ILLINOIS 60661
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (312) 756-4450
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes |_| No |X|
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GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
QUARTER ENDED MARCH 31, 2004
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Statements of Financial Condition as of March 31, 2004 (unaudited) and December 31, 2003 (audited) 1
Condensed Schedule of Investments as of March 31, 2004 (unaudited) 2
Condensed Schedule of Investments as of December 31, 2003 (audited) 3
Statements of Operations for the three months ended March 31, 2004 and 2003 (unaudited) 4
Statements of Changes in Partners' Capital (Net Asset Value) for the three months ended March 31, 2004 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION 19
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 19
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
- --------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2004 2003
-------------------- -------------------
(UNAUDITED)
ASSETS
Equity in broker's trading accounts:
U.S. Government securities, at market value........................................ $ 24,981,069 $ 7,494,683
Cash............................................................................... 1,693,285 5,815,172
Unrealized gain on open contracts, net............................................. 6,169,394 5,563,659
-------------------- -------------------
Deposits with broker............................................................. 32,843,748 18,873,514
Cash and cash equivalents............................................................. 171,820,107 68,985,354
Interest receivable................................................................... 77,775 2,872
-------------------- -------------------
TOTAL ASSETS..................................................................... $ 204,741,630 $ 87,861,740
==================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Brokerage commission payable....................................................... $ 973,561 $ 436,522
Accrued incentive fees............................................................. 1,706,724 1,140,443
Organization and offering costs payable............................................ 81,893 28,975
Accrued operating expenses......................................................... 96,176 43,353
Other accrued expenses............................................................. 184,784 96,469
Pending partner additions.......................................................... 48,223,026 18,295,637
Redemptions payable................................................................ 303,900 402,295
-------------------- -------------------
TOTAL LIABILITIES................................................................ 51,570,064 20,443,694
==================== ===================
Partners' Capital
General Partner (983.96 and 707.62 units outstanding at March 31, 2004 and
December 31, 2003)............................................................... 1,247,962 844,919
Limited Partners
Class A (38,431.88 and 27,275.54 units outstanding at March 31, 2004 and
December 31, 2003)............................................................ 48,743,684 32,567,704
Class B (90,408.92 and 31,586.19 units outstanding at March 31, 2004 and
December 31, 2003)............................................................ 103,179,920 34,005,423
-------------------- -------------------
TOTAL PARTNERS' CAPITAL....................................................... 153,171,566 67,418,046
-------------------- -------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL....................................... $ 204,741,630 $ 87,861,740
==================== ===================
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
1
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
MARCH 31, 2004
(UNAUDITED)
UNREALIZED UNREALIZED NET
GAIN/(LOSS) PERCENT GAIN/(LOSS) PERCENT UNREALIZED PERCENT
EXPIR- ON OPEN OF ON OPEN OF GAIN/(LOSS) OF
ATION LONG PARTNERS' SHORT PARTNERS' ON OPEN PARTNERS'
DATES CONTRACTS CAPITAL CONTRACTS CAPITAL CONTRACTS CAPITAL
----- ----------- -------- ----------- -------- ----------- --------
FUTURES CONTRACTS
U.S. Futures Positions:
Currencies............. $ 119,133 0.1% $ 10,391 * $ 129,524 0.1%
Energy................. 273,530 0.2% - * 273,530 0.2%
Grains................. 1,855,966 1.2% - * 1,855,966 1.2%
Interest rates......... 1,665,290 1.1% - * 1,665,290 1.1%
Meats.................. 161,110 0.1% - * 161,110 0.1%
Metals................. 2,110,190 1.4% - * 2,110,190 1.4%
Soft Commodities....... (375,662) (0.2)% 159,905 0.1% (215,757) (0.1)%
Stock Indexes.......... - * (263,646) (0.2)% (263,646) (0.2)%
---------- ----------- -----------
Total U.S. Futures Positions 5,809,557 (93,350) 5,716,207
Foreign Futures Positions:
Energy................. 79,050 0.1% - * 79,050 0.1%
Interest rates......... 1,298,888 0.8% 69,998 * 1,368,886 0.9%
Metal.................. 778,296 0.5% (680,020) (0.4)% 98,276 0.1%
Soft commodities....... - * (10,384) * (10,384) *
Stock indexes.......... 821,957 0.5% 142,498 0.1% 964,455 0.6%
---------- ----------- -----------
Total Foreign Futures
Positions.............. 2,978,191 (477,908) 2,500,283
---------- ----------- ----------- ----
TOTAL FUTURES CONTRACTS... $8,787,748 $ (571,258) $ 8,216,490 5.4%
========== =========== =========== ====
FORWARD CONTRACTS
Japanese Yen........... 06/04 $1,275,664 0.8% $(2,030,229) (1.3)% $ (754,565) (0.5)%
Other currencies....... 37,550 * (1,330,081) (0.9)% (1,292,531) (0.8)%
---------- ----------- ----------- ----
TOTAL FORWARD CONTRACTS... $1,313,214 $(3,360,310) $(2,047,096) (1.3)%
========== =========== =========== ====
<FN>
- ------------------
* Percentage is less than 0.1% of partners' capital.
U.S. Government Securities:
PERCENT OF
PARTNERS'
FACE VALUE VALUE CAPITAL
- ---------- ----------- -----------
$25,000,000 U.S. Treasury Bills, April 29, 2004 $24,981,069 16.3%
-----------
Total U.S. Government Securities
(cost $24,943,345) $24,981,069
===========
</FN>
The accompanying notes are an integral part of these financial statements.
2
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2003
UNREALIZED UNREALIZED NET
NO. OF GAIN/(LOSS) PERCENT GAIN/(LOSS) PERCENT UNREALIZED PERCENT
EXPIR- CONTRACTS ON OPEN OF ON OPEN OF GAIN/(LOSS) OF
ATION -------------- LONG PARTNERS' SHORT PARTNERS' ON OPEN PARTNERS'
DATES LONG SHORT CONTRACTS CAPITAL CONTRACTS CAPITAL CONTRACTS CAPITAL
----- ---- ----- ----------- -------- ----------- --------- ----------- ---------
FUTURES CONTRACTS
U.S. Futures Positions:
Currencies........... $ 492,319 0.7% $ (67,674) (0.1)% $ 424,645 0.6%
Energy............... (141,842) (0.2)% - * (141,842) (0.2)%
Grains............... 91,733 0.1% - * 91,733 0.1%
Interest rates....... 47,864 0.1% - * 47,864 0.1%
Meats................ - * 1,520 * 1,520 *
Metals............... 892,100 1.3% - * 892,100 1.3%
Soft Commodities..... 7,387 * 4,697 * 12,084 *
Stock Indexes........ 529,577 0.8% 181,080 0.3% 710,657 1.1%
----------- ----------- -----------
Total U.S. Futures
Positions.............. 1,919,138 119,623 2,038,761
Foreign Futures
Positions:
Energy............... 22,375 * - * 22,375 *
Interest rates....... 205,525 0.3% (40,589) (0.1)% 164,936 0.2%
Metals:
Nickel............ 01/04 - 54 14 1,166,825 1.7% (310,426) (0.1)% 856,399 1.6%
03/04
Other Metals...... 769,188 1.1% (207,925) (0.3)% 561,263 0.8%
Soft commodities..... - * 4,077 * 4,077 *
Stock indexes........ 459,768 0.7% (773) * 458,995 0.7%
----------- ----------- ----------- ---
Total Foreign Futures
Positions............ 2,623,681 (555,636) 2,068,045
----------- ----------- ----------- ---
TOTAL FUTURES CONTRACTS. $4,542,819 $(436,013) $4,106,806 6.1%
=========== =========== =========== ===
FORWARD CONTRACTS
British Pounds....... 03/04 $ 683,371 1.0% $ (94,050) (0.1)% $ 589,321 0.9%
Other currencies..... 1,118,240 1.7% (250,708) (0.4)% 867,532 1.3%
----------- ----------- ----------- ---
TOTAL FORWARD CONTRACTS. $1,801,611 $(344,758) $1,456,853 2.2%
=========== =========== =========== ===
<FN>
- ------------------
* Percentage is less than 0.1% of partners' capital.
U.S. Government Securities:
PERCENT OF
PARTNERS'
FACE VALUE VALUE CAPITAL
- ---------- ----------- -----------
$7,500,000 U.S. Treasury Bills, January 29, 2004 $7,494,683 11.1%
----------
Total U.S. Government Securities
(cost $7,481,450) $7,494,683
==========
</FN>
The accompanying notes are an integral part of these financial statements.
3
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2004 2003
----------------- -----------------
(UNAUDITED)
INCOME
Trading gains (losses)
Realized........................ $ 9,811,263 $ 1,286,210
Change in unrealized............ 605,735 (1,048,837)
----------------- -----------------
Net gains from trading..... 10,416,998 237,373
Interest income................... 272,073 46,455
----------------- -----------------
TOTAL INCOME............... 10,689,071 283,828
----------------- -----------------
EXPENSES
Brokerage commission.............. 2,413,105 --
Commissions....................... -- 111,095
Management fees................... -- 166,873
Incentive fees.................... 1,706,724 68,027
Operating expenses................ 314,797 39,746
----------------- -----------------
TOTAL EXPENSES............. 4,434,626 385,741
----------------- -----------------
NET INCOME/(LOSS).......... $ 6,254,445 $ (101,913)
================= =================
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
4
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED PARTNERS LIMITED PARTNERS
---------------------- -----------------------
GENERAL PARTNER CLASS A CLASS B
---------------------- ---------------------- -----------------------
NUMBER NUMBER NUMBER TOTAL
OF UNITS AMOUNT OF UNITS AMOUNT OF UNITS AMOUNT AMOUNT
-------- ------- -------- ------ -------- ------- --------
Partners' capital,
December 31, 2003..... 707.62 $844,919 27,275.54 $32,567,704 31,586.19 $34,005,423 $ 67,418,046
Contributions......... 276.34 340,000 11,739.46 14,538,273 58,935.69 65,654,373 80,532,646
Redemptions........... -- -- (583.12) (721,576) (112.96) (128,916) (850,492)
Offering Costs........ -- -- -- (11,088) -- (171,991) (183,079)
Net income............ -- 63,043 -- 2,370,371 -- 3,821,031 6,254,445
------ ---------- --------- ----------- --------- ------------ ------------
Partners' capital,
March 31, 2004
(unaudited) 983.96 $1,247,962 38,431.88 $48,743,684 90,408.92 $103,179,920 $153,171,566
====== ========== ========= =========== ========= ============ ============
Net asset value per unit
at January 1, 2004.... $ 1,194.03 $ 1,076.59
=========== ============
Net asset value per unit
at March 31, 2004
(unaudited) $ 1,268.31 $ 1,141.26
=========== ============
Increase in net asset
value per unit for the
period January 1 to
March 31, 2004
(unaudited)........... $ 74.28 $ 64.67
=========== ============
The accompanying notes are an integral part of these financial statements.
5
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Grant Park Futures Fund Limited Partnership (the
"Partnership") was organized as a limited partnership in Illinois in August 1988
and will continue until December 31, 2027, unless sooner terminated as provided
for in its Limited Partnership Agreement. As a commodity investment pool, the
Partnership is subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.) government which regulates
most aspects of the commodity futures industry; rules of the National Futures
Association, an industry self-regulatory organization; and the requirements of
the various commodity exchanges where the Partnership executes transactions.
Additionally, the Partnership is subject to the requirements of futures
commission merchants ("FCMs") and interbank and other market makers through
which the Partnership trades. Effective June 30, 2003, the Partnership became
registered with the Securities and Exchange Commission ("SEC"), accordingly, as
a registrant, the Partnership is subject to the regulatory requirements under
the Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934.
The General Partner and the Limited Partners share in profits or losses
of the Partnership in the ratio that their respective capital accounts bear to
the total capital of the Partnership.
The Partnership is a multi-advisor pool that carries out its purpose
through trading by independent professional commodity trading advisors retained
by the General Partner and the Partnership. Through these trading advisors, the
Partnership's business is to trade, buy, sell, margin or otherwise acquire, hold
or dispose of futures and forward contracts for commodities, financial
instruments or currencies, any rights pertaining thereto and any options
thereon, or on physical commodities. The Partnership may also engage in hedge,
arbitrage and cash trading of commodities and futures.
The Partnership has elected not to provide statements of cash flows as
permitted by Statement of Financial Accounting Standards No. 102, Statements of
Cash Flows - Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale.
Offerings of securities and use of proceeds: On June 30, 2003, the
Securities and Exchange Commission declared effective the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-104317), pursuant to which the
Partnership registered for public offering $20,000,000 in aggregate amount of
Class A Limited Partnership Units and $180,000,000 in aggregate amount of Class
B Limited Partnership Units. Also as of June 30, 2003, the Partnership adopted
the Third Amended and Restated Limited Partnership Agreement. On April 1, 2004,
the Securities and Exchange Commission declared effective the Partnership's
Registration Statement on Form S-1 (Reg. No. 333-113297), pursuant to which the
Partnership registered for public offering an additional $50,500,000 in
aggregate amount of Class A Limited Partnership Units and an additional
$177,000,000 in aggregate amount of Class B Limited Partnership Units.
Class A Limited Partnership Units and Class B Limited Partnership Units
are publicly offered at a price equal to the net asset value per unit as of the
close of business on each applicable closing date, which is the last business
day of each month. The proceeds of the offering are deposited in the
Partnership's bank and brokerage accounts for the purpose of engaging in trading
activities in accordance with the Partnership's trading policies and its trading
advisors' respective trading strategies.
Through February 28, 2003, the Partnership issued and sold its limited
partnership interests in an offering exempt under the Securities Act pursuant to
Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder.
Similar reliance was placed on available exemptions from securities
qualification requirements under applicable state securities laws. The
recipients of securities in such offering made representations as to their
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof, as to their ability to
hold such securities indefinitely and generally, as to their qualification as
accredited investors under the Securities Act and Regulation D promulgated
thereunder. Further, such securities were restricted as to their
transferability.
The Partnership considered the following accounting policies as
significant to it:
Revenue recognition: Futures, options on futures, and forward contracts
are recorded on the trade date and realized gains or losses are recognized when
contracts are liquidated. Unrealized gains or losses on open contracts (the
difference between contract trade price and market price) are reported in the
Statement of Financial Condition as a net gain or loss, as there exists a right
of offset of unrealized gains or losses in accordance with the Financial
Accounting Standards Board Interpretation No. 39 -- "Offsetting of Amounts
Related to Certain Contracts." Any change in net unrealized gain or loss from
the preceding period is reported in the statement of operations. Market value of
exchange-traded contracts is based upon exchange settlement prices. Market value
of non-exchange-traded contracts is based on third party quoted dealer values on
the Interbank market.
6
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: Cash and cash equivalents include cash,
overnight investments, U.S. treasury bills and short-term investments in
interest-bearing demand deposits with banks and cash managers with maturities of
three months or less. The Partnership maintains deposits with high quality
financial institutions in amounts that are in excess of federally insured
limits; however, the Partnership does not believe it is exposed to any
significant credit risk.
Income taxes: No provision for income taxes has been made in these
financial statements as each partner is individually responsible for reporting
income or loss based on its respective share of the Partnership's income and
expenses as reported for income tax purposes. The Partnership is required to pay
an Illinois replacement tax of 1.5% of taxable income related to those limited
partners who are not otherwise subject to the tax. This tax has been included in
operating expenses on the statement of operations.
Organization and offering costs: All expenses incurred in connection
with the organization and the initial and ongoing public offering of partnership
interests will be paid by Dearborn Capital Management, L.L.C. ("General
Partner") and be reimbursed to the General Partner by the Partnership. This
reimbursement will be made monthly. In no event, however, will the monthly
reimbursement from the Partnership to the General Partner exceed 0.083%, or 1.0%
annually, of the net asset value of the Partnership. In its discretion, the
General Partner may require the Partnership to reimburse the General Partner in
any subsequent calendar year for amounts that exceed these limits in any
calendar year, provided that the maximum amount reimbursed by the Partnership
will not exceed the overall limit set forth above. Amounts reimbursed by the
Partnership with respect to the initial and ongoing public offering expenses
will be charged against partners' capital at the time of reimbursement or
accrual. Any amounts reimbursed by the Partnership with respect to organization
expenses will be expensed at the time the reimbursement is incurred or accrued.
If the Partnership terminates prior to completion of payment of the calculated
amounts to the General Partner, the General Partner will not be entitled to any
additional payments, and the Partnership will have no further obligation to the
General Partner. At March 31, 2004, the amount of unreimbursed organization and
offering costs incurred by the General Partner is $741,561.
Foreign Currency Transactions: The Partnership's functional currency is
the U.S. dollar, however, it transacts business in currencies other than the
U.S. dollar. Assets and liabilities denominated in currencies other than the
U.S. dollar are translated into U.S. dollars at the rates in effect at the date
of the Statement of Financial Condition. Income and expense items denominated in
currencies other than the U.S. dollar are translated into U.S. dollars at the
rates in effect during the period. Gains and losses resulting from the
translation to U.S. dollars are reported in income currently.
NOTE 2. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
Dearborn Capital Management, L.L.C. is the General Partner of the
Partnership. The General Partner shall at all times, so long as it remains a
general partner of the Partnership, own Units in the Partnership: (i) in an
amount sufficient, in the opinion of counsel for the Partnership, for the
Partnership to be taxed as a partnership rather than as an association taxable
as a corporation; and (ii) during such time as the Units are registered for sale
to the public, in an amount at least equal to the greater of: (a) 1% of all
capital contributions of all Partners to the Partnership; or (b) $25,000; or
such other amount satisfying the requirements then imposed by the NASAA
Guidelines. Further, during such time as the Units are registered for sale to
the public, the General Partner shall, so long as it remains a general partner
of the Partnership, maintain a net worth (as such term may be defined in the
NASAA Guidelines) at least equal to the greater of: (i) 5% of the total capital
contributions of all partners and all limited partnerships to which it is a
general partner (including the Partnership) plus 5% of the Units being offered
for sale in the Partnership; or (ii) $50,000; or such other amount satisfying
the requirements then imposed by the NASAA Guidelines. In no event, however,
shall the General Partner be required to maintain a net worth in excess of
$1,000,000 or such other maximum amount satisfying the requirements then imposed
by the NASAA Guidelines.
Effective June 1, 2003, 10% of the General Partner limited partnership
interest in the Grant Park Futures Fund Limited Partnership will be
characterized as a general partnership interest. Notwithstanding, the general
partnership interest will continue to pay all fees associated with a limited
partnership interest.
Prior to August 1, 2003, brokerage commissions and other trading fees
paid to clearing FCMs are included in commissions on the Statement of
Operations, and for the three months ended March 31, 2003, totaled $111,095.
Prior to August 1, 2003, the Partnership paid the General Partner a
management fee of 2% per annum of the Partnership net assets, as defined. This
fee, which was accrued monthly and paid quarterly, amounted to $86,542 for the
three months ended March 31, 2003.
7
Effective August 1, 2003, the Partnership pays the General Partner a
brokerage commission up to 8.1% per annum of the Partnership net assets, as
defined. The charge, which is accrued monthly, amounted to $2,413,105 for the
three months ended March 31, 2004. Included in the brokerage commission of
$2,413,105 is $1,470,252 of fees paid to the General Partner and its selling
agents, $522,795 of management fees paid to commodity trading advisors (see Note
3) and $420,058 of commissions paid to its clearing FCMs.
NOTE 3. COMMODITY TRADING ADVISORS
The Partnership has entered into advisory contracts with Rabar Market
Research, Inc., EMC Capital Management, Inc., Eckhardt Trading Co. and Graham
Capital Management, L.P. to act as the Partnership's commodity trading advisors
(the "Advisors"). Effective August 1, 2003, the Advisors receive a quarterly
management fee ranging from 1 percent to 2 percent per annum of the
Partnership's month-end allocated net assets, which amounted to fees of $522,795
for the three months ended March 31, 2004.
Prior to the change on August 1, 2003, the Advisors received a
quarterly management fee ranging from 1 percent to 2.5 percent per annum of the
Partnership's month-end allocated net assets, which amounted to fees of $80,331
for the three months ended March 31, 2003.
Additionally, the Advisors receive a quarterly incentive fee ranging
from 20 percent to 24 percent of the new trading profits on the allocated net
assets of the Advisor, which amounted to fees of $1,706,724 and $68,027 for the
three months ended March 31, 2004 and 2003, respectively.
NOTE 4. REDEMPTIONS
Limited Partners have the right to redeem units as of any month-end
upon ten (10) days' prior written notice to the Partnership. The General
Partner, however, may permit earlier redemptions in its discretion. There are no
redemption fees applicable to Class A Limited Partners or to Class B Limited
Partners who redeem their units on or after the one-year anniversary of their
subscription. Class B Limited Partners who redeem their units prior to the
one-year anniversary of their subscriptions for the redeemed units will pay the
applicable early redemption fee. Redemptions will be made on the last day of the
month for an amount equal to the net assets, as defined, represented by the
units to be redeemed.
In addition, the General Partner may at any time cause the redemption
of all or a portion of any Limited Partner's units upon 15 day's written notice.
The General Partner may also immediately redeem any Limited Partner's units
without notice if the General Partner believes that (i) the redemption is
necessary to avoid having the assets of the Partnership deemed Plan Assets under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii)
the Limited Partner made a misrepresentation in connection with its subscription
for the units, or (iii) the redemption is necessary to avoid a violation of law
by the Partnership or any Partner.
NOTE 5. FINANCIAL HIGHLIGHTS
The following financial highlights reflect activity related to the
Partnership. Total return is based on the change in value during the period of a
theoretical investment made at the beginning of each calendar month during the
period. Individual investor's ratios may vary from these ratios based on various
factors, including and among others, the timing of capital transactions.
THREE MONTHS ENDED MARCH 31, 2004
---------------------------------
2004 2003
--------- --------
Total return - A Units**......................... 6.22% .53%
Total return - B Units**......................... 6.01% N/A
Ratios as a percentage of average net assets:
Interest income*.............................. 1.20% 1.16%
Expenses*..................................... 19.60% 9.65%
<FN>
*Annualized
**The Partnership converted its interests to units effective April 1, 2003, with
all existing Limited Partners at that date converting to Class A Units. B Units
began trading August 1, 2003.
</FN>
8
The interest income and total expense ratios above are computed based
upon the weighted average net assets of the Partnership for the three months
ended March 31, 2004 and 2003 (annualized).
The following per unit performance calculations reflect activity
related to the Partnership.
A UNITS B UNITS
------- -------
Per Unit Performance
(for unit outstanding throughout the entire period):
Net asset value per unit at beginning of period.............. $ 1,194 $ 1,077
------- -------
Income from operations:
Net realized and change in unrealized gain from trading... 1,392 2,501
Expenses net of interest income........................... (1,309) (2,283)
------- -------
Total income from operations........................... 83 218
Organization and offering costs.............................. (9) (154)
------- -------
Net asset value per unit at end of period.................... $ 1,268 $ 1,141
======= =======
<FN>
- ------------------
Expenses net of interest income per unit and organization and offering
costs per unit are calculated by dividing the expenses net of interest
income and organization and offering costs by the average number of
units outstanding during the period from January 1, 2004 to March 31,
2004. The net realized and change in unrealized gain from trading is a
balancing amount necessary to reconcile the change in net asset value
per unit with the other per unit information.
</FN>
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts, and forward
contracts (collectively, derivatives). These derivatives include both financial
and nonfinancial contracts held as part of a diversified trading strategy. The
Partnership is exposed to both market risk, the risk arising from changes in the
market value of the contracts; and credit risk, the risk of failure by another
party to perform according to the terms of a contract.
The purchase and sale of futures and options on futures contracts
require margin deposits with FCMs. Additional deposits may be necessary for any
loss on contract value. The Commodity Exchange Act requires an FCM to segregate
all customer transactions and assets from the FCM's proprietary activities. A
customer's cash and other property (for example, U.S. Treasury bills) deposited
with an FCM are considered commingled with all other customer funds subject to
the FCM's segregation requirements. In the event of an FCM's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than the total of cash and
other property deposited.
Net trading results from derivatives for the three months ended March
31, 2004 and 2003, 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.
In addition to market risk, in entering into commodity interest
contracts there is a credit risk that a counterparty will not be able to meet
its obligations to the Fund. The counterparty for futures and options on futures
contracts traded in the United States and on most non-U.S. futures exchanges is
the clearinghouse associated with such exchange. In general, clearinghouses are
backed by the corporate members of the clearinghouse who are required to share
any financial burden resulting from the nonperformance by one of their members
and, as such, should significantly reduce this credit risk.
In cases where the clearinghouse is not backed by the clearing members,
like some non-U.S. exchanges, it is normally backed by a consortium of banks or
other financial institutions.
In the case of forward contracts, over-the-counter options contracts or
swap contracts, which are traded on the interbank or other institutional market
rather than on exchanges, the counterparty is generally a single bank or other
financial institution, rather than a clearinghouse backed by a group of
financial institutions; thus, there likely will be greater counterparty credit
risk. The Partnership trades only with those counterparties that it believes to
be creditworthy. All positions of the Partnership are valued each day on a
mark-to-market basis. There can be no assurance that any clearing member,
clearinghouse or other counterparty will be able to meet its obligations to the
Partnership.
9
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 7. SUBSEQUENT EVENT
From April 1, 2004 to May 1, 2004, there were aggregate contributions
to and redemptions from the Partnership totaling approximately $69,064,763 and
$135,018, respectively.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Grant Park is a multi-advisor commodity pool organized to pool assets
of its investors for purposes of investing those assets in U.S. and
international commodity futures and forward contracts and other commodity
interests, including options contracts on futures, forwards and commodities,
spot contracts, swap contracts and security futures. The commodities underlying
these contracts may include stock indices, interest rates, currencies or
physical commodities, such as agricultural products, energy products or metals.
Grant Park has been in continuous operation since it commenced trading on
January 1, 1989. Grant Park's general partner, commodity pool operator and
sponsor is Dearborn Capital Management, L.L.C., an Illinois limited liability
company. The managing member of Dearborn Capital Management, L.L.C. is Dearborn
Capital Management, Ltd., an Illinois corporation whose sole shareholder is
David M. Kavanagh.
Grant Park invests through independent professional commodity trading
advisors retained by the general partner. Rabar Market Research, Inc., EMC
Capital Management, Inc., Eckhardt Trading Company, or ETC, and Graham Capital
Management, L.P., serve as Grant Park's commodity trading advisors. As of March
31, 2004, the general partner allocated Grant Park's net assets among the
trading advisors as follows: 33% to Rabar, 30% to EMC, 9% to ETC and 28% to
Graham.
On June 30, 2003, the SEC declared effective Grant Park's Registration
Statement on Form S-1 through which it registered up to $20 million in aggregate
amount of Class A limited partnership units and $180 million in aggregate amount
of Class B limited partnership units. Subsequently, on April 1, 2004, the SEC
declared effective Grant Park's Registration Statement on Form S-1 through which
it registered an additional $50.5 million in aggregate amount of Class A limited
partnership units and an additional $177 million in aggregate amount of Class B
limited partnership units. Pursuant to the Registration Statement, Class A
Limited Partnership Units and Class B Limited Partnership Units are publicly
offered on a continuous basis at a price equal to the net asset value per unit
as of the close of business on each applicable closing date, which is the last
business day of each month. The proceeds of the offering are deposited in Grant
Park's bank and brokerage accounts for the purpose of engaging in trading
activities in accordance with Grant Park's trading policies and its trading
advisors' respective trading strategies.
CRITICAL ACCOUNTING POLICIES
Grant Park's only critical accounting policy is the valuation of its
assets invested in U.S. and international futures and forward contracts, options
contracts and other interests in commodities. The substantial majority of the
investments are exchange-traded contracts, valued based upon exchange settlement
prices. The remainder of its investments are non-exchange-traded contracts with
valuation of those investments based on third-party quoted dealer values on the
Interbank market. With the valuation of the investments easily obtained, there
is little or no judgment or uncertainty involved in the valuation of
investments, and accordingly, it is unlikely that materially different amounts
would be reported under different conditions using different but reasonably
plausible assumptions.
CAPITAL RESOURCES
Grant Park plans to raise additional capital only through the sale of
units pursuant to the continuous offering and does not intend to raise any
capital through borrowing. Due to the nature of Grant Park's business, it will
make no capital expenditures and will have no capital assets that are not
operating capital or assets.
LIQUIDITY
Most U.S. futures exchanges limit fluctuations in some futures and
options contract prices during a single day by regulations referred to as daily
price fluctuation limits or daily limits. During a single trading day, no trades
may be executed at prices beyond the daily limit. Once the price of a contract
has reached the daily limit for that day, positions in that contract can neither
be taken nor liquidated. Futures prices have occasionally moved to the daily
limit for several consecutive days with little or no trading. Similar
occurrences could prevent Grant Park from promptly liquidating unfavorable
positions and subject Grant Park to substantial losses that could exceed the
margin initially committed to those trades. In addition, even if futures or
options prices do not move to the daily limit, Grant Park may not be able to
execute trades at favorable prices, if little trading in the contracts is taking
place. Other than these limitations on liquidity, which are inherent in Grant
Park's futures and options trading operations, Grant Park's assets are expected
to be highly liquid.
11
RESULTS OF OPERATIONS
Grant Park's net return, which consists of Grant Park's trading gains
plus interest income less brokerage fees, performance fees, operating costs and
offering costs borne by Grant Park, for the quarter ended March 31, 2004 was
approximately 6.22% for the Class A units and 6.01% for the Class B units. The
net asset value at March 31, 2004 was approximately $153.2, at December 31, 2003
was approximately $67.4 million and at March 31, 2003 was approximately $18.4
million.
The table below sets forth Grant Park's trading gains or losses by
sector for the three-month periods ended March 31, 2004 and 2003.
---------------------------------
%GAIN (LOSS)
---------------------------------
THREE MONTHS ENDED
MARCH 31
---------------------------------
SECTOR 2004 2003
- --------------------------------- ----------------- ---------------
Interest Rates 2.9% 0.7%
Currencies (1.3) 3.3
Stock Indices (0.3) (1.5)
Energy 0.9 2.8
Agriculturals 4.8 (1.3)
Metals 3.1 (0.6)
Softs 0.1 (0.6)
Meats 0.1 0.0
Miscellaneous (0.1) (0.3)
----------------- ---------------
Total 10.2% 2.5%
================= ===============
- ----------------------
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
For the three months ended March 31, 2004, Grant Park had a positive
return of approximately 6.22% for the Class A units and 6.01% for the Class B
units. On a combined basis prior to expenses, approximately 10.20% resulted from
trading gains, and approximately 0.20% was due to interest income. These gains
were offset by approximately 4.31% in brokerage fees, performance fees and
operating and offering costs borne by Grant Park. For the same period in 2003,
Grant Park had a slightly positive return of approximately 0.53%. Approximately
2.54% resulted from trading gains and approximately 0.27% was due to interest
income. An offset of approximately 2.28% was the result of brokerage fees,
performance fees and operating and offering costs borne by Grant Park. A
significant portion of the increase in expenses from the March 31, 2003 quarter
to the March 31, 2004 quarter is due to incentive fees and offering costs.
Incentive fees which were paid in the quarter ending March 31, 2004 were not
paid in the quarter ending March 31, 2003 and offering expenses which were
incurred in the quarter ending March 31, 2004 were not applicable to the quarter
ending March 31, 2003.
Three months ended March 31, 2004
The first quarter of 2004 proved profitable as the Grant Park Fund A
units earned 6.22% while the B units earned 6.01%. The dominant themes in a
volatile three month period were the weakness in the US dollar and Chinese
demand for industrial metals and commodities. Early in the quarter the US dollar
continued its downward spiral as the British Pound made an 11 year high against
the US currency. At the same time, the Chinese economy continued its strong
expansion. This expansion continued to fuel demand for grains, base metals and
energy. Late in the quarter, however, factors that had contributed to earlier
profits were beginning to ease causing reversals in some of the Fund's
profitable positions. Perceptions that the Federal Reserve could raise interest
rates caused a reversal in the dollar's weakness. The dollar's strength resulted
in losses in the Fund's currency positions and its base metals positions. Market
participants perceived a weakening of demand for the base metals as their dollar
dominated price started to increase. Additionally, there were fears that the
long time monetary easing by central banks around the globe was finally coming
to an end which would in turn translate into a possible slow down in demand for
a wide range of commodities and metals.
The first month of 2004 was slightly profitable for the Grant Park
Futures Fund. Grant Park A Units were up 0.38% while B Units were up 0.31% for
the month. The month was a volatile one, with modest profits generated in the
agricultural, metal and currency sectors. These gains collectively offset
significant losses in the fixed income sector. Gains in the agricultural and
metal sectors continued to be fueled by tight supplies amid surging Chinese
demand, while gains in the currency sector were largely attributable to a surge
in the British pound, which hit an 11 year high against the U.S. dollar, amidst
continuing signs of strong growth in the British economy. Losses in the fixed
income sector were largely attributable to the omission of "considerable period"
in the
12
U.S. Federal Reserve January statement release in referencing the maintenance of
current interest rate levels. This omission was a clear shift in sentiment and
shifted the market's expectations for a sooner rather than later rise in U.S.
interest rates.
February's performance was strong with A Units posting a 7.33% gain and
B Units up 7.25% on the month. Gains were driven largely by the continued
weakness in the U.S. dollar, with gains experienced in the grains, energy,
currency and fixed income markets. Copper prices reached an 8-year high, rising
18% in February alone. Continued global demand coupled with a decrease in
warehouse supply levels contributed to the continued strength in this market.
Soybean prices rallied 15% on the month amidst concerns of a
weaker-than-expected South American crop and continued growth of Chinese demand.
Crude oil and related products rose after a greater-than-expected decrease in
U.S. gasoline inventories. The British pound continued to strengthen, rising to
its highest level against the U.S. dollar since 1992, as expectations of
continued interest rate hikes were priced into the market. Finally, gains were
experienced in long global interest rate positions in response to comments by
Alan Greenspan suggesting that an interest rate hike by the Federal Reserve was
not imminent. Losses were incurred in short positions in British and Australian
interest rate futures, which rose as part of a global rally in bonds following
the U.S. lead. Additional losses were incurred in long coffee positions and long
euro positions.
Grant Park's performance was negative for March with A Units down 1.40%
on the month and B Units down 1.47%. The month was volatile with the currency,
fixed income and equity index sectors particularly volatile as a result of
apparent policy shifting by many of the world's central banks. Grant Park
suffered losses in long British Pound positions as the pound declined against
the U.S. dollar as an improving U.S. economic outlook fueled speculation that
the Federal Reserve could raise U.S. interest rates in the near future.
Additional losses were generated in short Japanese yen positions as the yen rose
against the U.S. dollar amid anticipation that the Bank of Japan would curtail
its sales of its currency following the end of the Japanese fiscal year.
Additional losses were suffered in the industrial metals, including nickel, zinc
and aluminum, as the U.S. dollar's strength resulted in reduced demand from
European buyers. Additional losses were generated in sugar, Japanese Government
Bonds and the Hang Seng Index. The Fund's largest profits were earned in silver,
which hit a 16-year high at the end of the month. Additional profits were
generated in long positions in soybeans and soybean meal, as limited U.S.
supplies and a bitter strike at Brazil's main grain port combined to send soy
prices to a 16-year high as well.
Three months ended March 31, 2003
The first quarter of 2003 was a volatile one for the portfolio
resulting in a net gain of 0.53%. January and February proved profitable as
weather and geopolitical events contributed to Grant Park's profits. The energy
sector rallied amid concerns over the impending Iraq invasion as the markets
anticipated supply disruptions that could result from the Iraq conflict. Adding
to that concern was the Venezuelan oil strike and the unseasonably cold weather.
In addition to strong crude prices, natural gas posted a 25 month high in
February. Additional profits were earned from the Iraq crises in other markets.
The US dollar declined over the political uncertainty that the US was willing to
ignore the UN and "go it alone". Fixed Income rallied as a safe haven while
stock indices declined over war fears. March proved a difficult end to the
quarter. Perhaps this month best exemplifies the trading adage "buy the rumor,
sell the fact". As the US launched its assault on Iraq a majority of the
positions that had proven profitable the previous two months reversed violently.
The Fund was forced to liquidate many of these long held positions at a
significant loss.
- -------------------------------------------------------------------------------
13
January was a positive month for Grant Park, as it earned a net return
of approximately 2.72%. The most profitable position for the month was short the
U.S. dollar against global currencies. Geopolitical worries were the primary
cause of the U.S. currency's decline, as the U.S. continued to prepare for
military action in Iraq. These concerns, as well as a continued Venezuelan oil
strike and extended cold weather in the U.S. also led to firm energy prices,
which was profitable for Grant Park's long energy positions. Other profits were
made via gold and European interest rate positions. Losses were incurred in the
soybean complex, which declined in response to a Department of Agriculture
report showing higher-than-expected U.S. production levels. Additional losses
were incurred in U.S. equity and interest rate markets, which fell amid the
growing likelihood of war with Iraq.
February was a strong positive month for Grant Park, as it earned a net
return of approximately 5.77%. Energy was the leading sector as natural gas
posted a 25-month high near the end of the month due to unreasonably cold
weather and inventory depletion. The rest of the energy sector pushed higher
amid supply concerns due to the increased probability of a U.S.-led invasion of
Iraq. These war concerns also spurred safe-haven buying of U.S. and European
government debt prices, which proved to be profitable for Grant Park. Losses for
the month were incurred in gold, the British pound and cocoa.
Grant Park posted a significant loss in March due to the launch of the
war with Iraq, earning a negative net return of 7.47%. Previously profitable
long positions in the energy sector experienced a sharp reversal, as crude oil
dropped 24% in only six trading sessions. Natural gas fell rapidly alongside
crude oil, leading to further losses. Established trends in the government debt
and currency sectors also reversed, forcing liquidations of long-held positions.
Grant Park was able to make some profits in the 10-year Japanese government
bond, U.S. and European interest rate futures, the Canadian dollar and the South
African rand.
OFF-BALANCE SHEET RISK
Off-balance sheet risk refers to an unrecorded potential liability
that, even though it does not appear on the balance sheet, may result in future
obligation or loss. Grant Park trades in futures and other commodity interest
contracts and is therefore a party to financial instruments with elements of
off-balance sheet market and credit risk. In entering into these contracts Grant
Park faces the market risk that these contracts may be significantly influenced
by market conditions, such as interest rate volatility, resulting in such
contracts being less valuable. If the markets should move against all of the
commodity interest positions of Grant Park at the same time, and if Grant Park
were unable to offset positions, Grant Park could lose all of its assets and the
limited partners would realize a 100% loss. Grant Park minimizes market risk
through real-time monitoring of open positions, diversification of the portfolio
and maintenance of a margin-to-equity ratio that rarely exceeds 25%. All
positions of Grant Park are valued each day on a mark-to-market basis.
In addition to market risk, in entering into commodity interest
contracts there is a credit risk that a counterparty will not be able to meet
its obligations to Grant Park. The counterparty for futures and options on
futures contracts traded in the United States and on most non-U.S. futures
exchanges is the clearing organization associated with such exchange. In
general, clearing organizations are backed by the corporate members of the
clearing organization who are required to share any financial burden resulting
from the non-performance by one of their members and, as such, should
significantly reduce this credit risk.
In cases where the clearing organization is not backed by the clearing
members, like some non-U.S. exchanges, it is normally backed by a consortium of
banks or other financial institutions.
In the case of forward contracts, over-the-counter options contracts or
swap contracts, which are traded on the interbank or other institutional market
rather than on exchanges, the counterparty is generally a single bank or other
financial institution, rather than on exchanges, the counterparty is generally a
single bank or other financial institution, rather than a central clearing
organization backed by a group of financial institutions. As a result, there
likely will be greater counterparty credit risk in these transactions. Grant
Park trades only with those counterparties that it believes to be creditworthy.
Nonetheless, the clearing member, clearing organization or other counterparty to
these transactions may not be able to meet its obligations to Grant Park, in
which case Grant Park could suffer significant losses on these contracts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
Grant Park is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
a substantial amount of Grant Park's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to Grant Park's business.
14
Market movements result in frequent changes in the fair market value of
Grant Park's open positions and, consequently, in its earnings and cash flow.
Grant Park's market risk is influenced by a wide variety of factors, including
the level and volatility of exchange rates, interest rates, equity price levels,
the market value of financial instruments and contracts, market prices for base
and precious metals, energy complexes and other commodities, the diversification
effects among Grant Park's open positions and the liquidity of the markets in
which it trades.
Grant Park rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance.
Grant Park's current trading advisors all employ trend-following strategies that
rely on sustained movements in price. Erratic, choppy, sideways trading markets
and sharp reversals in movements can materially and adversely affect Grant
Park's results. Grant Park's past performance is not necessarily indicative of
its future results.
Value at risk is a measure of the maximum amount that Grant Park could
reasonably be expected to lose in a given market sector in a given day. However,
the inherent uncertainty of Grant Park's speculative trading and the recurrence
in the markets traded by Grant Park of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated value at risk or Grant Park's experience to date. This risk is often
referred to as the risk of ruin. In light of the foregoing as well as the risks
and uncertainties intrinsic to all future projections, the inclusion of the
quantification included in this section should not be considered to constitute
any assurance or representation that Grant Park's losses in any market sector
will be limited to value at risk or by Grant Park's attempts to manage its
market risk. Moreover, value at risk may be defined differently as used by other
commodity pools or in other contexts.
Materiality, as used in this section, is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, and multiplier features of Grant
Park's market sensitive instruments.
The following quantitative and qualitative disclosures regarding Grant
Park's market risk exposures contain forward-looking statements. All
quantitative and qualitative disclosures in this section are deemed to be
forward-looking statements, except for statements of historical fact and
descriptions of how Grant Park manages its risk exposure. Grant Park's primary
market risk exposures, as well as the strategies used and to be used by its
trading advisors for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of Grant Park's risk controls to differ materially from the objectives
of such strategies. Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental factors, political
upheavals, changes in historical price relationships, an influx of new market
participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of Grant Park. Grant Park's current market exposure
and/or risk management strategies may not be effective in either the short- or
long-term and may change materially.
QUANTITATIVE MARKET RISK
TRADING RISK
Grant Park's approximate risk exposure in the various market sectors
traded by its trading advisors is quantified below in terms of value at risk.
Due to Grant Park's mark-to-market accounting, any loss in the fair value of
Grant Park's open positions is directly reflected in Grant Park's earnings,
realized or unrealized.
Exchange maintenance margin requirements have been used by Grant Park
as the measure of its value at risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 5% to 99% of any one-day
interval. The maintenance margin levels are established by brokers, dealers and
exchanges using historical price studies as well as an assessment of current
market volatility and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component that is not relevant to value at
risk.
In the case of market sensitive instruments that are not
exchange-traded, including currencies and some energy products and metals in the
case of Grant Park, the margin requirements for the equivalent futures positions
have been used as value at risk. In those cases in which a futures-equivalent
margin is not available, dealers' margins have been used.
In the case of contracts denominated in foreign currencies, the value
at risk figures include foreign currency margin amounts converted into U.S.
dollars with an incremental adjustment to reflect the exchange rate risk
inherent to Grant Park, which is valued in U.S. dollars, in expressing value at
risk in a functional currency other than U.S. dollars.
15
In quantifying Grant Park's value at risk, 100% positive correlation in
the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate value at
risk. The diversification effects resulting from the fact that Grant Park's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
VALUE AT RISK BY MARKET SECTORS
The following tables indicate the trading value at risk associated with
Grant Park's open positions by market category as of March 31, 2004 and December
31, 2003 and the trading gains/losses by market category for the three months
ended March 31, 2004 and the year ended December 31, 2003. All open position
trading risk exposures of Grant Park have been included in calculating the
figures set forth below. As of March 31, 2004, Grant Park's net asset value was
approximately $153.2 million. As of December 31, 2003, Grant Park's net asset
value was approximately $67.4 million.
AS OF MARCH 31, 2004
MARKET SECTOR VALUE AT RISK % OF TOTAL TRADING
CAPITALIZATION GAIN(LOSS)
- ------------- ------------- -------------- ----------
Interest Rates $ 8,570,303 5.6% 2.9%
Currencies 1,974,913 1.3 (1.3)
Stock Indices 5,176,547 3.4 (0.3)
Energy 1,708,200 1.1 0.9
Agriculturals 1,484,850 1.0 4.8
Metals 1,790,682 1.2 3.1
Softs 555,392 0.3 0.1
Meats 47,500 0.0 0.0
------------- -------------- --------
Total $ 21,308,387 13.9% 10.2%
============= ============== ========
AS OF DECEMBER 31, 2003
MARKET SECTOR VALUE AT RISK % OF TOTAL TRADING
CAPITALIZATION GAIN(LOSS)
- ------------- ------------- -------------- ----------
Interest Rates $ 2,173,842 3.2% 6.3%
Currencies 2,363,583 3.5 17.9
Energy 1,164,900 1.7 (0.2)
Stock Indices 3,595,518 5.3 3.6
Agriculturals 367,150 0.5 1.7
Metals 1,411,432 2.1 4.3
Softs 166,804 0.3 (0.4)
Meats 8,000 0.0 (0.3)
------------- -------------- --------
$ 11,251,229 16.6% 32.9%
============= ============== ========
MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by Grant Park is
typically many times the applicable maintenance margin requirement, which
generally range between approximately 1% and 10% of contract face value, as well
as many times the capitalization of Grant Park. The magnitude of Grant Park's
open positions creates a risk of ruin not typically found in most other
investment vehicles. Because of the size of its positions, certain market
conditions -- unusual, but historically recurring from time to time -- could
cause Grant Park to incur severe losses over a short period of time. The value
at risk table above, as well as the past performance of Grant Park, gives no
indication of this risk of ruin.
NON-TRADING RISK
Grant Park has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances, as well as the market risk they
represent, are immaterial. Grant Park also has non-trading market risk as a
result of investing a substantial portion of its available assets in U.S.
Treasury bills and Treasury repurchase agreements. The market risk represented
by these investments is also immaterial.
- ------------------------------------------------------------------------------
16
QUALITATIVE MARKET RISK
TRADING RISK
The following were the primary trading risk exposures of Grant Park as
of March 31, 2004, by market sector.
Interest Rates
Interest rate risk is the principal market exposure of Grant Park.
Interest rate movements directly affect the price of the futures positions held
by Grant Park and indirectly the value of its stock index and currency
positions. Interest rate movements in one country as well as relative interest
rate movements between countries materially impact Grant Park's profitability.
Grant Park's primary interest rate exposure is due to interest rate fluctuations
in the United States and the other G-7 countries. However, Grant Park also takes
futures positions on the government debt of smaller nations, such as Australia.
The general partner anticipates that G-7 interest rates will remain the primary
market exposure of Grant Park for the foreseeable future. As of March 31, 2004,
Grant Park's interest rate exposure was predominantly long positions in a
variety of G-7 countries.
Currencies
Exchange rate risk is a significant market exposure of Grant Park.
Grant Park's currency exposure is due to exchange rate fluctuations, primarily
fluctuations that disrupt the historical pricing relationships between different
currencies and currency pairs. These fluctuations are influenced by interest
rate changes as well as political and general economic conditions. Grant Park
trades in a large number of currencies, including cross-rates, which are
positions between two currencies other than the U.S. dollar. The general partner
anticipates that the currency sector will remain one of the primary market
exposures for Grant Park for the foreseeable future. As of March 31, 2004, Grant
Park was positioned to benefit from the effects of a weakening dollar against
most major and minor currencies. However, Grant Park does maintain long dollar
positions against the Eurocurrency and the Mexican Peso.
Energy
Grant Park's primary energy market exposure is due to gas and oil price
movements, often resulting from political developments in the Middle East. As of
March 31, 2004, the energy market exposure of Grant Park consisted of long
positions in crude oil, natural gas and crude products. These positions were
approximately equally weighted. Oil and gas prices can be volatile and
substantial profits and losses have been and are expected to continue to be
experienced in this market.
Stock Indices
Grant Park's primary equity exposure is due to equity price risk in the
G-7 countries as well as other jurisdictions including Hong Kong, Taiwan, and
Australia. The stock index futures contracts currently traded by Grant Park are
generally limited to futures on broadly based indices, although Grant Park may
trade narrow-based stock index futures contracts in the future. As of March 31,
2004, Grant Park's primary exposures were in the S&P 500 (long), NASDAQ (short),
Nikkei (long), Hang Seng (short), FTSE (short) and DAX (short) stock indices.
Grant Park is primarily exposed to the risk of adverse price trends or static
markets in the major U.S., European and Asian indices. Static markets would not
cause major market changes but would make it difficult for Grant Park to avoid
being "whipsawed" into numerous small losses.
Metals
Grant Park's metals market exposure is due to fluctuations in the price
of both precious metals, including gold and silver, as well as base metals
including aluminum, copper, nickel and zinc. Long positions in gold, silver,
copper, lead and zinc accounted for Grant Park's primary metal exposure as of
March 31, 2004.
- ------------------------------------------------------------------------------
17
Agricultural / Softs
Grant Park's primary commodities exposure is to agricultural price
movements, which are often directly affected by severe or unexpected weather
conditions. The soybean complex, corn and wheat accounted for the bulk of Grant
Park's commodity exposure as of March 31, 2004.
NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of Grant Park as
of March 31, 2004.
Foreign Currency Balances
Grant Park's primary foreign currency balances are in Japanese yen,
British pounds, Euros and Australian dollars. The trading advisors regularly
convert foreign currency balances to U.S. dollars in an attempt to control Grant
Park's nontrading risk.
Cash Management
Grant Park maintains a substantial portion ranging from approximately
75% to 95% of its available assets in Treasury bills held at the clearing broker
or in Treasury repurchase agreements purchased at Harris Trust & Savings Bank or
in U.S. Treasury securities, securities issued by U.S. government agencies and
other high quality money market securities purchased at Horizon Cash Management,
LLC which are held in a separate, segregated account at Northern Trust. Violent
fluctuations in prevailing interest rates could cause immaterial mark-to-market
losses on Grant Park's cash management income.
MANAGING RISK EXPOSURE
The general partner monitors and controls Grant Park's risk exposure on
a daily basis through financial, credit and risk management monitoring systems
and, accordingly, believes that it has effective procedures for evaluating and
limiting the credit and market risks to which Grant Park is subject.
The general partner monitors Grant Park's performance and the
concentration of its open positions and consults with the trading advisors
concerning Grant Park's overall risk profile. If the general partner felt it
necessary to do so, the general partner could require the trading advisors to
close out individual positions as well as enter positions traded on behalf of
Grant Park. However, any intervention would be a highly unusual event. The
general partner primarily relies on the trading advisors' own risk control
policies while maintaining a general supervisory overview of Grant Park's market
risk exposures. The trading advisors apply their own risk management policies to
their trading. The trading advisors often follow diversification guidelines,
margin limits and stop loss points to exit a position. The trading advisors'
research of risk management often suggests ongoing modifications to their
trading programs.
As part of the general partner's risk management, the general partner
periodically meets with the trading advisors to discuss their risk management
and to look for any material changes to the trading advisors' portfolio balance
and trading techniques. The trading advisors are required to notify the general
partner of any material changes to their programs.
GENERAL
From time to time, certain regulatory or self-regulatory organizations
have proposed increased margin requirements on futures contracts. Because Grant
Park generally will use a small percentage of assets as margin, Grant Park does
not believe that any increase in margin requirements, as proposed, will have a
material effect on Grant Park's operations.
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ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the general partner
carried out an evaluation, under the supervision and with the participation of
the general partner's management, including its principal executive officer and
principal financial officer, of the effectiveness of the design and operation of
Grant Park's disclosure controls and procedures as contemplated by Rule 13a-15
of the Securities Exchange Act, as amended. Based on and as of the date of that
evaluation, the general partner's principal executive officer and principal
financial officer concluded that Grant Park's disclosure controls and procedures
are effective, in all material respects, in timely alerting them to material
information relating to Grant Park required to be included in the reports filed
or submitted by Grant Park under the Securities Exchange Act of 1934.
There was no change in Grant Park's internal control over financial
reporting in the quarter ended March 31, 2004 that has materially affected or is
reasonably likely to materially affect Grant Park's control over financial
reporting.
PART II- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
On June 30, 2003, the Securities and Exchange Commission declared
effective Grant Park's Registration Statement on Form S-1 (Reg. No.
333-104317), pursuant to which Grant Park registered for public
offering $20,000,000 in aggregate amount of Class A Limited Partnership
Units and $180,000,000 in aggregate amount of Class B Limited
Partnership Units. Also as of June 30, 2003, Grant Park adopted the
Third Amended and Restated Limited Partnership Agreement, which
included modifications required under the Guidelines for the
Registration of Commodity Pool Programs promulgated by the North
American Securities Administrators Association, Inc. and requested by
various state securities regulators in connection with Grant Park's
public offering. On April 1, 2004, the Securities and Exchange
Commission declared effective the Partnership's Registration Statement
on Form S-1 (Reg. No. 333-113297), pursuant to which the Partnership
registered for public offering an additional $50,500,000 in aggregate
amount of Class A Limited Partnership Units and an additional
$177,000,000 in aggregate amount of Class B Limited Partnership Units.
Class A Limited Partnership Units and Class B Limited Partnership Units
are being offered on a continuous basis at subsequent closing dates at
a price equal to the net asset value per unit as of the close of
business on each applicable closing date, which is the last business
day of each month. The close of business on July 31, 2003 marked the
initial closing date of the public offering. The lead selling agents
for the offering are UBS Financial Services Inc., A.G. Edwards & Sons,
Inc. and Oppenheimer & Co. Inc. On January 1, 2004, the Class A Limited
Partnership Units were offered at a price of $1,194.03 per unit with
3,291.56 units being sold, and the Class B Limited Partnership Units
were offered at a price of $1,076.59 per unit with 13,665.27 units
being sold. As of the close of business on February 1, 2004, the Class
A Limited Partnership Units were offered at $1,198.53 with 3,123.90
units being sold, and the Class B Limited Partnership Units were
offered at $1,079.93 with 19,052.04 units being sold. As of the close
of business on March 1, 2004, the Class A Limited Partnership Units
were offered at $1,286.35 with 5,600.33 units being sold, and the Class
B Limited Partnership Units were offered at $1,158.26 with 26,218.37
units being sold. Expenses incurred in connection with the organization
and offering of the units, which are paid by the general partner and
then reimbursed by Grant Park on a monthly basis (with such
reimbursement limited to 0.1% annually through March 31, 2004 and 0.2%
annually after April 1, 2004 of the net asset value of the Class A
Units and 0.9% annually of the Class B Units) amounted to a total of
approximately $160,826.00 for the period. The proceeds of the offering
are deposited in Grant Park's bank and brokerage accounts for the
purpose of engaging in trading activities in accordance with Grant
Park's trading policies and its trading advisors' respective trading
strategies.
19
ISSUER PURCHASES OF EQUITY SECURITIES
(e) The following table provides information regarding the total Class A and
Class B units redeemed by Grant Park during the quarter ended March 31, 2004.
(a) (b) (a) (b) (c) (d)
MAXIMUM
NUMBER OF UNITS
TOTAL NUMBER TOTAL NUMBER TOTAL NUMBER OF UNITS THAT MAY YET
OF CLASS A AVERAGE OF CLASS B AVERAGE REDEEMED AS PART OF BE REDEEMED UNDER
UNITS PRICE PAID UNITS PRICE PAID PUBLICLY ANNOUNCED THE
PERIOD REDEEMED PER UNIT REDEEMED PER UNIT PLANS OR PROGRAMS(1) PLANS/PROGRAM(1)
- ------------- ------------- -------------- ------------- ------------ ----------------------- --------------------
01/01/04 296.463 $1,198.532 - $1,079.927 296.463 (2)
through
01/31/04
02/01/04 148.694 $1,286.345 - $1,158.258 148.694 (2)
through
02/29/04
03/01/04 137.966 $1,268.314 112.959 $1,141.259 250.925 (2)
through
03/31/04
TOTAL 583.123 $1,251.064 112.959 $1,126.481 696.082 (2)
<FN>
-----------------
(1) As previously disclosed, pursuant to Grant Park's Limited Partnership
Agreement, investors in Grant Park may redeem their units for an amount equal to
the net asset value per unit at the close of business on the last business day
of any calendar month if at least 10 days prior to the redemption date, or at an
earlier date if required by the investor's selling agent, the General Partner
receives a written request for redemption from the investor. The General Partner
may permit earlier redemptions in its discretion.
(2) Not determinable.
</FN>
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT
TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934
31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT
TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT
OF 1934
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
(b) REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FORM 8-K
NONE.
1
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRANT PARK FUTURES FUND
LIMITED PARTNERSHIP
Date: May 17, 2004 by: Dearborn Capital Management, L.L.C.
its general partner
By: /s/ David M. Kavanagh
-------------------------
David M. Kavanagh
President
(principal executive officer)
By: /s/ Maureen O'Rourke
-------------------------
Maureen O'Rourke
Chief Financial Officer
(principal financial and
accounting officer)
2
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