================================================================================ 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: SEPTEMBER 30, 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| ================================================================================ - -------------------------------------------------------------------------------- GRANT PARK FUTURES FUND LIMITED PARTNERSHIP QUARTER ENDED SEPTEMBER 30, 2004 INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements 2 Statements of Financial Condition as of September 30, 2004 (unaudited) and December 31, 2003 (audited) 2 Condensed Schedule of Investments as of September 30, 2004 (unaudited) 3 Condensed Schedule of Investments as of December 31, 2003 (audited) 4 Statements of Operations for the three months and nine months ended September 30, 2004 and 2003 (unaudited) 5 Statements of Changes in Partners' Capital (Net Asset Value) for the nine months ended September 30, 2004 (unaudited) 6 Notes to Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4. Controls and Procedures 22 PART II - OTHER INFORMATION 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22 Item 6. Exhibits 24 SIGNATURES 25 - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GRANT PARK FUTURES FUND LIMITED PARTNERSHIP STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ (UNAUDITED) ASSETS Equity in brokers' trading accounts: U.S. Government securities, at market value........................................ $ 34,461,629 $ 7,494,683 Cash............................................................................... (1,495,045) 5,815,172 Unrealized gain on open contracts, net............................................. 11,911,728 5,563,659 ------------ ----------- Deposits with broker............................................................ 44,878,312 18,873,514 Cash and cash equivalents............................................................. 206,072,209 68,985,354 Interest receivable................................................................... 573,067 2,872 ------------ ----------- TOTAL ASSETS.................................................................... $251,523,588 $87,861,740 ============ =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities Brokerage commission payable....................................................... $ 1,538,095 $ 436,522 Accrued incentive fees............................................................. 528,202 1,140,443 Organization and offering costs payable............................................ 146,750 28,975 Accrued operating expenses......................................................... 71,007 43,353 Other accrued expenses............................................................. - 96,469 Pending partner additions.......................................................... 7,797,081 18,295,637 Redemptions payable................................................................ 1,193,271 402,295 ------------ ----------- TOTAL LIABILITIES............................................................... 11,274,406 20,443,694 ============ =========== Partners' Capital General Partner (2,237.98 and 707.62 units outstanding at September 30, 2004 and December 31, 2003, respectively)................................................. 2,221,360 844,919 Limited Partners Class A (58,594.49 and 27,275.54 units outstanding at September 30, 2004 and December 31, 2003, respectively).............................................. 58,159,541 32,567,704 Class B (202,302.31 and 31,586.19 units outstanding at September 30, 2004 and December 31, 2003, respectively).............................................. 179,868,281 34,005,423 ------------ ----------- TOTAL PARTNERS' CAPITAL...................................................... 240,249,182 67,418,046 ------------ ----------- TOTAL LIABILITIES AND PARTNERS' CAPITAL...................................... $251,523,588 $87,861,740 ============ =========== The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- 2 GRANT PARK FUTURES FUND LIMITED PARTNERSHIP CONDENSED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004 (UNAUDITED) UNREALIZED UNREALIZED EXPIR- GAIN/(LOSS) ON PERCENT OF GAIN(LOSS) ON PERCENT OF NET UNREALIZED PERCENT OF ATION OPEN LONG PARTNERS' OPEN SHORT PARTNERS' GAIN(LOSS) ON PARTNERS' DATES CONTRACTS CAPITAL CONTRACTS CAPITAL OPEN CONTRACTS CAPITAL ----- --------- ------- --------- ------- -------------- ------- FUTURES CONTRACTS U.S. Futures Positions: Currencies................... $ 1,712,386 0.7% $ (96,597) * $ 1,615,789 0.7% Energy....................... 1,471,069 0.6 (125) * 1,470,944 0.6% Grains....................... (5,500) * 971,145 0.4% 965,645 0.4% Interest rates............... 1,009,114 0.4% (4,168) * 1,004,946 0.4% Meats........................ 133,895 0.1% 4,950 * 138,845 0.1% Metals....................... 693,525 0.3% (78,385) * 615,140 0.3% Soft commodities............. 509,210 0.2% 26,854 * 536,064 0.2% Stock indices................ (54,250) * 331,518 0.1% 277,268 0.1% ----------- ----------- ----------- Total U.S. Futures Positions.... 5,469,449 1,155,192 6,624,641 Foreign Futures Positions: Energy....................... 862,670 0.4% - * 862,670 0.4% Interest rates............... 3,366,635 1.4% (24,918) * 3,341,717 1.4% Metal........................ 2,994,900 1.2% (1,245,332) (0.5)% 1,749,568 0.7% Soft commodities............. - * 6,161 * 6,161 * Stock indices................ 143,036 0.1% 34,240 * 177,276 0.1% ----------- ----------- ----------- Total Foreign Futures Positions.................... 7,367,241 (1,229,849) 6,137,392 ----------- ----------- ----------- TOTAL FUTURES CONTRACTS......... $12,836,690 $ (74,657) 12,762,033 5.4% =========== =========== =========== ==== FORWARD CONTRACTS Currencies................... 2,479,453 1.0% (3,329,759) (1.4)% (850,305) (0.4)% ----------- ----------- ----------- TOTAL FORWARD CONTRACTS......... $ 2,479,453 $(3,329,759) $ (850,305) (0.4)% =========== =========== =========== ==== <FN> - ------------------ * Percentage is less than 0.1% of partners' capital. </FN> U.S. Government Securities: PERCENT OF FACE VALUE VALUE PARTNERS' CAPITAL - ---------- ----- ----------------- $34,500,000 U.S. Treasury Bills, October 28, 2004 $34,461,629 14.3% ----------- Total U.S. Government Securities (cost $34,464,046) $34,461,629 =========== The accompanying notes are an integral part of these financial statements. 3 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 EXPIR- CONTRACTS ON OPEN OF ON OPEN OF GAIN/(LOSS) PERCENT 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 indices......... 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: 01/04- Nickel............. 03/04 54 14 1,166,825 1.7% (310,426) (0.1)% 856,399 1.6% Other Metals....... 769,188 1.1% (207,925) (0.3)% 561,263 0.8% Soft commodities...... - * 4,077 * 4,077 * Stock indices......... 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. </FN> U.S. Government Securities: PERCENT OF FACE VALUE VALUE PARTNERS' 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 ========== The accompanying notes are an integral part of these financial statements. 4 GRANT PARK FUTURES FUND LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- --------------------------- 2004 2003 2004 2003 ------------- ------------ ------------ ---------- (UNAUDITED) UNAUDITED) INCOME................................................. Trading gains (losses).............................. Realized.......................................... ($13,944,593) $(1,390,464) $(36,334,285) $2,678,973 Change in unrealized.............................. 12,641,237 1,943,934 6,348,069 797,201 ------------ ----------- ------------ ---------- Net gains/(losses) from trading.............. (1,303,356) 553,470 (29,986,216) 3,476,174 Interest income..................................... 895,521 44,576 1,775,785 141,158 ------------ ----------- ------------ ---------- TOTAL INCOME/(LOSS).......................... (407,835) 598,046 (28,210,431) 3,617,332 ------------ ----------- ------------ ---------- EXPENSES Brokerage commission................................ 4,665,385 334,707 10,942,657 334,707 Commissions......................................... -- 45,157 -- 307,423 Management fees..................................... -- 65,478 -- 427,892 Incentive fees...................................... 528,202 114,812 2,234,926 444,814 Operating expenses.................................. 202,900 51,804 550,351 173,910 ------------ ----------- ------------ ---------- TOTAL EXPENSES............................... 5,396,487 611,958 13,727,934 1,688,746 ------------ ----------- ------------ ---------- NET INCOME/(LOSS)............................ $(5,804,322) $ (13,912) $(41,938,365) $1,928,586 ============ =========== ============ ========== The accompanying notes are an integral part of these financial statements. 5 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 OF UNITS AMOUNT OF UNITS AMOUNT OF UNITS AMOUNT TOTAL 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/(loss)............ -- 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 Contributions................ 844.55 987,500 19,025.66 22,125,537 71,083.42 74,736,805 97,849,842 Redemptions.................. -- -- (799.12) (838,529) (379.56) (362,721) (1,201,250) Offering Costs............... -- -- -- (28,403) -- (304,694) (333,097) Net income/(loss)............ -- (371,254) -- (12,237,521) -- (29,779,713) (42,388,488) -------- ---------- --------- ----------- ---------- ------------ ------------ Partners' capital, June 30, 2004 (unaudited).... 1,828.51 $1,864,208 56,658.42 $57,764,768 161,112.78 $147,469,597 $207,098,573 Contributions................ 409.47 410,000 4,595.64 4,603,643 43,020.24 38,600,823 43,614,466 Redemptions.................. -- -- (2,659.57) (2,624,255) (1,830.71) (1,619,561) (4,243,816) Offering Costs............... -- -- -- (30,291) -- (385,428) (415,719) Net income/(loss)............ -- (52,848) -- (1,554,324) -- (4,197,150) (5,804,322) -------- ---------- --------- ----------- ---------- ------------ ------------ Partners' capital, September 30, 2004 (unaudited).................. 2,237.98 $2,221,360 58,594.49 $58,159,541 202,302.31 $179,868,281 $240,249,182 ======== ========== ========= =========== ========== ============ ============ Net asset value per unit at January 1, 2004.............. $ 1,194.03 $ 1,076.59 =========== ============ Net asset value per unit at September 30, 2004 (unaudited).................. $ 992.58 $ 889.11 =========== ============ Decrease in net asset value per unit for the period January 1 to September 30, 2004 (unaudited)................. $ (201.45) $ (187.48) =========== ============ The accompanying notes are an integral part of these financial statements. 6 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: Presentation of financial information: The financial statements include the accounts of Grant Park Futures Fund Limited Partnership. In our opinion, the accompanying interim, unaudited, financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2004 and the results of operations for the nine months ended September 30, 2004 and 2003. 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 7 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. 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. For the year ended December 31, 2003, the Partnership was subject to an Illinois replacement tax of 1.5% of taxable income related to those limited partners who are not otherwise subject to the tax. For the year ended December 31, 2003, 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 are paid by Dearborn Capital Management, L.L.C. ("General Partner") and are reimbursed to the General Partner by the Partnership. This reimbursement is made monthly. In no event, however, does 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 does not exceed the overall limit set forth above. Amounts reimbursed by the Partnership with respect to the initial and ongoing public offering expenses are charged against partners' capital at the time of reimbursement or accrual. Any amounts reimbursed by the Partnership with respect to organization expenses are 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 September 30, 2004, the amount of unreimbursed organization and offering costs incurred by the General Partner is $710,010. 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. EQUITY IN BROKERS' TRADING ACCOUNTS As of September 30, 2004, the negative cash balance in Equity in brokers' trading accounts represents a margin call. The cash balance in the brokers' trading accounts fluctuates daily as a result of trading activity. In the case of a margin call, such call is satisfied the next business day through a transfer of funds. NOTE 3. 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. 8 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 September 30, 2003, totaled $45,157 and for the nine months ended September 30, 2003, totaled $307,423. 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 $33,876 for the three months ended September 30, 2003 and $221,750 for the nine months ended September 30, 2003. Effective August 1, 2003, the Partnership paid the General Partner a brokerage commission up to 8.1% per annum of the Partnership net assets, as defined. Effective April 1, 2004, the brokerage commission decreased to 7.9% per annum for Class A units and remained at 8.1% per annum for Class B units. The charge, which is accrued monthly, amounted to $4,665,385 for the three months ended September 30, 2004, $10,942,656 for the nine months ended September 30, 2004 and $334,707 for the two months ended September 30, 2003. The components of the brokerage commission are as follows: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------ 2004 2003* 2004 2003 * ---------------- -------------- ---------- -------------- (UNAUDITED) (UNAUDITED) Fees paid to the General Partner and its selling agents $2,912,570 $220,107 $ 6,686,885 $220,107 Management fees paid to commodity trading advisors 883,245 68,433 2,245,297 68,433 Commissions paid clearing FCMs 869,570 46,167 2,010,474 46,167 ---------- -------- ----------- -------- Total $4,665,385 $334,707 $10,942,656 $334,707 ========== ======== =========== ======== * Includes amounts paid for the two-month period ended September 30, 2003. Effective November 1, 2004, the brokerage commission decreased to 7.75% per annum for Class A units and 8.0% per annum for Class B units. NOTE 4. COMMODITY TRADING ADVISORS The Partnership has entered into advisory contracts with Rabar Market Research, Inc., EMC Capital Management, Inc., Eckhardt Trading Co., Graham Capital Management, L.P., Winton Capital Management Limited and Saxon Investment Corporation to act as the Partnership's commodity trading advisors (the "Advisors"). Effective August 1, 2003, the Advisors receive a quarterly management fee ranging from 0 percent to 2 percent per annum of the Partnership's month-end allocated net assets, which amounted to fees of $883,245 for the three months ended September 30, 2004 and $2,245,297 for the nine months ended September 30, 2004. For the two months ended September 30, 2003, the quarterly management fee amounted to $68,433. 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 $31,602 for the three months ended September 30, 2003 and $206,142 for the nine months ended September 30, 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 $528,202 and $114,812 for the three months ended September 30, 2004 and 2003, respectively, and $2,234,926 and $444,814 for the nine months ended September 30, 2004 and 2003, respectively. NOTE 5. 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 days 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. 9 NOTE 6. 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- ------------- ------------- ----------- (UNAUDITED) (UNAUDITED) Total return - A Units (2.64)% (0.17)% (16.87)% 11.47% Total return - B Units** (2.86)% 0.19% (17.41)% 0.19% Ratios as a percentage of average net assets: Interest income * 1.65% 0.85% 1.48% 1.00% Expenses * 9.92% 11.79% 11.42% 12.04% *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. The interest income and total expense ratios above are computed based upon the weighted average net assets of the Partnership for the three and nine months ended September 30, 2004 and 2003 (annualized). The following per unit performance calculations reflect activity related to the Partnership for the period January 1, 2004 to September 30, 2004. A UNITS B UNITS --------- --------- Per Unit Performance (for unit outstanding throughout the entire period): Net asset value per unit at beginning of period.............. $1,194.03 $1,076.59 --------- --------- Income from operations: Net realized and change in unrealized gain/(loss) from ) trading.............................................. (121.84) (113.07) Expenses net of interest income.......................... (78.13) (67.39) --------- --------- Total income/(loss) from operations.................. (199.97) (180.46) Organization and offering costs.............................. (1.48) (7.02) --------- --------- Net asset value per unit at end of period.................... $ 992.58 $ 889.11 ========= ========= <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 September 30, 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 7. 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. 10 Net trading results from derivatives for the three and nine months ended September 30, 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. 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 8. SUBSEQUENT EVENT From October 1, 2004 to November 1, 2004, there were aggregate contributions to and redemptions from the Partnership totaling approximately $8,078,000 and $515,000, respectively. 11 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. Effective August 1, 2004, Grant Park added two additional trading advisors, Winton Capital Management Limited and Saxon Investment Corporation. Each of the trading advisors is registered as a commodity trading advisor under the Commodity Exchange Act and is a member of the NFA. Each trading advisor uses its own proprietary trading program and each is a full-time commodity trading advisor with an established performance record and a dedicated staff of experienced alternative investment professionals. As of September 30, 2004, the general partner allocated Grant Park's net assets among the trading advisors as follows: 23% to Rabar, 23% to EMC, 6% to ETC, 25% to Graham, 12% to Winton and 9% to Saxon. Grant Park anticipates that it will allocate no more than approximately 20% of its assets to each of Winton and Saxon at any one time. The general partner may terminate or replace the trading advisors or retain additional trading advisors in its sole discretion. 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 is 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 12 be highly liquid. 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 September 30, 2004 was approximately (2.64)% for the Class A units and (2.86)% for the Class B units. The net asset value at September 30, 2004 was approximately $240.2 million, at December 31, 2003 was approximately $67.4 million and at September 30, 2003 was approximately $29.4 million. The table below sets forth Grant Park's trading gains or losses by sector for the three and nine month periods ended September 30, 2004 and 2003. % GAIN (LOSS) ---------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------- ----------------------- SECTOR 2004 2003 2004 2003 - ----------------- ---------- --------- ---------- ---------- Interest Rates 0.6% 0.2% (3.0)% 8.7% Currencies (2.3) 0.2 (7.0) 10.6 Stock Indices (2.0) 0.7 (5.1) 1.5 Energy 2.2 (1.2) 3.4 1.0 Agriculturals 0.5 2.3 2.9 0.9 Metals 0.6 (0.3) 0.9 (1.6) Softs (0.1) 0.1 (1.1) (0.9) Meats 0.0 0.0 0.2 0.0 Miscellaneous (0.3) 0.2 (0.6) (0.1) ---- ---- ---- ---- Total (0.8)% 2.2% (9.4)% 20.1% ==== ==== ==== ==== THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2003 For the three months ended September 30, 2004, Grant Park had a negative return of approximately 2.6% for the Class A units and 2.9% for the Class B units. On a combined unit basis prior to expenses, approximately 0.8% resulted from trading losses which was offset by 0.4% of interest income. These trading losses were further increased by approximately 2.4% in brokerage fees, performance fees and operating and offering costs borne by Grant Park. For the same period in 2003, Grant Park had a negative return of approximately 0.2% for the Class A units and a positive return of 0.2% for the Class B units. On a combined unit basis, approximately 2.2% resulted from trading gains and approximately 0.2% was due to interest income. An offset of approximately 2.6% was the result of brokerage fees, performance fees and operating and offering costs borne by Grant Park. NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2003 For the first nine months of 2004, Grant Park had a negative return of approximately 16.9% for the Class A units and 17.4% for the Class B units. On a combined unit basis prior to expenses, approximately 9.4% resulted from trading losses which was offset by 0.9% of interest income. These trading losses were further increased by approximately 8.7% in brokerage fees, performance fees and operating and offering costs borne by Grant Park. For the nine months ended September 30, 2003, Grant Park had a positive net return of 11.5% for the Class A units and 0.2% for the Class B units. Of this increase on a combined unit basis, approximately 20.1% resulted from trading gains and approximately 0.7% was due to interest income. These gains were offset by approximately 9.3% in combined total brokerage fees, performance fees and operating and offering costs borne by Grant Park. Nine months ended September 30, 2004 The third quarter continued the losses sustained in the second quarter as Grant Park Class A units declined 2.6% and Class B units declined 2.9%. Fortunately, volatility in the markets subsided as the quarter progressed. After starting the quarter with another losing month, some normalcy returned to the markets and Grant Park finished the quarter with a positive month. The overriding theme of the quarter was a lack of direction and a significant reduction in the violent random volatility the futures markets had been experiencing in the previous quarter. Despite interest rate hikes by the Federal Reserve earlier in the quarter, interest rate contracts perversely began to rally by quarter's end resulting in losses. Energy prices experienced significant choppiness but eventually finished the quarter at their all time highs. Additionally, both the U.S. dollar and the metals also experienced choppiness throughout the quarter but ended at or near the extremes of their moves. 13 Key trading developments for Grant Park during the first nine months of 2004 include the following: The first month of 2004 was slightly profitable for the Grant Park Futures Fund. Grant Park Class A units were up 0.38% while Class 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 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 Class A units posting a 7.33% gain and Class 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 Class A units down 1.40% on the month and Class 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. April was a difficult trading month for trend trading and our portfolio of traders in particular. Grant Park Class A units were down 11.66% for the month and Class B units were down 11.72% for the month. Major trends across several market sectors (which normally exhibit little correlation) reversed collectively as they were struck by three major fundamental factors. The first was surprisingly positive U.S. employment news. On the second day of the month it was announced that the U.S. economy added 308,000 new jobs during the month of March. Forecasts by economists were predicting an increase in the vicinity of 120,000. The workforce additions marked the biggest one-month increase in payrolls in four years. The second factor was the strength of the U.S. dollar, reflecting both a brightening U.S. economic outlook and the likelihood of a Federal Reserve rate hike occurring sooner than previously anticipated. Finally, the third factor was China's tightening of its monetary policy. The Chinese Central Bank raised its banking reserve requirements for the third time in nine months, amidst concerns that the torrid pace of economic growth would lead to excess capacity and inflation. With this action, the central bank is attempting to restrict and reduce bank lending, money supply growth, and potentially excessive rates of economic expansion. As a result, Grant Park incurred losses in both long U.S. and European interest rate futures. Prices for U.S. fixed income prices fell sharply as a result of the positive March labor report. In fact, within minutes of the release of the report, prices for 30-year bonds collapsed five full points, which was the biggest one-day drop in the history of the 30-year bond. A positive durable goods report released in the second week of the month added to the sell-off. European interest rate futures responded in kind. Additional losses were incurred in long positions in the metals markets, as precious and industrial metal prices plunged in response to the prospects of higher interest rates combined with a stronger U.S. dollar and further depressed by speculation that the Chinese central bank's new reserve requirements would reduce Chinese demand for industrial metals. The strong dollar and the Chinese central bank policy changes also put pressure on grain prices as well, generating additional losses in long positions in both corn and soybean markets. Equity markets also proved difficult. Grant Park posted losses in short positions in the FTSE, Dax, Nasdaq, and S&P 500. Long positions in the Hang Seng were also unprofitable. The only sector posting moderate gains for the month was long positions in the energy sector as prices rallied on OPEC's decision to lower output. Unfortunately, markets remained choppy and volatile throughout the month of May with simultaneous "start-stop" markets in currencies, fixed income and equities. Grant Park Class A units were down 4.75% for the month while Class B units were down 4.82% for the month. In general, markets seemed to lack any clear economic backdrop and exhibited little directional rhythm. As a result, Grant Park's overall market exposure remained light. Losses were incurred in short positions in the British pound, euro and Swiss franc as prices all rose against the U.S. dollar. Weaker-than-expected U.S. economic data coupled with the assassination of 14 Izzedine Salim, the head of the interim Iraqi governing council, resulted in a sell-off for the U.S. dollar. Long positions in the grain sector also posted losses as wet weather in the Midwest alleviated fears that previously dry conditions would damage the newly planted crop. Additional losses were incurred in long positions in the Nikkei index, which dropped sharply following a strong U.S. jobs report released on May 7th. Grant Park continued to profit from long positions in the energy sector, as prices continued their upward climb. The situation in the Middle East, lingering supply concerns and unprecedented demand for crude from the Chinese government, all contributed to strengthening prices. Finishing a difficult quarter for the Grant Park Futures Fund, June's performance was again negative. Class A units were down 4.47% for the month while Class B units were down 4.55%. June market conditions proved to be even more volatile than the difficult trend reversals in April and May. The lack of any sustained directional price patterns and significant short-term volatility created a very unfriendly environment for our trend following portfolio of traders. Losses were incurred across almost all trading sectors. Short positions across the bond yield curve here in the U.S. were largely unprofitable for the month as confusion reigned, as the path to higher rates in the U.S. remained unclear. Indications from Alan Greenspan early in the month led investors to believe the Fed was prepared to act decisively on inflations fears, causing a sell off. One week later, however, investors were surprised by lower than expected Consumer Price Index data, sending interest rates lower and prices higher. Additional losses were experienced in short British interest rate futures as concerns mounted that earlier rate hikes there were causing softness in the housing market, leading to speculation that the Bank of England may be less aggressive in announcing future rate hikes. Previously profitable long positions in the energy sector posted losses on news that OPEC decided to increase its production quotas as of August 1st. Prices continued to decline after the U.S.-led coalition restored Iraqi sovereignty two days ahead of schedule. Furthermore, trading in the currency markets was mixed for the month with the overall sector posting losses. Generally, major currencies have been caught in choppy (start-stop) ranges, a result of market uncertainty over how aggressively the Fed will raise interest rates. Profits were earned in the soft sector, in both cotton and sugar. Short positions in the cotton market profited amidst slack demand from China and bearish overall U.S. export numbers. Conversely, long positions in the sugar market were helped by a surprising USDA report noting that sugar stocks would be down an estimated 30.3 million tons, or 21%. July performance was negative for the Grant Park Fund. Class A units were down 3.36% for the month while Class B units were down 3.44%. Grant Park's portfolio of traders encountered another difficult trading environment for their trend following programs in the global fixed income, currency and equity sectors. Short positions in European interest rates incurred losses, as short-term instruments rallied after the European Central Bank declined to raise interest rates. Prices continued to move higher in the wake of a weaker-than-expected U.S. employment report, which created concerns that global economic growth may be slowing. This same report also caused U.S. interest rates to rally, generating additional losses in Grant Park's short positions. Additional losses accumulated in the currency sector as the U.S. Dollar rallied. Short positions in the U.S. Dollar index and long positions in the British Pound produced losses. The dollar strength was attributed to comments made mid-month by Alan Greenspan in his appearance before Congress, suggesting that U.S. economic growth, despite recent signs of weakness, was still strong enough to warrant additional interest rate hikes by the Federal Reserve. The dollar rallied further following a report showing that U.S. consumer confidence hit a two-year high. Finally, long positions in equity markets suffered as prices weakened amidst weak earnings reports and higher energy prices. Equity markets were further weakened by investor concerns surrounding the possibility of another terrorist attack before the November elections in the U.S. Losses were partially offset by gains in long positions in the energy sector, as prices continued to rally. Supply concerns and the Yukos scandal in Russia continued to boost prices. Additional gains were made in short positions in grains as ideal weather conditions prevailed, suggesting record crops for the year. Grant Park Futures Fund generated losses in the month of August. Class A units lost 0.32% while Class B units were down 0.40% for the month. August saw the continuation of erratic behavior in the markets, lacking any sustained trends in most market sectors. Losses were suffered in the currency, agricultural, stock indices and energy sectors while profits were generated in the interest rate sector. Losses accumulated throughout the currency sector, as prices moved up and down throughout the month on mixed economic data, volatile energy prices, and fear of another terrorist attack in the United States at the Republican National Convention. Positions in the sector were difficult to establish for any length of time as price behavior was erratic. Short positions in grains suffered as a surprise cold spell in the northern Midwest raised worries about possible crop damage and reduction in yields. Parts of North Dakota and Iowa reported near-freezing temperatures, while temperatures throughout the month of August approached record historic lows. Additional losses were generated in long sugar positions as reports of a larger than expected Brazilian crop prompted prices to drop 6% on the month. Short positions in orange juice also suffered losses as the damage to the Florida crop from Hurricane Charley became clear. Losses were also generated in short positions in stock indices. Global stock indices rallied as crude oil retreated from a mid-month high of $50 to just over $43 at month's end. Finally, losses were reported in long positions in crude oil, heating oil and unleaded gas as prices came off sharply from their mid-month highs amidst reports of increased U.S. inventories of both gasoline and heating oil and upon the peaceful resolution to the standoff at the Imam Ali Mosque in Najaf between U.S. forces and followers of Iraqi cleric Moqtada al-Sadr. On a positive note, interest rates were the only profitable sector for the month. Long positions in both U.S. and European bonds generated profits as prices moved higher on weak employment figures reported in the U.S and additional economic reports suggesting the economy is not growing as fast as many had anticipated. After several losing months, performance for the Grant Park Futures Fund was positive for the month of September. Class A units gained 1.07% while Class B units gained 0.99% for the month. High energy prices consumed the economic news for the month as crude oil closed the month at $49.64 per barrel, up $7.53 for the month. As a result, Grant Park's most significant gains were in the 15 energy, metals and currency sectors. Long positions in the energy sector provided Grant Park with its largest gains as prices continued to trend steadily upward. Declines in U.S. inventories, ongoing disruptions in Iraqi production, hurricane damage to the refineries in the Gulf of Mexico, as well as growing civil unrest in Nigeria all contributed to higher prices. Additional profits accumulated in long positions in the base metals including copper, nickel and aluminum. Prices moved higher amid evidence of renewed demand from China and were further supported by a weakening U.S. dollar. Positions in the currency markets also provided profits as mixed economic reports out of the U.S. continued to weaken the U.S. dollar. Long positions in both the Euro currency and Canadian dollar generated profits. Profits generated in the sectors noted above were partially offset by losses suffered in both the interest rate and stock indices sectors. Mixed economic reports and uncertainty surrounding the future of interest rate hikes in both the U.S. and Europe gave way to volatility in both sectors, generating losses. Nine months ended September 30, 2003 The third quarter ended September 30, 2003 left Grant Park's portfolio essentially unchanged with Class A units down 0.17% and Class B units up 0.19%. The stock indices contributed to the bulk of the profits for the quarter as better than expected economic statistics and rising corporate earnings fueled markets globally. The majority of the profits were offset by choppy markets in the dollar, fixed income, energy and the metals. Consequently, by quarter's end there were few market opportunities to profit from. Key trading developments for Grant Park during the first nine months of 2003 include the following: 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. Performance for Grant Park was positive during the month of April, with a net return of 2.57%. A long soybean position proved profitable as the U.S. Department of Agriculture estimated that domestic physical stocks would reach a seven-year low before the present crop is harvested in the fall. The rally was also fueled by speculation that aggressive planting of corn may reduce the acreage available for soybeans, which would further exacerbate the existing supply concerns. Profits were also garnered in stock indices, as the U.S.-led military campaign in Iraq came to a quick conclusion. Losses for the month were incurred in cotton, which declined amid fears that the spread of SARS in China, the largest purchaser of U.S. exports, could result in substantially reduced demand. Additional losses were incurred in corn, which fell as favorable weather conditions in the midwest caused the planting of the U.S. crop to accelerate. Grant Park had an exceptionally strong month in May as Grant Park produced a net return of 9.68%. In the bond market, so-called bull-flattening trades, involving the purchase of long maturities and the sale of short ones in belief the long issues will rally, were a developing trend. The federal reserve expressed concern that the economy was more at risk to deflationary rather than inflationary pressures, which further triggered the rally in the long-end of the yield curve. Gains were also made via short positions in the U.S. dollar as Treasury Secretary Snow made comments perceived to be supportive of a weak U.S. dollar policy. The Euro in particular showed strength, reaching a four year high against the dollar. Losses for the month were in corn, as prices reversed when excessive rain early in the month gave way to more favorable planting conditions later in the month. The Japanese yen produced additional losses, which fell as a decrease in industrial production led to new recession fears for the Japanese economy. June proved to be a challenging month for the managed futures industry generally and Grant Park in particular. For June, Grant Park earned a negative net return of 1.26%. Sharp reversals in the bond market proved costly for most managers. Grant Park suffered additional losses in the European currencies as both the Euro and Swiss franc fell against the U.S. dollar amid evidence of an improving U.S. economy and the Federal Reserve's decision to cut interest rates by only a quarter-point rather than the point many market participants had expected. Natural gas also led to losses as the Energy Department reported record growth in the U.S. 16 inventory levels due to moderate weather throughout the U.S. and historically high prices. Some losses were offset by profits in the Nikkei, which rallied amid hopes that an economic recovery in the U.S. would lead to increased consumer demand for Japanese exports. Additional profits were earned in the S&P 500 as assets moved out of bonds and into stocks. Grant Park experienced a modest loss for July, with a net loss of 0.49%. The month was highlighted by very few significant losses or gains in any one particular market or sector. The currency sector however, was our worst performer with significant losses occurring in Japanese yen trading as choppy markets led to reversals in our short positions just before the Bank of Japan, or BOJ, announced they would not allow a strong yen to continue. The BOJ sold 30 Billion yen in July, making it the largest monthly intervention on record. Additional losses were incurred in New Zealand, Australian and Canadian dollars as well as the British pound and Euro currency. Profits were generated in long positions in Stock Indices including the Nikkei, DAX, NASDAQ and the Taiwanese stock index. The entire global stock index sector continued to climb because of a mix of better than expected economic statistics, rising corporate earnings and an improved outlook for the U.S. economy. August performance was slightly positive with Grant Park posting a 0.19% return for Class A units and 0.12% for Class B units. Upbeat economic data here in the U.S. led to a surge in global stock prices and supported the U.S. dollar against most major currencies. Profits were generated in global stock indices, as the Dow Jones posted its sixth straight monthly gain. This increasing confidence in the U.S. markets led to strength abroad, particularly in the Asian markets. The improving economic picture in the U.S. also led to gains in both long dollar positions and short short-term global fixed income positions. Losses were incurred in both the base and precious metals with long positions in zinc proving the most costly. Zinc prices fell in response to an increase in warehouse inventories. Additional losses were incurred in soybean oil. September was another slightly positive month for Grant Park, wrapping up a quiet quarter. Grant Park's net return for Class A units was 0.13% and 0.06% for Class B units. The Grant Park's diversification across market sectors and across trading managers played a role this month in Grant Park's slightly positive performance. Positions in agriculturals and softs proved profitable, while positions in the financial and energy sectors generated losses. Three of our four traders posted modest profits while one (Graham) posted a net loss. Our most profitable trades were in long positions in the soy complex, cotton and the Japanese yen. Losses were incurred in the fixed income sector and the energy sector. 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. 17 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. 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 18 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. 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 September 30, 2004 and December 31, 2003 and the trading gains/losses by market category for the nine months ended September 30, 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 September 30, 2004, Grant Park's net asset value was approximately $240.2 million. As of December 31, 2003, Grant Park's net asset value was approximately $67.4 million. AS OF SEPTEMBER 30, 2004 % OF TOTAL TRADING MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN(LOSS) - ------------- ------------- -------------- ---------- Interest Rates $10,982,055 4.2% (3.0)% Currencies 5,754,812 2.2 (7.0) Stock Indices 6,682,086 2.6 (5.1) Energy 2,533,200 1.0 3.4 Agriculturals 675,700 0.3 2.9 Metals 4,934,349 1.9 0.9 Softs 753,541 0.3 (1.1) Meats 107,650 0.0 0.2 ----------- ---- ---- Total $32,423,393 12.5% (8.8)% =========== ==== ==== AS OF DECEMBER 31, 2003 % OF TOTAL TRADING MARKET SECTOR VALUE AT RISK 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) ----------- ---- ---- Total $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. 19 QUALITATIVE MARKET RISK TRADING RISK The following were the primary trading risk exposures of Grant Park as of September 30, 2004, by market sector. It should be noted that due to the depth of the recent drawdown, the leverage employed by Grant Park has been reduced significantly from that which was employed as of December 31, 2003 as illustrated in the trading value at risk table on the previous page. 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 September 30, 2004, Grant Park's interest rate exposure was predominantly long positions in a variety of G-7 countries. Despite recent rate hikes, both intermediate and long-term interest rate future prices have moved higher. 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 September 30, 2004, Grant Park was positioned to benefit from the effects of a weakening dollar against most major and minor currencies. 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, Nigeria, Russia and Venezuela. As of September 30, 2004, the energy market exposure of Grant Park consisted of minor 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 September 30, 2004, Grant Park's primary exposures were in the Hang Seng (long), FTSE (long) and Australian (long) 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. As of September 30, 2004, long positions in gold and silver accounted for Grant Park's metal exposure in the precious metals while long positions in both copper and aluminum represented Grant Park's significant exposure in the base metals. 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 and corn accounted for Grant Park's short commodity exposure while sugar accounted for Grant Park's only long position as of September 30, 2004. 20 NON-TRADING RISK EXPOSURE The following were the only non-trading risk exposures of Grant Park as of September 30, 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 portion of its assets at its clearing brokers, as well as at Harris Trust & Savings Bank and Lake Forest Bank & Trust Company. These assets, which may range from 5% to 25% of the fund's value, are held in U.S. Treasury securities and/or Treasury repurchase agreements. The balance of Grant Park's assets, which range from 75% to 95%, are invested in investment grade money market investments purchased at Horizon Cash Management, LLC which are held in a separate, segregated account at Northern Trust Company. 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. 21 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 September 30, 2004 that has materially affected or is reasonably likely to materially affect Grant Park's internal control over financial reporting. PART II- OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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. As of the close of business on July 1, 2004, the Class A Limited Partnership Units were offered at $1,019.53 with 2,497.57 units being sold, and the Class B Limited Partnership Units were offered at $915.32 with 19,520.62 units being sold. As of the close of business on August 1, 2004, the Class A Limited Partnership Units were offered at $985.24 with 1,482.99 units being sold, and the Class B Limited Partnership Units were offered at $883.87 with 12,790.61 units being sold. As of the close of business on September 1, 2004, the Class A Limited Partnership Units were offered at $982.09 with 1,024.55 units being sold, and the Class B Limited Partnership Units were offered at $880.38 with 10,709.00 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 $387,535 for the three months ended September 30, 2004 and $878,246 for the nine months ended September 30, 2004. 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. 22 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 three months ended September 30, 2004. (A) (B) (A) (B) (C) (D) MAXIMUM TOTAL NUMBER OF NUMBER OF UNITS TOTAL NUMBER TOTAL NUMBER UNITS REDEEMED AS THAT MAY YET BE OF CLASS A AVERAGE OF CLASS B AVERAGE PART OF PUBLICLY REDEEMED UNDER UNITS PRICE PAID UNITS PRICE PAID ANNOUNCED PLANS OR THE PERIOD REDEEMED PER UNIT REDEEMED PER UNIT PROGRAMS (1) PLANS/PROGRAM(1) 07/01/04 1,942.85 $985.24 537.73 $883.87 2,480.58 (2) through 07/31/04 08/01/04 126.58 $982.09 609.70 $880.38 736.28 (2) through 08/31/04 09/01/04 590.14 $992.58 683.28 $889.11 1,273.42 (2) through -------- ------- -------- ------- -------- 09/30/04 TOTAL 2,659.57 $986.64 1,830.71 $884.45 4,490.28 (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> 23 ITEM 6. EXHIBITS (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 24 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: November 15, 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) 25