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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2005
[ ] 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.
555 WEST JACKSON BOULEVARD, SUITE 600
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]
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X]
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GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
QUARTER ENDED SEPTEMBER 30, 2005
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Statements of Financial Condition as of September 30, 2005 (unaudited) 1
and December 31, 2004 (audited)
Condensed Schedule of Investments as of September 30, 2005 (unaudited) 2
Condensed Schedule of Investments as of December 31, 2004 (audited) 3
Statements of Operations for the three months and nine months ended 4
September 30, 2005 and 2004 (unaudited)
Statements of Changes in Partners' Capital (Net Asset Value) 5
for the nine months ended September 30, 2005 (unaudited)
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 21
PART II - OTHER INFORMATION 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 6. Exhibits 23
SIGNATURES 24
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------- ------------
(UNAUDITED)
ASSETS
Equity in brokers' trading accounts:
U.S. Government securities, at market value........................................ $ 67,842,920 $ 57,437,059
Cash............................................................................... (13,271,957) 943,051
Unrealized gain on open contracts, net............................................. 17,295,896 4,511,895
------------ ------------
Deposits with broker............................................................. 71,866,859 62,892,005
Cash and cash equivalents............................................................. 237,042,431 240,897,745
Interest receivable................................................................... 766,952 842,052
------------ ------------
TOTAL ASSETS..................................................................... $309,676,242 $304,631,802
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Brokerage commission payable....................................................... $ 1,818,479 $ 1,813,714
Accrued incentive fees............................................................. -- 1,529,181
Organization and offering costs payable............................................ 132,745 178,827
Accrued operating expenses......................................................... 63,462 85,541
Pending partner additions.......................................................... 4,369,480 9,831,841
Redemptions payable................................................................ 6,058,726 1,538,667
------------ ------------
TOTAL LIABILITIES................................................................ 12,442,892 14,977,771
------------ ------------
Partners' Capital
General Partner (2,802.11 and 2,512.60 units outstanding at September 30, 2005 and
December 31, 2004, respectively)................................................. 3,008,032 2,772,714
Limited Partners
Class A (50,869.80 and 60,634.01 units outstanding at September 30, 2005 and
December 31, 2004, respectively).............................................. 54,608,139 66,911,179
Class B (251,554.68 and 223,055.67 units outstanding at September 30, 2005 and
December 31, 2004, respectively).............................................. 239,617,179 219,970,138
------------ ------------
TOTAL PARTNERS' CAPITAL....................................................... 297,233,350 289,654,031
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL....................................... $309,676,242 $304,631,802
============ ============
The accompanying notes are an integral part of these financial statements.
1
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2005
(UNAUDITED)
UNREALIZED UNREALIZED NET
GAIN/(LOSS) PERCENT GAIN/(LOSS) PERCENT UNREALIZED PERCENT
EXPIR- ON OPEN OF ON OPEN OF GAIN/(LOSS) OF
ATION LONG PARTNERS' SHORT PARTNERS' ON OPEN PARTNERS'
DATES CONTRACTS CAPITAL CONTRACTS CAPITAL CONTRACTS CAPITAL
----- ----------- -------- ----------- -------- ----------- --------
FUTURES CONTRACTS
U.S. Futures Positions:
Currencies.................. $(1,272,170) (0.4)% $2,130,940 0.7% $ 858,770 0.3%
Energy...................... 3,805,671 1.3% - * 3,805,671 1.3%
Grains...................... 224,620 * 356,508 0.1% 581,128 0.2%
Interest rates.............. (321,206) (0.1)% 487,054 0.1% 165,848 *
Meats....................... 98,423 * (29,660) * 68,763 *
Metals...................... 1,460,305 0.5% (191,900) * 1,268,405 0.4%
Soft commodities............ 1,703,983 0.6% 449,016 0.1% 2,152,999 0.7%
Stock indices............... 167,190 * (86,791) * 80,399 *
----------- ---------- -----------
Total U.S. Futures Positions... 5,866,816 3,115,167 8,981,983
Foreign Futures Positions:
Energy...................... 141,570 * - * 141,570 *
Interest rates.............. (1,087,629) (0.4)% 1,028,521 0.4% (59,108) *
Metal...................... 1,249,443 0.4% (351,223) (0.1)% 898,220 0.3%
Soft commodities............ (381) * (24,188) * (24,569) *
Nikkei stock index.......... 12/05 3,719,578 1.3% - * 3,719,578 1.3%
Other stock indices......... 2,497,065 0.8% (13,440) * 2,483,625 0.8%
----------- ---------- -----------
Total Foreign Futures
Positions................... 6,519,646 639,670 7,159,316
----------- ---------- -----------
TOTAL FUTURES CONTRACTS........ $12,386,462 $3,754,837 $16,141,299
----------- ---------- -----------
FORWARD CONTRACTS
Currencies.................. $ 826,686 0.3% $ 327,911 0.1% $ 1,154,597 0.4%
----------- ---------- -----------
TOTAL FUTURE AND FORWARD
CONTRACTS................... $13,213,148 $4,082,748 $17,295,896
=========== ========== ===========
<FN>
- --------------------------------
* Percentage is less than 0.1% of partners' capital.
</FN>
U.S. Government Securities:
PERCENT OF
FACE VALUE VALUE PARTNERS' CAPITAL
- ---------- ----------- -----------------
$68,000,000 U.S. Treasury Bills, October 27, 2005 $67,842,920 22.8%
-----------
Total U.S. Government Securities (cost $67,841,204) $67,842,920
===========
The accompanying notes are an integral part of these financial statements.
2
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
UNREALIZED UNREALIZED NET
GAIN/(LOSS) GAIN/(LOSS) UNREALIZED
ON OPEN ON OPEN GAIN/(LOSS)
LONG SHORT ON OPEN
CONTRACTS CONTRACTS CONTRACTS
---------- ---------- ----------
FUTURES CONTRACTS *
U.S. Futures Positions:
Currencies........... $ 684,199 $ 2,981 687,180
Energy............... - 453,758 453,758
Grains............... 13,245 (90,050) (76,805)
Interest rates....... (71,700) 186,450 114,750
Meats................ 113,140 - 113,140
Metals............... (603,600) 48,505 (555,095)
Soft commodities..... 1,408,061 (58,098) 1,349,963
Stock indices........ 2,205,125 (12,170) 2,192,955
---------- ---------- -----------
Total U.S. Futures
Positions............ 3,748,470 531,376 4,279,846
Foreign Futures Positions:
Energy............... 187 66,220 66,407
Interest rates....... 419,624 (4,782) 414,842
Metals............... 2,036,320 (1,447,590) 588,730
Soft commodities..... - 3,396 3,396
Stock indices........ 2,707,305 - 2,707,305
----------- ----------- -----------
Total Foreign Futures
Positions............ 5,163,436 (1,382,756) 3,780,680
----------- ----------- -----------
TOTAL FUTURES CONTRACTS. $ 8,911,906 (851,380) $ 8,060,526
----------- ----------- -----------
FORWARD CONTRACTS, *
Currencies........... $ 2,755,856 $(6,304,487) $(3,548,631)
----------- ----------- -----------
TOTAL FUTURES AND
FORWARD CONTRACTS.... $11,667,762 $(7,155,867) $ 4,511,895
=========== =========== ===========
<FN>
- --------------------------------
* Total long futures contracts, short futures contracts, long forward
contracts and short forward contracts are 3.1%, 0.3%, 1.0% and 2.2% of
partners' capital, respectively. No futures and forward contract
positions constituted greater than 1 percent of partners' capital.
Accordingly, the number of contracts and expiration dates are not
presented.
</FN>
U.S. Government Securities:
PERCENT
OF
PARTNERS'
FACE VALUE VALUE CAPITAL
- ------------------ ----------- ---------
$57,516,000 U.S. Treasury Bills, January 27, 2005 $57,437,059 19.8%
-----------
Total U.S. Government Securities (cost
$57,444,344) $57,437,059
===========
The accompanying notes are an integral part of these financial statements.
3
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
2005 2004 2005 2004
------------ ------------- ------------ -------------
INCOME
Trading gains (losses)
Realized........................ $(1,477,297) $(13,944,593) $(6,555,544) $(36,334,285)
Change in unrealized............ 5,276,216 12,641,237 12,784,001 6,348,069
----------- ------------ ----------- ------------
Net gains/(losses) from
trading..................... 3,798,919 (1,303,356) 6,228,457 (29,986,216)
Interest income................. 2,282,772 895,521 5,936,671 1,775,785
----------- ------------ ----------- ------------
TOTAL INCOME/(LOSS)........... 6,081,691 (407,835) 12,165,128 (28,210,431)
----------- ------------ ----------- ------------
EXPENSES
Brokerage commission............ 6,013,052 4,665,385 17,726,072 10,942,657
Incentive fees.................. -- 528,202 1,643,675 2,234,926
Operating expenses.............. 239,781 202,900 755,858 550,351
----------- ------------ ----------- ------------
TOTAL EXPENSES................ 6,252,833 5,396,487 20,125,605 13,727,934
----------- ------------ ----------- ------------
NET INCOME/(LOSS)............. $ (171,142) $ (5,804,322) $(7,960,477) $(41,938,365)
=========== ============ =========== ============
The accompanying notes are an integral part of these financial statements.
4
GRANT PARK FUTURES FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
LIMITED PARTNERS LIMITED PARTNERS
---------------------- ---------------------------
GENERAL PARTNER CLASS A CLASS B
--------------------- ---------------------- ---------------------------
NUMBER NUMBER NUMBER TOTAL
OF UNITS AMOUNT OF UNITS AMOUNT OF UNITS AMOUNT AMOUNT
-------- ---------- ---------- ---------- ------------ ------------- ------------
Partners' capital,
December 31, 2004..... 2,512.60 $2,772,714 60,634.01 $66,911,179 223,055.67 $219,970,138 $289,654,031
Contributions......... 190.21 205,000 2,659.95 2,913,020 21,242.39 20,342,052 23,460,072
Redemptions........... -- -- (3,620.81) (3,848,370) (5,710.75) (5,413,043) (9,261,413)
Offering costs........ -- -- -- (34,432) -- (505,595) (540,027)
Net income/(loss)..... -- (91,867) -- (2,227,014) -- (7,284,223) (9,603,104)
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
March 31, 2005
(unaudited)......... 2,702.81 2,885,847 59,673.15 63,714,383 238,587.31 227,109,329 293,709,559
Contributions......... 47.44 50,000 2,165.12 2,227,659 16,471.26 15,353,597 17,631,256
Redemptions........... -- -- (7,879.90) (8,196,005) (8,776.76) (8,210,022) (16,406,027)
Offering costs........ -- -- -- (31,979) -- (522,608) (554,587)
Net income/(loss)..... -- 18,328 -- 245,163 -- 1,550,278 1,813,769
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
June 30, 2005
(unaudited)........... 2,750.25 2,954,175 53,958.37 57,959,221 246,281.81 235,280,574 296,193,970
Contributions......... 51.86 50,000 1,776.33 1,896,067 17,908.92 16,976,748 18,927,815
Redemptions........... -- -- (4,864.90) (5,213,324) (12,636.05) (11,990,283) (17,203,607)
Offering costs........ -- -- -- (30,483) -- (483,203) (513,686)
Net income/(loss)..... -- (1,143) -- (3,342) -- (166,657) (171,142)
-------- ---------- --------- ----------- ---------- ------------ ------------
Partners' capital,
September 30, 2005
(unaudited)........... 2,802.11 $3,008,032 50,869.80 $54,608,139 251,554.68 $239,617,179 $297,233,350
======== ========== ========= =========== ========== ============ ============
Net asset value per unit
at January 1, 2005.... $ 1,103.53 $ 986.17
=========== ============
Decrease in net asset
value per unit for
the period January 1
to September 30,
2005 (unaudited)...... (30.04) (33.62)
=========== ============
Net asset value per unit
at September 30, 2005
(unaudited)........... $ 1,073.49 $ 952.55
=========== ============
The accompanying notes are an integral part of these financial statements.
5
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Grant Park Futures Fund Limited Partnership (the
"Partnership") was organized as a limited partnership in Illinois in August 1988
and will continue until December 31, 2027, unless sooner terminated as provided
for in its Limited Partnership Agreement. As a commodity investment pool, the
Partnership is subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.) government which regulates
most aspects of the commodity futures industry; rules of the National Futures
Association, an industry self-regulatory organization; and the requirements of
the various commodity exchanges where the Partnership executes transactions.
Additionally, the Partnership is subject to the requirements of futures
commission merchants ("FCMs") and interbank and other market makers through
which the Partnership trades. Effective June 30, 2003, the Partnership became
registered with the Securities and Exchange Commission ("SEC"), accordingly, as
a registrant, the Partnership is subject to the regulatory requirements under
the Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934.
The 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 SEC
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 million in aggregate amount of Class A Limited Partnership Units
and $180 million 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. The Partnership subsequently registered up to an
additional $200 million in aggregate of Class A and Class B units for sale on a
Registration Statement on Form S-1 (Reg. No. 333-113297) on March 30, 2004, and
an additional $700 million in aggregate of Class A and Class B units for sale on
a Registration Statement on Form S-1 (File No. 333-119338) on December 1, 2004
(the "Registration Statement").
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
purchasers of units in such offering made representations as to their intention
to acquire the units 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
units indefinitely and generally, as to their qualification as accredited
investors under the Securities Act and Regulation D promulgated thereunder.
Further, such units were restricted as to their transferability.
Presentation of financial information: The financial statements include
the accounts of the 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, 2005 and the results of operations for the three and nine months
ended September 30, 2005 and 2004.
The Partnership considers the following accounting policies as
significant to it:
Revenue recognition: Futures, options on futures, and forward contracts
are recorded on the trade date and realized gains or losses are recognized when
contracts are liquidated. Unrealized gains or losses on open contracts (the
difference between contract trade price and market price) are reported in the
Statement of Financial Condition as a net unrealized gain or loss, as there
exists a right of offset of unrealized gains or losses in accordance with the
Financial Accounting Standards Board Interpretation No. 39 -- "Offsetting of
Amounts Related to Certain Contracts." Any change in net unrealized gain or loss
from the preceding period is reported in the statement of operations. Market
value of exchange-traded contracts is based upon exchange settlement prices.
Market value of non-exchange-traded contracts is based on third party quoted
dealer values on the Interbank market.
6
Use of estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: Cash and cash equivalents include cash,
overnight investments, U.S. treasury bills and short-term investments in
interest-bearing demand deposits with banks 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.
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. Class A units bear organization and offering expenses at an
annual rate of 20 basis points (0.20 percent) of the adjusted net assets of the
Class A units, calculated and payable monthly on the basis of month-end adjusted
net assets. Through August 31, 2005, Class B units incurred these expenses at an
annual rate of 90 basis points (0.90 percent). Effective September 1, 2005, the
annual rate was decreased to 60 basis points (0.60 percent) of the adjusted net
assets of the Class B units, calculated and payable monthly on the basis of
month-end adjusted assets. "Adjusted net assets" is defined as the month-end net
assets of the particular class before accruals for fees and expenses and
redemptions. 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, 2005, all organization and
offering costs incurred by the General Partner have been reimbursed.
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. DEPOSITS WITH BROKER
The Partnership deposits assets with a broker subject to Commodity
Futures Trading Commission regulations and various exchange and broker
requirements. Margin requirements are satisfied by the deposit of U.S. Treasury
bills and cash with such broker. The Partnership earns interest income on its
assets deposited with the broker.
NOTE 3. 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"). The Advisors are paid a quarterly management fee ranging from 0
percent to 2 percent per annum of the Partnership's month-end allocated net
assets and a quarterly incentive fee ranging from 20 percent to 24 percent of
the new trading profits on the allocated net assets of the Advisor.
NOTE 4. GENERAL PARTNER AND RELATED PARTY TRANSACTIONS
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 North American Securities
Administrators Association, Inc. (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 percent of the total capital contributions of all partners and
all limited partnerships to which it is a general partner (including the
Partnership) plus 5 percent of the Units being offered for sale in the
Partnership; or (ii) $50,000; or such other amount satisfying
7
the requirements then imposed by the NASAA Guidelines. In no event, however,
shall the General Partner be required to maintain a net worth in excess of
$1,000,000 or such other maximum amount satisfying the requirements then imposed
by the NASAA Guidelines.
Effective June 1, 2003, 10 percent of the General Partner limited
partnership interest in the Grant Park Futures Fund Limited Partnership is
characterized as a general partnership interest. Notwithstanding, the general
partnership interest will continue to pay all fees associated with a limited
partnership interest.
Through August 31, 2005, the Partnership paid the General Partner a
monthly brokerage commission equal to one twelfth of 7.75 percent (7.75 percent
annualized) and effective September 1, 2005, one twelfth of 7.55 percent (7.55
percent annualized) of month-end net assets for Class A units. The Class B units
pay the General Partner one twelfth of 8.00 percent (8.00 percent annualized) of
month-end net assets. Included in the brokerage commission are amounts paid to
the clearing brokers for execution and clearing costs, management fees paid to
the Advisors, compensation to the selling agents and an amount to the General
Partner for management services rendered.
NOTE 5. OPERATING EXPENSES
Through August 31, 2005, operating expenses of the Partnership were
limited to 0.35 percent per year of the average month-end net assets of the
Partnership. Effective September 1, 2005, these expenses are limited to 0.25
percent per year of the average month-end net assets of the Partnership. To the
extent operating expenses are less than 0.25 percent of the Partnership's
average month-end net assets during the year, the difference will be reimbursed
pro rata to record-holders as of December 31 of each year.
NOTE 6. 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 fifteen (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.
8
NOTE 7. 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,
--------------------------------- --------------------------------
2005 2004 2005 2004
------------ ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
Total return - A Units (0.06)% (2.64)% (2.72)% (16.87)%
Total return - B Units (0.29)% (2.86)% (3.41)% (17.41)%
Ratios as a percentage of average net assets:
Interest income * 3.10 % 1.65 % 2.73 % 1.48 %
Expenses * 8.48 % 9.92 % 9.26 % 11.42 %
*Annualized
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, 2005 and 2004 (annualized).
The following per unit performance calculations reflect activity
related to the Partnership for the period January 1, 2005 to September 30, 2005.
A UNITS B UNITS
--------- -------
Per Unit Performance
(for unit outstanding throughout the entire period):
Net asset value per unit at beginning of period.............. $1,103.53 $986.17
--------- -------
Income (loss) from operations:
Net realized and change in unrealized gain/(loss) from
trading................................................ 22.20 19.16
Expenses net of interest income........................... (50.61) (46.50)
--------- -------
Total income/(loss) from operations.................... (28.41) (27.34)
Organization and offering costs.............................. (1.63) (6.28)
--------- -------
Net asset value per unit at end of period.................... $1,073.49 $952.55
========= =======
<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, 2005 to September
30, 2005. 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 8. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts, and forward
contracts (collectively, derivatives). These derivatives include both financial
and nonfinancial contracts held as part of a diversified trading strategy. The
Partnership is exposed to both market risk, the risk arising from changes in the
market value of the contracts; and credit risk, the risk of failure by another
party to perform according to the terms of a contract.
The purchase and sale of futures and options on futures contracts
require margin deposits with FCMs. Additional deposits may be necessary for any
loss on contract value. The Commodity Exchange Act requires an FCM to segregate
all customer transactions and assets from the FCM's proprietary activities. A
customer's cash and other property (for example, U.S. Treasury bills) deposited
with an FCM are considered commingled with all other customer funds subject to
the FCM's segregation requirements. In the event of an FCM's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than the total of cash and
other property deposited.
Net trading results from derivatives for the three and nine months
ended September 30, 2005 and 2004, 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
contracts, and forward contracts.
9
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 Partnership. 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 9. SUBSEQUENT EVENT
From October 1, 2005 to November 14, 2005, there were aggregate
contributions to and redemptions from the Partnership totaling approximately
$9,561,000 and $4,217,000, respectively.
In early October 2005, one of the Partnership's clearing brokers,
Refco, Inc., announced its discovery of certain accounting irregularities
relating to certain related party transactions involving alleged fraud on the
part of Refco's former chief executive officer. Subsequent to Refco's discovery
and announcement of these facts, on October 17, 2005, Refco, Inc. and certain of
its affiliates filed for bankruptcy protection. At the time of Refco's
bankruptcy filing, the Partnership had approximately 12% of its assets on
deposit in separate, segregated accounts at two of Refco's regulated entities
which were not included in the bankruptcy filing. In light of these events, the
General Partner terminated all clearing relationships with Refco, Inc. and its
affiliates, and engaged Man Financial, Inc. ("Man"), a subsidiary of ED&F Man,
to act as one of its clearing brokers, along with its other existing broker, UBS
Financial Services, Inc. Effective November 1, 2005, all of the Partnership's
assets previously held at Refco had been transferred to Man.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Grant Park is a multi-advisor commodity pool organized to pool assets
of its investors for purposes of investing those assets in U.S. and
international commodity futures and forward contracts and other commodity
interests, including options contracts on futures, forwards and commodities,
spot contracts, swap contracts and security futures. The commodities underlying
these contracts may include stock indices, interest rates, currencies or
physical commodities, such as agricultural products, energy products or metals.
Grant Park has been in continuous operation since it commenced trading on
January 1, 1989. Grant Park's general partner, commodity pool operator and
sponsor is Dearborn Capital Management, L.L.C., an Illinois limited liability
company. The managing member of Dearborn Capital Management, L.L.C. is Dearborn
Capital Management, Ltd., an Illinois corporation whose sole shareholder is
David M. Kavanagh.
Grant Park invests through independent professional commodity trading
advisors retained by the general partner. Rabar Market Research, Inc., EMC
Capital Management, Inc., Eckhardt Trading Company, or ETC, Graham Capital
Management, L.P., Winton Capital Management Limited and Saxon Investment
Corporation serve as Grant Park's commodity trading advisors. Each of the
trading advisors is registered as a commodity trading advisor under the
Commodity Exchange Act and is a member of the NFA. As of September 30, 2005, the
general partner allocated Grant Park's net assets among the trading advisors as
follows: 20% to Rabar, 22% to EMC, 9% to ETC, 21% to Graham, 19% to Winton and
9% to Saxon. 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. Grant Park subsequently registered up to
an additional $200 million in aggregate of Class A and Class B units for sale on
a Registration Statement on Form S-1 on March 30, 2004, and an additional $700
million in aggregate of Class A and Class B units for sale on a Registration
Statement on Form S-1 on December 1, 2004. 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 most significant accounting policy is the valuation of its
assets invested in U.S. and international futures and forward contracts, options
contracts and other interests in commodities. The substantial majority of the
investments are exchange-traded contracts, valued based upon exchange settlement
prices. The remainder of its investments are non-exchange-traded contracts with
valuation of those investments based on third-party quoted dealer values on the
Interbank market. With the valuation of the investments easily obtained, there
is little or no judgment or uncertainty involved in the valuation of
investments, and accordingly, it is unlikely that materially different amounts
would be reported under different conditions using different but reasonably
plausible assumptions. Grant Park's significant accounting policies are
described in detail in Note 1 of the Financial Statements.
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 does
not make any capital expenditures and does not have any capital assets that are
not operating capital or assets.
LIQUIDITY
Most U.S. futures exchanges limit fluctuations in some futures and
options contract prices during a single day by regulations referred to as daily
price fluctuation limits or daily limits. During a single trading day, no trades
may be executed at prices beyond the daily limit. Once the price of a contract
has reached the daily limit for that day, positions in that contract can neither
be taken nor liquidated. Futures prices have occasionally moved to the daily
limit for several consecutive days with little or no trading. Similar
occurrences could prevent Grant Park from promptly liquidating unfavorable
positions and subject Grant Park to substantial losses that could exceed the
margin initially committed to those trades. In addition, even if futures or
options prices do not move to the daily limit, Grant Park may not be able to
execute trades at favorable prices, if little trading in the contracts is taking
place. Other than these limitations on liquidity, which are inherent in Grant
Park's futures and options trading operations, Grant Park's assets are expected
to be highly liquid.
11
RESULTS OF OPERATIONS
Grant Park's net return, which consists of Grant Park's trading gains
plus interest income less brokerage fees, performance fees, operating costs and
offering costs borne by Grant Park, for the quarter ended September 30, 2005 was
approximately (0.1)% for the Class A units and (0.3)% for the Class B units. The
net asset value at September 30, 2005 was approximately $297.2 million, at
December 31, 2004 was approximately $289.7 million and at September 30, 2004 was
approximately $240.2 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, 2005 and 2004.
% GAIN(LOSS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------ ----------------------------
SECTOR 2005 2004 2005 2004
- --------------------------------------------------------- ------------ ------------ ------------ ------------
Interest Rates (9.0)% 0.6% (0.5)% (3.0)%
Currencies (1.2) (2.3) (3.4) (7.0)
Stock Indices 5.9 (2.0) 4.6 (5.1)
Energy 6.0 2.2 3.7 3.4
Agriculturals (0.6) 0.5 (0.4) 2.9
Metals 0.1 0.6 (2.0) 0.9
Softs 0.4 (0.1) 0.2 (1.1)
Meats 0.0 0.0 (0.1) 0.2
Miscellaneous (0.3) (0.3) (0.1) (0.6)
----------------- -------------- -------------- -------------
Total 1.3% (0.8)% 2.0% (9.4)%
================= ============== ============== =============
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2004
For the three months ended September 30, 2005, Grant Park had a
negative return of approximately 0.1% for the Class A units and 0.3% for the
Class B units. On a combined unit basis prior to expenses, approximately 1.3%
resulted from trading gains and approximately 0.7% was due to interest income.
These gains were offset by approximately 2.3% in brokerage fees, performance
fees and operating and offering costs borne by Grant Park. For the same period
in 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 and approximately 0.4%
was due to interest income. These trading losses were increased by approximately
2.4% in brokerage fees, performance fees and operating and offering costs borne
by Grant Park.
NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2004
For the nine months ended September 30, 2005, Grant Park had a negative
return of approximately 2.7% for the Class A units and 3.4% for the Class B
units. On a combined unit basis prior to expenses, approximately 2.0% resulted
from trading gains and approximately 2.0% was due to interest income. These
gains were offset by approximately 7.3% in brokerage fees, performance fees and
operating and offering costs borne by Grant Park. For the same period in 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 and approximately 0.9% was due
to interest income. These trading losses were increased by approximately 8.7% in
brokerage fees, performance fees and operating and offering costs borne by Grant
Park.
Nine months ended September 30, 2005
The third quarter of 2005 ended with Grant Park Class A units down
0.06% on the quarter while the Class B units were down 0.29% on the quarter.
This followed a second quarter in which performance was also essentially flat.
The quarter was characterized by choppy sideways trading for Grant Park overall,
as performance fluctuated between +2% and -2% before settling approximately
unchanged for the quarter.
July started the quarter with negative performance as long positions in
the long end of the yield curve were hit hard. A series of positive economic
reports around the globe coupled with strong corporate earnings sent bond prices
lower globally. July's losses were made up in August due primarily to the energy
sector. Long positions in energies rallied significantly into month end as
Hurricane Katrina roared through the Gulf of Mexico, shutting down refinery and
distribution facilities in all of these markets which sent energy prices
soaring. September ended the month on a flat note as unprofitable long positions
in the long end of the yield curve were affected by profitable positions in the
stock indices and metals.
Key trading developments for Grant Park during the first nine months of
2005 include the following:
12
Grant Park's performance was negative for the first month of the New
Year. Class A units were down 5.96% for the month while Class B units were down
6.04%. Losses were sustained across most sectors, with the most significant
losses sustained in the currency and stock index sectors. Short U.S. dollar/long
European currency positions were hit hard as the U.S. dollar saw its largest
gain against the euro since May of 2001 and finished the month up 3.8% over the
euro. The U.S. dollar strengthened as economic data released throughout the
month provided evidence that the U.S. economy would grow faster than its
European counterparts. The dollar was further strengthened following the release
of the FOMC (Federal Open Market Committee) minutes from December, which proved
more hawkish than prior market expectations, suggesting that the Fed may be more
aggressive in tightening interest rates. As a result, positions in the currency
sector were pared back and/or reversed going into February. U.S. stock indices
retreated as the threat of higher interest rates weighed heavily on investors'
minds. Long positions in both the S&P 500 Index and the Nasdaq 100 posted
losses. Long Hang Seng positions also were unprofitable as shares sold off on
worries of capital outflows following the swift U.S. dollar rebound. Additional
losses occurred in the metals, energy and agricultural/soft sectors, while
modest profits were posted in the financial (fixed income) sector.
Grant Park was profitable for the month of February. Grant Park Class A
units were up 3.42% for the month while the Class B units were up 3.34% for the
month. Profits were concentrated in the stock indices and agricultural/softs
sectors, with additional profits in the metals and currency sectors. Losses were
attributed to the fixed income sector, while the energy sector was virtually
flat. Long positions in global stock indices benefited as strong gains in oil
and mining stocks dominated index returns. Net long positions in the grain
markets also proved profitable as prices rose amidst forecasts of a continued
hot and dry weather pattern across Brazil's primary growing regions, which would
harm crop yields. Additionally, at month's end the USDA reported a stronger than
expected export number which also contributed to higher prices. Soybeans and
soybean oil led the rally, increasing more than 17% for the month. Dollar
weakness helped support metal prices, adding modest gains to Grant Park's long
positions. The continued weakness in the U.S. dollar also benefited Grant Park's
currency positions, with the most notable winning positions in the sector being
long the "commodity" currencies including the Mexican Peso, Australian Dollar
and New Zealand Dollar. While short-term interest rate positions were
profitable, long-term rate positions experienced significant losses creating net
losses for the fixed income sector as a whole. The yield curve in the U.S.
finally steepened after Alan Greenspan's testimony before Congress about the
"conundrum" posed by the decline in forward rates, generating losses for Grant
Park's long positions in both the 30-year and 10-year bond.
March performance was slightly negative for Grant Park. Class A units
were down 0.51% while the Class B units were down 0.59%. Grant Park's most
significant losses were in the currency sector. Long positions in foreign
currencies accumulated losses as concerns over inflation sparked a massive rally
in the U.S. dollar near month's end. After the Fed raised short-term interest
rates another quarter point on the 22nd of the month, the markets focused on the
statements made by the Fed indicating that they are more concerned by the threat
of rising inflation than was previously thought. This increased speculation that
the Fed may become more aggressive and less "measured" in its approach to
increasing interest rates in the near future. Long positions in stock indices
also sustained losses as a result of the Fed's comments and as higher energy
prices weighed on the indices. U.S. equities were further damaged by news that
General Motors' 2005 earnings would fall short of estimates, as well as the
accounting scandal being uncovered at American International Group. Additional
losses were incurred in the metals markets, most notably in long positions in
silver and gold as the stronger U.S. dollar made them less attractive holdings.
Profits were generated in long positions in the energy sector as prices ended
the month stronger. Prices were boosted on the last day of the month following
comments from Goldman Sachs warning that ongoing resilient demand could push
crude prices as high as $105 per barrel. Additional profits were generated in
the interest rate sector, particularly in short positions in U.S short-term
interest rate positions, as prices fell following the seventh consecutive
interest rate hike by the Fed, as noted above.
Performance for Grant Park was negative for the month of April. Class A
units were down 5.05% for the month while Class B units were down 5.12%. Grant
Park sustained losses in most trading sectors for the month. Positions in the
energy, stock index, currency, metals and agricultural/soft sectors posted
losses, while positions in the fixed income sector helped to partially offset
those losses. Long positions in the energy sector were dealt setbacks as crude,
heating oil and unleaded gas prices reversed downward mid-month on weak U.S.
economic data and climbing inventories. U.S. crude inventories reached their
highest level since May 2002, helped in part by an increase in OPEC production.
Natural gas prices were also weaker, as most of the U.S. experienced a
milder-than-normal end to winter/early spring. The stock index sector suffered
losses on both long and short positions across the globe. Short positions in the
Hang Seng during the early part of the month were particularly hard hit as the
index rallied substantially. The rally was fueled by speculation of a Chinese
Yuan revaluation which encouraged inflows into stocks and eased concerns over a
rapid rise in local interest rates. Long positions in the Nikkei, the German DAX
and Paris CAC-40 also sustained losses as world equity prices softened on weak
U.S. economic news, a reduction in economic growth forecasts for the euro-zone,
and disappointing earnings reports from a number of U.S. companies. The currency
sector recorded additional losses as long U.S. dollar positions against most
major currencies were hurt by the aforementioned weak economic news. Long
positions in both the metals and agricultural/softs sectors also posted losses.
On the brighter side, profits were generated in long global fixed income
positions. Prices benefited from the negative data on the U.S. economy as
investors reasoned that any future hikes in U.S. interest rates would be kept to
a minimum. Prices were further supported by a "flight to quality" premium in the
wake of falling energy and equity prices.
Performance for Grant Park was positive for the month of May. Grant
Park Class A units were up 3.98% for the month while the Class B units were up
3.90% for the month. Gains were attributed to the fixed income and currency
sectors, while the remaining four sectors registered modest losses for the
month. Long positions in domestic fixed income markets benefited from signs that
U.S.
13
economic and inflationary pressures are easing. As a result, many market
participants were anticipating that interest rate increases by the Federal
Reserve will come to an end soon. Long positions in European fixed income
markets were also profitable as prices rose steadily amidst a "flight to
quality" rally, brought on by continued weakness in the Euro currency. Prices
were additionally boosted as economic growth appeared to be moderating and
perhaps weakening throughout Europe, putting pressure on the European Central
Bank to ease rates after a two-year rate freeze. Long U.S. dollar, short
European currency positions posted solid gains as negative sentiment in Europe
continued to build. European confidence fell to a 21-month low in May as high
oil prices, high unemployment, and France's rejection of the European
Constitution sent the Euro to seven-month lows against the greenback. Grant
Park's short Euro position was the most profitable currency trade for the month.
Short Swiss Franc positions were additionally profitable as were long U.S.
dollar index positions. Losses in the remaining sectors were modest, with the
most notable being in the energy sector. Short positions suffered as crude oil
prices rose amidst tightening supply concerns as we headed into the summer
driving season.
June was profitable for Grant Park. Class A units were up 1.89% for the
month while the Class B units were up 1.81%. Profits were earned in the interest
rate, currency and stock indices sectors, while losses were attributed to
energies, agriculturals/softs and metals. Long positions in European interest
rates proved profitable as prices advanced following a reduction in European
economic growth forecasts, which raised the likelihood that the European Central
Bank would cut interest rates in the near future. Additional profits were earned
in long Japanese government bond positions, which rallied amid signs that that
nation's economy was continuing to struggle. Short positions in European
currencies earned profits as they declined against the U.S. dollar following the
rejection of the proposed E.U. constitution by French and Dutch voters. The
euro, Swiss franc, and British pound all declined against the U.S. dollar. The
U.S. dollar continued its rise following news that the April U.S. trade deficit
was smaller than expected. Increasing speculation that the European Central Bank
could cut interest rates in the near future, as noted above, also helped to push
the euro lower. Long positions in European stock indices were additionally
profitable, as news of continuing U.S. economic growth eased fears of a slowdown
in European exports and boosted equity prices in Europe. Oil companies were
particularly strong performers, as energy prices remained high. Mining stock
benefited from higher metal prices as well. End of the month reversals in
commodity markets, particularly in the energy complex and agricultural markets,
wiped out earlier gains and generated losses for the month. Additional losses
were generated in various positions in the metals sector.
July performance was negative for Grant Park. Class A units were down
1.96% for the month while Class B units were down 2.03%. Significant losses were
incurred in the interest rate sector. Losses were partially offset by gains in
the stock index and energy sectors. Performance for the remaining sectors was
relatively flat for the month. European bonds initially rallied on
flight-to-quality buying after the July 7th London terror attacks, but drifted
lower as the perceived threat diminished. Long positions continued to suffer as
strong French economic data lowered expectations that the European Central Bank
would be cutting interest rates in the near future. Long positions in Japanese
Government bonds also contributed to losses in the sector, as positive economic
news and strong corporate earnings sent bond prices lower. The Japanese
government reported its unemployment rate dropped to 4.2 percent, a seven-year
low. Profits were generated in long positions in European equities, which
rallied amid hopes that a stronger U.S. dollar would prove beneficial to
exporters. Additional profits were earned in long positions in the energy
sector, as prices continued to rise amidst worries of hurricane-related
disruptions to production and shipping facilities in the Gulf of Mexico.
Grant Park posted profits in August. Class A units were up by 1.97% for
the month and Class B units posted a 1.89% profit. Positions in the energy
sector were responsible for the majority of gains while losses were experienced
in the currency and fixed income sectors. Long positions in the energy sector
enjoyed solid gains. Prices strengthened throughout the month, initially on
concerns that the death of King Fahd of Saudi Arabia would lead to instability
in the Middle East. At the end of the month, prices soared as Hurricane Katrina
caused a virtual shutdown of production facilities and refineries in the
affected region. Grant Park's short positions in European currencies incurred
losses. The U.S. dollar weakened amid concerns that the U.S. economy may be
slowing. Speculation that the European Central Bank would refrain from lowering
interest rates also caused the euro to rise. Short positions in short-term U.S.
interest rate futures also incurred losses, as Eurodollar futures rallied on
worries that Hurricane Katrina and higher energy prices could adversely impact
U.S. economic growth.
Performance for Grant Park was relatively flat for the month of
September. Class A units were down 0.04% for the month while Class B units were
down 0.11%. Losses were largely attributed to the interest rate sector, while
positions in stock indices, currencies, metals and the agricultural/soft
commodities were profitable. Positions in the energies provided mixed results
with the sector as a whole reflecting a flat month. Inflationary concerns dealt
a blow to long positions in the interest rate sector as prices weakened both at
home and abroad. Additionally, the initial feeling that the U.S. Federal Reserve
may hold off on any rate increases until they determine the economic impact of
both Hurricane Katrina and Rita proved mistaken as they raised rates another
quarter point on September 20th. As a result, the sell-off in treasuries dragged
bond markets down across the globe. Long positions in stock indices enjoyed a
positive month, especially for positions in the Nikkei and Hang Seng. News of
the landslide victory by Koizumi's Liberal Democratic Party in Japan spurred
investors to push the index over 13,000, touching four-year highs. Modest
profits were generated in the currency sector, in particular to long positions
in the Canadian and Australian dollars, which rallied along side the U.S.
dollar. Long positions in gold also contributed to gains for the month, with
prices rallying over $34 for the month to close the December futures contract at
$472.30 per ounce. Finally, long positions in the energy sector provided mixed
results with long crude oil positions posting losses and long natural gas and
unleaded gas positions posting gains. Supply concerns for the refined products
remained the dominant factor throughout the month.
14
Nine months ended September 30, 2004
The third quarter of 2004 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.
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 Grant Park. 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 was 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
15
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. 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 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 Grant Park, 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 inflation 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 Grant Park. 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 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
16
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 Grant Park 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 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.
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 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 95% 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, 2005 and
December 31, 2004 and the trading gains/losses by market category for the nine
months ended September 30, 2005 and the year ended December 31, 2004. All open
position trading risk exposures of Grant Park have been included in calculating
the figures set forth below. As of September 30, 2005, Grant Park's net asset
value was approximately $297.2 million. As of December 31, 2004, Grant Park's
net asset value was approximately $289.7 million.
AS OF SEPTEMBER 30, 2005
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)
- ---------------------------------------- ------------- -------------- -----------
Stock Indices $10,564,949 3.6% 4.6%
Currencies 7,346,632 2.5 (3.4)
Interest Rates 5,339,084 1.8 (0.5)
Energy 4,390,875 1.5 3.7
Metals 3,268,321 1.1 (2.0)
Softs 1,608,684 0.5 0.2
Agriculturals 918,670 0.3 (0.4)
Meats 117,800 0.0 (0.1)
----------- ---- ----
Total $33,555,015 11.3% 2.1%
=========== ==== ====
AS OF DECEMBER 31, 2004
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)
- ---------------------------------------- ------------- -------------- -----------
Stock Indices $15,487,840 5.3% (1.2)%
Interest Rates 8,943,877 3.1 (1.0)
Currencies 7,401,073 2.6 1.3
Metals 3,211,874 1.1 (1.0)
Energy 2,164,690 0.7 3.2
Softs 1,800,497 0.6 (1.0)
Agriculturals 1,252,525 0.4 2.1
Meats 194,000 0.1 0.3
----------- ---- ----
Total $40,456,376 13.9% 2.7%
=========== ==== ===
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 ranges 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, 2005, by market sector.
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, 2005, Grant Park's primary exposures were in the Paris CAC-40 (long),
Australian Index 200 (long), Hang Seng (long), FTSE (long), DAX (long), Nikkei
(long), S&P (long) and Euro Stoxx (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.
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, 2005,
Grant Park was positioned to benefit from the effects of a strengthening dollar
against most major and minor currencies. The exceptions to this were long
positions versus the U.S. dollar in the Canadian dollar and the Mexican peso.
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,
2005, Grant Park's interest rate exposure was predominantly short the short end
of the yield curve around the globe. At the long end of the yield curve, Grant
Park had short positions on in the U.S., Australia and Japan with minor long
positions in Europe and Canada.
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, 2005, the energy market
exposure of Grant Park consisted of minor long positions in crude oil, natural
gas and crude products. 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.
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, 2005, long
positions in gold accounted for Grant Park's metal exposure in the precious
metals while minor long positions in copper and lead 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 sugar, wheat and cotton complex accounted for Grant Park's long
commodity exposure while coffee, corn and the soybean complex accounted for
Grant Park's short positions as of September 30, 2005.
20
NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of Grant Park as
of September 30, 2005.
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 non-trading risk.
Cash Management
Grant Park maintains a portion of its assets at its clearing brokers as
well as at Lake Forest Bank & Trust Company. These assets, which may range from
5% to 25% of Grant Park'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 instruments
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 of 1934, 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 required to be filed or submitted by Grant Park with the SEC under the
Exchange Act.
There was no change in Grant Park's internal control over financial
reporting in the quarter ended September 30, 2005 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 SEC 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 million in aggregate amount of
Class A Limited Partnership Units and $180 million 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. Grant Park subsequently registered up to
an additional $200 million in aggregate amount of Class A and Class B
Limited Partnership Units for sale on a Registration Statement on Form
S-1 (Reg. No. 333-113297) on March 30, 2004, and an additional $700
million in aggregate amount of Class A and Class B Limited Partnership
Units for sale on a Registration Statement on Form S-1 (File No.
333-119338) on December 1, 2004.
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,
2005, the Class A Limited Partnership Units were offered at $1,074.15
with 1,215.91 units being sold, and the Class B Limited Partnership
Units were offered at $955.33 with 4,305.90 units being sold. As of the
close of business on August 1, 2005, the Class A Limited Partnership
Units were offered at $1,053.13 with 602.96 units being sold, and the
Class B Limited Partnership Units were offered at $935.89 with 6,132.48
units being sold. As of the close of business on September 1, 2005, the
Class A Limited Partnership Units were offered at $1,073.90 with 9.30
units being sold, and the Class B Limited Partnership Units were
offered at $953.59 with 7,470.54 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 0.2% annually of the
net asset value of the Class A Units, and 0.9% annually (through August
31, 2005) and 0.6% annually (after September 1, 2005) of the net asset
value of the Class B Units) amounted to a total of $292,444 for the
three months ended September 30, 2005. 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,
2005.
(C)
TOTAL NUMBER
OF UNITS
(A) (A) REDEEMED AS (D)
TOTAL (B) TOTAL (B) PART OF MAXIMUM NUMBER OF
NUMBER AVERAGE NUMBER AVERAGE PUBLICLY UNITS THAT MAY
OF CLASS A PRICE OF CLASS B PRICE ANNOUNCED YET BE REDEEMED
UNITS PAID PER UNITS PAID PER PLANS OR UNDER THE
PERIOD REDEEMED UNIT REDEEMED UNIT PROGRAMS(1) PLANS/PROGRAM(1)
- ----------- ---------- --------- ---------- -------- ------------ -----------------
07/01/05 519.07 $1,053.13 3,030.34 $935.89 3,549.41 (2)
through
07/31/05
08/01/05 3,548.73 $1,073.90 4,143.45 $953.59 7,692.18 (2)
through
08/31/05
09/01/05 797.10 $1,073.49 5,462.26 $952.55 6,259.36 (2)
through
09/30/05
TOTAL 4,864.90 $1,066.84 12,636.05 $947.34 17,500.95 (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 14, 2005 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