-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FGUYl8cajEYAalUd657NcCf1Wu3TPbAjA4FsTRXh+By93D5XjeGp2/NNMacIcF+a wH57FmhCvjVZRDhWZYc07Q== 0000905148-05-005601.txt : 20051121 0000905148-05-005601.hdr.sgml : 20051121 20051121162803 ACCESSION NUMBER: 0000905148-05-005601 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051121 DATE AS OF CHANGE: 20051121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FUTURES PORTFOLIO FUND LP CENTRAL INDEX KEY: 0000861441 IRS NUMBER: 521627106 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-50728 FILM NUMBER: 051218344 BUSINESS ADDRESS: STREET 1: C/O STEBEN & CO STREET 2: 2099 GAITHER RD #200 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 2406319608 MAIL ADDRESS: STREET 1: C/O STEBAN & CO STREET 2: 2099 GAITHER RD #200 CITY: ROCKVILLE STATE: MD ZIP: 20850 10-Q 1 efc5-2373_form10q.txt ============================================================================== 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 OR | | 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: 000-50728 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Maryland 52-1627106 ----------------------- --------------------------------- (State of Incorporation) (IRS Employer Identification No.) c/o Steben & Company, Inc. 2099 Gaither Road, Suite 200 Rockville, Maryland 20850 ------------------------- (Address of Principal Executive Office)(zip code) (240) 631-9808 Registrant's Telephone Number, Including Area Code: ---------------------------- 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 Exchange Act) Yes [ ] No [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Aggregate market value of the voting and non-voting common equity held by non-affiliates: the registrant is a limited partnership; as of September 30, 2005, 72,319.92729 Class A units and 24,340.26384 Class B units with an aggregate value of $242,498,545 and $99,134,256 respectively, were outstanding. ============================================================================== Table of Contents Part I: Financial Information Item 1. Financial Statements Statements of Financial Condition September 30, 2005 (Unaudited) and December 31, 2004 Condensed Schedule of Investments September 30, 2005 (Unaudited) Condensed Schedule of Investments December 31, 2004 Statements of Operations For the Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited) Statements of Cash Flows For the Nine Months Ended September 30, 2005 and 2004 (Unaudited) Statements of Changes in Partners' Capital (Net Asset Value) - For the Nine Months Ended September 30, 2005 and 2004 (Unaudited) Notes to Financial Statements for the Nine Months Ended September 30, 2005 (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk Item 4. Controls and Procedures Part II: Other Information Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP STATEMENTS OF FINANCIAL CONDITION September 30, 2005 (Unaudited) and December 31, 2004 ----------------- -------------------- ------------------ Statements of Financial Condition Sep. NAV 341,632,800.43 -------------------- ------------------ September 30, December 31, 2005 2004 ---- ---- ASSETS Equity in broker trading accounts Cash $ 149,134,623 $ 177,902,239 Interest receivable 710,287 - United States government securities 0 35,992,200 Net unrealized gain on open futures contracts 8,249,632 8,261,541 -------------------- ------------------ Deposits with brokers $ 158,094,542 $ 222,155,980 Cash and cash equivalents 53,891,272 33,448,634 Commercial paper (cost, including accrued interest, -$103,584,431 and $0) 103,584,431 0 United States government and agency securities (cost, including accrued interest, -$39,572,799 and $9,944,295) 39,572,799 9,944,295 Net unrealized gain on open forward currency contracts 6,617,808 (1,572,160) General Partner 1% allocation 713 - -------------------- ------------------ Total assets $ 361,761,565 $ 263,976,749 ==================== ================== LIABILITIES Accounts payable $ 1,519,216 $ 5,365 Commissions and other trading fees on open contracts 101,300 90,930 General Partner management fee 558,484 425,845 General Partner 1% allocation - 21,822 Advisors management fees 1,742,148 823,369 Advisors incentive fees 649,411 672,681 Selling agents fee 430,904 336,382 Redemptions payable 5,982,286 1,492,430 Subscriptions received in advance 9,145,015 5,306,668 -------------------- ------------------ Total liabilities $ 20,128,764 $ 9,175,492 PARTNERS' CAPITAL (Net Asset Value) Class A Interests - 72,319.92729 units and 56,716.37460 units outstanding at September 30, 2005 and December 31, 2004 respectively $ 242,498,545 $ 194,513,666 Class B Interests - 24,340.26384 units and 14,666.97370 units outstanding at September 30, 2005 and December 31, 2004 respectively 99,134,256 60,287,591 -------------------- ------------------ Total partners' capital (Net Asset Value) $ 341,632,801 $ 254,801,257 -------------------- ------------------ Total liabilities and partners' capital (Net Asset Value) $ 361,761,565 $ 263,976,749 ==================== ==================
See accompanying notes 1
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP CONDENSED SCHEDULE OF INVESTMENTS September 30, 2005 (Unaudited) ----------------- UNITED STATES GOVERNMENT AND AGENCY SECURITIES - ---------------------------------------------- Maturity % of Net Face Value Date Description Value Asset Value ---------- ---- ----------- ----- ----------- 10,000,000 11/08/05 Freddie Mac Discount Note 9,967,111 2.92% 10,000,000 11/10/05 U.S. Treasury Bill 9,966,688 2.92% 20,000,000 03/22/06 Fannie Discount Note 19,639,000 5.75% ---------------- ------------ Total United States government and agency $ 39,572,799 11.58% securities (cost, including accrued interest, ================ ============ = $39,572,799) COMMERCIAL PAPER - ---------------- Maturity % of Net Face Value Date Description Value Asset Value ---------- ---- ----------- ----- ----------- 10,000,000 11/07/05 General Elec Cap Corp 9,967,000 2.92% 30,000,000 11/22/05 Daimlerchrysler Na Hldg 29,832,125 8.73% 20,000,000 03/22/06 General Elec Cap Corp 19,626,650 5.74% 25,000,000 03/22/06 Societe Generale N Amer 24,533,906 7.18% 20,000,000 03/22/06 Ubs Finance Delaware Llc 19,624,750 5.74% ---------------- ------------ Total commercial paper $103,584,431 30.31% (cost, including accrued interest, = $103,584,431) ================ ============ LONG FUTURES CONTRACTS - ---------------------- % of Net Description Value Asset Value ----------- ----- ----------- Agricultural $ 1,156,736 0.34% Currency (258,683) -0.08% Energy 1,166,535 0.34% Interest Rate (2,328,391) -0.68% Metal 2,703,889 0.79% Stock Index 3,780,133 1.11% ---------------- ------------ Total long futures contracts $ 6,220,219 1.82% ---------------- ------------ SHORT FUTURES CONTRACTS - ----------------------- % of Net Description Value Asset Value ----------- ----- ----------- Agricultural $ 307,281 0.09% Currency 155,563 0.05% Energy (251,055) -0.07% Interest Rate 2,921,851 0.86% Metal (1,091,912) -0.32% Stock Index (12,315) 0.00% ---------------- ------------ Total short futures contracts $ 2,029,413 0.61% ---------------- ------------ Total futures contracts $ 8,249,632 2.43% ================ ============ FORWARD CURRENCY CONTRACTS - -------------------------- Description ----------- Long forward currency contracts (10,713,768) -3.14% Short forward currency contracts 17,315,040 5.07% Pending option premiums 16,536 0.00% ---------------- ------------ Total forward currency contracts $ 6,617,808 1.93% ================ ============
See accompanying notes 2
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP CONDENSED SCHEDULE OF INVESTMENTS December 31, 2004 ----------------- UNITED STATES GOVERNMENT SECURITIES - ----------------------------------- Maturity % of Net Face Value Date Description Value Asset Value ---------- ---- ----------- ----- ----------- 36,000,000 01/06/05 U.S. Treasury Bill 35,992,200 14.13% ---------------- ------------ Total United States government securities $ 35,992,200 14.13% (cost, including accrued interest = $35,992,200) ================ ============ COMMERCIAL PAPER - ---------------- Maturity % of Net Face Value Date Description Value Asset Value ---------- ---- ----------- ----- ----------- 10,000,000 03/22/05 Federal Home Loan Mortgage Corporation Discount Note 9,944,295 3.90% Total commercial paper ---------------- ------------ (cost, including accrued interest = $9,944,295) $ 9,944,295 3.90% ================ ============ LONG FUTURES CONTRACTS - ---------------------- % of Net Description Value Asset Value ----------- ----- ----------- Agricultural $ 961,451 0.38% Currency 1,754,893 0.69% Energy (198,627) -0.08% Interest Rate 1,715,930 0.67% Metal 2,491,362 0.98% Stock Index 2,189,269 0.86% ---------------- ------------ Total long futures contracts $ 8,914,278 3.50% ---------------- ------------ SHORT FUTURES CONTRACTS - ----------------------- % of Net Description Value Asset Value ----------- ----- ----------- Agricultural $ (51,895) -0.02% Energy 775,428 0.30% Interest Rate 394,937 0.16% Metal (1,771,207) -0.70% ---------------- ------------ Total short futures contracts $ (652,737) -0.26% ---------------- ------------ Total futures contracts $ 8,261,541 3.24% ================ ============ FORWARD CURRENCY CONTRACTS - -------------------------- Description ----------- Long forward currency contracts 8,968,638 3.52% Short forward currency contracts (10,540,798) -4.14% ---------------- ------------ Total forward currency contracts $ (1,572,160) -0.62% ================ ============
See accompanying notes 3
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three and Nine Months September 30, 2005 and 2004 (Unaudited) ----------------- Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 ---- ---- ---- ---- TRADING GAINS (LOSSES) Gain (loss) from trading Realized $ 899,511 $(17,162,700) $ 1,737,613 $(10,754,329) Change in unrealized 2,384,051 12,340,330 8,178,059 2,072,297 Brokerage commissions (409,313) (381,905) (1,186,739) (878,883) --------------- ---------------- ---------------- ---------------- Gain (loss) from trading 2,874,249 (5,204,275) 8,728,933 (9,560,915) NET INVESTMENT (LOSS) Income Interest income 2,733,008 544,350 6,735,052 1,120,020 --------------- ---------------- ---------------- ---------------- Expenses General Partner management fee 1,621,452 962,898 4,293,596 2,192,955 General Partner 1% allocation 2,177 (73,122) (22,535) (189,017) Advisors management fees 1,588,521 704,987 3,936,441 1,547,578 Advisors incentive fees 252,081 0 4,238,375 4,283,412 Selling agents fee 1,242,898 772,531 3,366,357 1,769,509 Operating expenses 684,612 211,855 2,997,501 667,344 --------------- ---------------- ---------------- ---------------- Total expenses 5,606,928 2,579,149 18,809,735 10,271,781 Operating expenses waived (215,187) 0 (1,114,748) 0 --------------- ---------------- ---------------- ---------------- Net total expenses 5,391,741 2,579,149 17,694,987 10,271,781 Net investment (loss) (2,658,733) (2,034,799) (10,959,935) (9,151,761) --------------- ---------------- ---------------- ---------------- NET INCOME (LOSS) $ 215,516 $ (7,239,074) $ (2,231,002) $(18,712,676) =============== ================ ================ ================
Three Months Ended September 30, Nine Months Ended September 30, 2005 2004 2005 2004 ---- ---- ---- ---- Class A Class B Class A Class B Class A Class B Class A Class B --------- --------- --------- --------- --------- --------- -------- -------- INCREASE (DECREASE) IN NET ASSET VALUE PER UNIT ($6.29) $10.51 ($124.84) ($131.17) ($76.45) ($37.58) ($287.90) ($287.37) ======= ======= ========= ========= ======== ======== ========= =========
See accompanying notes 4
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2005 and 2004 (Unaudited) ----------------- 2005 2004 ---- ---- Cash flows (for) operating activities Net (loss) $ (2,231,002) $ (18,712,676) Adjustments to reconcile net (loss) to net cash (for) operating activities (Increase) in unrealized gain/loss (8,178,059) (2,072,297) (Increase) in interest receivable (707,242) 0 (Increase) in General Partner 1% allocation receivable (22,535) (189,017) Increase (decrease) in accounts payable and accrued expenses 2,646,890 (443,353) Net (purchases) of investments in United States government and agency securities 6,359,917 (63,508,745) (Purchase) commercial paper (103,583,697) 0 ----------------- ----------------- Net cash from (for) operating activities (105,715,728) (84,926,088) Cash flows from financing activities Additions of units 111,079,676 139,637,585 Subscriptions received in advance 9,145,015 8,809,962 Redemption of units (22,833,941) (2,770,731) ----------------- ----------------- Net cash from financing activities 97,390,750 145,676,816 Net (decrease) increase in cash (8,324,978) 60,750,728 Cash and cash equivalents Beginning of period 211,350,873 25,353,097 ----------------- ----------------- End of period $ 203,025,895 $ 86,103,825 ================= ================= End of period cash consists of: Cash in broker trading accounts $ 149,134,623 $ 29,160,396 Cash and cash equivalents 53,891,272 56,943,429 ----------------- ----------------- Total end of period cash $ 203,025,895 $ 86,103,825 ================= =================
See accompanying notes 5
FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Nine Months Ended September 30, 2005 and 2004 (Unaudited) ----------------- Class A Interests Class B Interests ----------------- ----------------- Units Value Units Value Total ----- ----- ----- ----- ----- Nine Months Ended September 30, 2005 Balances at December 31, 2004 56,716.37460 $194,513,666 14,666.97370 $60,287,591 $254,801,257 Net income (loss) for the nine months ended September 30, 2005 (2,848,534) 617,532 (2,231,002) Additions 21,959.55926 71,637,695 11,340.99313 44,748,649 116,386,344 Redemptions -6,293.90176 (20,579,695) -1,725.66551 (6,744,103) (27,323,798) Transfers -62.10481 (224,587) 57.96252 224,587 0 -------------- ------------- -------------- ------------- -------------- Balances at September 30, 2005 72,319.92729 $242,498,545 24,340.26384 $99,134,256 $341,632,801 ============== ============= ============== ============= ============== Class A Interests Class B Interests ----------------- ----------------- Units Value Units Value Total ----- ----- ----- ----- ----- Nine Months Ended September 30, 2004 Balances at December 31, 2003 16,350.38850 $55,901,105 5,435.38390 $21,864,754 $77,765,859 Net (loss) for the nine months ended September 30, 2004 (14,805,112) (3,907,564) (18,712,676) Additions 35,484.54260 121,459,644 6,523.39600 26,674,479 148,134,123 Redemptions -681.30450 (2,298,416) -565.87730 (2,163,403) (4,461,819) Transfers -231.27940 (816,815) 180.96230 763,655 (53,160) -------------- ------------- -------------- ------------- -------------- Balances at September 30, 2004 50,922.34720 $159,440,406 11,573.86490 $43,231,921 $202,672,327 ============== ============= ============== ============= ==============
Net Asset Value Per Unit - ------------------------------------------------------------------------------------------------------------------------------ September 30, 2005 December 31, 2004 September 30, 2004 December 31, 2003 ------------------ ----------------- ------------------ ----------------- Class A Class B Class A Class B Class A Class B Class A Class B - ------- ------- ------- ------- ------- ------- ------- ------- $3,353.14 $4,072.85 $3,429.59 $4,110.43 $3,131.05 $3,735.30 $3,418.95 $4,022.67
See accompanying notes 6 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) ----------------- Note 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- A. General Description of the Partnership Futures Portfolio Fund, Limited Partnership (the Partnership) is a Maryland limited partnership that operates as a commodity investment pool. The Partnership utilizes professional trading advisors to engage in the trading of futures contracts, forward currency contracts, and other financial instruments. B. Regulation The Partnership is a registrant with the Securities and Exchange Commission (SEC) pursuant to the Securities Exchange Act of 1934 (the Act). As a registrant, the Partnership is subject to the regulations of the SEC and the informational requirements of the Act. As a commodity pool, the Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States (U.S.) government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges where the Partnership executes transactions. Additionally, the Partnership is subject to the requirements of Futures Commission Merchants (brokers) and interbank market makers through which the Partnership trades. C. Method of Reporting The Partnership's financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require the use of certain estimates made by the Partnership's management. Gains or losses are realized when contracts are liquidated. Unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the statement of financial condition as a net gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with Financial Accounting Standards Board Interpretation No. 39 - "Offsetting of Amounts Related to Certain Contracts." Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. United States government securities and commercial paper are stated at cost plus accrued interest, which approximates market value. For purposes of both financial reporting and calculation of redemption value, net asset value per Class A or Class B unit is calculated by dividing the net asset value of Class A or Class B by the number of outstanding units of Class A or Class B. D. Cash and Cash Equivalents Cash and cash equivalents includes cash and investments in money market mutual funds. E. Brokerage Commissions Brokerage commissions include other trading fees and are charged to expense when contracts are opened. F. Income Taxes The Partnership prepares calendar year U.S. and applicable state income and information tax returns and reports to the partners their allocable shares of the Partnership's income, expenses, and trading gains or losses. 7 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ----------------- Note 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- (CONTINUED) ----------- G. Foreign Currency Transactions The Partnership's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in trading income currently. H. Classes of Interests The Partnership has two classes of limited partnership interests ("Interests"), Class A and Class B. The General Partner may offer additional classes at its discretion. Both Class A and Class B Interests are traded pursuant to identical trading programs and differ only in respect to the General Partner's management fee and selling agents fee. Class B Interests are issued only at the General Partner's discretion and are generally intended for investors who are participating in fee based investment advisory programs. All items of income or loss, except for the General Partner management fee and selling agents fee, are allocated pro rata between Class A and Class B Interests. The General Partner management fee and selling agents fee applicable to each class of Interest is then charged to each class. All items of income or loss allocated to each class of Interest is then allocated pro rata to each Limited Partner within each class. Note 2: GENERAL PARTNER --------------- The General Partner of the Partnership is Steben & Company, Inc., which conducts and manages the business of the Partnership. During the three months and nine months ended September 30, 2005 and 2004, the General Partner did not maintain a capital balance in the Partnership; however, the sole shareholder of the General Partner has an investment in Class B Interests of the Partnership. During the three months and nine months ended September 30, 2005 and 2004, the General Partner received the following compensation: o Commencing December 1, 2004, Class A Interest paid a monthly management fee equal to 1/12 of 1.95% (1.95% per annum) of the net asset value of the Class A interest as of the last day of each month. o For the period January 1, 2004 through November 30, 2004, Class A Interests paid a monthly management fee equal to 1/12 of 2% (2% per annum) of the net asset value of the Class A Interests as of the last day of each month. o Class A Interests paid a monthly selling agents fee equal to 1/12 of 2% (2% per annum) of the net asset value of the Class A Interests as of the last day of each month. The General Partner, in turn, pays the selling agents fee to the respective selling agent. If the selling agents fee is not paid to the selling agent, or the General Partner was the selling agent, such portion of the selling agents fee is retained by the General Partner. o Class B Interests paid a monthly management fee equal to 1/12 of 1.95% (1.95% per annum) of the net asset value of the Class B Interests as of the last day of each month. 8 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ----------------- Note 2: GENERAL PARTNER (CONTINUED) --------------------------- o Class B Interests paid a monthly selling agents fee equal to 1/12 of .20% (.20% per annum) of the net asset value of the Class B Interests as of the last day of each month. The General Partner, in turn, pays the selling agents fee to the respective selling agent. If the selling agents fee is not paid to the selling agent, or the General Partner was the selling agent, such portion of the selling agent fee is retained by the General Partner. For the period January 1, 2004 through November 30, 2004, the General Partner also received, at the time of subscription, a subscription fee equal to 1% of the subscription amount. The General Partner could reduce or waive this fee in its sole discretion. Additions in the statement of changes in partners' capital (net asset value) for the nine months ended September 30, 2004 are reflected net of such subscription fee. Effective December 1, 2004, the General Partner no longer charges a subscription fee. Pursuant to the terms of the Limited Partnership Agreement, the General Partner receives 1% of any increase or decrease in the Partnership's net assets. Such amount is reflected as the General Partner 1% allocation in the statements of financial condition and the statements of operations. Note 3 COMMODITY TRADING ADVISORS -------------------------- The Partnership has Advisory Agreements with various commodity trading advisors, pursuant to which the Partnership pays each commodity trading advisor a monthly or quarterly management fee equal to 1% or 2% per annum of allocated net assets (as separately defined in each respective Advisory Agreement) and a quarterly or annual incentive fee equal to 20% or 25% of Trading Profits (as separately defined in each respective Advisory Agreement). Note 4 DEPOSITS WITH BROKERS --------------------- The Partnership deposits funds with brokers, subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of U.S. Treasury bills and cash with such brokers. The Partnership earns interest income on its assets deposited with the brokers. 9 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ----------------- Note 5: OPERATING EXPENSES ------------------ The Partnership is responsible for all of its operating expenses including accounting, audit, legal, administrative, marketing and offering expenses. Operating expenses also include salary and administrative costs incurred by the General Partner relating to marketing and administration of the Partnership, such as salaries and commissions of General Partner marketing personnel and salaries of administrative employees and related costs. Pursuant to the terms of the Limited Partnership Agreement, operating expenses that exceed 1% of the average month-end net assets of the Partnership are the responsibility of the General Partner. For the three months and nine months ended September 30, 2005 , actual operating expenses exceeded 0.25% and 0.75% (prorated operating expense limitation) of average month-end net assets of the Partnership by $124,877 and $875,186, respectively, with such amount reflected as operating expenses waived in the statement of operations. Additionally, during the three months and nine months ended September 30, 2005, the General Partner voluntarily paid $90,310 and $239,562, respectively, of operating expenses of the Partnership, with such amounts also reflected as operating expenses waived in the statement of operations. For the three months and nine months ended September 30, 2005, operating expenses, net of waived operating expenses, were .21% and .65%, respectively, of the average month-end net assets. For the three months and nine months ended September 30, 2004, operating expenses, net of waived operating expenses, were .11% and .60%, respectively, of the average month-end net assets. For the three month and nine months ended September 30, 2004, actual operating expenses did not exceed the operating expense limitations, and accordingly, no waived operating expenses are reflected in the statement of operations. Note 6 SUBSCRIPTIONS, DISTRIBUTIONS, AND REDEMPTIONS --------------------------------------------- Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner. Units are sold at the net asset value per Class A or Class B unit as of the close of business on the last day of the month in which the subscription is accepted. Investors whose subscriptions are accepted are admitted as Limited partners as of the beginning of the month following the month in which their subscriptions were accepted. At September 30, 2005 and December 31, 2004, the Partnership had received subscriptions of $9,145,015 and $5,306,668, respectively, which were additions to the Partnership effective October 1, 2005 and January 1, 2005, respectively. The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of Class A or Class B units owned, subject to restrictions in the Limited Partnership Agreement. Note 7 TRADING ACTIVITIES AND RELATED RISKS ------------------------------------ The Partnership engages in the speculative trading of U.S. and foreign futures contracts and forward currency contracts (collectively, "derivatives"). The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. Purchase and sale of futures contracts requires margin deposits with the brokers. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. 10 FUTURES PORTFOLIO FUND, LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ----------------- Note 7: TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) ------------------------------------------------ The Partnership trades forward currency contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. Accordingly, the risks associated with forward currency contracts are generally greater than those associated with exchange traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward currency contracts typically involves delayed cash settlement. The Partnership has a substantial portion of its assets on deposit with interbank market makers and other financial institutions in connection with its trading of forward currency contracts and its cash management activities. In the event of an interbank market maker's or financial institution's insolvency, recovery of Partnership assets may be limited to account insurance or other protection afforded such deposits. Risks arise from investments in commercial paper due to the potential for default by the issuer or insolvency of the issuer. In the event of default by the issuer or the insolvency of the issuer, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such assets, if any. For derivatives, risks arise from changes in the market value of the underlying contracts. Theoretically, the Partnership is exposed to a market risk equal to the notional contract value of futures and forward currency contracts purchased and unlimited liability on such contracts sold short. The unrealized gain (loss) on open futures and forward currency contracts is comprised of the following:
Futures Contracts Forward Currency Contracts (exchange traded) (non-exchange traded) September 30, December 31, September 30, December 31, 2005 2004 2005 2004 ------ ------ ------ ------ Gross unrealized gains $ 14,157,591 $ 11,621,802 $ 21,912,019 $ 11,813,827 Gross unrealized losses (5,907,959) (3,360,261) (15,294,211) (13,385,987) ----------------- ----------------- ----------------- ----------------- Net unrealized gain (loss) $ 8,249,632 $ 8,261,541 $ 6,617,808 $ (1,572,160) ================= ================= ================= =================
The General Partner has established procedures to actively monitor market risk and minimize credit risk, although there can be no assurance that it will, in fact, succeed in doing so. The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. Note 8: GUARANTEES ---------- In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote. Note 9: INTERIM FINANCIAL STATEMENTS ---------------------------- The statements of financial condition including the condensed schedule of investments, as of September 30, 2005, the statements of operations for the three months and nine months ended September 30, 2005 and 2004, the 11 statement of cash flows and changes in partners' capital (net asset value) for the nine months ended September 30, 2005 and 2004 and the accompanying notes to the financial statements are unaudited. In the opinion of management, such financial statements and accompanying disclosures reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of September 30, 2005, results of operation for the three months and nine months ended September 30, 2005 and 2004, cash flows and changes in partners' capital (net asset value) for the nine months ended September 30, 2005 and 2004. The results of operations for the three months and nine months ended September 30, 2005 and 2004 are not necessarily indicative of the results to be expected for the full year or any other period. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our form 10-K as filed with the Securities and Exchange Commission. Note 10: FINANCIAL HIGHLIGHTS -------------------- The following information presents per unit operating performance data and other supplemental financial data for the three months and nine month ended September 30, 2005 and 2004. This information has been derived from information presented in the financial statements.
Three months ended September 30, 2005 2004 (Unaudited) (Unaudited) ----------- ----------- Class A Class B Class A Class B Interests Interests Interests Interests --------- --------- --------- --------- Per Unit Performance (for a unit outstanding throughout the entire period) - ----------------------------------------------------- Net asset value per unit at beginning of period $3,359.43 $4,062.34 $3,255.89 $3,866.47 ------------- ------------- ------------ ------------ Income from operations: Gain (loss) from trading (1) 22.66 27.23 (88.36) (105.04) Net investment (loss) (1) (28.95) (16.72) (36.48) (26.13) ------------- ------------- ------------ ------------ Total income (loss) from operations (6.29) 10.51 (124.84) (131.17) ------------- ------------- ------------ ------------ Net asset value per unit at end of period $3,353.14 $4,072.85 $3,131.05 $3,735.30 ============= ============= ============ ============ Total Return (3) -0.19% 0.26% -3.83% -3.39% ============= ============= ============ ============ Supplemental Data Ratios to average net asset value: Expenses prior to advisor incentive fees (4),(6) 6.52% 4.67% 5.68% 3.86% Advisor incentive fees (3) 0.08% 0.08% 0.00% 0.00% ------------- ------------- ------------ ------------ Total expenses (6) 6.60% 4.75% 5.68% 3.86% ============= ============= ============ ============ Net investment (loss) (2),(4),(5),(6) -3.18% -1.36% -4.57% -2.75% ============= ============= ============ ============
Total returns are calculated based on the change in value of a unit during the period. An individual partner's total returns and ratios may vary from the above total returns and ratios based on the timing of additions and redemptions. 12
Note 10: FINANCIAL HIGHLIGHTS (CONTINUED) -------------------------------- Nine months ended September 30, 2005 2004 (Unaudited) (Unaudited) ----------- ----------- Class A Class B Class A Class B Interests Interests Interests Interests --------- --------- --------- --------- Per Unit Performance (for a unit outstanding throughout the entire period) - ----------------------------------------------------- Net asset value per unit at beginning of period $3,429.59 $4,110.43 $3,418.95 $4,022.67 ------------- ------------- ------------ ------------ Income from operations: Gain (loss) from trading (1) 46.69 56.82 (71.68) (76.79) Net investment (loss) (1) (123.14) ( 94.40) (216.22) (210.58) ------------- ------------- ------------ ------------ Total income (loss) from operations (76.45) (37.58) (287.90) (287.37) ------------- ------------- ------------ ------------ Net asset value per unit at end of period $3,353.14 $4,072.85 $3,131.05 $3,735.30 ============= ============= ============ ============ Total Return (3) -2.23% -0.91% -8.42% -7.14% ============= ============= ============ ============ Supplemental Data Ratios to average net asset value: Expenses prior to advisor incentive fees (4),(6) 6.16% 4.35% 5.75% 3.96% Advisor incentive fees (3) 1.47% 1.44% 2.81% 3.01% ------------- ------------- ------------ ------------ Total expenses (6) 7.63% 5.79% 8.56% 6.97% ============= ============= ============ ============ Net investment (loss) (2),(4),(5),(6) -3.07% -1.26% -4.75% -2.96% ============= ============= ============ ============
Total returns are calculated based on the change in value of a unit during the period. An individual partner's total returns and ratios may vary from the above total returns and ratios based on the timing of additions and redemptions. (1) The net investment (loss) per unit is calculated by dividing the net investment (loss) by the average number of units outstanding during the period. Gain (loss) from trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of gain (loss) from trading per unit due to the timing of trading gains and losses during the period relative to the number of units outstanding. (2) Excludes advisor incentive fees. (3) Not annualized. (4) Annualized. (5) The net investment (loss) includes interest income and excludes gain (loss) from trading activities as shown on the statement of operations. The total amount is then reduced by all expenses other than advisor incentive fees. The resulting amount is divided by the average net asset value for the period. (6) All of the ratios under the supplemental data are computed net of voluntary and involuntary waivers of operating expenses. For the three months ended September 30, 2005 and 2004, the ratios are net of the 0.04% and 0.00% effect of the voluntary waiver of operating expenses, respectively. For the nine months ended September 30, 2005 and 2004, the ratios are net of the 0.08% and 13 0.00% effect of the voluntary waiver of operating expenses, respectively. Both the nature and the amounts of the waivers are more fully explained in Note 5. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Reference is made to Item 1, "Financial Statements," the information contained therein is essential to, and should be read in connection with the following analysis. Introduction Futures Portfolio Fund Limited Partnership (the "Fund") is a Maryland limited partnership, formed on May 11, 1989, that utilizes professional trading advisors to engage in the trading of commodity futures contracts, other commodity interests, options, securities and forward contracts. The Fund began trading on January 2, 1990. The Fund is an actively managed account with speculative trading profits as its objective. The Fund currently trades in the U.S. and international futures and forward markets. Specifically, the Fund trades a portfolio focused on futures and forward contracts in currencies, interest rate instruments, energy, stock indices, agricultural products and metals. Gains or losses are realized when contracts are liquidated. Net unrealized gains or losses on open contracts (the difference between contract price and market price) are reflected in the statement of financial condition. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. United States government and agency securities and commercial paper are stated at cost plus accrued interest, which approximates market value. For purposes of both financial reporting and calculation of redemption value, Net Asset Value per Unit is calculated by dividing Partners' Capital (Net Asset Value) by the number of outstanding Units. As of September 30, 2005 the aggregate capitalization of the Fund was $341,632,801 of which $242,498,545 was in A units and $99,134,256 was in B units. A units and B units differ only with regard to lower Selling Agent fees for the B units. The net asset value per unit of limited partnership interest ("Unit") for A units as of September 30, 2005 was $3,353.14 and for B units was $4,072.85. Critical Accounting Policies The Fund's financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require the use of certain estimates made by management. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts (the difference between contract trade price and market price) are reported in the statement of financial condition as a net gain or loss, as there exists a right of offset of unrealized gains or losses in accordance with Financial Accounting Standards Board Interpretation No. 39 -"Offsetting of Amounts Related to Certain Contracts." The market value of futures (exchange-traded) contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of the last business day of the reporting period. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. United States government and agency securities and commercial paper are stated at cost plus accrued interest, which approximates market value. For purposes of both financial reporting and calculation of redemption value, net asset value per Class A or Class B unit is calculated by dividing the net asset value of Class A or Class B by the number of outstanding units of Class A or Class B. Capital Resources The Fund will raise additional capital only through the sale of Units offered pursuant to the continuing offering, and does not intend to raise any capital through borrowing. Due to the nature of the Fund's business, it will make no capital expenditures and will have no capital assets, which are not operating capital or assets. 15 Off-Balance Sheet Arrangements The term "off-balance sheet arrangements" refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Fund trades in futures and forward contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts there exists a risk to the Fund, market risk, that such 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 futures positions of the Fund at the same time, and if the commodity trading advisors were unable to offset such futures positions of the Fund, the Fund could lose all of its assets and the Limited Partners would realize a 100% loss. Steben & Company, the General Partner, minimizes market risk through diversification of the portfolio allocations to multiple trading advisors, and maintenance of a margin-to-equity ratio that rarely exceeds 30%. In addition to market risk, in entering into futures and forward contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Fund. The counterparty for futures contracts traded in the United States and on most foreign 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 non-performance 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 foreign exchanges, it is normally backed by a consortium of banks or other financial institutions. In the case of forward contracts, which are traded on the interbank market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a group of financial institutions; thus there may be a greater counterparty credit risk. Steben & Company utilizes only those counterparties that it believes to be creditworthy for the Fund. All positions of the Fund 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 Fund. Contractual Obligations The Fund does not have any contractual obligations of the type contemplated by Regulation S-K 303(a)(5). The Fund's sole business is trading futures and forward currency contracts, both long (contracts to buy) and short (contracts to sell). Liquidity Most United States commodity exchanges limit fluctuations in futures contracts 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 futures contract has reached the daily limit for that day, positions in that contract can neither be taken nor liquidated. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Fund from promptly liquidating unfavorable positions and subject the Fund to substantial losses which could exceed the margin initially committed to such trades. In addition, even if futures prices have not moved the daily limit, the Fund may not be able to execute futures trades at favorable prices if little trading in such contracts is taking place. Other than these limitations on liquidity, which are inherent in the Fund's futures trading operations, the Fund's assets are expected to be highly liquid. Redemptions may be made by a Limited Partner as of the last trading day of any month at the Net Asset Value of the redeemed Units (or portion thereof) on that date, on 15 days prior written notice to the General Partner. Partial redemptions must be for at least $1,000, unless such requirement is waived by the General Partner. In addition, the Limited Partner, if making a partial redemption, must maintain at least $10,000 or his original investment amount, whichever is less, in the Fund unless such requirement is waived by the General Partner. 16 The entire offering proceeds, without deductions, will be credited to the Fund's bank and brokerage accounts to engage in trading activities and as reserves for that trading. The Fund meets its margin requirements by depositing U.S. government securities with the futures broker and the over-the-counter counterparties. In this way, substantially all of the Fund's assets, whether used as margin for trading purposes or as reserves for such trading, can be invested in U.S. government securities and time deposits with U.S. banks. Investors should note that maintenance of the Fund's assets in U.S. government securities and banks does not reduce the risk of loss from trading futures and forward contracts. The Fund receives all interest earned on its assets. No other person shall receive any interest or other economic benefits from the deposit of Fund assets. Approximately 10% to 30% of the Fund's assets normally are committed as required margin for futures contracts and held by the futures broker, although the amount committed may vary significantly. Such assets are maintained in the form of cash or U.S. Government Securities in segregated accounts with the futures broker pursuant to the Commodity Exchange Act and regulations there under. Approximately 10% to 30% of the Fund's assets are deposited with over-the-counter counterparties in order to initiate and maintain forward contracts. Such assets are not held in segregation or otherwise regulated under the Commodity Exchange Act, unless such over-the-counter counterparty is registered as a futures commission merchant. These assets are held either in U.S. government securities or short-term time deposits with U.S.-regulated bank affiliates of the over-the-counter counterparties. The remaining 40% to 80% of the Fund's assets will normally be invested in cash equivalents, such as U.S. Treasury bills and commercial paper, and held by the futures broker or the over-the-counter counterparties. The Fund's assets are not and will not be, directly or indirectly, commingled with the property of any other person in violation of law or invested with or loaned to Steben & Company or any affiliated entities. Results of Operations 2005 The total return for the nine months ended September 30, 2005 was down 2.23% and down 0.91% for A units and B units, respectively. The total return for the nine months ended September 30, 2004 was down 8.42% and down 7.14% for A units and B units, respectively. January 2005 - ------------ A Units of the Fund were down 6.62% for the month of January 2005 and B Units were down 6.48%. A strong, abrupt rally in the U.S. dollar along with a sell-off in metals and equity indices resulted in significant losses for the Fund in January. The dollar's reversal strengthened after official minutes from the Federal Reserve Bank's December policy meeting were released early in the month. The minutes revealed that several key members were far more concerned about inflationary pressures than was previously known, which suggested to some that the Fed might become more aggressive with its short term rate hikes. The currency markets reacted sending the dollar sharply higher against major foreign currencies, including the euro, yen and British pound. In the metals sector, aluminum and copper price trends also reversed sharply as demand for raw materials continued to decline, in part due to China's softening economy. The Fund did earn some profits this month from its positions in the interest rate sector, including gains from short-term and long-term bond instruments. February 2005 - ------------- A Units of the Fund were up 0.39% for the month of February 2005 and B Units were up 0.54%. The Fund finished flat this month with profits from energy, equity indices, agricultural commodities and metals edging out losses from long term interest rate instruments. Profits in energy resulted from the Fund's long positions in crude oil, gas and heating oil where renewed trends pushed crude oil prices past $50/barrel for the first time since November. Equity prices trended higher across many international exchanges benefiting the Fund's long positions in indices. Tightening coffee supplies led coffee prices to a near five year high, which also generated profits. However, while the Fund's long positions in medium to long term interest rate instruments have generated steady profits in recent months, yields began reversing this month, generating losses in several contracts including the 10 year T-Note, Japanese government bond, long gilt and euro bund. 17 March 2005 - ---------- A Units of the Fund were up 1.30% for the month of March 2005 and B Units were up 1.45%. Gains from the energy, interest rate and metals sectors offset losses from the Fund's positions in foreign currencies and equity indices. Futures prices in heating oil, unleaded gas and crude oil continued their upward trends this month, benefiting the Fund's long positions. Analysts suggested the rally was a continuation of bullish momentum supported by strong demand and tight supply in gasoline and crude oil ahead of the high-demand summer season. Concerns that rising energy costs might slow industrial growth weakened international equity prices and pushed European bond prices higher. This benefited the Fund's positions in long term interest rate instruments but hurt the Fund's long positions in equity indices. Renewed concerns over inflation coupled with an expected short term rate hike by the Federal Reserve, fueled a rally in the U.S. dollar that hurt some of the Fund's positions in foreign currencies. Profits from agricultural commodities and base metals including aluminum and copper, helped to end the month with positive returns. April 2005 - ---------- A Units of the Fund were down 2.85% for the month of April 2005 and B Units were down 2.70%. Losses from the energy, equity indices and metals sectors offset modest profits from the Fund's positions in foreign currencies and interest rate instruments. Oil prices fell below $50 per barrel for the first time since February on reports that crude oil inventories were at their highest level since mid-2002. Futures prices in heating oil, unleaded gas and crude oil reversed from record highs hurting the Fund's long positions. Weak economic data, including the Michigan consumer confidence survey which fell to its lowest level in 18 months, caused a sell-off in equities. The Fund's long position in equity indices, including the DAX, NIKKEI and S&P500 experienced losses. Price reversals in base metals, including aluminum, copper and zinc, also generated losses for the Fund. May 2005 - -------- A Units of the Fund were up 2.91% for the month of May 2005 and B Units were up 3.07%. Profits from interest rate instruments and foreign exchange contracts offset small losses from the agricultural, energy, equity indices and metals markets. Longer term government bond prices in the US, euro zone and Asia continued to trend higher this month. Although the decline in long-term yields continued to confound central banking officials, economists and speculators, the Fund's trend following systems captured significant profits from long positions in multiple interest rate instruments. France's decision not to ratify a new European constitution contributed significantly to a late sell-off in the euro, which also generated significant profits from the Fund's short positions. Modest losses came from base metals (copper and zinc), equity indices (NASDAQ, S&P500, DAX), energy (unleaded gas and heating oil) and some agricultural contracts (cotton and coffee). June 2005 - --------- A Units of the Fund were up 3.16% for the month of June 2005 and B Units were up 3.32%. Profits from foreign exchange, interest rate instruments, equity indices and energy contracts offset losses from the agricultural and metals markets. Despite growing trade imbalances, the U.S. dollar continued to trend higher relative to other major currencies. Speculators saw the cut in interest rates by the Swedish central bank as further evidence of an economic slowdown in Europe. At the same time, the U.S. Federal reserve raised short-term rates by another quarter point. The growing spread between U.S. and European interest rates added further fuel to the dollar's upward trend, which benefited the Fund's short positions in the euro, Swiss franc and yen. The Fund also saw significant profits from its long positions in long-term interest rate instruments. Crude oil and natural gas prices experienced a strong rally in June benefiting the Fund's energy positions. The most significant losses came from long positions in soybeans, soybean meal and soybean oil. July 2005 - --------- A Units of the Fund were down 1.17% for the month of July 2005 and B Units were down 1.03%. Losses from interest rate instruments offset profits from the energy, equity indices and metals markets. Long and medium term interest rate instruments reversed from previous month's highs, hurting the Fund's long positions. Interest rate instrument prices fell after European Central Bank officials softened their stance on possible rate cuts in the Euro-zone, while minutes from June's Federal Reserve committee meeting suggested further increases in short term U.S. interest rates were likely. The 18 Chinese government later announced that it would no longer peg its currency to the US dollar fueling speculation that China might curb its large purchases of US Treasuries, which further weakened interest rate instrument prices. Long positions in the energy sector profited as supply uncertainties from the effects of Hurricane Dennis and two large oil refinery fires in the US caused crude oil prices to increase. Additional profits came from the Fund's long positions in several international equity indices including the DAX, S&P500, FTSE and Hang Seng Indices. August 2005 - ----------- A Units of the Fund were down 1.48% for the month of August 2005 and B Units were down 1.33%. Losses from currencies and interest rate instruments offset significant profits from the energy sector this month. Short and medium term interest rates fell. This adversely affected the Fund's short positions in Eurodollars, Japanese government bonds and US treasury bonds. Traders speculated that higher energy costs might impact U.S. economic growth and force the Federal Reserve to modify its current rate tightening policy. The effects of hurricane Katrina late in the month exacerbated that view sending bond prices even higher. Energy prices however, continued to rise benefiting the Fund's long positions in light crude oil, natural gas, heating oil and unleaded gasoline. Oil supply and distribution concerns grew stronger in the wake of hurricane Katrina. Crude oil breached $70 a barrel before administration officials announced they would tap strategic oil reserves. September 2005 - -------------- A Units of the Fund were up 2.51% for the month of September 2005 and B Units were up 2.67%. Profits from equity indices, foreign currencies, metals and agricultural commodities offset losses from energy and interest rate instruments. The Fund's long positions in Japanese and German stock indices generated the strongest profits. The Tokyo Stock Exchange's Nikkei index increased 23 percent since May and was bolstered this month by upbeat economic reports as well as Prime Minister Koizumi's election victory in Japan. The US dollar continued to strengthen, generating profits for the Fund's short positions in the yen, euro and Australian dollar. Crude oil prices retreated from August's highs after the impact from Hurricane Rita was determined to be much less than anticipated. Fortunately, losses in the energy sector were largely offset by the Fund's long positions in natural gas which reached all-time highs in September. Fixed income markets also retreated, hurting some of the Fund's long positions in foreign interest rate instruments. 2004 The returns for A units for the years ended December 31, 2004, 2003 and 2002 were 0.31%, 15.25% and 19.59% respectively. The returns for B units for the years ended December 31, 2004, 2003 and 2002 were 2.18 %, 17.43 % and 21.86 %, respectively. Further analysis of the trading gains and losses is provided below. A Units of the Fund were up 1.97% for the month of January 2004 and B Units were up 2.13%. Fund performance in January was positive despite some late price reversals in the U.S. dollar and U.S. interest rate sensitive markets. The Federal Open Market Committee ("FOMC") introduced some minor language changes to its policy statement, suggesting to some that the Federal Reserve might be setting the stage to increase short term rates. This caused the U.S. dollar to rise sharply against major foreign currencies and it caused prices on long term U.S. interest rate instruments to fall, reflecting a rise in long term interest rates. Overall, the Fund benefited from net profits in virtually all market sectors including foreign currencies, equities, agricultural, energy and metals. Only the Fund's long positions in interest rate sensitive instruments, including the 30 year Treasury bond and 10 year Treasury note, experienced a loss. A Units of the Fund were up 9.03% for the month of February 2004 and B Units were up 9.21%. The Fund benefited from gains across all market sectors in February including interest rates, energy, currencies, agricultural commodities, metals and equities. The Fund's strongest returns came from long positions on interest rate instruments as futures prices on several European and U.S. medium term instruments trended higher in anticipation of possible rate cuts in the euro zone. In the energy sector, the Fund's long positions in crude oil continued to profit. The Organization of Petroleum Exporting Countries ("OPEC") maintained tight production controls in spite of strong demand, which pushed oil prices close to the highs observed before the invasion of Iraq. 19 A Units of the Fund were down 0.02% for the month of March 2004 and B Units were up 0.13%. Fund performance was virtually flat for the month with losses from the energy and foreign currency markets edging out gains from metals, interest rate instruments and agricultural commodities. The strongest returns came from long positions in soybean futures as heavy demand from China continued to push prices higher. Metals were profitable due to a continuing upward trend in silver. The U.S. dollar was mixed for the month with small gains against most of the major currencies but losing ground to the Japanese yen. An overseas bombing in Madrid along with lackluster U.S. economic data, created additional volatility in the energy markets that led to modest losses in the Fund's long positions. A Units of the Fund were down 8.49% for the month of April 2004 and B Units were down 8.35%. After showing positive returns for the first quarter, price trend reversals in the fixed income, metals and currency markets produced losses for the Fund during the month. The energy market, which profited from long positions in both light crude and unleaded gas, was the only positive performing sector in April. Medium and long-term interest rate instruments fell sharply after the release of U.S. non-farm payroll numbers which supported growing sentiment that the U.S. economy was on a stronger footing. Reaction to the Federal Reserve's comments to Congress and growing anticipation that the Fed will raise short-term interest rates, caused upward trends in metal prices to reverse. The U.S. dollar rallied against major currencies energized by stronger U.S. economic reports which created additional losses for the Fund. A Units of the Fund were down 1.01% for the month of May 2004 and B Units were down 0.86%. During May, many of the world's financial markets traded in a tight range as market participants wrestled with the outlook for U.S. interest rates, inflation, corporate earnings and events in the Middle East. Profits were generated by the fund's long positions in the energy and agricultural sectors, especially in crude oil (which went to record highs), unleaded gas, heating oil and soybeans. However, late month production announcements by the Saudi government led to a brief reversal in oil futures prices and some pull back in our energy related profits. A mid-month reversal in the direction of the U.S. dollar resulted in our profits in energy being overshadowed by losses from foreign exchange positions, including the Australian dollar and British pound. A Units of the Fund were down 5.42% for the month of June 2004 and B Units were down 5.28%. June was a turbulent month for interest rate and energy markets. Prices for short-term interest-rate instruments and petroleum products reversed sharply this month while long-term bonds and the U.S. dollar continued to vacillate ahead of the FOMC's decision on interest rates. Choppy market conditions and extended periods of price consolidation, such as those experienced over the past few months, typically result in losses for trend following systems and June was no exception. The largest realized losses for the fund were in light crude oil, the Australian dollar and unleaded gas. The largest profits were in cotton, the ten-year Japanese government bond and the Nikkei 225 Index. A Units of the Fund were down 1.50% for the month of July 2004 and B Units were down 1.35%. Interest rates, currencies and global equity indices drifted without significant trends in July leading to a loss in the Fund for the month. Although upbeat comments from the Federal Reserve temporarily pushed interest rates and the U.S. dollar higher, the same markets reversed following a weaker than expected durable goods report. Precious metals also experienced intra-month reversals. Energy and agricultural markets were profitable however, which partially offset the losses from the other sectors. Oil and gasoline prices continued to rise to historical highs on supply concerns from Russian based Yukos Oil. The Fund's short positions in cotton and corn contracts also produced profits. A Units of the Fund were down 2.42% for the month of August 2004 and B Units were down 2.27% for the month. In August, several market sectors continued to drift without major trends. The U.S. dollar whipsawed in reaction to news events, including economic reports that failed to provide any clear direction for the U.S. economy. Oil prices declined sharply from all time highs late in the month resulting in losses from the Fund's long positions in crude oil. Profits from short positions in natural gas however helped to stem the loss in the energy sector. Sugar and 20 cotton prices reversed this month resulting in losses from the agricultural sector. The Fund continued to profit from its long positions in interest rate instruments, partially offsetting the losses in the other sectors. A Units of the Fund were up 0.05% for the month of September 2004 and B Units were up 0.21% for the month. The Fund finished virtually unchanged for the month despite solid gains in the energy and agricultural commodity sectors. Prices across the energy sector trended higher as concerns about oil supply in the wake of hurricane Ivan and possible production disruptions in Russia, Nigeria and Iraq pushed crude oil prices to record highs. However, losses from interest rate instruments offset most of the energy profits after bond prices reversed in reaction to comments and actions by the Federal Reserve. Losses also came from equity indices on fears that higher fuel costs might begin to impact corporate earnings and hurt economic growth. A Units of the Fund were up 5.39% for the month of October 2004 and B Units were up 5.55%. The Fund profited from solid trends across multiple market sectors including energy, foreign currency and fixed income. Worries over world oil supplies pushed energy prices higher including crude oil, which posted another record high. Rising energy prices and a report on the growing U.S. trade deficit indicated to the financial markets a possible slowdown in the U.S. economy. As a result bond prices moved higher and the U.S. dollar declined which benefited the Fund's positions in those sectors. The Fund experienced some losses in metals as copper and nickel prices reversed their strong upward trend in reaction to speculation that China's economy was cooling and that Chinese imports were declining. A Units of the Fund were up 4.54% for the month of November 2004 and B Units were up 4.70%. In November the Fund profited from trends in most market sectors including foreign exchange, metals, interest rate instruments and equity indices. Long positions in foreign exchange contracts generated the Fund's strongest gains as the U.S. dollar continued to decline against most major foreign currencies. The weakness in the dollar also led to higher prices in precious metals which benefited the Fund's long positions in gold and silver. Long positions in long term interest rate instruments including the Euro Bund and British Long Gilt were also profitable. The Fund's losing positions included natural gas and heating oil. A Units of the Fund were down 0.58% for the month of December 2004, ending the year up 0.31%. B Units were down 0.43% for the month and up 2.18% for the year. Performance was mixed in December with losses from the metals, energy and currency sectors edging out profits from equity, interest rate and agricultural market contracts. Global stock indices and bond markets finished the month higher, generating profits for the Fund's long positions in those markets. The Fund lost ground on its long positions in precious metals after gold and silver contracts fell sharply in response to a rebound in the U.S. dollar. In addition, the energy sector went through volatile periods after the release of several inventory announcements, which led to significant whipsawing in those markets. For the year the Fund's strong fourth quarter performance offset the mid-year drawdown leaving the Fund positive for 2004. 2003 A Units of the Fund were up 11.19% for the month of January 2003 and B Units were up 11.37%. The trends that created opportunity for the Fund in 2002 continued into January 2003. Profits were earned in every sector other than stock indices. However, the environment was one where the prospect of war with Iraq significantly affected the Fund's whole portfolio. A Units of the Fund were up 8.12% for the month of February 2003 and B Units were up 8.28%. The Fund was positive again in February with metals being the only negative sector. Strong momentum in energy, fixed income, currencies and stock indices continued, largely as a result of the troubled global geopolitical outlook. 21 A Units of the Fund were down 6.63% for the month of March 2003 but up 12.25% for the quarter. B Units were down 6.49% for the month but up 12.77% for the quarter. A market reversal occurred in March. Initially energy, precious metals and fixed income markets all sold off sharply, while equities and the U.S. dollar rallied. Several days into this correction, these markets all sold off suddenly, as anticipation of a quick resolution in Iraq subsided. Although the Fund sustained losses, they were relatively modest, giving the Fund a positive first quarter. A Units of the Fund were up 1.23% for the month of April 2003 and B Units were up 1.39%. In April many markets had calmed significantly at this time, but uncertainty was still prevalent in global markets due to the many unresolved geopolitical issues. A strong performance in the currencies sector was partially offset by negative performances in the metals, stock index and agricultural sectors. A Units of the Fund were up 3.64% for the month of May 2003 and B Units were up 3.80%. In May, the uncertainty that remained in April dominated the markets the Fund trades and led to another positive month. While corporate earnings looked stronger, unemployment, overcapacity and the ongoing threat of terrorism still loomed large over the global financial markets. The U.S. dollar weakened further against the other major currencies despite the concern expressed by the United States' trade partners over the impact this would have on global trade. Interest rates were the best performing sector for the Fund particularly at the long end of the yield curve, where higher prices reflected lower rates. Currency cross rates were also positive, while losses in the energy, stock index, agricultural and currency sectors offset some of those gains. A Units of the Fund were down 4.65% for the month of June 2003 but relatively flat at +.04% for the quarter. B Units were down 4.51% for the month but up ..50% for the second quarter. With a negative result for June, the Fund finished the first half of 2003 with solid returns. Profits for the month were earned in the currency sector while long-term interest rates lost value as yield curves steepened, particularly the Japanese government bond. Short-term interest rates and stock index sectors contributed modest gains for the month, while the energy, metals, agricultural and currency cross-rates contributed small losses. A Units of the Fund were down 5.63% for the month of July 2003 and B Units were down 5.49%. July performance was down as the largest positions suffered significant reversals. Currencies and cross rates were the poorest performers as the U.S. dollar rallied strongly. The surprisingly sharp sell-off in long term bonds also resulted in losses, but short term interest rates were only slightly negative. Equity indices produced the best sector performance in July, reflecting growing investor confidence in the economic recovery and the potential for improved growth. Despite July's reversal, returns remain positive for the year, and have kept pace with the major equity indices other than the NASDAQ. A Units of the Fund were up 1.94% for the month of August 2003 and B Units were up 2.14% for the month. Performance rebounded in August despite a tumultuous market environment. Trading volumes are typically thin in August because of summer vacations in Europe and North America. This loss of liquidity tends to exaggerate price action and volatility, and often provides good trading opportunities. Stock indices were the best performer of the month as the equity markets posted their sixth straight month of gains. Much of this can be attributed to improving consumer confidence and higher disposable income arising from the federal tax cuts. Sharply increased defense spending is also stimulating economic growth. The energy sector contributed solid positive returns as crude oil remained above the thirty dollar level on continuing supply concerns. Industrial and precious metals trading results were relatively flat. A Units of the Fund were down 1.26% for the month of September 2003 and down 5.01% for the quarter. B Units were down 1.11% for the month and 4.54% for the third quarter. The currency sector was the star performer again in September, as short dollar positions benefited from continued weakness in the U.S. dollar. After showing positive returns for most of the month, sudden reversals in the fixed income, equity and energy markets put the Fund into negative territory late in the month. The energy sector rallied sharply as OPEC surprised the markets with unexpected production cuts. Equity indices were lower following poor consumer confidence numbers. The safe haven of government bonds lured investors away from equities and back into the treasury sector, resulting in a fall in the higher yields seen in August. 22 A Units of the Fund were up 3.71% for the month of October 2003 and B Units were up 3.87%. The continued but orderly decline of the U.S. dollar against the other major currencies provided good trending opportunities during October, but an unexpectedly sharp decline in the Yen at the end of the month took some of the shine off what could have been a really strong month. On the negative side, currency cross rates, interest rates and energies all resulted in losses. The energy markets were particularly volatile, with natural gas prices whipsawing on shifting weather predictions, while crude oil declined sharply from the high end of its recent trading range. A surprise in third quarter GDP lent strong upward momentum to U.S. equities, while an improvement in M&A and IPO activity provided additional positive news for potential recovery. On the negative side, consumer spending opinions remain mixed, while concerns persist about a weak labor market ahead of the U.S. employment numbers in November. A Units of the Fund were down 1.30% for the month of November 2003 and B Units were down 1.15%. Although there were good profits in November with currencies and stock indices they were offset by losses in energy and interest rates. As global equity prices continued to strengthen, the U.S. dollar weakened, reaching 10 and 5 year lows against the Canadian dollar and Sterling respectively, while the Euro made an all time high late in the month. There is growing concern over Japan and China's stubborn resistance to market pressures that want their currencies to strengthen, while in the U.S., the combination of a potentially strong recovery and continuing low short-term interest rates are raising inflationary concerns. Despite recent strength in U.S. equity prices, this could ultimately discourage the buying of U.S. equities, particularly from the Euro-zone. A Units of the Fund were up 5.56% for the month of December 2003, 8.05% for the quarter and 15.25% for 2003. B Units were up 5.72% for the month, 8.55% for the fourth quarter and 17.43% for 2003. There was a strong finish to an interesting year in which the simultaneous fall in the U.S. dollar and the rise in U.S. equity prices surprised many traders and analysts. A substantial portion of the Fund's first quarter gains were generated from the market response to concerns about the impending war with Iraq, but an initial calming in the second quarter ended with one of the most dramatic drops in the prices of U.S. Treasuries in 20 years, wiping out almost all of the Funds gains in the interest rates sector. In the second half of 2003, profits were derived primarily from short positions in the U.S. dollar and long positions in global equity indices. These positions were also responsible for most of the gains for the full year. Past Performance is Not Indicative of Future Results. Disclosures about Certain Trading Activities that Include Non-exchange Traded Contracts Accounted for at Fair Value The Fund invests in futures and forward currency contracts. The market value of futures (exchange-traded) contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of the last business day of the reporting period. The market value of forward (non-exchange traded) contracts is extrapolated on a forward basis from the spot prices quoted as of 5:00 P.M. (E.T.) of the last business day of the reporting period. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Fund 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 the Fund'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 the Fund's main line of business. Market movements result in frequent changes in the fair market value of the Fund's open positions and, consequently, in its earnings and cash flow. The Fund'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, the diversification effects among the Fund's open positions and the liquidity of the markets in which it trades. 23 The Fund 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, and the Fund's past performance is not indicative of its future results. Value at Risk is a measure of the maximum amount which the Fund could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Fund's speculative trading and the recurrence in the markets traded by the Fund of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Fund's experience to date (i.e., "risk of ruin"). Risk of ruin is defined to be no more than a 5% chance of losing 20% or more on a monthly basis. 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 the Fund's losses in any market sector will be limited to Value at Risk or by the Fund's attempts to manage its market risk. Standard of Materiality Materiality as used in this section, "Quantitative and Qualitative Disclosures about Market Risk," 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 the Fund's market sensitive instruments. Quantifying the Fund's Trading Value at Risk Quantitative Forward-Looking Statements The following quantitative disclosures regarding the Fund's market risk exposures contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact (such as the dollar amount of maintenance margin required for market risk sensitive instruments held at the end of the reporting period). The Fund's risk exposure in the various market sectors traded by the Fund's Trading Advisors is quantified below in terms of Value at Risk. Due to mark-to-market accounting, any loss in the fair value of the Fund's open positions is directly reflected in the Fund's earnings (realized or unrealized). Exchange maintenance margin requirements have been used by the Fund 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% - 99% of any one-day interval. The maintenance margin levels are established by 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 which is not relevant to Value at Risk. In the case of market sensitive instruments which are not exchange-traded (which includes currencies and some energy products and metals in the case of the Fund), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those cases in which a futures-equivalent margin is not available, dealers' margins have been used. In the case of contracts denominated in foreign currencies, the Value at Risk figures include foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Fund in expressing Value at Risk in a functional currency other than dollars. 24 In quantifying the Fund'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 the Fund's positions are rarely, if ever, 100% positively correlated have not been reflected. Value at Risk as calculated herein may not be comparable to similarly titled measures used by others. The Fund's Trading Value at Risk in Different Market Sectors The following tables indicate the trading Value at Risk associated with the Fund's open positions for the months of July, August and September 2005. All open position trading risk exposures of the Fund have been included in calculating the figures set forth below. As of July 31, August, 31, and September 30, 2005, the Fund's total capitalization was $318,526,513, $325,040,325 and $341,632,801 respectively.
3Q 2005 Market Sector Jul % Total Aug % Total Sep % Total VaR Capitalization VaR Capitalization VaR Capitalization Agricultural 2,559,995 0.80% 2,394,039 0.74% 2,637,091 0.77% Currency 33,688,017 10.58% 38,718,732 11.91% 25,999,099 7.61% Energy 3,931,221 1.23% 6,299,471 1.94% 4,845,316 1.42% Financial Indices 12,593,747 3.95% 10,001,463 3.08% 11,966,449 3.50% Interest Rates 9,405,045 2.95% 10,709,556 3.29% 8,099,013 2.37% Metals 1,930,146 0.61% 3,339,102 1.03% 3,327,891 0.97% Total 64,108,170 20.12% 71,462,362 21.99% 56,874,859 16.64%
Of the (0.19)% return for the quarter ended September 30, 2005 for A Units, approximately 1.68% was due to trading gains (after commissions) and approximately 1.67% was due to interest income, offset by approximately 3.54% in performance fees, management fees, selling agent fees and operating costs borne by the Fund. Of the 0.26% return for the quarter ended September 30, 2005 for B Units, approximately 0.52% was due to trading gains (after commissions) and approximately 0.46% was due to interest income, offset by approximately 0.72% in performance fees, management fees, selling agent fees and operating costs borne by the Fund. Material Limitations on Value at Risk as an Assessment of Market Risk. The face value of the market sector instruments held by the Fund is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally ranging between approximately 1% and 10% of contract face value) as well as many times the capitalization of the Fund. The magnitude of the Fund'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 the Fund to incur severe losses over a short period of time. The foregoing Value at Risk tables - as well as the past performance of the Fund - gives no indication of this "risk of ruin." Non-Trading Risk The Fund 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. The Fund also has non-trading market risk as a 25 result of investing a substantial portion of its available assets in U.S. Treasury Bills, U.S. Agencies and high grade commercial paper. The market risk represented by these investments is immaterial. Qualitative Disclosures Regarding Primary Trading Risk Exposures. The following qualitative disclosures regarding the Fund's market risk exposures - except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Fund manages its primary market risk exposures - constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. The Fund's primary market risk exposures as well as the strategies used and to be used by the Fund's Trading Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Fund'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 the Fund. There can be no assurance that the Fund's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Fund. The following were the primary trading risk exposures of the Fund as of September 30, 2005, by market sector. Currencies Exchange rate risk is the principal market exposure of the Fund. The Fund's currency exposure is to exchange rate fluctuations, primarily fluctuations which 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. The Fund trades in a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. Dollar. The General Partner does not anticipate that the risk profile of the Fund's currency sector will change significantly in the future. Interest Rates Interest rate risk is a significant market exposure of the Fund. Interest rate movements directly affect the price of the sovereign bond futures positions held by the Fund 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 the Fund's profitability. The Fund's primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. The General Partner anticipates that G-7 interest rates will remain the primary market exposure of the Fund for the foreseeable future. Stock Indices The Fund's primary equity exposure is to equity price risk in many countries other than the United States. The stock index futures traded by the Fund are limited to futures on broadly based indices. The Fund is primarily exposed to the risk of adverse price trends or static markets in the major U.S., European and Japanese indices. (Static markets would not cause major market changes but would make it difficult for the Fund to avoid being "whipsawed" into numerous small losses.) Energy The Fund's primary energy market exposure is to gas and oil price movements, often resulting from political developments and ongoing conflicts in the Middle East. As of September 30, 2005, crude oil, heating oil 26 and unleaded gas are the dominant energy market exposures of the Fund. 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 The Fund's metals market exposure is to fluctuations in the price of aluminum, copper, gold, nickel and zinc. Agricultural During 2005, the Fund's agricultural exposure was to soybeans, wheat, corn, coffee and cotton. Qualitative Disclosures Regarding Non-Trading Risk Exposure. The following were the only non-trading risk exposures of the Fund as of September 30, 2005. Foreign Currency Balances The Fund's primary foreign currency balances are in Euros, Japanese Yen, British Pounds, Australian Dollars, Hong Kong dollars and Canadian dollars. The Fund controls the non-trading risk of these balances by regularly converting these balances back into U.S. dollars (no less frequently than once a week). Treasury Bill and Commercial Paper Positions The Fund utilizes UBS Financial Services, Inc. as its cash management securities broker for the investment of some margin excess amounts into short-term fixed income instruments including high grade commercial paper (interest bearing with some credit risk), U.S. Agency securities and Treasury Bills (interest bearing and credit risk free) with durations no longer than one year. Violent fluctuations in prevailing interest rates could cause immaterial mark-to-market losses on the Fund's Treasury Bills, although substantially all of these short-term investments are held to maturity. Qualitative Disclosures Regarding Means of Managing Risk Exposure The means by which the Fund and the Fund's Trading Advisors, severally, attempt to manage the risk of the Fund's open positions is essentially the same in all market categories traded. The Fund's Trading Advisors apply risk management policies to their respective trading which generally limit the total exposure that may be taken. In addition, the Trading Advisors generally follow proprietary diversification guidelines (often formulated in terms of the balanced volatility between markets and correlated groups), as well as imposing "stop-loss" points at which open positions must be closed out. The Fund is unaware of any (i) anticipated known demands, commitments or capital expenditures; (ii) material trends, favorable or unfavorable, in its capital resources; or (iii) trends or uncertainties that will have a material effect on operations. From time to time, certain regulatory agencies have proposed increased margin requirements on futures contracts. Because the Fund generally will use a small percentage of assets as margin, the Fund does not believe that any increase in margin requirements, as proposed, will have a material effect on the Fund's operations. Item 4: Controls and Procedures Steben & Company, Inc., the General Partner of the Fund, with the participation of the General Partner's Chief Executive Officer and Comptroller (principal executive officer and principal financial officer, respectively), has 27 evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Fund as of the end of the period covered by this quarterly report. Based on their evaluation, the Chief Executive Officer and Comptroller have concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner's internal control over financial reporting applicable to the Fund identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter that have materially affected, or is reasonably likely to materially affect, internal control over financial reporting applicable to the Fund. 28 PART II-OTHER INFORMATION Item 1: Legal Proceedings. None Item 2: Unregistered Sales of Equity Securities and Use of Proceeds Between July 2005 and September 2005, the Fund issued Units at monthly closings as set forth in the following chart. However, pursuant to Regulation ss. 229.701. Item 701(d), the Fund enjoys the private offering exemption within the Securities Exchange Act of 1933 ss. 4(2). The Fund is privately offered and sold to "accredited investors" as defined in Securities Exchange Act of 1933 Rule 501(a). Schedule on Number and Dollar (Additions) Amount of Interests (Includes both A and B Units) - ----------------------------- -------------------- -------------------------- Month Dollar Amount of Number of Additional Interests Sold Units Sold - ----------------------------- -------------------- -------------------------- July 2005 $16,727,000 4,546.19102 - ----------------------------- -------------------- -------------------------- August 2005 $14,451,096 4,029.58433 - ----------------------------- -------------------- -------------------------- September 2005 $13,913,961 3,953.55283 - ----------------------------- -------------------- -------------------------- Item 3: Defaults Upon Senior Securities Not applicable. Item 4: Submissions of Matters to a vote of Security Holders. None Item 5: Other Information None Item 6: Exhibits. (a) Exhibits and Index. The following exhibits filed herewith. Exhibit No. Description of Document Page No. 31.01 Certification of Kenneth E. Steben, Chief Executive E-2 Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. 31.02 Certification of Barbara Rittenhouse, Comptroller, E-4 pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. 29 32.01 Certification of Kenneth E. Steben, Chief Executive E-6 Officer, pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. 32.02 Certification of Barbara Rittenhouse, Comptroller, E-7 pursuant to 18 U.S.C. Section 1350, as enacted by Section 906 of The Sarbanes-Oxley Act of 2002. (b) Reports. None. 30 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. FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP (Registrant) By: Steben & Company, Inc. General Partner By: /s/ Barbara Rittenhouse ------------------------------------ Barbara Rittenhouse Comptroller (Principal Financial Officer) November 21, 2005 EX-31.01 2 efc5-2373_exhibit3101.txt EXHIBIT 31.01 Rule 13a-14(a)/15d-14(a) Certification I, Kenneth E. Steben, Chief Executive Officer of Steben & Company, Inc., the General Partner of Futures Portfolio Fund Limited Partnership, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Futures Portfolio Fund Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. E-2 FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP By: Steben & Company, Inc. General Partner By: /s/ Kenneth E. Steben ---------------------- Kenneth E. Steben Chief Executive Officer of the General Partner November 21, 2005 E-3 EX-31.02 3 efc5-2373_exhibit3102.txt EXHIBIT 31.02 Rule 13a-14(a)/15d-14(a) Certification I, Barbara Rittenhouse, Comptroller and Principal Financial Officer of Steben & Company, Inc., the General Partner of Futures Portfolio Fund Limited Partnership, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Futures Portfolio Fund Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. E-4 FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP By: Steben & Company, Inc. General Partner By: /s/ Barbara Rittenhouse ------------------------ Barbara Rittenhouse Comptroller (Principal Financial Officer) of The General Partner November 21, 2005 E-5 EX-32.01 4 efc5-2373_exhibit3201.txt EXHIBIT 32.01 Section 1350 Certification In connection with this quarterly report of Futures Portfolio Fund Limited Partnership (the "Company") on Form 10-Q for the quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (this "Report") I, Kenneth E. Steben, Chief Executive Officer of the General Partner of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP By: Steben & Company, Inc. General Partner By: /s/ Kenneth E. Steben ---------------------- Kenneth E. Steben Chief Executive Officer of the General Partner November 21, 2005 E-6 EX-32.02 5 efc5-2373_exhibit3202.txt EXHIBIT 32.02 Section 1350 Certification In connection with this quarterley report of Futures Portfolio Fund Limited Partnership (the "Company") on Form 10-Q for the quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (this "Report"), I, Barbara Rittenhouse, Comptroller and Principal Financial Officer of the General Partner of the Company certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant of the Sarbanes-Oxley Act of 2002, that: 1. This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. FUTURES PORTFOLIO FUND LIMITED PARTNERSHIP By: Steben & Company, Inc. General Partner By: /s/ Barbara Rittenhouse ------------------------ Barbara Rittenhouse Comptroller (Principal Financial Officer) of The General Partner November 21, 2005 E-7 -----END PRIVACY-ENHANCED MESSAGE-----