FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File Number 33-80723
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York 13-3862967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(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
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
September 30, 1996. 3
Statement of Income and Expenses and
Partners' Capital for the period from
August 9,1996 (commencement of operations)
to September 30, 1996. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
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PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.II
STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30,
1996
-------------
ASSETS
(Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $ 6,422,439
Net unrealized appreciation
on open futures contracts 1,223,871
Zero Coupons, $20,100,000
principal amount in 1996
due November 15, 2003 at market value
(amortized cost $12,805,655) 12,605,112
-----------
$20,251,422
===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Management fees $ 27,303
Commissions 59,701
Incentive fees 22,339
Due to Smith Barney 614,864
Other 21,372
-----------
745,579
-----------
Partners' Capital
General Partner, 203 Unit
equivalents outstanding in 1996 196,999
Limited Partners, 19,897
Units of Limited Partnership
Interest outstanding in 1996 19,308,844
-----------
19,505,843
-----------
$20,251,422
===========
See Notes to Financial Statements
3
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
PERIOD FROM
AUGUST 9, 1996
(COMMENCEMENT OF
TRADING OPERATIONS)
TO SEPTEMBER 30,
1996
------------
Income:
Net gains (losses) on trading of
commodity interests:
Realized (losses) on closed positions $ (918,870)
Change in unrealized gains on
open positions 1,223,871
------------
305,001
Less, brokerage commissions and clearing
fees ($2,459) (110,991)
------------
Net realized and unrealized gains 194,010
Unrealized depreciation on Zero Coupons (200,543)
Interest income 152,666
------------
146,133
------------
Expenses:
Management fees 46,580
Other 21,371
Incentive fees 22,339
------------
90,290
------------
Net income 55,843
------------
Net increase in Partners' capital 55,843
Proceeds from offering - Limited Partners 19,897,000
General Partner 203,000
Offering and organization expense (650,000)
------------
Partners' capital, end of period $ 19,505,843
============
Net Asset Value per Unit
(20,100 Units outstanding at
September 30, 1996) $ 970.44
============
Net income per Unit of Limited Partnership
Interest and General Partnership
Unit equivalent $ 2.78
============
Redemption Net Asset Value per Unit $ 1,001.03
============
See Notes to Financial Statements.
4
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. General:
Smith Barney Principal Plus Futures Fund L.P. II (the "Partnership") was
formed under the laws of the State of New York on November 16, 1995. The
Partnership engages in the speculative trading of commodity interests, including
forward contracts on foreign currencies, commodity options and commodity futures
contracts, including futures contracts on U.S. Treasuries and certain other
financial instruments, foreign currencies and stock indices. The commodity
interests that are traded by the Partnership are volatile and involve a high
degree of market risk. The Partnership maintains a portion of its assets in
interest payments stripped from U.S. Treasury Bonds under the Treasury's STRIPS
program which payments are due approximately seven years from the date trading
commenced ("Zero Coupons").
Between April 3, 1996 (commencement of offering period) and August 8, 1996,
19,897 Units of limited partnership interest were sold at $1,000 per unit. The
proceeds of the offering were held in an escrow account until August 9, 1996, at
which time they were turned over to the Partnership for trading.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner, acts as commodity broker for the Partnership. All trading
decisions will be made for the Partnership by John W. Henry & Company, Inc. and
Willowbrige Associates Inc. (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 1996 and the results of its operations for the period
from August 9, 1996 (commencement of operations) to September 30, 1996. These
financial statements present the results of an interim period and do not include
all disclosures normally provided in annual financial statements. It is
suggested that these financial statements be read in conjunction with the
financial statement included in the Registration Statement.
Due to the nature of commodity trading, the results of operations for the
interim period presented should not be considered indicative of the results that
may be expected for the entire year.
5
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the period from August 9, 1996
(commencement of trading operations) to September 30, 1996 were as follows:
PERIOD FROM
AUGUST 9, 1996
(COMMENCEMENT OF
TRADING OPERATIONS)
TO SEPTEMBER 30,
1996
Net realized and unrealized gains $ 9.65
Realized and unrealized losses
on Zero Coupons (9.98)
Interest Income 7.60
Expenses (4.49)
----------
Increase for period 2.78
Net asset value per Unit,
beginning of period 967.66
Net asset value per Unit,
end of period $ 970.44
=========
Redemption net asset
value per Unit * $1,001.03
=========
* For the purpose of a redemption, any accrued liability for reimbursement of
offering and organization expenses will not reduce redemption net asset value
per unit.
3. Offering and Organization Costs:
Offering and organization expenses estimated at $650,000 relating to the
issuance and marketing of Units offered were initially paid by SB. The accrued
liability for reimbursement of offering and organization expenses will not
reduce Net Asset Value per Unit for any purpose (other than financial
reporting), including calculation of advisory and brokerage fees and the
redemption value of Units. Interest earned by the Partnership will be used to
reimburse SB for the offering and organization expenses of the Partnership until
such time as such expenses are fully reimbursed. As of September 30, 1996, the
Partnership had reimbursed SB for $35,136 of offering and organization expenses.
6
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4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activities are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SB gives the Partnership
the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1996 was $1,223,871 and the average fair value during
the period from August 9, 1996 (commencement of operations) to September 30,
1996, based on monthly calculation, was $629,221.
5. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing
7
<PAGE>
organization acts as a counterparty to the transactions. The Partnership's risk
of loss in the event of counterparty default is typically limited to the amounts
recognized in the statement of financial condition and not represented by the
contract or notional amounts of the instruments. The Partnership has
concentration risk because the sole counterparty or broker with respect to the
Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1996, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $142,225,229 and $35,787,242, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1996. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1996, the Partnership had net unrealized
trading gains of $1,223,871, as detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
----------- ------- -----------
Currencies
- - Exchange Traded Contracts $ 2,569,000 $ 4,319,263 $ 28,113
- - OTC Contracts 17,344,555 20,708,566 (40,367)
Energy 4,168,250 0 609,421
Interest Rates-US 2,499,694 2,453,094 (59,213)
Interest Rates-Non US 108,018,994 0 880,882
Grains 2,552,458 1,095,865 16,988
Livestock 1,069,390 0 (37,790)
Softs 2,858,138 1,321,089 (273,773)
Metals 0 5,889,365 99,677
Indices 1,144,750 0 (67)
------------ ------------ ------------
Total $142,225,229 $ 35,787,242 $ 1,223,871
============ ============ ============
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures and forward contracts, commodity options and
interest receivable. Because of the low margin deposits normally required in
commodity futures trading, relatively small price movements may result in
substantial losses to the Partnership. While substantial losses could lead to a
substantial decrease in liquidity no such losses occurred in the period ended
September 30, 1996.
The Partnership's capital consists of capital contributions, as increased
or decreased by gains or losses on commodity futures trading and Zero Coupons,
expenses, interest income, redemptions of Units and distributions of profits, if
any.
Results of Operations
During the period from August 9, 1996 (commencement of operations) to
September 30, 1996, the Partnership's net asset value per Unit increased .3%
from $967.66 to $970.44. The Partnership experienced a net trading gain before
commissions and expenses in the third quarter of 1996 of $305,001. Gains were
recognized in the trading of commodity futures in energy products, interest
rates, and metals and were partially offset by losses recognized in agricultural
products, currencies, and indices.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
Interest Income on 80% of the Partnership's daily equity maintained in cash
was earned at the 30-day Treasury bill rate determined weekly by SB based on the
average non-competitive yield on 3-month U.S. Treasury bills maturing in 30
days.
9
<PAGE>
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and are affected by trading performance and redemptions.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/11/96
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001005335
<NAME> Smith Barney Principal Plus Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,422,439
<SECURITIES> 13,828,983
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,251,422
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,251,422
<CURRENT-LIABILITIES> 745,579
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,505,843
<TOTAL-LIABILITY-AND-EQUITY> 20,251,422
<SALES> 0
<TOTAL-REVENUES> 146,133
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 90,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 55,843
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,843
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 0
</TABLE>
