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 June 30, 1997
Commission File Number 0-22489
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
<PAGE>
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
June 30, 1997 and December 31, 1996. 3
Statement of Income and Expenses
and Partners' Capital for the three
and six Months ended June 30, 1997. 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
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS:
(Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $ 8,960,372 $ 9,941,903
Net unrealized appreciation
on open futures contracts 317,656 241,456
Zero Coupons, $19,812,000 and $20,100,000
principal amount in 1997 and 1996, repectively,
due November 15, 2003 at market value
(amortized cost $13,234,416 and $13,012,176
in 1997 and 1996, respectively) 13,187,857 13,093,140
----------- -----------
22,465,885 23,276,499
Receivable from SB on sale of
Zero Coupons 107,570 -
----------- -----------
$22,573,455 $23,276,499
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 75,020 $ 74,500
Management fees 33,305 33,970
Incentive fees 0 421,541
Due to Smith Barney 266,369 449,877
Other 25,876 39,050
Redemptions payable 181,994
----------- -----------
582,564 1,018,938
Partners' Capital:
General Partner, 203 Unit
equivalents outstanding in 1997 and 1996 225,326 224,790
Limited Partners, 19,609 and 19,897
Units of Limited Partnership Interest
outstanding in 1997 and 1996, respectively 21,765,565 22,032,771
----------- -----------
21,990,891 22,257,561
----------- -----------
$22,573,455 $23,276,499
=========== ===========
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)
THREE-MONTHS SIX-MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------ ------------
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses) on closed positions $ (618,205) $ 422,180
Change in unrealized gains/losses on
open positions (286,534) 76,200
------------ ------------
(904,739) 498,380
Less, brokerage commissions and clearing
fees ($3,311 and $6,819, respectively) (238,410) (480,670)
------------ ------------
Net realized and unrealized gains (losses) (1,143,149) 17,710
Realized losses on sale
of Zero Coupons (1,142) (3,417)
Unrealized appreciation
(depreciation) on Zero Coupons 308,180 (127,523)
Interest income 299,610 597,218
------------ ------------
(536,501) 483,988
Expenses:
Management fees 100,516 204,385
Incentive fees 0 190,380
Other 13,912 27,671
------------ ------------
114,428 422,436
Net income (loss) (650,929) 61,552
Redemptions (181,994) (328,222)
------------ ------------
Net decrease in Partners' capital (832,923) (266,670)
Partners' capital, beginning of period 22,823,814 22,257,561
------------ ------------
Partners' capital, end of period $ 21,990,891 $ 21,990,891
============ ============
Net Asset Value per Unit
(19,812 Units outstanding at
June 30, 1997 ) $ 1,109.98 $ 1,109.98
============ ============
Net loss per Unit of Limited Partnership
Interest and General Partnership
Unit equivalent $ (32.70) $ (2.64)
============ ============
Redemption Net Asset Value per Unit $ 1,123.42 $ 1,123.42
============ ============
4
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
NOTES TO STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1997
(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 a diversified portfolio of
commodity interests, including futures contracts, options and forward contracts.
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 are currently being made for the Partnership by John W. Henry &
Company, Inc. and Willowbridge Associates Inc. (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion
of management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at June 30, 1997 and the results of its operations for the three and
six months ended June 30, 1997. These financial statements present the results
of interim periods 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 Partnership's annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 1996.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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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 three and six months ended
June 30, 1997 were as follows:
THREE-MONTHS SIX-MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- ------------
Net realized and unrealized
gains (losses) $ (57.23) $ 0.52
Realized and unrealized
gains (losses) on Zero Coupons 15.37 (6.42)
Interest income 15.00 29.83
Expenses (5.73) (21.06)
Other (0.11) (0.23)
--------- ---------
Decrease for period (32.70) (2.64)
Net Asset Value per Unit,
beginning of period 1,142.68 1,107.34
--------- ---------
Net Asset Value per Unit,
end of period $1,109.98 $1,109.98
========= =========
Redemption Net Asset
Value per Unit* $1,123.42 $1,123.42
========= =========
* 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 of $560,000 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 plus interest at the prime rate
quoted by the Chase Manhattan Bank until such time as such expenses are fully
reimbursed. As of June 30, 1997, the Partnership has reimbursed SB for $293,631
of offering
6
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and organization expenses and $30,042 of interest.
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
activity 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 June 30, 1997 was $317,656 and the average fair value during the six
months ended June 30, 1997, based on monthly calculation, was $598,430.
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
7
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instruments is reduced to the extent that an exchange or clearing 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 June 30, 1997, the notional or contractual
amounts of the Partnership's commitment to purchase and sell these instruments
was $92,192,388 and $40,670,233, respectively, as detailed below. All of these
instruments mature within one year of June 30, 1997. However, due to the nature
of the Partnership's business, these instruments may not be held to maturity. At
June 30, 1997, the fair value of the Partnership's derivatives, including
options thereon, was $317,656, as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies
- - Exchange Traded Contracts $ 3,755,250 $ 2,920,750 $ 13,625
- - OTC Contracts 18,141,363 12,718,095 (85,710)
Energy 899,720 1,575,150 (37,122)
Interest Rates U.S. 25,228,375 0 107,313
Interest Rates Non-U.S. 36,570,948 17,371,208 41,030
Grains 0 1,617,239 100,824
Livestock 1,161,720 0 9,840
Softs 2,946,314 257,906 50,000
Metals 1,113,773 4,209,885 102,152
Indices 2,374,925 0 15,704
------------ ------------ --------
Totals $92,192,388 $40,670,233 $317,656
============ ============ ========
8
<PAGE>
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition.
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 deposit 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 during the second
quarter of 1997.
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.
For the six months ended June 30, 1997, Partnership capital decreased 1.2%
from $22,257,561 to $21,990,891. This decrease was attributable to the
redemption of 288 Units resulting in an outflow of $328,222 which was partially
offset by net income from operations of $61,552 for the six months ended June
30, 1997.
Results of Operations
During the Partnership's second quarter of 1997, the net asset value per
Unit decreased 2.9% from $1,142.68 to $1,109.98. The Partnership experienced a
net trading loss before commissions and expenses in the second quarter of 1997
of $904,739. Losses were recognized in the trading of commodity futures in
currencies, energy products, grains, U.S. and non U.S. interest rates and
livestock and were partially offset by gains in metals, softs and indices. The
Partnership commenced trading operations on August 9, 1996, and, as a result,
comparative information is not available.
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
9
<PAGE>
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.
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: 8/13/97
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: 8/13/97
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 8/13/97
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001005335
<NAME> Smith Barney Principal Plus Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,960,372
<SECURITIES> 13,505,513
<RECEIVABLES> 107,570
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,573,455
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,573,455
<CURRENT-LIABILITIES> 582,564
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,990,891
<TOTAL-LIABILITY-AND-EQUITY> 22,573,455
<SALES> 0
<TOTAL-REVENUES> 483,988
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 422,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 61,552
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,552
<EPS-PRIMARY> (2.64)
<EPS-DILUTED> 0
</TABLE>
