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 March 31, 1998
Commission File Number 333-24923
SMITH BARNEY WESTPORT FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3939393
(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 Westport Futures Fund L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
March 31, 1998 and December 31, 1997 3
Statement of Income and Expenses and
Partners' Capital for the three months
ended March 31, 1998. 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 - 13
<PAGE>
PART I
Item 1. Financial Statements
Smith Barney Westport Futures Fund L.P.
STATEMENT OF FINANCIAL CONDITION
March 31, December 31,
1998 1997
ASSETS:
------------ ------------
Equity in commodity futures trading account:
Cash and cash equivalents $112,246,989 $ 94,452,401
Net unrealized appreciation
on open futures contracts 4,297,646 8,075,897
------------ ------------
116,544,635 102,528,298
Interest receivable 410,048 339,134
Other assets - 161,916
------------ ------------
$116,954,683 $103,029,348
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 633,504 $ 558,075
Management fees 387,436 341,439
Incentive fees - 834,386
Other 90,226 39,841
Redemptions payable 1,032,786 -
------------ ------------
2,143,952 1,773,741
------------ ------------
Partners' Capital:
General Partner, 1,212.9836 and
1,002.9801 Unit equivalents outstanding
in 1998 and 1997, respectively 1,165,943 1,014,504
Limited Partners, 118,229.9202 and 99,102.5475
Units of Limited Partnership
Interest outstanding in 1998 and 1997,
respectively 113,644,788 100,241,103
------------ ------------
114,810,731 101,255,607
------------ ------------
$116,954,683 $103,029,348
============ ============
See Notes to Financial Statements.
3
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SMITH BARNEY WESTPORT FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE
MONTHS ENDED
MARCH 31,
--------------
1998
-------------
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains on closed positions $ 125,812
Change in unrealized gains/losses on open
positions (3,778,251)
_____________
(3,652,439)
Less, brokerage commissions and clearing fees
($34,436) (2,012,647)
_____________
Net realized and unrealized losses (5,665,086)
Interest income 1,161,897
_____________
(4,503,189)
_____________
Expenses:
Management fees 1,146,071
Other 87,509
_____________
1,233,580
_____________
Net loss (5,736,769)
Additions 20,997,000
Redemptions (1,705,107)
_____________
Net increase in Partners' capital 13,555,124
Partners' capital, beginning of period 101,255,607
_____________
Partners' capital, end of period $ 114,810,731
-------------
Net asset value per Unit
(119,442.9038 Units outstanding
at March 31, 1998) $ 961.22
-------------
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (50.27)
-------------
4
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SMITH BARNEY WESTPORT FUTURES FUND L.P.
NOTES TO STATEMENT OF FINANCIAL CONDITION
March 31, 1998
(Unaudited)
1. General
Smith Barney Westport Futures Fund L.P. (the "Partnership"), is a
limited partnership which was organized on March 21, 1997 under the partnership
laws of the State of New York to engage 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.
Between May 30, 1997 (commencement of the offering period) and July 31,
1997, 40,035 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 1,
1997, 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 made for the Partnership by John W. Henry & Company, Inc.,(the
"Advisor").
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 March 31, 1998 and the results of its operations for the three
months ended March 31, 1998. 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 financial statements and notes included in the
Partnership's annual report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997.
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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2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three months ended March 31,
1998 were as follows:
THREE-MONTHS
ENDED
MARCH 31, 1998
Net realized and unrealized losses $ (49.68)
Interest income 9.94
Expenses (10.53)
----------
Decrease for period (50.27)
Net asset value per Unit,
beginning of period 1,011.49
----------
Net asset value per Unit,
end of period $ 961.22
========
3. Offering and Organization Costs:
Offering and organization expenses of approximately $710,000 relating to
the issuance and marketing of Units during the initial offering period were
initially paid by SB and were charged against the initial capital of the
Partnership. Actual offering and organization expenses totaled $653,455. 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 December 31, 1997, the Partnership had reimbursed SB for $653,455
of offering and organization expenses and $7,104 of interest and the difference
between these amounts and the original estimate which was charged to partners'
capital was reflected in the statement of income and expenses.
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.
6
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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 March 31, 1998 was $4,297,646 and the average fair value during the
three months then ended, based on monthly calculation, was $4,195,898.
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 counterpaty 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 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
7
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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
involvements in these instruments. At March 31, 1998, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $677,619,315 and $625,370,373, respectively, as detailed below.
All of these instruments mature within one year of March 31, 1998. However, due
to the nature of the Partnership's business, these instruments may not be held
to maturity. At March 31, 1998, the fair value of the Partnership's derivatives,
including options thereon, was $4,297,646, as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies* $ 63,708,861 $156,852,877 $3,904,606
Energy 3,576,600 24,629,290 926,570
Grains 4,537,092 9,799,865 350,503
Interest Rates Non-U.S 572,430,483 152,785,902 143,844
Interest Rates U.S. - 258,812,913 (564,038)
Metals 11,414,153 6,905,188 (602,011)
Softs 5,673,711 15,584,338 558,276
Indices 16,278,415 - (420,104)
------------ ------------ -----------
Totals $677,619,315 $625,370,373 $4,297,646
============ ============ ===========
* The notional or contractual commitment amounts and the net unrealized gain
amount listed for the currency sector represent OTC contracts. All other sectors
listed represent exchange traded contracts.
8
<PAGE>
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, net unrealized appreciation (depreciation) on open
futures and forward contracts 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 decrease in liquidity, no such losses occurred during the
first quarter of 1998.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, additions and redemptions of Units and
distributions of profits if any.
For the three months ended March 31, 1998, Partnership capital increased
13.4% from $101,255,607 to $114,810,731. This increase was attributable to the
addition of 21,097.2073 Units totaling $20,997,000 partially offset by the
redemption of 1,759.8311 Units resulting in an outflow of $1,705,107 and by the
net loss from operations of $5,736,769 for the quarter ended March 31, 1998.
Results of Operations
During the Partnership's first quarter of 1998, the net asset value per
Unit decreased 5.0% from $1,011.49 to $961.22. The Partnership experienced a net
trading loss before commissions and expenses in the first quarter of 1998 of
$3,652,439. Losses were recognized in the trading of commodity futures in
currencies, U.S. interest rates, grains, metals and softs and were partially
offset by gains in energy products and non-U.S. interest rates. The Partnership
commenced trading operations on August 1, 1997, 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 prices 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
9
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events and changes in interest rates. To the extent that market trends exist and
the Advisor is 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 U.S. 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 Partnership's net asset value
as of the last day of each month and therefore, are affected by trading
performance, additions and redemptions.
Management fees are calculated on the portion of the Partnership's net
asset value allocated to the Advisor at the end of the month and, therefore, are
affected by trading performance, additions and redemptions.
Incentive fees are based on the new trading profits generated by the
Advisor at the end of the quarter, as defined in the advisory agreement between
the Partnership, the General Partner and the Advisor.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
Between May 1994 and the present, Salomon Brothers Inc. ("SBI"), SB
and The Robinson Humphrey Company, Inc. ("R- H"), all currently
subsidiaries of Salomon Smith Barney Holdings Inc. ("SSBHI"), along
with a number of other broker-dealers, were named as defendants in
approximately 25 federal court lawsuits and two state court
lawsuits, principally alleging that companies that make markets in
securities traded on NASDAQ violated the federal antitrust laws by
conspiring to maintain a minimum spread of $.25 between the bid and
asked price for certain securities. The federal lawsuits and one
state court case were consolidated for pre-trial purposes in the
Southern District of New York in the fall of 1994 under the caption
In re NASDAQ Market- Makers Antitrust Litigation, United States
District Court, Southern District of New York No. 94-CIV-3996 (RWS);
M.D.L. No. 1023. The other state court suit, Lawrence A. Abel v.
Merrill Lynch & Co., Inc. et al.; Superior Court of San Diego, Case
No. 677313, has been dismissed without prejudice in conjunction with
a tolling agreement.
In consolidated action, the plaintiffs purport to represent a class
of persons who bought one or more of what they currently estimate to
be approximately 1,650 securities on NASDAQ between May 1, 1989 and
May 27, 1994. They seek unspecified monetary damages, which would be
trebled under the antitrust laws. The plaintiffs also seek
injunctive relief, as well as attorney's fees and the costs of the
action. (The state cases seek similar relief.) Plaintiffs in the
consolidated action filed an amended consolidated complaint that
defendants answered in December 1995. On November 26, 1996, the
Court certified a class composed of retail purchasers. A motion to
include institutional investors in the class and to add class
representatives was granted. In December 1997, SBI, SB and R-H,
along with several other broker-dealer defendants, executed a
settlement agreement with the plaintiffs. This agreement has been
preliminarily approved by the U.S. District Court for the Southern
District of New York but is subject to final approval.
On July 17, 1996, the Antitrust Division of the Department of
Justice filed a complaint against a number of firms that act as
market makers in NASDAQ stocks. The complaint basically alleged that
a common
11
<PAGE>
understanding arose among NASDAQ market makers which worked to keep
quote spreads in NASDAQ stocks artificially wide. Contemporaneous
with the filing of the complaint, SBI, SB and other defendants
entered into a stipulated settlement agreement, pursuant to which
the defendants would agree not to engage in certain practices
relating to the quoting of NASDAQ securities and would further agree
to implement a program to ensure compliance with federal antitrust
laws and with the terms of the settlement. In entering into the
stipulated settlement, SBI and SB did not admit any liability. There
are no fines, penalties, or other payments of monies in connection
with the settlement. In April 1997, the U.S. District Court for the
Southern District of New York approved the settlement. In May 1997,
plaintiffs in the related civil action (who were permitted to
intervene for limited purposes) appealed the district court's
approval of the settlement. The appeal is pending.
The Securities and Exchange Commission ("SEC") is also conducting a
review of the NASDAQ marketplace, during which it has subpoenaed
documents and taken the testimony of various individuals including
SBI and SB personnel. In July 1996, the SEC reached a settlement
with the National Association of Securities Dealers and issued a
report detailing certain conclusions with respect to the NASD and
the NASDAQ market.
In December 1996, a complaint seeking unspecified monetary damages
was filed by Orange County, California against numerous brokerage
firms, including SB, in the U.S. Bankruptcy Court for the Central
District of California. Plaintiff alleged, among other things, that
the defendants recommended and sold to plaintiff unsuitable
securities. The case (County of Orange et al. v. Bear Sterns & Co.
Inc. et al.) Has been stayed by agreement of the parties.
Item 2. Changes in Securities and Use of Proceeds -
For the three months ended March 31, 1998, there were additional
sales of 20,887.2038 Units totaling $20,788,000 and contributions by
the General Partner representing 210.0035 Unit equivalents totaling
$209,000.
Proceeds from the sale of additional Units are used in the trading
of commodity interests including futures contracts, options and
forward contracts.
12
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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
13
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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 WESTPORT FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/15/98
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: 5/15/98
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/15/98
14
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<NAME> SMITH BARNEY WESTPORT FUTURES FUND L.P.
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<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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