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, 1999
Commission File Number 333-61961
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-4015586
(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>
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED 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, 1999 (unaudited) 3
Statement of Income and Expenses and Partners'
Capital for the period from June 15, 1998 (date
Partnership was organized) to March 31, 1999
(unaudited) 4
Notes to Financial Statements
(unaudited) 5 - 9
Item 2 Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10 - 13
Item 3 Quantitative and Qualitative
Disclosures of Market Risk 14 - 19
PART II - Other Information 20
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
MARCH 31,
1999
(Unaudited)
ASSETS:
Equity in commodity futures
trading account:
Cash $33,057,033
Net unrealized appreciation
on open futures contracts 843,690
-----------
33,900,723
Interest receivable 103,870
-----------
$34,004,593
===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 147,112
Management fees 56,301
Incentive fees 44,110
Other expense 26,656
Due to SSB 670,666
-----------
944,845
Partners' Capital:
General Partner, 338 Unit
equivalents outstanding in 1999 331,402
Limited Partners, 33,380 Unit
of Limited Partnership
Interest outstanding in 1999
respectively 32,728,346
-----------
33,059,748
-----------
$34,004,593
===========
See Notes to Financial Statements.
3
<PAGE>
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
PERIOD FROM
JUNE 15, 1998
(DATE PARTNERSHIP
WAS ORGANIZED)
TO MARCH 31,
1999
--------------
Income:
Net gains (losses) on trading of commodity
futures:
Realized losses on closed positions $ (485,486)
Change in unrealized gains/losses on open
positions 843,690
------------
358,204
Less, brokerage commissions including clearing fees
of $7,925 (330,772)
------------
Net realized and unrealized gains (losses) 27,432
Interest income 191,122
------------
218,554
------------
Expenses:
Management fees 106,041
Incentive fees 44,110
Other 726,655
------------
876,806
------------
Net loss (658,252)
Proceeds from offering -Limited Partners 33,380,000
-General Partner 338,000
------------
Partners' capital, end of period $ 33,059,748
============
Net asset value per Unit
(33,718 Units outstanding at March 31, 1999) $ 980.48
============
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (19.52)
============
Redemption Net asset value per Unit $ 999.49
============
See Notes to Financial Statements
4
<PAGE>
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. General:
Salomon Smith Barney Global Diversified Futures Fund L.P. (the
"Partnership") is a limited partnership organized under the laws of the State of
New York, on June 15, 1998 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. The Partnership commenced
trading operations on February 2, 1999.
Between November 25, 1998 (commencement of offering period) and February 1,
1999, 33,379 Units of limited partnership interest and 337 Units equivalents
representing the general partner's contribution were sold at $1,000 per unit.
The proceeds of the offering were held in an escrow account until February 2,
1999, 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. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBH"), which is the sole owner of SSB. SSBH is a wholly owned subsidiary of
Citigroup Inc. All trading decisions are made for the Partnership by Campbell &
Company, Inc., ("Campbell"), Eagle Trading Systems, Inc. ("Eagle"), Eckhardt
Trading Company ("Eckhardt") and Rabar Market Research, Inc. ("Rabar")
(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 March 31, 1999 and the results of its operations for the period
from February 2, 1999 (commencement of trading operations) to March 31, 1999.
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, 1998.
<PAGE>
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.
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the period from June 15, 1998,
(date Partnership was organized) to March 31, 1999 was as follows:
PERIOD FROM
JUNE 15, 1998
(DATE PARTNERSHIP
WAS ORGANIZED)
TO
MARCH 31, 1999
Net realized and unrealized gains $ 0.81
Interest income 5.67
Expenses (26.00)
---------
Decrease for period (19.52)
Net Asset Value per Unit,
Beginning of period 1,000.00
---------
Net Asset Value per Unit,
End of period $ 980.48
=========
Redemption Net Asset
Value Per Unit $ 999.49
=========
* For the purpose of a redemption, any remaining deferred liability for
reimbursement of offering and organization expenses will not reduce redemption
net asset value per unit. (see note 3)
3. Offering and Organization Costs:
Offering and organization expenses of approximately $700,000 relating to
the issuance and marketing of the Partnership's Units offered were initially
paid by SSB. These costs have been recorded as due to SSB in the statement of
financial condition and as expense in the statement of operations for the period
ended March 31, 1999. These costs are being reimbursed to SSB by the Partnership
in 24 equal monthly installments (together with interest at the prime rate
quoted by the Chase Manhattan Bank).
Based on this calculation, as of March 31, 1999, $50,407 of these costs are
currently payable to SSB, of which the Partnership has reimbursed SSB $25,321
and $25,086 remains payable.
<PAGE>
In addition, the Partnership has recorded interest expense of $8,454, of
which the Partnership has paid SSB $4,013 and $4,441 remains payable.
The remaining deferred liability for these costs due to SSB of $641,139
(exclusive of interest charges) 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.
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 and partners'
capital.
The Customer Agreement between the Partnership and SSB 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, if applicable, at March 31, 1999 was $843,690 and the average fair
value during the period from February 2, 1999 (commencement of trading
operations) to March 31, 1999, based on monthly calculation, was $972,935.
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
may 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, through physical delivery 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.
<PAGE>
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 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 SSB.
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.
<PAGE>
At March 31, 1999, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was $151,931,583
and $104,627,636, respectively, as detailed below. All of these instruments
mature within one year of March 31, 1999. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity. At March
31, 1999, the fair value of the Partnership's derivatives, including options
thereon, if applicable, was $843,690, as detailed below.
MARCH 31, 1999
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies:
- - Exchange Traded Contracts $ 3,044,053 $ 14,258,518 $ 226,028
- - OTC Contracts 16,498,926 36,698,735 154,420
Energy 3,418,156 -- 318,547
Grains 380,212 285,888 (14,810)
Interest Rates U.S. 8,291,213 26,054,678 141,724
Interest Rates Non-U.S 112,680,363 18,461,834 3,609
Metals 2,803,523 5,247,704 (110,721)
Softs -- 253,107 11,580
Indices 4,815,137 3,367,172 113,313
------------ ------------ ------------
Totals $151,931,583 $104,627,636 $ 843,690
============ ============ ============
<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, net unrealized appreciation (depreciation) on open futures and forward
contracts, commodity options, if applicable, 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 period ended March 31, 1999.
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 period ended March 31, 1999, Partnership capital decreased
1.95% from $33,718,000 (proceeds from offering) to $33,059,748. This decrease
was primarily attributable to the initial expense of offering and organization
costs of $700,000.
Risk of Computer System Failure (Year 2000 Issue)
The Year 2000 issue is the result of existing computers in many
businesses using only two digits to identify a year in the date field. These
computers and programs, often referred to as "information technology," were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results at the Year 2000. Such systems and processes are dependent on
correctly identifying dates in the next century.
The General Partner administers the business of the Partnership through
various systems and processes maintained by SSBH and SSB. In addition, the
operation of the Partnership is dependent on the capability of the Partnership's
Advisors, the brokers and exchanges through which the Advisors trade, and other
third parties to prepare adequately for the Year 2000 impact on their systems
and processes. The Partnership itself has no systems or information technology
applications relevant to its operations.
<PAGE>
The General Partner, SSB, SSBH and their parent organization Citigroup
Inc. have undertaken a comprehensive, firm-wide evaluation of both internal and
external systems (systems related to third parties) to determine the specific
modifications needed to prepare for the year 2000. The combined Year 2000
program in SSB is expected to cost approximately $140 million over the four
years from 1996 through 1999, and involve over 450 people at the peak staffing
level. SSB expects to complete all compliance and certification work by June
1999. At this time, over 95% of SSBH systems have completed the correction
process and are Year 2000 compliant. Over 73% of the systems have completed
certification testing. The Year 2000 project at SSBH remains on schedule.
The systems and components supporting the General Partner's business that
require remediation have been identified and modifications have been made to
bring them into Year 2000 compliance. Testing of these systems was completed in
the fourth quarter of 1998. Final testing and certification are expected to be
completed by the end of the first quarter of 1999.
This expenditure and the General Partner's resources dedicated to the
preparation for Year 2000 do not and will not have a material impact on the
operation or results of the Partnership.
The General Partner has requested and received statements from the
Advisors that each has undertaken its own evaluation and remediation plans to
identify any of its computer systems that are Year 2000 vulnerable. Each Advisor
has confirmed it is taking immediate actions to remedy those systems as
necessary. The General Partner will continue to inquire into and to confirm each
Advisor's readiness for Year 2000.
The most likely and most significant risk to the Partnership associated
with the lack of Year 2000 readiness is the failure of outside organizations,
including the commodities exchanges, clearing organizations, or regulators with
which the Partnership interacts to resolve their Year 2000 issues in a timely
manner. This risk could involve the inability to determine the value of the
Partnership at some point in time and would make effecting purchases or
redemptions of Units in the Partnership infeasible until such valuation was
determinable.
SSB has successfully participated in industry-wide testing including: The
Streetwide Beta Testing organized by the Securities Industry Association (SIA),
a government securities clearing test with the Federal Reserve Bank of New York,
The Depository Trust Company, and The Bank of New York, and Futures Industry
Association participants test. The firm is also participating in the streetwide
testing which commenced in March 1999.
It is possible that problems may occur that would require some time to
repair. Moreover, it is possible that problems will occur outside SSBH for which
SSBH could experience a secondary effect. Consequently, SSBH is preparing
comprehensive, written contingency plans so that alternative procedures and a
framework for critical decisions are defined before any potential crisis occurs.
<PAGE>
The goal of Year 2000 contingency planning is a set of alternate procedures
to be used in the event of a critical system failure or a failure by a supplier
or counterparty. Planning work was completed in December 1998, and testing of
alternative procedures will be conducted in the first half of 1999.
Results of Operations
During the period from February 2, 1999 (commencement of trading
operations) to March 31, 1999, the Partnership's net asset value per Unit
decreased 1.95% from $1,000.00 to $980.48. The Partnership experienced a net
trading gain before brokerage commissions and related fees in the period ended
March 31, 1999 of $358,204. Gains were primarily attributable to the trading of
commodity futures in currencies, softs U.S. interest rates and energy and were
partially offset by losses in indices, grains, U.S. interes rates and metals.
The Partnership commenced trading operations on February 2, 1999, 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 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 on the monthly average 30-day U.S. Treasury bill rate determined
weekly by SSB based on the non-competitive yield on three 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, vary according to trading
performance, additionsand redemptions.
Management fees are calculated on the portion of the Partnership's net
asset value allocated to each 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 each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures of Market Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership'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 Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership'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 terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
<PAGE>
The Partnership's risk exposure in the various market sectors traded by
the Advisors is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized or unrealized).
Exchange maintenance margin requirements have been used by the
Partnership 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
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) 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 (almost exclusively currencies in the case of the Partnership), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
The fair value of the Partnership's futures and forward positions does
not have any optionality component. However, certain of the Advisors trade
commodity options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option. Where this instrument is a futures contract, the futures
margin, and where this instrument is a physical commodity, the
futures-equivalent maintenance margin has been used. This calculation is
conservative in that it assumes that the fair value of an option will decline by
the same amount as the fair value of the underlying instrument, whereas, in
fact, the fair values of the options traded by the Partnership in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
In quantifying the Partnership'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 added to determine each trading category's aggregate
Value at Risk. The diversification effects resulting from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have not
been reflected.
<PAGE>
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of March 31, 1999. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of March 31, 1999, the Partnership's
total capitalization was approximately $33,059,748.
March 31, 1999
% of Total
Market Sector Value at Risk Capitalization
Currencies $1,212,639 3.60%
Energy 284,400 0.84%
Grains 20,360 0.06%
Interest rate U.S. 241,650 0.72%
Interest rate Non-U.S 506,526 1.50%
Metals 217,850 0.65%
Softs 16,500 0.05%
Indices 460,614 1.37%
---------- -----
Total $2,960,539 8.79%
========== ======
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable margin requirement (margin requirements
generally range between 2% and 15% of contract face value) as well as the
capitalization of the Partnership. The magnitude of the Partnership'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
Partnership to incur severe losses over a short period of time. The foregoing
Value at Risk table - as well as the past performance of the Partnership - give
no indication of this "risk of ruin."
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, these balances (as well as any market
risk they represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative
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, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership 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 Partnership's primary market risk exposures as well as the
strategies used and to be used by the General Partner and the Advisors for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership'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 management strategies of the Partnership.
There can be no assurance that the Partnership'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
Partnership
The following were the primary trading risk exposures of the
Partnership as of March 31, 1999, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of
the Partnership. Interest rate movements directly affect the price of the
futures positions held by the Partnership 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
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations - e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future. The changes in interest rates which have the most effect
on the Partnership are changes in long-term, as opposed to short-term, rates.
Consequently, even a material change in short-term rates would have little
effect on the Partnership were the medium- to long-term rates to remain steady.
<PAGE>
Currencies. The Partnership'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 General Partner does not anticipate that the
risk profile of the Partnership's currency sector will change significantly in
the future, although it is difficult at this point to predict the effect of the
introduction of the Euro on the Advisors' currency trading strategies. The
currency trading Value at Risk figure includes foreign margin amounts converted
into U.S. dollars with an incremental adjustment to reflect the exchange rate
risk inherent to the dollar-based Partnership in expressing Value at Risk in a
functional currency other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based indices. As of
December 31, 1998, the Partnership's primary exposures were in the S&P 500,
Financial Times (England), Nikkei (Japan) and Hang Seng (Hong Kong) stock
indices. The General Partner anticipates little, if any, trading in non-G-7
stock indices. The Partnership 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 Partnership to avoid being "whipsawed" into numerous small losses.)
Metals. The Partnership's primary metal market exposure is to
fluctuations in the price of gold and silver. Although certain of the Advisors
will from time to time trade base metals such as aluminum and copper, the
principal market exposures of the Partnership have consistently been in the
precious metals, gold and silver. The Advisors' gold trading has been
increasingly limited due to the long-lasting and mainly non-volatile decline in
the price of gold over the last 10-15 years. However, silver prices have
remained volatile over this period, and the Advisors have from time to time
taken substantial positions as they have perceived market opportunities to
develop. The General Partner anticipates that gold and silver will remain the
primary metals market exposure for the Partnership.
<PAGE>
Commodities. The Partnership's primary commodities exposure is to
agricultural price movements which are often directly affected by severe or
unexpected weather conditions. Coffee, Cocoa, Cotton and Sugar accounted for the
substantial bulk of the Partnership's commodity exposure as of March 31, 1999.
Energy. The Partnership's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
Oil prices are currently depressed, but they can be volatile and substantial
profits and losses have been and are expected to continue to be experienced in
this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of March 31,1999.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds and French francs.
The Advisor regularly converts foreign currency balances to dollars in an
attempt to control the Partnership's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure.
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisors concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require certain of the Advisors to close out
individual positions as well as enter programs traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partner primarily relies on the Advisors' own risk control policies
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
Each Advisor applies its own risk management policies to its trading. The
Advisors often follow diversification guidelines, margin limits and stop loss
points to exit a position. The Advisors' research of risk management often
suggests ongoing modifications to their trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisors to discuss their risk management and to
look for any material changes to the Advisors' portfolio balance and trading
techniques. The Advisors are required to notify the General Partner of any
material changes to their programs.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning a purported class action against
numerous broker-dealers including Salomon Smith Barney, see the
description that appears in the sixth paragraph under the caption Item
3. "Legal Proceedings" of the Form 10-K for the year ending December
31, 1998. SSBH has filed a motion to dismiss the amended complaint.
Item 2. Changes in Securities and Use of Proceeds - 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
<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.
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel
David J. Vogel, President
Date: 5/14/99
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
David J. Vogel, President
Date: 5/14/99
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/14/99
<PAGE>
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