UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File No. 0-12431
COLUMBIA FUTURES FUND
(Exact name of registrant as specified in its charter)
New York 13-3103617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
c/o Demeter Management Corporation
Two World Trade Center, 62 Fl., New York, NY 10048
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
(Former name, former address, and former fiscal year, if changed
since last report)
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>
<TABLE>
COLUMBIA FUTURES FUND
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 1999
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
June 30, 1999 (Unaudited) and December 31, 1998..........2
Statements of Operations for the Quarters Ended
June 30, 1999 and 1998 (Unaudited).......................3
Statements of Operations for the Six Months Ended
June 30, 1999 and 1998 (Unaudited).......................4
Statements of Changes in Partners' Capital for
the Six Months Ended June 30, 1999 and 1998
(Unaudited)..............................................5
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited).......................6
Notes to Financial Statements (Unaudited).............7-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................12-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ..................................... 21-33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................34
Item 6. Exhibits and Reports on Form 8-K.....................34
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COLUMBIA FUTURES FUND
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
June 30, December 31,
1999 1998
$ $
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 9,318,108 9,719,676
Net unrealized gain on open contracts 380,554 499,104
Total Trading Equity 9,698,662 10,218,780
Interest receivable (DWR) 29,314 29,902
Total Assets 9,727,976 10,248,682
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Redemptions payable 93,006 15,855
Administrative expenses payable 78,514 54,390
Accrued management fees 32,058 33,868
Total Liabilities 203,578 104,113
Partners' Capital
Limited Partners (2,869.763 and
3,099.179 Units, respectively) 9,203,686 9,827,470
General Partner (100 Units) 320,712 317,099
Total Partners' Capital 9,524,398 10,144,569
Total Liabilities and Partners' Capital 9,727,976 10,248,682
NET ASSET VALUE PER UNIT 3,207.12 3,170.99
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
COLUMBIA FUTURES FUND
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Quarters Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 305,815 1,089,276
Net change in unrealized (4,493) 536,180
Total Trading Results 301,322 1,625,456
Interest Income (DWR) 88,612 94,107
Total Revenues 389,934 1,719,563
EXPENSES
Brokerage commissions (DWR) 97,324 87,666
Management fees 97,282 94,535
Administrative expenses 17,000 12,000
Transaction fees and costs 6,363 5,474
Incentive fees 187 133,846
Total Expenses 218,156 333,521
NET INCOME 171,778 1,386,042
NET INCOME ALLOCATION
Limited Partners 166,150 1,343,783
General Partner 5,628 42,259
NET INCOME PER UNIT
Limited Partners 56.28 422.59
General Partner 56.28 422.59
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
COLUMBIA FUTURES FUND
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 476,737 1,048,948
Net change in unrealized (118,550) 227,026
Total Trading Results 358,187 1,275,974
Interest Income (DWR) 177,363 189,531
Total Revenues 535,550 1,465,505
EXPENSES
Management fees 196,183 185,779
Brokerage commissions (DWR) 187,412 164,273
Administrative expenses 34,000 32,000
Transaction fees and costs 12,394 11,255
Incentive fees 187 133,846
Total Expenses 430,176 527,153
NET INCOME 105,374 938,352
NET INCOME ALLOCATION
Limited Partners 101,761 909,508
General Partner 3,613 28,844
NET INCOME PER UNIT
Limited Partners 36.13 288.44
General Partner 36.13 288.44
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
COLUMBIA FUTURES FUND
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Six Months Ended June 30, 1999 and 1998
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C>
<C>
Partner's Capital,
December 31, 1997 3,342.046 $9,177,928 $283,091 $9,461,019
Net Income - 909,508 28,844 938,352
Redemptions (97.311) (277,913) -
(277,913)
Partners' Capital,
June 30, 1998 3,244.735 $9,809,523 $311,935 $10,
121,458
Partner's Capital,
December 31, 1998 3,199.179 $9,827,470 $317,099 $10,144,5
69
Net Income - 101,761 3,613 105,374
Redemptions (229.416) (725,545) -
(725,545)
Partners' Capital,
June 30, 1999 2,969.763 $9,203,686 $320,712$9,524,398
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<TABLE>
COLUMBIA FUTURES FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended June 30,
1999 1998
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income 105,374 938,352
Noncash item included in net income:
Net change in unrealized 118,550 (227,026)
Decrease in operating assets:
Interest receivable (DWR) 588 511
Increase (decrease) in operating liabilities:
Administrative expenses payable 24,124 21,409
Accrued management fees (1,810) 2,385
Incentive fees payable - (39,876)
Net cash provided by operating activities 246,826 695,755
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in redemptions payable 77,151 95,022
Redemptions of units (725,545) (277,913)
Net cash used for financing activities (648,394) (182,891)
Net increase (decrease) in cash (401,568) 512,864
Balance at beginning of period 9,719,676 9,092,300
Balance at end of period 9,318,108 9,605,164
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements include, in the opinion of management,
all adjustments necessary for a fair presentation of the results
of operations and financial condition of Columbia Futures Fund
(the "Partnership"). The financial statements and condensed
notes herein should be read in conjunction with the Partnership's
December 31, 1998 Annual Report on Form 10-K.
1. Organization
Columbia Futures Fund is a limited partnership organized to
engage primarily in the speculative trading of futures contracts
and forward contracts in foreign currencies, financial
instruments and other commodity interests (collectively,
"futures interests"). The general partner is Demeter Management
Corporation ("Demeter"). The non-clearing commodity broker is
Dean Witter Reynolds Inc. ("DWR") and an unaffiliated clearing
commodity broker, Carr Futures Inc. ("Carr"), provides clearing
and execution services. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
sole trading advisor to the Partnership is John W. Henry &
Company, Inc. (the "Trading Advisor").
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Related Party Transactions
The Partnership's cash is on deposit with DWR and Carr in futures
interests trading accounts to meet margin requirements as needed.
DWR pays interest on these funds based on current 13-week U.S.
Treasury bill rates. The Partnership pays brokerage commissions
to DWR.
3. Financial Instruments
The Partnership trades futures contracts and forward contracts in
foreign currencies, financial instruments and other commodity
interests. Futures and forwards represent contracts for delayed
delivery of an instrument at a specified date and price. Risk
arises from changes in the value of these contracts and the
potential inability of counterparties to perform under the terms
of the contracts. There are numerous factors which may
significantly influence the market value of these contracts,
including interest rate volatility.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
effective for fiscal years beginning after June 15, 1999. The
Partnership elected to adopt the provisions of SFAS No. 133
beginning with the fiscal year that ended December 31, 1998.
SFAS No. 133 supersedes SFAS No. 119 and No. 105, which required
the
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
disclosure of average aggregate fair values and contract/notional
values, respectively, of derivative financial instruments for an
entity which carries its assets at fair value. The application
of SFAS No. 133 does not have a significant effect on the
Partnership's financial statements.
The net unrealized gain on open contracts is reported as a
component of "Equity in futures interests trading accounts" on
the Statements of Financial Condition and totaled $380,554 and
$499,104 at June 30, 1999 and December 31, 1998, respectively.
Of the $380,554 net unrealized gain on open contracts at June 30,
1999, $401,299 related to exchange-traded futures contracts and
$(20,745) related to off-exchange-traded forward currency
contracts.
Of the $499,104 net unrealized gain on open contracts at December
31, 1998, $694,869 related to exchange-traded futures contracts
and $(195,765) related to off-exchange-traded forward currency
contracts.
Exchange-traded futures contracts held by the Partnership at June
30, 1999 and December 31, 1998 mature through June 2000 and
September 1999, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at June 30, 1999 and
December
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
31, 1998 mature through September 1999 and March 1999,
respectively.
The Partnership is subject to the credit risk associated with
counterparty non-performance. The credit risk associated with
the instruments in which the Partnership is involved is limited
to the amounts reflected in the Partnership's Statements of
Financial Condition. DWR and Carr act as the futures commission
merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures contracts are
marked to market on a daily basis, with variations in value
settled on a daily basis. Each of DWR and Carr, as a futures
commission merchant for all of the Partnership's exchange-traded
futures contracts, are required, pursuant to regulations of the
Commodity Futures Trading Commission ("CFTC") to segregate from
their own assets, and for the sole benefit of their commodity
customers, all funds held by them with respect to exchange-traded
futures contracts, including an amount equal to the net
unrealized gain on all open futures contracts, which funds, in
the aggregate, totaled $9,719,407 and $10,414,545 at June 30,
1999 and December 31, 1998, respectively.
With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations
in value nor is there any requirement that an amount equal to the
net unrealized gain on open forward contracts be segregated.
With
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
respect to those off-exchange-traded forward currency contracts,
the Partnership is at risk to the ability of Carr, the sole
counterparty on all of such contracts, to perform. Carr's
parent, Credit Agricole Indosuez, has guaranteed to the
Partnership payment of the net liquidating value of the
transactions in the Partnership's account with Carr (including
foreign currency contracts).
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate
futures interest trading accounts. Such assets are held in either
non-interest bearing bank accounts or in securities approved by
the CFTC for investment of customer funds. The Partnership's
assets held by DWR and Carr may be used as margin solely for the
Partnership's trading. Since the Partnership's sole purpose is
to trade in futures interests, it is expected that the
Partnership will continue to own such liquid assets for margin
purposes.
The Partnership's investment in futures interests may, from time
to time, be illiquid. Most United States futures exchanges limit
fluctuations in certain futures interest prices during a single
day by regulations referred to as "daily price fluctuations
limits" or "daily limits". Pursuant to such regulations, during
a single trading day no trades may be executed at prices beyond
the daily limit. If the price for a particular futures interest
has increased or decreased by an amount equal to the daily limit,
positions in such futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures interests prices have occasionally
moved the daily limit for several consecutive days with little or
no trading. Such market conditions could prevent the Partnership
from promptly liquidating its futures interests and result in
restrictions on redemptions.
<PAGE>
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or from promptly liquidating unfavorable positions,
subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it
expect to have, any capital assets. Future redemptions of Units
of Limited Partnership Interest ("Unit(s)") will affect the
amount of funds available for investment in futures interests in
subsequent periods. Since they are at the discretion of Limited
Partners, it is not possible to estimate the amount and
therefore, the impact of future redemptions.
Results of Operations
For the Quarter and Six Months Ended June 30, 1999
For the quarter ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $389,934 and
posted an increase in Net Asset Value per Unit. The most
significant gains were recorded from long Japanese government
bond futures positions as investors moved into higher yielding
long-term debt instruments during April and May after the
government proposed no new economic spending plans. Additional
gains were experienced in the energy markets during April from
long crude oil futures positions as oil prices rallied due to
declines in inventory levels and growing confidence that oil-
<PAGE>
exporting countries are cutting production. Oil prices jumped
higher during June on unexpected declines in U.S. stockpiles and
on news of refinery outages, thus resulting in additional profits
for the Partnership's long positions. In the global stock index
futures markets, profits were recorded from long Nikkei Index
futures positions as Japanese equity prices moved higher during
April following gains on Wall Street and on hopes that the
Japanese government would take more measures to stimulate their
economy. Additional gains were recorded during June as the
Japanese benchmark index reached its highest level in more than a
year and a half encouraged by recent economic growth data in
Japan. Smaller gains were recorded in the currency markets from
short positions in the euro as the value of most European
currencies weakened steadily versus the U.S. dollar during April
due to lack of economic growth in the European community, the
ongoing military conflict in Kosovo and strong economic data out
of the U.S. Short euro positions were also profitable during
June as the value of the U.S. dollar strengthened against the
European common currency after tame U.S. inflation data eased
fears that the Federal Reserve was about to embark on a series of
rate hikes. These gains were partially offset by losses in the
metals markets from short silver futures positions as prices were
boosted higher during April by perceptions of tightening supply
levels and technically-driven buying. Newly established long
silver futures positions resulted in additional losses during
June as prices decreased after a widely watched survey showed
that silver demand fell in 1998. Additional losses were incurred
in the soft commodities markets during the latter half of the
<PAGE>
quarter from long coffee futures positions as prices declined due
to warm weather in Brazil and ample warehouse supplies. Total
expenses for the three months ended June 30, 1999 were $218,156,
resulting in net income of $171,778. The value of a Unit
increased from $3,150.84 at March 31, 1999 to $3,207.12 at June
30, 1999.
For the six months ended June 30, 1999, the Partnership recorded
total trading revenues including interest income of $535,550 and
posted an increase in Net Asset Value per Unit. The most
significant gains were recorded in the currency markets from
short euro positions as the value of the U.S. dollar strengthened
versus the European common currency throughout a majority of the
first half of the year on the strength of the U.S. economy,
concerns pertaining to the economic health of Europe and Japan
and ongoing military action in Yugoslavia. Additional gains were
recorded in the energy markets from long crude oil futures
positions as oil prices moved significantly higher during March
on news that OPEC and non-OPEC countries had reached an agreement
to cut total output by approximately two million barrels a day
beginning April 1st. Oil prices continued to climb higher during
April due to declines in inventory levels and growing confidence
in production cutbacks. In the global stock index futures
markets, gains resulted from long futures positions in the Nikkei
and ASE All Ordinaries Index during April. The Tokyo equity
benchmark moved higher following gains on Wall Street and on
hopes that the Japanese government would take more measures to
stimulate their economy. Australian stock prices moved higher
<PAGE>
due to April's rise in commodity prices, particularly gold.
Smaller gains were recorded in the global interest rate futures
markets from long Japanese bond futures positions as prices moved
higher during April and May after the government proposed no new
economic spending plans. A portion of these gains was offset by
losses in the metals markets from long silver futures positions
as prices retreated during mid-March after Berkshire Hathaway's
annual report failed to provide any new information on the
company's silver positions. Short silver futures positions
established in April were also unprofitable as prices were
boosted higher by perceptions of tightening supply levels and
technically-driven buying. Newly established long silver futures
positions were once again unfavorable during June as prices
decreased on news of lower demand. Additional losses were
experienced in the soft commodities markets from short coffee
futures positions during mid-March as prices surged as option-
related buying triggered waves of buy-stops at several key
resistance levels, attracting fund short-covering. Newly
established long coffee futures positions also resulted in losses
during the second quarter as prices declined amid warmer
temperatures in Brazil and ample supplies. Total expenses for
the six months ended June 30, 1999 were $430,176, resulting in
net income of $105,374. The value of a Unit increased from
$3,170.99 at December 31, 1998 to $3,207.12 at June 30, 1999.
For the Quarter and Six Months Ended June 30, 1998
For the quarter ended June 30, 1998, the Partnership recorded
total trading revenues including interest income of $1,719,563
and
<PAGE>
posted an increase in Net Asset Value per Unit. The most
significant gains resulted from trading in the currency markets
primarily from short positions in the South African rand as the
value of this currency trended sharply lower versus the U.S.
dollar during May and June, despite intervention by that
country's central bank late in the quarter. Smaller gains were
recorded from short Japanese yen positions as the value of the
yen reached a seven and a half year low relative to the U.S.
dollar in May. Short yen positions produced additional profits
during June despite a sharp reversal in the value of the yen
during mid-month as a result of coordinated intervention by the
U.S. and Japanese governments to halt the downward slide of the
yen. Additional gains were recorded in traditional commodities
from short coffee and crude oil futures positions as prices in
these markets moved lower throughout a majority of the quarter.
In the agricultural markets, gains were recorded from short
positions in corn and wheat futures as prices in these markets
also moved lower during April and May thereby mitigating losses
incurred during June as prices spiked higher. A portion of these
gains was offset by losses recorded in the metals markets from
trading gold and copper futures. Smaller losses were recorded in
the financial futures markets from long positions in French and
German interest rate futures as European bond prices reversed
lower in April after trending higher during the first quarter.
Total expenses for the three months ended June 30, 1998 were
$333,521, resulting in net income of $1,386,042. The value of a
Unit increased from $2,696.76 at March 31, 1998 to $3,119.35 at
June 30, 1998.
<PAGE>
For the six months ended June 30, 1998, the Partnership recorded
trading revenues including interest income of $1,465,505 and
posted an increase in Net Asset Value per Unit. The most
significant trading gains were recorded in the currency markets
from short South African rand positions as its value trended
significantly lower versus the U.S. dollar throughout the second
quarter. Additional gains were recorded in the energy markets
from short crude oil futures positions as oil prices moved lower
throughout a majority of the first quarter despite a potential
conflict in the Persian Gulf during February. Short crude oil
futures positions continued to profit as oil prices moved lower
throughout a greater part of the second quarter following a spike
higher during late March. Smaller gains were produced in the
soft commodities markets from short coffee futures positions as
coffee prices moved lower during the first half of the year. A
portion of the Fund's overall gains was offset by losses
experienced in the metals markets from trading gold futures as
gold prices moved without consistent direction during the first
quarter. Additional losses were recorded in the financial
futures markets from trading Nikkei Index futures during January
and March. Smaller losses were experienced in the agricultural
markets from short corn futures positions as prices moved higher
in January, March and June. Total expenses for the six months
ended June 30, 1998 were $527,153, resulting in net income of
$938,352. The value of a Unit increased from $2,830.91 at
December 31, 1997 to $3,119.35 at June 30, 1998.
<PAGE>
Year 2000 Problem. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. Many computer systems in
use today cannot recognize the computer code for the year 2000,
but revert to 1900 or some other date. This is commonly known as
the "Year 2000 Problem". The Partnership could be adversely
affected if computer systems used by it or any third party with
whom it has a material relationship do not properly process and
calculate date-related information and data concerning dates on
or after January 1, 2000. Such a failure could adversely affect
the handling or determination of futures trades and prices and
other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter.
It has developed its own Year 2000 compliance plan to deal with
the problem and had the plan approved by the company's executive
management, Board of Directors and Information Technology
Department. Demeter is coordinating with MSDW to address the Year
2000 Problem with respect to Demeter's computer systems that
affect the Partnership. This includes hardware and software
upgrades, systems consulting and computer maintenance.
Beyond the challenge facing internal computer systems, the
systems failure of any of the third parties with whom the
Partnership has a material relationship - the futures exchanges
<PAGE>
and clearing organizations through which it trades, Carr, or the
Trading Advisor - could result in a material financial risk to
the Partnership. All U.S. futures exchanges are subject to
monitoring by the CFTC of their Year 2000 preparedness and the
major foreign futures exchanges are also expected to be subject
to market-wide testing of their Year 2000 compliance during 1999.
Demeter intends to monitor the progress of Carr and the Trading
Advisor throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the
Trading Advisor.
A worst case scenario would be one in which trading of contracts
on behalf of the Partnership becomes impossible as a result of
the Year 2000 problem encountered by any third parties. A less
catastrophic but more likely scenario would be one in which
trading opportunities diminish as a result of technical problems
resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency
plans" in the event that the systems of such third parties fail.
Demeter intends to consult closely with MSDW in implementing
those plans. Despite the best efforts of both Demeter and MSDW,
however, it is possible that these steps will not be sufficient
to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the "euro"). During a three-year
<PAGE>
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Advisor from trading in certain
currencies and thereby limits its ability to take advantage of
potential market opportunities that might otherwise have existed
had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive
instruments held by the Partnership are acquired solely for
speculative trading purposes and, as a result, 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 primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often
dependent upon changes in the level or volatility of interest
rates, exchange rates, and/or market values of financial
instruments and commodities. Fluctuations in related market risk
based upon the aforementioned factors result in frequent changes
in the fair value of the Partnership's open positions, and,
consequently, in its earnings and cash flow.
<PAGE>
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification effects among
the Partnership's existing open positions, the volatility present
within the market(s), and the liquidity of the market(s). At
varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt at quantifying the
Partnership's market risk must be qualified by the inherent
uncertainty of its speculative trading, which may cause future
losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable
expectation premised upon historical changes in the fair value of
its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partner-
ship'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.
<PAGE>
The Partnership accounts for open positions on the basis of mark-
to-market accounting principles. As such, any loss in the fair
value of the Partnership's open positions is directly reflected
in the Partnership's earnings, whether realized or unrealized,
and the Partnership's cash flow, as profits and losses on open
positions of exchange-traded futures interests are settled daily
through variation margin.
The Partnership's risk exposure in the various market sectors
traded by the Trading Advisor is estimated below in terms of
Value at Risk ("VaR"). The VaR model employed by the Partnership
incorporates numerous variables that could impact the fair value
of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a
confidence level of 99%. Historical simulation involves
constructing a distribution of hypothetical daily changes in
trading portfolio value. The VaR model generally takes into
account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and
commodity prices, interest rates, foreign exchange rates, as well
as correlation that exists among these variables. The
hypothetical changes in portfolio value are based on daily
observed percentage changes in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The
Partnership's one-day 99% VaR corresponds to the negative change
in portfolio value that, based
<PAGE>
on observed market risk factor moves, would have been exceeded
once in 100 trading days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques
and systems capabilities improve. It must also be noted that the
VaR model is used to quantify market risk for historic reporting
purposes only and is not utilized by either Demeter or the
Trading Advisor in their daily risk management activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by market category as of June 30, 1999. As of June 30, 1999, the
Partnership's total capitalization was approximately $9 million.
Primary Market June 30, 1999
Risk Category Value at Risk
Currency (2.96)%
Interest Rate (0.79)
Equity (0.23)
Commodity (0.50)
Aggregate Value at Risk (3.13)%
<PAGE>
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the
individual categories listed above. Aggregate VaR will be lower
as it takes into account correlation among different positions
and categories.
The table above represents the VaR of the Partnership's open
positions at June 30, 1999 only and is not necessarily
representative of either the historic or future risk of an
investment in the Partnership. As the Partnership's sole
business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can
change significantly over any given time period or even within a
single trading day. Such changes in open positions could
materially impact market risk as measured by VaR either
positively or negatively.
The table below supplements the quarter-end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total
Net Assets for the four quarterly reporting periods from July 1,
1998 through June 30, 1999.
Primary Market Risk Category High Low Average
Currency (3.00)% (1.07)% (2.25)%
Interest Rate (0.83) (0.60) (0.75)
Equity (0.36) (0.22) (0.28)
Commodity (0.52) (0.49) (0.50)
Aggregate Value at Risk (3.13)% (1.47)% (2.42)%
<PAGE>
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 require-
ments, as such margin requirements generally range between 2% and
15% of contract face value. Additionally, due to the use of
leverage, the face value of the market sector instruments held by
the Partnership is typically many times the total capitalization
of the Partnership. The financial magnitude of the Partnership's
open positions thus creates a "risk of ruin" not typically found
in other investment vehicles. Due to the relative size of the
positions held, certain market conditions may cause the
Partnership to incur losses greatly in excess of VaR within a
short period of time. The foregoing VaR tables, as well as the
past performance of the Partnership, gives no indication of such
"risk of ruin". In addition, VaR risk measures should be
interpreted in light of the methodology's limitations, which
include the following: past changes in market risk factors will
not always yield accurate predictions of the distributions and
correlations of future market movements; changes in portfolio
value in response to market movements may differ from the
responses implicit in a VaR model; published VaR results reflect
past trading positions while future risk depends on future
positions; VaR using a one-day time horizon does not fully
capture the market risk of positions that cannot be liquidated or
hedged within one day; and the historical market risk factor data
used for VaR estimation may provide only limited insight into
losses that could be incurred under certain unusual market
movements.
<PAGE>
The foregoing VaR tables present the results of the Partnership's
VaR for the Partnership's market risk exposures and on an
aggregate basis at June 30, 1999 and for the end of the four
quarterly reporting periods from July 1, 1998 through June 30,
1999. Since VaR is based on historical data, VaR should not be
viewed as predictive of the Partnership's future financial
performance or its ability to manage and monitor risk and there
can be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated or that
such losses will not occur more than 1 in 100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well
as any market risk they may represent, are immaterial. The
Partnership also maintains a substantial portion (approximately
88%) of its available assets in cash at DWR. A decline in short-
term interest rates will result in a decline in the Partnership's
cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, 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.
<PAGE>
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
Demeter and the Trading Advisor 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 risk management strategies of the Partnership.
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 June 30, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
<PAGE>
Currency. The primary trading risk market exposure in the
Partnership is in the currency sector. The Partnership's
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs. Interest rate
changes as well as political and general economic conditions
influence these fluctuations. The Partnership trades in a large
number of currencies, including cross-rates - i.e., positions
between two currencies other than the U.S. dollar. For the
second quarter of 1999, the Partnership's major exposures were in
outright U.S. dollar positions. (Outright positions consist of
the U.S. dollar vs. other currencies. These other currencies
include the major and minor currencies). Demeter does not
anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency
trading VaR 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 VaR in a functional currency other than dollars.
Interest Rate. The second largest market exposure this
quarter is in the interest rate complex. Exposure was spread
across the Japanese, U.S., German and Australian interest rate
sectors. Interest rate movements directly affect the price of
the sovereign bond futures positions held by the Partnership and
indirectly affect 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
<PAGE>
impact the Partnership's profitability. The Partnership's
primary interest rate exposure is generally to interest rate
fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions in the
government debt of smaller nations - e.g. Australia. Demeter
anticipates that G-7 and Australian interest rates will remain
the primary interest rate 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. Most of the speculative futures
positions held by the Partnership are in medium-to-long term
instruments. 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.
Equity. 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 June 30, 1999, the Partnership's
primary exposures were in the All Ordinaries (Australia) and
Nikkei (Japan) stock indices. The Partnership is primarily
exposed to the risk of adverse price trends or static markets in
the U.S. 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).
<PAGE>
Commodity.
Soft Commodities and Agriculturals. On June 30, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the coffee, sugar and corn markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Energy. On June 30, 1999, the Partnership's energy
exposure was shared by futures contracts in the oil markets.
Price movements in this market result from political developments
in the Middle East, weather patterns, and other economic
fundamentals. As oil prices have broken out of low price ranges
achieved in 1998, it is possible that volatility will increase as
well. Significant profits and losses have been and are expected
to continue to be experienced in this market.
Metals. The Partnership's primary metals market exposure
is to fluctuations in the price of gold and silver. Although the
Trading Advisor will, from time to time, trade base metals such
as copper, the principal market exposures of the Partnership have
consistently been in precious metals, gold and silver. The
Trading Advisor's 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 Trading Advisor, from
time to time, takes substantial positions when perceived market
opportunities develop. Demeter anticipates that gold and silver
<PAGE> will remain the primary
metals market exposure for the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of June 30, 1999:
Foreign Currency Balances. The Partnership's primary
foreign currency balances are in euros, Japanese yen, South
African rands, Australian dollars and Swiss francs. The
Partnership controls the non-trading risk of these balances by
regularly converting these balances back into dollars upon
liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisor,
severally, attempt to manage the risk of the Partnership's open
positions are essentially the same in all market categories
traded. Demeter attempts to manage the Partnership's market
exposure by (i) diversifying the Partnership's assets among
different market sectors and trading approaches, and (ii),
monitoring the performance of the Trading Advisor on a daily
basis. In addition, the Trading Advisor establishes
diversification guidelines, often set in terms of the maximum
margin to be committed to positions in any one market sector or
market sensitive instrument.
<PAGE>
Demeter monitors and controls the risk of the Partnership's non-
trading instruments, cash, which is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The following supplements Legal Proceedings previously disclosed
in the Partnership's 1998 Form 10-K:
With respect to the plaintiff's consolidated action in
California, on July 1, 1999, the Superior Court of the State of
California, ruling from the bench, denied the plaintiffs' motion
to have their lawsuit certified as a class action, stating, among
other things, that plaintiffs' lawsuit did not present common
questions of fact.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits - None.
B) Reports on Form 8-K. - None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Columbia Futures Fund
(Registrant)
By: Demeter Management Corporation
(General Partner)
August 13, 1999 By:/s/ Lewis A. Raibley, III
Lewis A. Raibley, III
Director and Chief Financial
Officer
The General Partner which signed the above is the only party
authorized to act for the Registrant. The Registrant has no
principal executive officer, principal financial officer,
controller, or principal accounting officer and has no Board of
Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
Columbia Futures Fund and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,318,108
<SECURITIES> 0
<RECEIVABLES> 29,314<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,727,976<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,727,976<F3>
<SALES> 0
<TOTAL-REVENUES> 535,550<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 430,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 105,374
<INCOME-TAX> 0
<INCOME-CONTINUING> 105,374
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,374
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $29,314.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $380,554.
<F3>Liabilities include redemptions payable of $93,006, accrued
management fees of $32,058 and administrative expenses payable of
$78,514.
<F4>Total revenues include realized trading revenue of $476,737,
net change in unrealized of $(118,550) and interest income of $177,363.
</FN>
</TABLE>
