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 September 30, 2000 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
September 30, 2000
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition
September 30, 2000 (Unaudited) and December 31, 1999.....2
Statements of Operations for the Quarters Ended
September 30, 2000 and 1999 (Unaudited)..................3
Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited)..................4
Statements of Changes in Partners' Capital for
the Nine Months Ended September 30, 2000 and 1999
(Unaudited)..............................................5
Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited)..................6
Notes to Financial Statements (Unaudited).............7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................................13-21
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ..................................... 21-33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................34
Item 5. Other Information....................................34
Item 6. Exhibits and Reports on Form 8-K..................34-35
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COLUMBIA FUTURES FUND
STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
September 30, December 31
,
2000 1999 $
$
(Unaudited)
ASSETS
<S> <C> <C>
Equity in futures interests trading accounts:
Cash 7,453,047 8,131,783
Net unrealized loss on open contracts (MS & Co.)
(231,603) -
Net unrealized gain on open contracts (MSIL)
10,575 -
Net unrealized gain on open contracts (Carr)
- 334,288
Total net unrealized gain (loss) on open contracts (221,028)
334,288
Total Trading Equity 7,232,019 8,466,071
Interest receivable (DWR) 30,628 30,338
Due from DWR 3,666 __ ____-___
Total Assets 7,266,313 8,496,409
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Administrative expenses payable 104,020 61,609
Accrued management fees 23,795 28,023
Redemptions payable 15,612 51,621
Total Liabilities 143,427 141,253
Partners' Capital
Limited Partners (2,637.375 and 2,780.964
Units, respectively) 6,862,677 8,065,143
General Partner (100 Units) 260,209 290,013
Total Partners' Capital 7,122,886 8,355,156
Total Liabilities and Partners' Capital 7,266,313 8,496,409
NET ASSET VALUE PER UNIT 2,602.09 2,900.13
<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 September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 86,225(207,066)
Net change in unrealized (357,588) (31,363)
Total Trading Results (271,363) (238,429)
Interest Income (DWR) 92,731 89,778
Total Revenues (178,632) (148,651)
EXPENSES
Brokerage commissions (DWR) 87,145 110,572
Management fees 73,196 91,008
Administrative expenses 19,000 21,000
Transaction fees and costs 2,297 7,244
Total Expenses 181,638 229,824
NET LOSS (360,270) (378,475)
NET LOSS ALLOCATION
Limited Partners (347,155) (365,723)
General Partner (13,115) (12,752)
NET LOSS PER UNIT
Limited Partners (131.15) (127.52)
General Partner (131.15) (127.52)
<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 Nine Months Ended September 30,
2000 1999
$ $
REVENUES
<S> <C> <C>
Trading profit (loss):
Realized 43,859 269,671
Net change in unrealized (555,316) (149,913)
Total Trading Results (511,457) 119,758
Interest Income (DWR) 279,854 267,141
Total Revenues (231,603) 386,899
EXPENSES
Brokerage commissions (DWR) 280,970 297,984
Management fees 235,902 287,191
Administrative expenses 55,000 55,000
Transaction fees and costs 16,102 19,638
Incentive fees
- 187
Total Expenses 587,974 660,000
NET LOSS (819,577) (273,101)
NET LOSS ALLOCATION
Limited Partners (789,773) (263,962)
General Partner (29,804) (9,139)
NET LOSS PER UNIT
Limited Partners (298.04) (91.39)
General Partner (298.04) (91.39)
<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 Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Units of
Partnership Limited General
Interest Partners Partner Total
<S> <C> <C> <C> <C>
Partners' Capital,
December 31, 1998 3,199.179 $9,827,470 $317,099$10,144,569
Net Loss
- (263,962) (9,139) (273,101)
Redemptions (288.416) (907,495)__ ____-___
(907,495)
Partners' Capital,
September 30, 1999 2,910.763 $8,656,013 $307,960 $8,963
,973
Partners' Capital,
December 31, 1999 2,880.964 $8,065,143 $290,013$8,355,156
Net Loss
- (789,773) (29,804) (819,577)
Redemptions (143.589) (412,693)__ ____-___
(412,693)
Partners' Capital,
September 30, 2000 2,737.375 $6,862,677 $260,209 $7,122
,886
<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 Nine Months Ended September 30,
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss (819,577) (273,101)
Noncash item included in net loss:
Net change in unrealized 555,316 149,913
(Increase) decrease in operating assets:
Interest receivable (DWR) (290) 534
Due from DWR (3,666) (585)
Increase (decrease) in operating liabilities:
Administrative expenses payable 42,411 41,739
Accrued management fees (4,228) (3,783)
Net cash used for operating activities (230,034) (85,283)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in redemptions payable(36,009) 45,737
Redemptions of Units (412,693) (907,495)
Net cash used for financing activities (448,702) (861,758)
Net decrease in cash (678,736) (947,041)
Balance at beginning of period 8,131,783 9,719,676
Balance at end of period 7,453,047 8,772,635
<FN>
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited financial statements contained herein 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, 1999 Annual
Report on Form 10-K.
1. Organization
Columbia Futures Fund is a New York 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"). Morgan Stanley & Co., Inc. ("MS & Co.")
and Morgan Stanley & Co. International Limited ("MSIL") provide
clearing and execution services. Demeter, DWR, MS & Co. and MSIL
are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The sole trading advisor to the Partnership is John W. Henry &
Company, Inc. (the "Trading Advisor").
2. Related Party Transactions
The Partnership's cash is on deposit with DWR, MS & Co., and MSIL
in futures interest 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.
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities" effective for fiscal years beginning after June 15,
2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended
December 31, 1998. SFAS No. 133 superceded SFAS Nos. 119 and
105, which required the disclosure of average aggregate fair
values and contract/notional values, respectively, of derivative
financial instruments for an entity that carries its assets at
fair value. SFAS No. 133 was further amended by SFAS No. 138,
which clarifies issues surrounding interest rate risk, foreign
currency denominations, normal purchases and sales and net
hedging. The application of SFAS No. 133, as amended by SFAS No.
137, did not have a significant effect on the Partnership's
financial statements, nor will the application of the provisions
of SFAS No. 138 have a significant effect on the Partnership's
financial statements.
SFAS No. 133 defines a derivative as a financial instrument or
other contract that has all three of the following
characteristics:
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1) One or more underlying notional amounts or payment
provisions;
2) Requires no initial net investment or a smaller initial net
investment than would be required relative to changes in market
factors;
3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option
contracts, or other financial instruments with similar
characteristics such as caps, floors and collars.
The net unrealized gains (losses) on open contracts are reported
as a component of "Equity in futures interests trading accounts"
on the statements of financial condition and totaled $(221,028)
and $334,288 at September 30, 2000 and December 31, 1999,
respectively.
Of the $221,028 net unrealized loss on open contracts at
September 30, 2000, $53,184 related to exchange-traded futures
contracts and $167,844 related to off-exchange-traded forward
currency contracts.
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Of the $334,288 net unrealized gain on open contracts at December
31, 1999, $308,189 related to exchange-traded futures contracts
and $26,099 related to off-exchange-traded forward currency
contracts.
Exchange-traded futures contracts held by the Partnership at
September 30, 2000 and December 31, 1999 mature through September
2001 and December 2000, respectively. Off-exchange-traded forward
currency contracts held by the Partnership at September 30, 2000
and December 31, 1999 mature through December 2000 and March
2000, respectively.
The Partnership has 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.
The Partnership also has credit risk because DWR, MS & Co., and
MSIL 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. DWR, MS
& Co., and MSIL each as a futures commission merchant for the
Partnership's
<PAGE>
COLUMBIA FUTURES FUND
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 (loss) on all open futures contracts,
which funds, in the aggregate, totaled $7,399,863 and $8,439,972
at September 30, 2000 and December 31, 1999, 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 (loss) on open forward contracts be segregated.
With respect to those off-exchange-traded forward currency
contracts, the Partnership is at risk to the ability of MS & Co.,
the sole counterparty on all of such contracts, to perform. The
Partnership has a netting agreement with MS & Co. This
agreement, which seeks to reduce both the Partnership's and MS &
Co.'s exposure on off-exchange-traded forward currency contracts,
should materially decrease the Partnership's credit risk in the
event of MS & Co.'s bankruptcy or insolvency.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and MS & Co. and MSIL as clearing brokers in
separate futures trading accounts established for the Trading
Advisor, which assets are used as margin to engage in trading.
The assets are held in either non-interest-bearing bank accounts
or in securities and instruments permitted by the CFTC for
investment of customer segregated or secured funds. The
Partnership's assets held by the commodity brokers may be used as
margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures and forwards it
is expected that the Partnership will continue to own such liquid
assets for margin purposes.
The Partnership's investment in futures and forwards, may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. These market conditions could prevent the Partnership
from promptly liquidating its futures
<PAGE>
contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. 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 prevent the Partnership from promptly liquidating
unfavorable positions in such markets, subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions of additional units of
limited partnership interest ("Unit(s)") in the future will
affect the amount of funds available for investment in futures
interests in subsequent periods. It is not possible to estimate
the amount and therefore, the impact of future redemptions of
Units.
Results of Operations
General. The Partnership's results depend on its Trading Advisor
and the ability of the Trading Advisor's trading programs to take
advantage of price movements or other profit opportunities in the
futures, forwards, and options markets. The following presents a
<PAGE>
summary of the Partnership's operations for the quarters and nine
months ended September 30, 2000 and 1999, respectively, and a
general discussion of its trading activities during each period.
It is important to note, however, that the Trading Advisor trades
in various markets at different times and that prior activity in
a particular market does not mean that such market will be
actively traded by the Trading Advisor or will be profitable in
the future. Consequently, the results of operations of the
Partnership are difficult to discuss other than in the context of
its Trading Advisor's trading activities on behalf of the
Partnership as a whole and how the Partnership has performed in
the past.
For the Quarter and Nine Months Ended September 30, 2000
For the quarter ended September 30, 2000, the Partnership
recorded total trading losses net of interest income of $178,632
and posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 3.4% were recorded in the
currency markets primarily from trading the Japanese yen during
August as the yen drew support from rising expectations that
Japan's second quarter gross domestic product data would show
convincing strength in the wake of surprisingly robust all-
industries figures. In the global stock index futures markets,
losses of approximately 1.9% were experienced primarily from
short positions in DAX Index futures as prices moved in a
trendless pattern throughout a majority of the quarter.
Additional losses of approximately 1.1% were recorded in the
<PAGE>
global interest rate futures markets primarily from trading
Japanese interest rate futures. Long positions in Japanese
government bond futures recorded losses during August as prices
were weighed down by growing hopes for higher interest rates and
economic expansion in Japan. Additional downward pressure
occurred following the Bank of Japan's decision to raise interest
rates, thus ending their zero-interest rate policy. Short
Japanese government bond futures positions contributed to losses
in this complex during September as prices surged and long-term
rates dropped as investors sought refuge from falls in U.S. and
Japanese stock prices. A portion of overall Partnership losses
was offset by gains of approximately 1.2% recorded in the energy
markets primarily from long futures positions during August with
Brent crude hitting 10-year highs and U.S. crude oil coming
within $1 of a new post-Gulf War record amid evidence of
historically low U.S. oil stocks. Total expenses for the three
months ended September 30, 2000 were $181,638, resulting in a net
loss of $360,270. The value of a Unit decreased from $2,733.24 at
June 30, 2000 to $2,602.09 at September 30, 2000.
For the nine months ended September 30, 2000, the Partnership
recorded total trading losses net of interest income of $231,603
and posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 5.7% were recorded in the
currency markets primarily from trading the Japanese yen during
August as the yen drew support from rising expectations that
<PAGE>
Japan's second quarter gross domestic product data would show
convincing strength in the wake of surprisingly robust all-
industries figures. Short Japanese yen positions also resulted
in losses during the second quarter as the yen's value
strengthened against the U.S. dollar on speculation that the
Japanese government was considering an economic stimulus package,
indications of strong first-quarter growth and signals of an end
to Japan's zero interest rate policy. Additional losses of
approximately 5.6% were recorded in the global interest rate
futures markets primarily from long German government bond
futures positions as prices moved lower during the second
quarter, following U.S. Treasury prices downward. In the metals
markets, losses of approximately 1.7% were experienced primarily
from short gold futures positions as prices spiked sharply higher
during February following an announcement by a large producer
that it was suspending gold hedging activities. Later in the
month, newly established long gold futures positions incurred
additional losses as prices fell from weakness in the Australian
dollar and the sale of seven tons of gold by the Dutch central
bank. A portion of overall Partnership losses was offset by
gains of approximately 2.0% recorded in the energy markets
primarily from long futures positions during August with Brent
crude hitting 10-year highs and U.S. crude oil coming within $1
of a new post-Gulf War record amid evidence of historically low
U.S. oil stocks. Long heating oil futures positions were also
profitable for the energy complex as oil prices powered to nine-
<PAGE>
year highs during the first quarter on concerns about future
output levels amid dwindling stockpiles and increasing demand.
Additional gains of approximately 0.9% were recorded in the soft
commodities markets primarily from long sugar futures positions
as prices trended to 22-month highs during June due to strong
demand and declining production from Brazil. Total expenses for
the nine months ended September 30, 2000 were $587,974, resulting
in a net loss of $819,577. The value of a Unit decreased from
$2,900.13 at December 31, 1999 to $2,602.09 at September 30,
2000.
For the Quarter and Nine Months Ended September 30, 1999
For the quarter ended September 30, 1999, the Partnership
recorded total trading losses net of interest income of $148,651
and posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 2.9% were recorded in the
global interest rate futures markets primarily during July and
September from short Japanese government bond futures positions
as prices rallied on fears that strength in the Japanese yen
would slow down that country's budding recovery. Additional
losses of approximately 1.7% were experienced in the metals
markets primarily during July from short silver futures positions
as prices rose after a fall in U.S. market reserves and the
announcement of a cutback in metal production. In the currency
markets, losses of approximately 1.1% were recorded primarily
during August and early September from long positions in the euro
<PAGE>
and the Swiss franc as the U.S. dollar rallied higher versus most
major currencies on August 23 amid a rally in U.S. stock prices,
and on September 10 after an intervention by the Bank of Japan.
As a result, new short positions were established in the euro and
the Swiss franc only to result in additional losses as these
currencies strengthened versus the U.S. dollar during the latter
half of September after the U.S. trade figures reflected a record
deficit. Smaller losses of approximately 0.7% were incurred
primarily during August in the agricultural markets from long
corn futures positions as prices decreased due to an unexpectedly
large U.S. Department of Agriculture estimate for this year's
corn crop. These losses were partially offset by gains in the
energy markets of approximately 2.7% throughout the quarter
primarily from long crude oil futures positions as oil prices
mounted higher during July after a fall in U.S. oil inventories,
production difficulties in Nigeria and continued adherence to
output reductions from OPEC countries. Oil prices continued to
climb during August and September on increased demand, fears of
production problems and an announcement by OPEC ministers
confirming that they will uphold their global cutbacks until
April of next year. Additional gains of approximately 0.7% were
recorded in the soft commodities markets primarily during July
from short coffee futures positions as prices fell amid
diminished fears of impending frost damage to Brazilian
plantations and on predictions that Brazil would reap a record
harvest next year. Total expenses for the three months ended
<PAGE>
September 30, 1999 were $229,824, resulting in a net loss of
$378,475. The value of a Unit decreased from $3,207.12 at June
30, 1999 to $3,079.60 at September 30, 1999.
For the nine months ended September 30, 1999, the Partnership
recorded total trading revenues including interest income of
$386,899 and, after expenses, posted a decrease in Net Asset
Value per Unit. The most significant net losses of approximately
3.7% were recorded in the metals markets primarily 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. Additional
losses were incurred in this market during the second quarter as
supply and demand concerns resulted in short-term price
volatility. Additional losses of approximately 2.6% were
experienced in the global interest rate futures markets primarily
during July and September from short Japanese government bond
futures positions as prices rallied on fears that strength in the
Japanese yen would slow down that country's budding recovery.
Smaller losses of approximately 1.0% were recorded in the
agricultural markets primarily from long corn futures positions
as prices decreased due to an unexpectedly large U.S. Department
of Agriculture estimate for this year's corn crop. These losses
were mitigated by profits recorded in the energy markets of
approximately 4.3% primarily from long crude oil futures
positions as oil prices climbed higher during April, June, August
<PAGE>
and September amid tightening of supply and growing global
demand. Additional gains of approximately 1.1% were recorded in
the currency markets primarily from short positions in the euro
as the value of the U.S. dollar strengthened versus the euro
throughout a majority of the first half of the year on the
strength in the U.S. economy, concerns pertaining to the economic
health of Europe and Japan and ongoing military action in
Yugoslavia. Total expenses for the nine months ended September
30, 1999 were $660,000, resulting in a net loss of $273,101. The
value of a Unit decreased from $3,170.99 at December 31, 1998 to
$3,079.60 at September 30, 1999.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
<PAGE>
changes in the level or volatility of interest rates, exchange
rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the Partnership's open
positions, and, consequently, in its earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
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
<PAGE>
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.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and its
cash flow. Profits and losses on open positions of exchange-
traded futures interests are settled daily through variation
margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model 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,
<PAGE>
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The historical observation period of the Partner-
ship's VaR is approximately four years. The one-day 99%
confidence level of the Partnership's VaR corresponds to the
negative change in portfolio value that, based on observed market
risk factors, would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically 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 primary market risk category as of September 30, 2000 and
1999. As of September 30, 2000 and 1999, the Partnership's total
capitalization was approximately $7 million and $9 million,
respectively.
<PAGE>
Primary Market September 30, 2000 September 30, 1999
Risk Category Value at Risk Value at Risk
Currency (2.92)% (2.75)%
Interest Rate (0.99) (0.98)
Equity (0.88) (0.37)
Commodity (0.95) (0.67)
Aggregate Value at Risk (3.40)% (2.92)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market 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 September 30, 2000 and 1999 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures interests,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
<PAGE>
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 October
1, 1999 through September 30, 2000.
Primary Market Risk Category High Low Average
Currency (2.92)% (1.51)% (2.23)%
Interest Rate (1.19) (0.58) (0.94)
Equity (0.88) (0.28) (0.60)
Commodity (0.95) (0.50) (0.77)
Aggregate Value at Risk (3.40)% (1.64)% (2.59)%
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
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, give
no indication of such "risk
<PAGE>
of ruin". In addition, VaR risk measures should be viewed in
light of the methodology's limitations, which include the
following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
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.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at September 30, 2000 and for the end of the four
quarterly reporting periods from October 1, 1999 through
September 30, 2000. 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 or monitor risk.
There can be no assurance that the Partnership's actual losses on
a
<PAGE>
particular day will not exceed the VaR amounts indicated above 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. These balances and any market
risk they may represent are immaterial. At September 30, 2000
the Partnership's cash balance at DWR was approximately 94% of
its total Net Asset Value. 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.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) 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.
<PAGE>
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 September 30, 2000, by market sector. It may
be anticipated however, that these market exposures will vary
materially over time.
Currency. The primary 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.
<PAGE>
The Partnership trades in a large number of currencies. At
September 30, 2000, 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 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 at September
30, 2000 was in the interest rate complex. Exposure was
primarily spread across the Japanese, U.S. and German 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 may materially
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.
The G-7 countries consist of France, U.S., Britain, Germany,
Japan, Italy and Canada. However, the Partnership also takes
<PAGE>
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 that have the most significant 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 September 30, 2000, the Partnership's primary
exposures were in the NASDAQ (U.S.), DAX (German) and All
Ordinaries (Australia) stock indices. The Partnership is
primarily exposed to the risk of adverse price trends or static
markets in the G-7 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.
Commodity
Energy. On September 30, 2000, the Partnership's energy exposure
<PAGE>
was shared primarily by futures contracts in the crude and
heating oil markets. Price movements in these markets result
from political developments in the Middle East, weather patterns,
and other economic fundamentals. It is possible that volatility
will remain high. Significant profits and losses, which have
been experienced in the past, are expected to continue to be
experienced in this market.
Soft Commodities and Agriculturals. On September 30, 2000, the
Partnership had exposure in the markets that comprise these
sectors. Most of the exposure, however, was in the sugar, corn
and cotton markets. Supply and demand inequalities, severe
weather disruption and market expectations affect price movements
in these markets.
Metals. The Partnership's primary metals market exposure is to
fluctuations in the price of gold and silver. Although the
Partnership 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. Exposure
was evident in the gold market as gold prices continued to be
volatile during the quarter. Silver prices have remained
volatile and the Trading Advisor has from time to time taken
positions when market opportunities developed.
<PAGE>
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of September 30, 2000:
Foreign Currency Balances. The Partnership's primary foreign
currency balances at September 30, 2000 were in Canadian dollars
and British pounds. 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 Partnership and the Trading Advisor, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Advisor
daily. 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.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash. Cash is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Please refer to Legal Proceedings previously disclosed in the
Partnership's Form 10-Q(s) for the quarters ended March 31, 2000
and June 30, 2000 and Form 10-K for the year ended December 31,
1999.
Item 5. OTHER INFORMATION
Commencing December 1, 2000, the management fee paid by the
Partnership to the Trading Advisor will be reduced from a 4% to a
2% annual rate. Additionally, the quarterly incentive fee paid
by the Partnership to the Trading Advisor will be changed from
15% to 20% of trading profits, as determined from the end of the
last period in which an incentive fee was earned. No incentive
fee will be paid to the Trading Advisor unless the Trading
Advisor recoups all prior trading losses and has again achieved
net new high trading profits for the period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.01 Amendment to Limited Partnership Agreement of Columbia
Futures Fund, dated as of February 14, 1985,
incorporated by reference to Exhibit 3.01 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985, File No. 0-12431.
10.01 Advisory Agreement among the Partnership, Demeter and
JWH dated as of January 20, 1987, incorporated by
reference to Exhibit 10.03 of the Partnership's Annual
Report on Form 10-K for the fiscal year ended December
31, 1986. File No. 0-12431.
<PAGE>
10.03 Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.03 of
the Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, File No. 0-12431.
10.04 Customer Agreement, dated as of December 1, 1997, among
the Partnership, Carr Futures, Inc., and Dean Witter Reynolds
Inc. is incorporated by reference to Exhibit 10.04 of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, File No. 0-12431.
10.05 International Foreign Exchange Master Agreement, dated
as of August 1, 1997, between the Partnership and Carr Futures,
Inc. is incorporated by reference to Exhibit 10.05 of the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, File No. 0-12431.
10.06 Customer Agreement, dated as of May 1, 2000, between
Morgan Stanley & Co. Incorporated, the Partnership and Dean
Witter Reynolds Inc. is incorporated by reference to Exhibit
10.06 of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, (File No. 0-12431).
10.07 Foreign Exchange and Options Master Agreement,
dated as of April 30, 2000, between the Partnership and
Morgan Stanley & Co. Inc. is incorporated by reference
to Exhibit 10.07 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30,
2000, (File No. 0-12431).
(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)
November 14, 2000 By:/s/Raymond E. Koch _
Raymond E. Koch
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.
