FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
Commission File Number 0-16627
SHEARSON SELECT ADVISORS FUTURES FUND
(Exact name of registrant as specified in its charter)
Delaware 13-3405705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
SHEARSON SELECT ADVISORS FUTURES FUND
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
September 30, 1997, and December 31,
1996. 3
Statement of Income and Expenses and
Partners' Capital for the three and
nine months ended September 30, 1997
and 1996. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
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PART I
Item 1. Financial Statement
SHEARSON SELECT ADVISORS FUTURES FUND
STATEMENT OF FINANCIAL CONDITION
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
ASSETS:
Equity in commodity futures trading account:
Cash and cash equivalents $5,682,278 $6,581,238
Net unrealized appreciation
on open futures contracts 461,992 109,713
---------- ----------
6,144,270 6,690,951
Interest receivable 17,416 18,843
---------- ----------
$6,161,686 $6,709,794
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 30,808 $ 44,732
Management fees 20,343 22,103
Other 27,899 34,022
Incentive fees 32,255 175,680
Redemptions payable 125,579 293,287
---------- ----------
236,884 569,824
---------- ----------
Partners' capital :
General Partner, 34 Unit equivalents
outstanding in 1997 and 1996 85,393 81,071
Limited Partners 2,325 and 2,541 Units
of Limited Partnership Interest
outstanding in 1997 and 1996, respectively 5,839,409 6,058,899
---------- ----------
5,924,802 6,139,970
---------- ----------
$6,161,686 $6,709,794
========== ==========
See Notes to Financial Statements.
3
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SHEARSON SELECT ADVISORS FUTURES FUND
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------- ----------- ------------ ------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ 651,624 $ (242,382) $ 297,430 $ 184,240
Change in unrealized gains/losses on
open positions 288,306 293,970 352,279 224,607
----------- ----------- ----------- -----------
939,930 51,588 649,709 408,847
Less, brokerage commissions and clearing fees
($1,581, $1,681, $3,640 and $5,004, respectively) (93,980) (113,410) (275,260) (359,977)
----------- ----------- ----------- -----------
Net realized and unrealized gains (losses) 845,950 (61,822) 374,449 48,870
Interest income 53,468 49,009 160,334 151,890
----------- ----------- ----------- -----------
899,418 (12,813) 534,783 200,760
----------- ----------- ----------- -----------
Expenses:
Management fees 61,029 55,213 179,296 175,504
Other 9,757 13,193 33,847 39,756
Incentive fees 32,255 -- 32,466 --
----------- ----------- ----------- -----------
103,041 68,406 245,609 215,260
----------- ----------- ----------- -----------
Net income (loss) 796,377 (81,219) 289,174 (14,500)
Redemptions (125,579) (269,920) (504,342) (743,506)
----------- ----------- ----------- -----------
Net increase (decrease) in Partners' capital 670,798 (351,139) (215,168) (758,006)
Partners' capital, beginning of period 5,254,004 5,628,277 6,139,970 6,035,144
----------- ----------- ----------- -----------
Partners' capital, end of period $ 5,924,802 $ 5,277,138 $ 5,924,802 $ 5,277,138
=========== =========== =========== ===========
Net Asset Value per Unit
(2,359 and 2,698 Units outstanding at
September 30, 1997 and 1996, respectively) $ 2,511.57 $ 1,955.94 $ 2,511.57 $ 1,955.94
=========== =========== =========== ===========
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 330.58 $ (28.64) $ 127.12 $ (5.43)
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
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SHEARSON SELECT ADVISORS FUTURES FUND
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. General
Shearson Select Advisors Futures Fund, (the "Partnership") is a limited
partnership which was organized under the laws of the State of Delaware on
February 10, 1987. The Partnership is engaged in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by the
Partnership are volatile and involve a high degree of market risk. The
Partnership commenced trading July 1, 1987.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner, acts as commodity broker for the Partnership. All trading
decisions are being made for the Partnership by John W. Henry & Company, Inc.
(the "Advisor").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at September 30, 1997 and the results of its operations for the three
and nine months ended September 30, 1997 and 1996. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Partnership's annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1996.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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SHEARSON SELECT ADVISORS FUTURES FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1997 and 1996 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
Net realized and unrealized
gains (losses) $ 351.16 $ (21.80) $ 161.71 $ 15.88
Interest income 22.20 17.28 64.31 51.16
Expenses (42.78) (24.12) (98.90) (72.47)
--------- --------- --------- ---------
Increase (decrease) for
period 330.58 (28.64) 127.12 (5.43)
Net Asset Value per Unit,
beginning of period 2,180.99 1,984.58 2,384.45 1,961.37
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $2,511.57 $1,955.94 $2,511.57 $1,955.94
========= ========= ========= =========
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1997 was $461,992 and the average fair value during
the nine months then ended, based on monthly calculation, was $229,650.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off- balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index,
6
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or reference rate, and generally represent future commitments to exchange
currencies or cash flows, to purchase or sell other financial instruments at
specific terms at specified future dates, or, in the case of derivative
commodity instruments, to have a reasonable possibility to be settled in cash or
with another financial instrument. These instruments may be traded on an
exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was
7
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$57,288,065 and $10,259,895, respectively, as detailed below. All of these
instruments mature within one year of September 30, 1997. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity. At September 30, 1997, the fair value of the Partnership's
derivatives, including options thereon was $461,992 as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS FAIR
TO PURCHASE TO SELL VALUE
Currencies* $ 5,173,606 $ 8,946,326 $ (5,969)
Interest Rates Non-U.S. 45,452,197 0 343,272
Interest Rates U.S. 5,701,437 0 33,531
Metals 960,825 0 33,255
Indices 0 1,313,569 57,903
------------ ------------ --------
Totals $57,288,065 $10,259,895 $461,992
============ ============ ========
* The notional or contractual commitment amounts and the fair value amount
listed for the currency sector represent OTC contracts. All other sectors listed
represent exchange traded contracts.
5. Pending Merger:
On September 24, 1997, Travelers Group Inc. ("Travelers") and Salomon
Inc ("Salomon") announced an agreement and plan of merger pursuant to which
Salomon will become a wholly owned subsidiary of Travelers and Smith Barney
Holdings Inc., the parent company of Smith Barney Inc. and Smith Barney Futures
Management Inc., will be merged into Salomon forming Salomon Smith Barney
Holdings Inc. The transaction is expected to be completed by year-end 1997.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and forward contracts, and interest receivable. Because of the low
margin deposits normally required in commodity futures trading, relatively small
price movements may result in substantial losses to the Partnership. While
substantial losses could lead to a decrease in liquidity, no such losses
occurred during the third quarter of 1997.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30,1997, Partnership capital decreased
3.5% from $6,139,970 to $5,924,802. This decrease was attributable to a
redemption of 216 Units resulting in an outflow of $504,342 which was partially
offset by a net income from operations of $289,174 for the nine months ended
September 30, 1997. Future redemptions can impact the amount of funds available
for investments in commodity contract positions in subsequent periods.
Results of Operations
During the Partnership's third quarter of 1997, the net asset value per
Unit increased 15.2% from $2,180.99 to $2,511.57, as compared to the third
quarter of 1996 when the net asset value per Unit decreased 1.4%. The
Partnership experienced a net trading gain before commissions and expenses in
the third quarter of 1997 of $939,930. Gains were recognized in the trading of
currencies and interest rate products, metals and indices. The Partnership
experienced a net trading gain before commissions and expenses in the third
quarter of 1996 of $51,588. Gains were recognized in the trading of metals,
energy and interest rates and were partially offset by losses recognized in
currencies, agricultural products and indices.
Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by,
9
<PAGE>
among other things, changing supply and demand relationships, weather,
governmental, agricultural, commercial and trade programs and policies, national
and international political and economic events and changes in interest rates.
To the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
Interest income on 70% of the Partnership's daily average equity was
earned on the monthly average 13-week U.S. Treasury bill yield. Interest income
for the three and nine months ended September 30, 1997 increased by $4,459 and
$8,444, respectively, as compared to the corresponding periods in 1996. The
increase in interest income is primarily attributable to a higher average cash
balance in 1997 as a result of positive trading performance in 1997.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and, therefore, vary according to trading performance
and redemptions. Accordingly, they must be compared in relation to the
fluctuations in the monthly net asset values. Commissions for the three and nine
months ended September 30, 1997 decreased by $19,430 and $84,717, respectively,
as compared to the corresponding periods in 1996. The primary factor behind the
decrease in commissions for the three and nine months ended September 30, 1997
is the reduced commission rate in 1997. Effective January 1, 1997 brokerage
commissions were reduced to 0.5% of month-end net assets (6% per year) from
0.667% of month-end net assets (8% per year).
All trading decisions for the Partnership are currently being made by the
Advisor. Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. Management fees for the three and nine months ended September
30, 1997 increased by $5,816 and $3,792 as compared to the corresponding periods
in 1996.
Incentive fees paid by the Partnership are based on the net trading
profits of the Partnership as defined in the Limited Partnership Agreement.
Trading performance for the three and nine months ended September 30, 1997
resulted in incentive fees of $32,255 and $32,466, respectively. There were no
incentive fees earned in the corresponding periods in 1996.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHEARSON SELECT ADVISORS FUTURES FUND
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and Director
Date: 11/12/97
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000811078
<NAME> Shearson Select Advisors Futures Fund
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,682,278
<SECURITIES> 461,992
<RECEIVABLES> 17,416
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,161,686
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,161,686
<CURRENT-LIABILITIES> 236,884
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,924,802
<TOTAL-LIABILITY-AND-EQUITY> 6,161,686
<SALES> 0
<TOTAL-REVENUES> 534,783
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 245,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 289,174
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,174
<EPS-PRIMARY> 127.12
<EPS-DILUTED> 0
</TABLE>
