FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998
Commission File Number 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) dentification 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
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SHEARSON SELECT ADVISORS FUTURES FUND
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1.Financial Statements:
Statement of Financial Condition at
March 31, 1998, and December 31, 1997. 3
Statement of Income and Expenses and
Partners' Capital for the three months
ended March 31, 1998 and 1997. 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 - 12
2
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PART I
Item 1. Financial Statement
SHEARSON SELECT ADVISORS FUTURES FUND
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Equity in commodity futures trading account:
Cash and cash equivalents $5,621,521 $6,178,150
Net unrealized appreciation
on open futures contracts 59,623 306,078
---------- ----------
5,681,144 6,484,228
Interest receivable 17,469 19,321
---------- ----------
$5,698,613 $6,503,549
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 28,493 $ 32,518
Management fees 18,808 21,498
Other 27,718 21,583
Incentive fees -- 68,714
Redemptions payable 267,674 129,395
---------- ----------
342,693 273,708
---------- ----------
Partners' capital :
General Partner, 34 Unit equivalents
outstanding in 1998 and 1997 82,736 91,655
Limited Partners 2,167 and 2,277 Units
of Limited Partnership Interest
outstanding in 1998 and 1997, respectively 5,273,184 6,138,186
---------- ----------
5,355,920 6,229,841
---------- ----------
$5,698,613 $6,503,549
========== ==========
</TABLE>
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
MARCH 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ (255,268) $ 233,910
Change in unrealized gains/losses on open
positions (246,455) (72,527)
----------- -----------
(501,723) 161,383
Less, brokerage commissions and clearing fees
($1,551 and $1,041, respectively) (89,469) (96,796)
----------- -----------
Net realized and unrealized gains (losses) (591,192) 64,587
Interest income 54,003 54,820
----------- -----------
(537,189) 119,407
----------- -----------
Expenses:
Management fees 58,061 63,178
Other 10,997 13,471
Incentive fees -- 211
----------- -----------
69,058 76,860
----------- -----------
Net income (loss) (606,247) 42,547
Redemptions (267,674) (182,474)
----------- -----------
Net decrease in Partners' capital (873,921) (139,927)
Partners' capital, beginning of period 6,229,841 6,139,970
----------- -----------
Partners' capital, end of period $ 5,355,920 $ 6,000,043
----------- -----------
Net asset value per Unit
(2,201 and 2,499 Units outstanding
at March 31, 1998 and 1997, respectively) $ 2,433.40 $ 2,400.98
----------- -----------
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (262.33) $ 16.53
----------- -----------
</TABLE>
4
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SHEARSON SELECT ADVISORS FUTURES FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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 March 31, 1998 and the results of its operations for the three
months ended March 31, 1998 and 1997. These financial statements present the
results of interim periods and do not include all disclosures normally provided
in annual financial statements. It is suggested that these financial statements
be read in conjunction with the financial statements and notes included in the
Partnership's annual report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1997.
Due to the nature of commodity trading, the results of operations for
the interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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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 months ended March
31, 1998 and 1997 were as follows:
THREE-MONTHS ENDED
MARCH 31,
1998 1997
Net realized and unrealized
gains (losses) $ (255.82) $ 25.08
Interest income 23.37 21.29
Expenses (29.88) (29.84)
---------- ----------
Increase (decrease) for period (262.33) 16.53
Net Asset Value per Unit,
beginning of period 2,695.73 2,384.45
---------- ---------
Net Asset Value per Unit,
end of period $2,433.40 $2,400.98
========== =========
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 March 31, 1998 and 1997 was $59,623 and $37,186, respectively, and
the average fair value during the three months then ended, based on monthly
calculation, was $101,587 and $233,564, respectively.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off- balance
sheet risk, including derivative financial instruments and derivative commodity
6
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instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure
of a 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.
7
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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 March 31, 1998, the notional or contractual
amounts of the Partnership's commitment to purchase and sell these instruments
was $41,675,894 and $41,145,195, respectively, as detailed below. All of these
instruments mature within one year of March 31, 1998. However, due to the nature
of the Partnership's business, these instruments may not be held to maturity. At
March 31, 1998, the fair value of the Partnership's derivatives, including
options thereon was $59,623 as detailed below.
MARCH 31, 1998
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies* $ 3,867,370 $ 7,878,896 $ 93,060
Interest Rates U.S. -- 16,032,006 (33,594)
Interest Rates Non-U.S 37,808,524 17,234,293 157
----------- ----------- -----------
Totals $41,675,894 $41,145,195 $ 59,623
=========== =========== ===========
At March 31, 1997, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was $7,221,987
and $40,577,627, respectively, and the fair value of the Partnership's
derivatives, including options thereon was $37,186 as detailed below.
MARCH 31, 1997
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies* $ 3,556,443 $ 6,688,935 $ (47,236)
Interest Rates U.S. -- 8,439,881 78,638
Interest Rates Non-U.S 3,046,594 25,448,811 15,234
Metals 618,950 -- (9,450)
----------- ----------- -----------
Totals $ 7,221,987 $40,577,627 $ 37,186
=========== =========== ===========
* The notional or contractual commitment amounts and the net unrealized gain
amount listed for the currency sector represent OTC contracts. All other sectors
listed represent exchange traded contracts.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition 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 first quarter of 1998.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the three months ended March 31, 1998, Partnership capital
decreased 14.0% from $6,229,841 to $5,355,920. This decrease was attributable to
a redemption of 110 Units resulting in an outflow of $267,674 coupled with a net
loss from operations of $606,247 for the three months ended March 31, 1998.
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 first quarter of 1998, the net asset value per
Unit decreased 9.7% from $2,695.73 to $2,433.40, as compared to the first
quarter of 1997 when the Net Asset Value per Unit increased 0.7%. The
Partnership experienced a net trading loss before commissions and expenses in
the first quarter of 1998 of $501,723. Losses were recognized in the trading of
currencies, U.S. interest rates, metals, and indices and were partially offset
by gains in non-U.S. interest rates. The Partnership experienced a net trading
gain before commissions and expenses in the first quarter of 1997 of $161,383.
Gains were recognized in the trading of currencies, indices, and metals and were
partially offset by losses in interest rates.
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 Advisor to
identify correctly those price trends. Price trends are influenced by,
9
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among other things, changing supply and demand relationships, weather,
governmental, agricultural, commercial and trade programs and policies, national
and international political and economic events and changes in interest rates.
To the extent that market trends exist and the Advisors are able to identify
them, the Partnership expects to increase capital through operations.
Interest income on 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 months ended March 31, 1998 decreased by $817 as compared to the
corresponding period in 1997. The decrease in interest income is primarily due
to the effect of redemptions on the Partnership's equity maintained in cash
offset by an increase in interest rates during the three months ended March 31,
1998 as compared to the corresponding period 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 months
ended March 31, 1998 decreased by $7,327 as compared to the corresponding period
in 1997.
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 months ended March
31, 1998 decreased by $5,117 as compared to the corresponding period in 1997.
Incentive fees paid by the Partnership are based on the net trading
profits of the Partnership as defined in the Limited Partnership Agreement. No
incentive fees were earned for the three months ended March 31, 1998. Trading
performance for the three months ended March 31, 1997 resulted in incentive fees
of $211.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Between May 1994 and the present, Salomon Brothers Inc.("SBI"), SB and The
Robinson Humphrey Company, Inc. ("R-H"), all currently subsidiaries of
Salomon Smith Barney Holdings Inc. ("SSBHI"), along with a number of other
broker-dealers, were named as defendants in approximately 25 federal court
lawsuits and two state court lawsuits, principally alleging that companies
that make markets in securities traded on NASDAQ violated the federal
antitrust laws by conspiring to maintain a minimum spread of $.25 between
the bid and asked price for certain securities. The federal lawsuits and
one state court case were consolidated for pre-trial purposes in the
Southern District of New York in the fall of 1994 under the caption In re
NASDAQ Market-Makers Antitrust Litigation, United States District Court,
Southern District of New York No. 94-CIV-3996 (RWS); M.D.L. No. 1023. The
other state court suit, Lawrence A. Abel v. Merrill Lynch & Co., Inc. et
al.; Superior Court of San Diego, Case No. 677313, has been dismissed
without prejudice in conjunction with a tolling
agreement.
In consolidated action, the plaintiffs purport to represent a class of
persons who bought one or more of what they currently estimate to be
approximately 1,650 securities on NASDAQ between May 1, 1989 and May 27,
1994. They seek unspecified monetary damages, which would be trebled under
the antitrust laws. The plaintiffs also seek injunctive relief, as well
as attorney's fees and the costs of the action. (The state cases seek
similar relief.) Plaintiffs in the consolidated action filed an amended
consolidated complaint that defendants answered in December 1995. On
November 26, 1996, the Court certified a class composed of retail
purchasers. A motion to include institutional investors in the class
and to add class representatives was granted. In December 1997, SBI, SB
and R- H, along with several other broker-dealer defendants, executed a
settlement agreement with the plaintiffs. This agreement has been
preliminarily approved by the U.S. District Court for the Southern District
of New York but is subject to final approval.
On July 17, 1996, the Antitrust Division of the Department of Justice filed
a complaint against a number of firms that act as market makers in NASDAQ
stocks. The complaint basically alleged that a common understanding arose
among NASDAQ market makers which worked to keep quote spreads in NASDAQ
stocks artificially wide. Contemporaneous with the filing of the complaint,
SBI, SB and other defendants entered into a stipulated settlement
agreement, pursuant to which the
11
<PAGE>
defendants would agree not to engage in certain practices relating to the
quoting of NASDAQ securities and would further agree to implement a program
to ensure compliance with federal antitrust laws and with the terms of the
settlement. In entering into the stipulated settlement, SBI and SB did not
admit any liability. There are no fines, penalties, or other payments of
monies in connection with the settlement. In April 1997, the U.S. District
Court for the Southern District of New York approved the settlement. In May
1997, plaintiffs in the related civil action (who were permitted to
intervene for limited purposes) appealed the district court's approval of
the settlement. The appeal is pending.
The Securities and Exchange Commission ("SEC") is also conducting a review
of the NASDAQ marketplace, during which it has subpoenaed documents and
taken the testimony of various individuals including SBI and SB personnel.
In July 1996, the SEC reached a settlement with the National Association of
Securities Dealers and issued a report detailing certain conclusions with
respect to the NASD and the NASDAQ market.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms,
including SB, in the U.S. Bankruptcy Court for the Central District of
California. Plaintiff alleged, among other things, that the defendants
recommended and sold to plaintiff unsuitable securities. The case (County
of Orange et al. v. Bear Sterns & Co. Inc. et al.) Has been stayed by
agreement of the parties.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHEARSON SELECT ADVISORS FUTURES FUND
By: Smith Barney Futures Management Inc.
(General Partner)
By:
David J. Vogel, President
Date:
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:
David J. Vogel, President
Date:
By
Daniel A. Dantuono
Chief Financial Officer and
Director
Date:
13
<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: 5/15/98
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/15/98
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and Director
Date: 5/15/98
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000811078
<NAME> SHEARSON SELECT ADVISORS FUTURES FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,621,521
<SECURITIES> 59,623
<RECEIVABLES> 17,469
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,698,613
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,698,613
<CURRENT-LIABILITIES> 342,693
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,355,920
<TOTAL-LIABILITY-AND-EQUITY> 5,698,613
<SALES> 0
<TOTAL-REVENUES> (537,189)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,058
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (606,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (606,247)
<EPS-PRIMARY> (262.33)
<EPS-DILUTED> 0
</TABLE>
