UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 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) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
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(Address and Zip Code of principal executive offices)
(212) 723-5424
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units
of Limited
Partnership
Interest
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]
As of February 28, 1999 Limited Partnership Units with an aggregate value
of $2,656.82 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART 1
Item 1. Business.
(a) General development of business. Shearson Select Advisors Futures
Fund (the "Partnership") is a limited partnership organized on February 10, 1987
under the Partnership Laws of the State of Delaware. The Partnership engages in
speculative trading of commodity interests, including forward contracts on
foreign currencies, commodity options and commodity futures contracts including
futures contracts on United States Treasuries and certain other financial
instruments and foreign currencies. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk. The
Partnership commenced trading on July 1, 1987. Redemptions for the years ended
December 31, 1998, 1997 and 1996, are reported in the Statement of Partners'
Capital on page F-6 under "Item 8. Financial Statements and Supplementary Data."
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. On September 1, 1998, the Partnership's
commodity broker, Smith Barney Inc., merged with Salomon Brothers Inc and
changed its name to Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of
the General Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings, Inc. ("SSBH"), which is the sole owner of SSB. On October 8, 1998,
Travelers Group Inc. merged with Citicorp Inc. and changed its name to Citigroup
Inc. SSBH is a wholly owned subsidiary of Citigroup Inc.
The Partnership's trading of futures contracts on commodities is done
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primarily on United States commodities exchanges and may, to a lesser extent, be
done on some foreign commodity exchanges. It engages in such trading through a
commodity brokerage account maintained with SSB. Under the Limited Partnership
Agreement of the Partnership (the "Limited Partnership Agreement"), the General
Partner has sole responsibility for the administration of the business and
affairs of the Partnership, but may delegate trading discretion to one or more
trading advisors.
The Partnership is obligated to pay the General Partner a monthly
management fee of 1/3 of 1% (4% per year) of the month end Net Assets of the
Partnership, as defined, managed by each advisor and an incentive fee payable
quarterly equal to 15% of New Trading Profits of the Partnership.
The General Partner has entered into a management agreement (the
"Management Agreement") with John W. Henry & Company, Inc. ("the Advisor"). The
Advisor is not affiliated with the General Partner or SSB. Reference should be
made to "Item 8. Financial Statements and Supplementary Data." for further
information regarding the Advisor included in the notes to the financial
statements.
The Management Agreement requires the General Partner to pay the
Advisor a monthly management fee of 1/3 of 1% of the Net Assets of the
Partnership (of 4% per year) managed by the Advisor and an incentive fee equal
to 10% of the New Trading Profits (as defined in the Management Agreement)
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earned on the Net Assets managed by the Advisor during each quarter. The
incentive fee paid to the Advisor will be paid out of the General Partner's own
funds to the extent that the incentive fee owed to the Advisor exceeds the
incentive fee paid by the Partnership to the General Partner. Thus, the
Partnership will pay an incentive fee based on aggregate profits earned by the
Advisor.
Pursuant to the terms of the customer agreement entered into with SSB
(the "Customer Agreement"), the Partnership is obligated to pay a monthly
commodity brokerage fee. Effective January 1, 1997, the Partnership pays SSB a
monthly brokerage fee equal to .5% of month end net assets (6% per year) in lieu
of brokerage commissions on a per trade basis. From July 1, 1995 through January
1, 1997, the Partnership paid Smith Barney a monthly brokerage fee equal to
.667% of month end net assets (8% per year). The Partnership previously paid SSB
a monthly brokerage fee equal to .833% of month end net assets (10% per year)
prior to July 1, 1995. The Partnership will pay for clearing fees, but not for
floor brokerage which will be borne by SSB. The Customer Agreement between the
Partnership and SSB gives the Partnership the legal right to net unrealized
gains and losses. Reference should be made to "Item 8. Financial Statements and
Supplementary Data." for further information regarding the brokerage commissions
included in the notes to the financial statements.
In addition, SSB will pay the Partnership interest on 70% of the
average daily equity maintained in cash in its accounts during each month at the
rate of the average non-competitive yield of the 13-week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month. The Customer
Agreement may be terminated upon notice by either party.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests, including forward contracts on foreign currencies, commodity options
and commodity futures contracts (including futures contracts on U.S. Treasuries
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and other financial instruments, foreign currencies and stock indices). The
Partnership does not engage in sales of goods or services. The Partnership's net
income (loss) from operations for the years ended December 31, 1998, 1997, 1996,
1995, and 1994 are set forth under "Item 6. Selected Financial Data."
Partnership capital as of December 31, 1998 was $5,545,665.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales. The Partnership does not engage in sales of goods or
services, and therefore this item is not applicable.
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Item 2. Properties.
The Partnership does not own or lease any properties. The General
Partner operates out of facilities provided by its affiliate, SSB.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against the
Partnership or the General Partner.
This section describes the major legal proceedings, other than
ordinary routine litigation incidental to the business, to which SSBH, the
parent company of this General Partner or its subsidiaries is a party or to
which any of their property is subject.
In September 1992, Harris Trust and Savings Bank (as trustee for
Ameritech Pension Trust ("APT"), Ameritech Corporation, and an officer of
Ameritech filed suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers
Realty Corporation ("SBRC") in the U.S. District Court for the Northern District
of Illinois (Harris Trust Savings Bank, not individually but solely as trustee
for the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest with respect to a portfolio of motels owned by
Best Inns, Inc. ("Best"), violated the Employee Retirement Income Security Act
("ERISA"), and that the purchase of the participation interests for the third
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MOA portfolio and for the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and state law. SBI had acquired the
participation interests in transactions in which it purchased as principal
mortgage notes issued by MOA and Best to finance purchases of motel portfolios;
95% of three such interests and 100% of one such interest were sold to APT for
purchase prices aggregating approximately $20.9 million. Plaintiffs' second
amended complaint seeks (a) judgment on the ERISA claims for the purchase prices
of the four participation interests (approximately $20.9 million), for
rescission and for disgorgement of profits, as well as other relief, and (b)
judgment on the claims brought under RICO and state law in the amount of $12.3
million, with damages trebled to $37 million on the RICO claims and punitive
damages in excess of $37 million on certain of the state law claims as well as
other relief. The court dismissed the RICO, breach of contract, and unjust
enrichment claims. The court also found that defendants did not qualify as an
ERISA fiduciary and dismissed the claims based on that allegation. Defendants
moved for summary judgment on the sole remaining claim. The motion was denied,
and defendants appealed to the U.S. Court of Appeals for the Seventh Circuit.
Defendants are awaiting a decision.
Both the Department of Labor and the Internal Revenue Service have
advised SBI that they were or are reviewing the transactions in which APT
acquired such participation interests. With respect to the Internal Revenue
Service review, SSBH, SBI and SBRC have consented to extensions of time for the
assessment of excise taxes that may be claimed to be due with respect to the
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transactions for the years 1987, 1988 and 1989. In August 1996, the IRS sent
SSBH, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters, which would actually commence the
assessment process. In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue 30-day letters with respect
to the transactions.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California (County of Orange et al. v. Bear Stearns & Co. Inc. et al.).
Plaintiff alleges, among other things, that defendants recommended and sold to
plaintiff unsuitable securities and that such transactions were outside the
scope of plaintiff's statutory and constitutional authority (ultra vires).
Defendants' motion for summary judgment was granted with respect to the ultra
vires claims in February 1999. The court allowed the filing of an amended
complaint asserting claims based on alleged breaches of fiduciary duty.
In June 1998, complaints were filed in the U.S. District Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City Debt
of the City of New Orleans v. Smith Barney Inc. et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
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declaratory judgment that Smith Barney Inc. and another underwriter are
responsible for any damages that the City may incur in the event the Internal
Revenue Service denies tax exempt status to the City's General Obligation
Refunding Bonds Series 1991. The Company filed a motion to dismiss the
complaints in September 1998, and the complaints were subsequently amended. The
Company has filed a motion to dismiss the amended complaints.
In November 1998, a purported class action complaint was filed in
the United States District Court for the Middle District of Florida (Dwight
Brock as Clerk for Collier County v. Merrill Lynch, et al.). The complaint
alleges that, pursuant to a nationwide conspiracy, 17 broker-dealer defendants,
including SSB, charged excessive mark-ups in connection with advanced refunding
transactions. The Company intends to contest this complaint vigorously.
Environmental Matters
In July 1996, the City and County of Denver ("Denver") enacted an
ordinance imposing a substantial fee on any radioactive waste or
radium-contaminated material disposed of in the City of Denver. Under this
ordinance, Denver assessed a subsidiary of Salomon, the S.W. Shattuck Chemical
Company, Inc. ("Shattuck"), $9.35 million for certain disposal already carried
out. Shattuck sued to enjoin imposition of the fee on constitutional grounds.
The United States also sued, seeking to enjoin imposition of the fee on
constitutional grounds. Denver counterclaimed and moved to add SSBH as a
defendant for past costs. These cases have been consolidated before the U.S.
District Court in Colorado, which granted Shattuck's motion for a preliminary
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injunction enjoining Denver from enforcing the ordinance during the pendency of
the litigation. The parties have reached a settlement.
The Company and various subsidiaries have also been named as defendants
in various matters incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and other
matters in which the Company's broker-dealer subsidiaries have been named,
arising in the normal course of business out of activities as a broker and
dealer in securities, as an underwriter of securities, as an investment banker
or otherwise. In the opinion of the Company's management, none of these actions
is expected to have a material adverse effect on the consolidated financial
condition of the Company and its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote during
the last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There
is no established public trading market for the Units of Limited
Partnership Interest.
(b) Holders. The number of holders of Units of Partnership Interest as
of December 31, 1998 was 524.
(c) Distribution. The Partnership did not declare a distribution in 1998 or
1997.
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Item 6. Selected Financial Data.
Net realized and unrealized trading gains (losses), interest income, net income
(loss) and increase (decrease) in net asset value per Unit for the years ended
December 31, 1998, 1997, 1996, 1995, and 1994 and total assets at December 31,
1998, 1997, 1996, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $331,645, $373,144, $493,435,
$618,168 and $828,783, respectively $ 300,001 $ 895,110 $ 1,411,077 $ 1,706,320 $ (988,663)
Interest income 180,533 213,272 202,098 256,528 238,826
----------- ----------- ----------- ----------- -----------
$ 480,534 $ 1,108,382 $ 1,613,175 $ 1,962,848 $ (749,837)
=========== =========== =========== =========== ===========
Net income (loss) $ 158,830 $ 723,608 $ 1,141,619 $ 1,610,495 $(1,128,851)
=========== =========== =========== =========== ===========
Increase (decrease) in net
asset value per unit $ 110.78 $ 311.28 $ 423.08 $ 416.20 $ (250.84)
=========== =========== =========== =========== ===========
Total assets $ 5,755,721 $ 6,503,549 $ 6,709,794 $ 6,537,230 $ 6,586,035
=========== =========== =========== =========== ===========
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its equity in its commodity futures trading
account, consisting of cash, net unrealized appreciation (depreciation) on open
futures 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. Such substantial losses
could lead to a material decrease in liquidity. To minimize this risk, the
Partnership follows certain policies including:
(1) Partnership funds are invested only in commodity contracts
which are traded in sufficient volume to permit, in the opinion of the Advisors,
ease of taking and liquidating positions.
(2) The Partnership diversifies its positions among various
commodities. No Advisor initiates additional positions in any commodity for the
Partnership if such additional positions would result in aggregate positions for
all commodities requiring a margin of more than 66-2/3% of net assets of the
Partnership managed by the Advisor.
(3) The Partnership may occasionally accept delivery of a
commodity. Unless such delivery is disposed of promptly by retendering the
warehouse receipt representing the delivery to the appropriate clearing house,
the physical commodity position is fully hedged.
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(4) The Partnership does not employ the trading technique commonly
known as "pyramiding", in which the speculator uses unrealized profits on
existing positions as margin for the purchase or sale of additional positions in
the same or related commodities.
(5) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(6) The Advisor may, from time to time, employ trading strategies
such as spreads or straddles on behalf of the Partnership. The term "spread"
or "straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference between the prices
of the contracts.
The Partnership is party to financial instruments with off-balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
financial instruments at specified terms at specified future dates. Each of
these instruments is subject to various risks similar to those relating to the
underlying financial instruments including market and credit risk. The General
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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. (See
also Item 8. "Financial Statements and Supplementary Data.," for further
information on financial instrument risk included in the notes to financial
statements.)
Other than the risks inherent in commodity futures trading, the
Partnership knows of no trends, demands, commitments, events or uncertainties
which will result in or which are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, in its
discretion, cause the Partnership to cease trading operations and liquidate all
open positions under certain circumstances including a decrease in Net Asset
Value per Unit to less than $350 as of the close of business on any business day
or a decline in Net Assets to less than $1,000,000.
(b) Capital resources. (i) The Partnership has made no material
commitments for capital expenditures.
(ii) The Partnership's capital consists of the capital
contributions of the partners as increased or decreased by gains or losses on
commodity futures trading and by expenses, interest income, redemptions of Units
and distributions of profits, if any. Gains or losses on commodity futures
trading cannot be predicted. Market moves in commodities are dependent upon
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fundamental and technical factors which the Partnership's Advisors may or may
not be able to identify. Partnership expenses consist of, among other things,
commissions, management fees and incentive fees. The level of these expenses is
dependent upon the level of trading gains or losses and the ability of the
Advisor to identify and take advantage of price movements in the commodity
markets, in addition to the level of Net Assets maintained. The amount of
interest income payable by SSB is dependent upon interest rates over which the
Partnership has no control. No forecast can be made as to the level of
redemptions in any given period. In 1998, 335 units were redeemed for a total of
$843,006. In 1997, 264 Units were redeemed for a total of $633,737. In 1996, 502
Units were redeemed for a total of $1,036,793.
(c) Results of operations. For the year ended December 31, 1998 the net
asset value per unit increased 4.1 % from $2,695.73 to 2,806.51. For the year
ended December 31, 1997, the net asset value per Unit increased 13.1%, from
$2,384.45 to $2,695.73. For the year ended December 31, 1996, the net asset
value per Unit increased 21.6%, from $1,961.37 to $2,384.45.
The Partnership experienced net trading gains of $631,646 before
commissions and expenses in 1998. Gains were primarily attributable to in the
trading of U.S. and non-U.S. interest rates and were partially offset by losses
in currencies, metals and indices.
The Partnership experienced net trading gains of $1,268,254 before
commissions and expenses in 1997. Gains were primarily attributable to the
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trading of currencies, U.S. and non-U.S. interest rates, metals and indices.
The Partnership experienced net trading gains of $1,904,512
before commissions and expenses in 1996. Gains were primarily attributable to
the trading of currencies, energy products, U.S. and non-U.S. interest rates and
metals, and were partially offset by losses in indices and agricultural
products.
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 those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisor is able to
identify them, the Partnership expects to increase capital through operations.
(d) Operational Risk
The Company is directly exposed to market risk and credit
risk, which arise in the normal course of its business activities. Slightly less
direct, but of critical importance, are risks pertaining to operational and back
office support. This is particularly the case in a rapidly changing and
increasingly global environment with increasing transaction volumes and an
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expansion in the number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Company is subject to
increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Company's ability to gather, process, and
communicate information efficiently and securely, without interruption, with
customers, among units within the Company, and in the markets where the Company
participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
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management and communicated to external parties, including the Company's
stockholder, creditors, and regulators, is free of material errors.
Risk of Computer System Failure (Year 2000 Issue)
The Year 2000 issue is the result of existing computers in
many businesses using only two digits to identify a year in the date field.
These computers and programs, often referred to as "information technology,"
were designed and developed without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results at the Year 2000. Such systems and processes are
dependent on correctly identifying dates in the next century.
The General Partner administers the business of the
Partnership through various systems and processes maintained by SSBH and SSB. In
addition, the operation of the Partnership is dependent on the capability of the
Partnership's Advisors, the brokers and exchanges through which the Advisors
trade, and other third parties to prepare adequately for the Year 2000 impact on
their systems and processes. The Partnership itself has no systems or
information technology applications relevant to its operations.
The General Partner, SSB, SSBH and their parent organization
Citigroup Inc. have undertaken a comprehensive, firm-wide evaluation of both
internal and external systems (systems related to third parties) to determine
the specific modifications needed to prepare for the year 2000. The combined
Year 2000 program in SSB is expected to cost approximately $140 million over the
four years from 1996 through 1999, and involve over 450 people at the peak
staffing level. SSB expects to complete all compliance and certification work by
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June 1999. At this time, over 95% of SSBH systems have completed the correction
process and are Year 2000 compliant. Over 73% of the systems have completed
certification testing. The Year 2000 project at SSBH remains on schedule.
The systems and components supporting the General Partner's
business that require remediation have been identified and modifications have
been made to bring them into Year 2000 compliance. Testing of these systems was
completed in the fourth quarter of 1998. Final testing and certification are
expected to be completed by the end of the first quarter of 1999.
This expenditure and the General Partner's resources dedicated
to the preparation for Year 2000 do not and will not have a material impact on
the operation or results of the Partnership.
The General Partner has requested and received statements from
the Advisors that each has undertaken its own evaluation and remediation plans
to identify any of its computer systems that are Year 2000 vulnerable. Each
Advisor has confirmed it is taking immediate actions to remedy those systems as
necessary. The General Partner will continue to inquire into and to confirm each
Advisor's readiness for Year 2000.
The most likely and most significant risk to the Partnership
associated with the lack of Year 2000 readiness is the failure of outside
organizations, including the commodities exchanges, clearing organizations, or
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regulators with which the Partnership interacts to resolve their Year 2000
issues in a timely manner. This risk could involve the inability to determine
the value of the Partnership at some point in time and would make effecting
purchases or redemptions of Units in the Partnership infeasible until such
valuation was determinable.
SSB has successfully participated in industry-wide testing
including: The Streetwide Beta Testing organized by the Securities Industry
Association (SIA), a government securities clearing test with the Federal
Reserve Bank of New York, The Depository Trust Company, and The Bank of New
York, and Futures Industry Association participants test. The firm is also
participating in the streetwide testing which commenced in March 1999.
It is possible that problems may occur that would require some
time to repair. Moreover, it is possible that problems will occur outside SSBH
for which SSBH could experience a secondary effect. Consequently, SSBH is
preparing comprehensive, written contingency plans so that alternative
procedures and a framework for critical decisions are defined before any
potential crisis occurs.
The goal of Year 2000 contingency planning is a set of alternate
procedures to be used in the event of a critical system failure or a failure by
a supplier or counterparty. Planning work was completed in December 1998, and
testing of alternative procedures will be conducted in the first half of 1999.
European Economic and Monetary Union
European Economic and Monetary Union ("EMU") is an historic event in Europe
involving the unification of currency in eleven major countries. The new unified
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currency, called the Euro, is expected to compete on a global scale with the
U.S. Dollar and the Japanese Yen.
Introduction of the Euro began on January 1, 1999, when the European
Central Bank assumed control of the monetary policy for participating nations.
Exchange rates between the participating countries were fixed and the Euro is
available for electronic payments. Also on January 1, 1999, various issuers
re-denominated their securities and harmonized bond payment conventions. A
three-year transition period began on January 1, 1999, after which Euro notes
and coins will be issued by the European Central Bank and national currencies
will be phased out.
The Company completed a successful conversion to the Euro and has commenced
trading and settlement in the new currency with no major exceptions.
As the preceding risks are largely interrelated, so are the Company's
actions to mitigate and manage them. The Company's Chief Administrative Officer
is responsible for, among other things, oversight of global operations and
technology. An essential element in mitigating the risks noted above is the
optimization of information technology and the ability to manage and implement
change. To be an effective competitor in an information-driven business of a
global nature requires the development of global systems and databases that
ensure increased and more timely access to reliable data.
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(e) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
SFAS 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 requires that an entity recognize all derivatives in the
statement of financial condition and measure those instruments at fair value.
SFAS 133 is effective for fiscal year beginning after June 15, 1999 SFAS 133 is
expected to have no material impact on the financial statements of the
Partnership as all commodity interests are recorded at fair value, with changes
therein reported in the statement of income and expenses.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market
value of the Partnership's open positions and, consequently, in its earnings and
cash flow. The Partnership's market risk is influenced by a wide variety of
factors, including the level and volatility of interest rates, exchange rates,
equity price levels, the market value of financial instruments and contracts,
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the diversification effects among the Partnership's open positions and the
liquidity of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and
short positions in a wide range of different markets. Consequently, it is not
possible to predict how a particular future market scenario will affect
performance, and the Partnership's past performance is not necessarily
indicative of its future results.
Value at Risk is a measure of the maximum amount which the
Partnership could reasonably be expected to lose in a given market sector.
However, the inherent uncertainty of the Partnership's speculative trading and
the recurrence in the markets traded by the Partnership of market movements far
exceeding expectations could result in actual trading or non-trading losses far
beyond the indicated Value at Risk or the Partnership's experience to date
(i.e., "risk of ruin"). In light of the foregoing as well as the risks and
uncertainties intrinsic to all future projections, the inclusion of the
quantification included in this section should not be considered to constitute
any assurance or representation that the Partnership's losses in any market
sector will be limited to Value at Risk or by the Partnership's attempts to
manage its market risk.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for such statements
23
<PAGE>
by the Private Securities Litigation Reform Act of 1995 (set forth in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor except for statements
of historical fact (such as the terms of particular contracts and the number of
market risk sensitive instruments held during or at the end of the reporting
period).
The Partnership's risk exposure in the various market sectors traded by
the Advisor is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized and unrealized).
Exchange maintenance margin requirements have been used by the
Partnership as the measure of its Value at Risk. Maintenance margin requirements
are set by exchanges to equal or exceed the maximum losses reasonably expected
to be incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
24
<PAGE>
In the case of market sensitive instruments which are not exchange
traded (almost exclusively currencies in the case of the Partnership), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
In quantifying the Partnership's Value at Risk, 100% positive
correlation in the different positions held in each market risk category has
been assumed. Consequently, the margin requirements applicable to the open
contracts have simply been added to determine each trading category's aggregate
Value at Risk. The diversification effects resulting from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have not
been reflected.
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of December 31, 1998. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 1998, the
Partnership's total capitalization was $5,545,665.
December 31, 1998
% of Total
Market Sector Value at Risk Capitalization
Currencies
- - OTC Contracts $ 63,180 1.14%
Interest rates U.S. 82,600 1.49%
Interest rates Non-U.S 355,460 6.41%
Metals $ 12,800 0.23%
-------- --------
Total $514,040 9.27%
======== =========
25
<PAGE>
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable margin requirement (margin requirements
generally range between 2% and 15% of contract face value) as well as the
capitalization of the Partnership. The magnitude of the Partnership's open
positions creates a "risk of ruin" not typically found in most other investment
vehicles. Because of the size of its positions, certain market conditions --
unusual, but historically recurring from time to time -- could cause the
Partnership to incur severe losses over a short period of time. The foregoing
Value at Risk table -- as well as the past performance of the Partnership --
give no indication of this "risk of ruin".
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, these balances (as well as any market
risk they represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
26
<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 the General Partner
and the Advisors for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially from the
objectives of such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
management strategies of the Partnership. There can be no assurance that the
Partnership's current market exposure and/or risk management strategies will not
change materially or that any such strategies will be effective in either the
short- or long- term. Investors must be prepared to lose all or substantially
all of their investment in the Partnership.
27
<PAGE>
The following were the primary trading risk exposures of the
Partnership as of December 31, 1998, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of
the Partnership. Interest rate movements directly affect the price of the
futures positions held by the Partnership and indirectly the value of its stock
index and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future. The changes in interest rates which have the most effect
on the Partnership are changes in long-term, as opposed to short-term, rates.
Consequently, even a material change in short-term rates would have little
effect on the Partnership were the medium- to long-term rates to remain steady.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership's major exposures have typically
been in the dollar/yen, dollar/mark and dollar/pound positions. The General
Partner does not anticipate that the risk profile of the Partnership's currency
28
<PAGE>
sector will change significantly in the future, although it is difficult at this
point to predict the effect of the introduction of the Euro on the Advisors'
currency trading strategies. The currency trading Value at Risk figure includes
foreign margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the dollar-based
Partnership in expressing Value at Risk in a functional currency other than
dollars.
Stock Indices. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based indices. As of
December 31, 1998, the Partnership's primary exposures were in the Financial
Times (England), Nikkei (Japan) and SFE (Australian) stock indices. The General
Partner anticipates little, if any, trading in non-G-7 stock indices. The
Partnership is primarily exposed to the risk of adverse price trends or static
markets in the major U.S., European and Japanese indices. (Static markets would
not cause major market changes but would make it difficult for the Partnership
to avoid being "whipsawed" into numerous small losses.)
Metals. The Partnership's primary metal market exposure is to
fluctuations in the price of gold and silver. Although the Advisor will from
time to time trade base metals such as aluminum, copper and tin, the principal
market exposures of the Partnership have consistently been in the precious
29
<PAGE>
metals, gold and silver. The 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 Advisor has from time to time taken substantial
positions as they have perceived market opportunities to develop. The General
Partner anticipates that gold and silver will remain the primary metals market
exposure for the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 1998.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds and French francs.
The Advisor regularly converts foreign currency balances to dollars in an
attempt to control the Partnership's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisor concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require the Advisor to close out individual
positions as well as enter programs traded on behalf of the Partnership.
However, any such intervention would be a highly unusual event. The General
30
<PAGE>
Partner primarily relies on the Advisor's own risk control policies while
maintaining a general supervisory overview of the Partnership's market risk
exposures.
The Advisor applies its own risk management policies to its trading.
The Advisor often follows diversification guidelines, margin limits and stop
loss points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
31
<PAGE>
Item 8. Financial Statements and Supplementary Data.
SHEARSON SELECT ADVISORS FUTURES FUND
INDEX TO FINANCIAL STATEMENTS
Page
Number
Oath or Affirmation F-2
Report of Independent Accountants. F-3
Financial Statements:
Statement of Financial Condition at
December 31, 1998 and 1997. F-4
Statement of Income and Expenses for
the years ended December 31, 1998,
1997 and 1996 F-5
Statement of Partners' Capital for the
years ended December 31, 1998, 1997 and
1996. F-6
Notes to Financial Statements. F-7 -F-11
F-1
Continued
<PAGE>
To The Limited Partners of
Shearson Select Advisors Futures Fund
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel A. Dantuono, Chief Financial Officer
Smith Barney Futures Management Inc.
General Partner, Shearson Select
Advisors Futures Fund
Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, N.Y. 10013
212-723-5424
F-2
<PAGE>
Report of Independent Accountants
To the Partners of
Shearson Select Advisors Futures Fund:
In our opinion, the accompanying statement of financial condition and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Shearson Select
Advisors Futures Fund at December 31, 1998 and 1997, and the results of its
operations for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of the General Partner; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by the management of the General Partner, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 26, 1999
F-3
<PAGE>
Shearson Select Advisors Futures Fund
Statement of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets:
Equity in commodity futures
trading account:
Cash (Note 3b) $5,145,243 $6,178,150
Net unrealized appreciation on open
futures contracts 596,728 306,078
---------- ----------
5,741,971 6,484,228
Interest receivable 13,750 19,321
---------- ----------
$5,755,721 $6,503,549
---------- ----------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 28,779 $ 32,518
Management fees 18,998 21,498
Other 27,567 21,583
Incentive fees -- 68,714
Redemptions payable (Note 5) 134,712 129,395
---------- ----------
210,056 273,708
---------- ----------
Partners' capital (Notes 1, 5, and 6):
General Partner, 34 Unit equivalents
outstanding in
1998 and 1997 95,421 91,655
Limited Partners, 1,942 and 2,277 Units
outstanding in 1998 and 1997,
respectivelyof Limited
Partnership Interest 5,450,244 6,138,186
---------- ----------
5,545,665 6,229,841
---------- ----------
$5,755,721 $6,503,549
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
Shearson Select Advisors Futures Fund
Statement of Income and Expenses
for the Years Ended
December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income:
Net gains on trading
of commodity interests:
Realized gains on
closed positions $ 340,996 $ 1,071,889 $ 2,091,285
Change in unrealized
gains/losses on
open positions 290,650 196,365 (186,773)
----------- ----------- -----------
631,646 1,268,254 1,904,512
Less,
Brokerage commissions
including clearing fees
of $4,463, $4,856 and
$6,720, respectively
(Note 3b) (331,645) (373,144) (493,435)
----------- ----------- -----------
Net realized and
unrealized gains 300,001 895,110 1,411,077
Interest income(Note 3b) 180,533 213,272 202,098
----------- ----------- -----------
480,534 1,108,382 1,613,175
----------- ----------- -----------
Expenses:
Management fees (Note 3a) 215,929 241,865 240,634
Incentive fees (Note 3a) 58,423 101,180 175,680
Other expenses 47,352 41,729 55,242
----------- ----------- -----------
321,704 384,774 471,556
----------- ----------- -----------
Net income $ 158,830 $ 723,608 $ 1,141,619
=========== =========== ===========
Net income per Unit
of Limited Partnership
Interest and General
Partner Unit equivalent
(Notes 1 and 6) $ 110.78 $ 311.28 $ 423.08
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
Shearson Select Advisors Futures Fund
Statement of Partners' Capital for the
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
<S> <C> <C> <C>
Partners' capital at
December 31, 1995 $ 5,968,457 $ 66,687 $ 6,035,144
Net income 1,127,235 14,384 1,141,619
Redemption of 502
Units of Limited
Partnership Interest (1,036,793) -- (1,036,793)
----------- ----------- -----------
Partners' capital at
December 31, 1996 6,058,899 81,071 6,139,970
Net income 713,024 10,584 723,608
Redemption of 264
Units of Limited
Partnership Interest (633,737) -- (633,737)
----------- ----------- -----------
Partners' capital at
December 31, 1997 6,138,186 91,655 6,229,841
Net income 155,064 3,766 158,830
Redemption of 335
Units of Limited
Partnership Interest (843,006) -- (843,006)
----------- ----------- -----------
Partners' capital at
December 31, 1998 $ 5,450,244 $ 95,421 $ 5,545,665
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
Shearson Select Advisors
Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
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 was authorized to sell 50,000 Units of Limited Partnership
Interest ("Units") during its public offering.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. On September 1, 1998, the
Partnership's commodity broker, Smith Barney Inc., merged with Salomon
Brothers Inc and changed its name to Salomon Smith Barney Inc. ("SSB"). SSB
is an affiliate of the General Partner. The General Partner is wholly owned
by Salomon Smith Barney Holdings, Inc. ("SSBH"), which is the sole owner of
SSB. On October 8, 1998, Travelers Group Inc. merged with Citicorp Inc. and
changed its name to Citigroup Inc. SSBH is a wholly owned subsidiary of
Citigroup Inc.
The General Partner and each limited partner share in the profits and losses
of the Partnership in proportion to the amount of Partnership interest owned
by each except that no limited partner shall be liable for obligations of
the Partnership in excess of his initial capital contribution and profits,
if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the following:
December 31, 2007; a decline in net asset value per Unit on any business day
after trading to less than $350; a decline in net assets after trading
commences to less than $1,000,000; or under certain other circumstances as
defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at fair value on the
last business day of the year, which represents market value for those
commodity interests for which market quotations are readily available.
Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gains (losses) and changes in
unrealized values on commodity interests are recognized in the period in
which the contract is closed or the changes occur and are included in net
gains (losses) on trading of commodity interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
F-7
<PAGE>
3. Agreements:
a. Management Agreement and Limited Partnership Agreement:
Under the Partnership's Limited Partnership Agreement, the General
Partner is permitted to delegate its authority to trade the Partnership's
assets to one or more trading advisors and to compensate those advisors
from the General Partner's own funds. The General Partner receives a
monthly management fee of 1/3 of 1% (4% per year) of the month-end Net
Assets of the Partnership managed by the Advisor, and an incentive fee
payable quarterly equal to 15% of Net Trading Profits, as defined, of the
Partnership.
At December 31, 1998, the General Partner had a Management Agreement with
John W. Henry & Company, Inc. (the "Advisor"). The Management Agreement
requires the General Partner to pay the Advisor a management fee payable
monthly of 4% per annum of the Net Assets of the Partnership managed by
the Advisor and an incentive fee payable quarterly equal to 10% of Net
Trading Profits, as defined, earned on the Net Assets managed by the
Advisor.
b. Customer Agreement
The Partnership has entered into a Customer Agreement which was assigned
to SSB, from a predecessor company, whereby SSB provides services which
include, among other things, the execution of transactions for the
Partnership's account in accordance with orders placed by the Advisor.
Effective January 1, 1997, the Partnership pays SSB a monthly brokerage
fee equal to .5% of month end net assets (6% per year) in lieu of
brokerage commissions on a per trade basis. From July 1, 1995 through
January 1, 1997, the Partnership paid SSB a monthly brokerage fee equal
to .667% of month end net assets (8% per year). The Partnership
previously paid SSB a monthly brokerage fee equal to .833% of month end
net assets (10% per year) prior to July 1, 1995. The Partnership pays for
all clearing fees but not floor brokerage. All of the Partnership's cash
is deposited in the Partnership's account at SSB. The Partnership's cash
is deposited by SSB in segregated bank accounts to the extent required by
Commodity Futures Trading Commission regulations. At December 31, 1998
and 1997, the amount of cash held for margin requirements was $547,430
and $747,392, respectively. SSB has agreed to pay the Partnership
interest on 70% of the average daily equity in its accounts during each
month at the rate of the average noncompetitive yield of 13-week U.S.
Treasury Bills as determined at the weekly auctions thereof during the
month. The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses. The
Customer Agreement may be terminated upon notice by either party.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety
of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
F-8
<PAGE>
All of the commodity interests owned by the Partnership are held for trading
purposes. The fair value of these commodity interests, including options
thereon, if applicable, at December 31, 1998 and 1997 was $596,728 and
$306,078, respectively, and the average fair value during the years then
ended, based on a monthly calculation, was $352,056 and $331,109,
respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, each limited partner may redeem some or all of his
Units at the net asset value thereof as of the last day of any calendar
quarter on 15 days' notice to the General Partner, provided that no
redemption may result in the limited partner holding fewer than three Units
after such redemption is effected.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest during the
years ended December 31, 1998, 1997, and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net realized and
unrealized gains $ 177.52 $ 382.44 $ 520.78
Interest income 83.33 86.74 69.77
Expenses (150.07) (157.90) (167.47)
--------- --------- ---------
Increase for year 110.78 311.28 423.08
Net asset value per Unit,
beginning of year 2,695.73 2,384.45 1,961.37
--------- --------- ---------
Net asset value per Unit,
end of year $2,806.51 $ 2,695.73 $ 2,384.45
========= ========= =========
</TABLE>
7. Financial Instrument Risks:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments may include forwards, futures and options, whose value is based
upon an underlying asset, index, or reference rate, and generally represent
future commitments to exchange currencies or cash flows, to purchase or sell
other financial instruments at specific terms at specified future dates, or,
in the case of derivative commodity instruments, to have a reasonable
possibility to be settled in cash 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.
F-9
<PAGE>
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SSB.
The General Partner monitors and controls the Partnership's risk exposure on
a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership
is subject. These monitoring systems allow the General Partner to
statistically analyze actual trading results with risk-adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.
The notional or contractual amounts of these instruments, while not recorded
in the financial statements, reflect the extent of the Partnership's
involvement in these instruments.
At December 31, 1998, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was
$34,798,228 and $36,115,123, respectively. All of these instruments mature
within one year of December 31, 1998. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity. At
December 31, 1998, the fair value of the Partnership's derivatives,
including options thereon, if applicable, was $596,728, as detailed below.
December 31, 1998
Notional or Contractual
Amount of Commitments
<TABLE>
<CAPTION>
To Purchase To Sell air Value
<S> <C> <C> <C>
Currencies
-OTC Contracts $ 2,891,770 $ 921,439 $ 28,455
Interest Rate U.S. 5,461,344 6,169,050 (41,469)
Interest Rate Non-U.S 26,445,114 28,562,174 610,002
Metals -- 462,460 (260)
----------- ----------- -----------
Totals $34,798,228 $36,115,123 $ 596,728
=========== =========== ===========
</TABLE>
F-10
<PAGE>
At December 31, 1997, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was
$27,377,209 and $42,685,981, respectively, and the fair value of the
Partnership's derivatives, including options thereon, if applicable, was
$306,078, as detailed below.
December 31, 1997
Notional or Contractual
Amount of Commitments
<TABLE>
<CAPTION>
To Purchase To Sell Fair Value
<S> <C> <C> <C>
Currencies
-OTC Contracts $ 6,940,963 $13,511,341 $ (27,629)
Interest Rate U.S. 5,864,656 -- 46,500
Interest Rate Non-U.S 13,830,230 26,125,122 16,152
Metals 741,360 2,480,550 224,630
Indices -- 568,968 46,425
----------- ----------- -----------
Totals $27,377,209 $42,685,981 $ 306,078
=========== =========== ===========
</TABLE>
8. New Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that an entity recognize all derivatives in the statement
of financial condition and measure those instruments at fair value. SFAS 133
is effective for fiscal years beginning after June 15, 1999. SFAS 133 is
expected to have no material impact on the financial statements of the
Partnership as all commodity interests are recorded at fair value, with
changes therein reported in the statement of income and expenses.
F-11
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the last two fiscal years and any subsequent interim
period, no independent accountant who was engaged as the principal accountant to
audit the Partnership's financial statements has resigned or was dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are
managed by its General Partner, Smith Barney Futures Management Inc.Investment
decisions are made by John W. Henry & Company, Inc. (The "Advisor").
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed
by Smith Barney Futures Management Inc., its General Partner. SSB, an affiliate
of the General Partner, is the commodity broker for the Partnership and receives
brokerage commissions for such services, as described under "Item 1. Business.
" For the year ended December 31, 1998, SSB earned $331,645 in brokerage
commissions and clearing fees. Management fees paid or payable to the General
Partner were $215,929 and the General Partner also earned $58,423 in incentive
fees in 1998. The Advisor was compensated for management and incentive fees from
the General Partners own funds.
32
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. The
Partnership knows of no person who beneficially owns more than 5% of the Units
outstanding.
(b). Security ownership of management. Under the terms of the
Limited Partnership Agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns Units of general partnership interest
equivalent to 34 Units of Limited Partnership Interest (1.7%) as of December 31,
1998.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Salomon Smith Barney Inc. and Smith Barney Futures Management
Inc. would be considered promoters for purposes of Item 404 (d) of Regulation
S-K. The nature and the amounts of compensation each promoter will receive from
the Partnership are set forth under "Item 1. Business." and "Item 11. Executive
Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 1998
and 1997.
Statement of Income and Expenses for the years ended
December 31, 1998, 1997 and 1996.
33
<PAGE>
Statement of Partners' Capital for the years ended
December 31, 1998, 1997 and 1996.
(2) Financial Statement Schedules: Financial Data Schedule
for the year ended December 31, 1998.
(3) Exhibits:
3.1 - Limited Partnership Agreement dated as of February
10, 1987 and amended as of April 6, 1987 (filed as
Exhibit 3.1 to the Registration Statement No.33-12241
and incorporated herein by reference).
3.2 - Certificate of Limited Partnership of the Partnership
as filed in the office of the Secretary of State of the
State of Delaware on February 10, 1987 (filed as
Exhibit 3.2 to the Registration Statement No. 33-12241
and incorporated herein by reference).
10.1 - Customer Agreement between Shearson Lehman Select
Advisors Futures Fund L.P. and Smith Barney Shearson
Inc. (previously filed).
10.1(a)- Amendment to Customer Agreement dated as of September
30, 1988 (previously filed).
10.4(a)- Management Agreement between Hayden Commodities Corp.
and Dunn Commodities, Inc. (previously filed).
10.4(b) - Management Agreement between Hayden Commodities Corp.
and Investment Timing Services (previously filed)
34
<PAGE>
10.4(c)- Management Agreement between Hayden Commodities
Corp. and Cresta Commodity Management Inc. (previously
filed)
10.4(d) -Management Agreement between Hayden Commodities
Corp. and Computerized Advisory (previously filed).
10.6(e) -Management Agreement between Hayden Commodities
Corp. and Donald J. Guy (previously filed).
10.4(f) -Management Agreement between Hayden Commodities
Corp. and I.C.S.C., Inc. (previously filed)
10.4(g) -Management Agreement between Hayden Commodities
Corp. and Orion Inc. (previously filed).
10.4(h) -Management Agreement between Hayden Commodities
Corp. and Bacon Investment Corporation (previously
filed).
10.4(I) -Management Agreement between Hayden Commodities
Corp. and PRAGMA, Inc. (previously filed).
10.4(j) -Management Agreement between Hayden Commodities
Corp. and Mint Investment Management Company
(previously filed).
10.4(k) -Management Agreement between Hayden Commodities
Corp. and John W. Henry & Company (previously filed).
10.4(l) -Management Agreement between Hayden Commodities
Corp. and Charles M. Wilson & Company (previously
filed).
35
<PAGE>
10.4(m)- Management Agreement between Hayden Commodities Corp.
and Sunrise Commodities, Inc. (previously filed). 10.5 -
Letter extending Management Agreement with Sunrise
Commodities Inc. dated as of June 30, 1989 (previously
filed).
10.6 - Letter extending Management Agreement with Charles M.
Wilson & Company dated as of June 30, 1989 (previously
filed).
10.7 - Letter extending Management Agreement with PRAGMA, Inc.
dated June 30, 1989 (previously filed). 10.8 - Letter
extending Management Agreement with John W. Henry & Co.,
Inc. dated as of June 30, 1989 (previously filed).
10.9 - Letter extending Management Agreement with Bacon
Investment Corporation dated June 30, 1989 (previously
filed).
10.10- Assignment by Bacon Investment Corporation to Zack
Hampton Bacon, III dated as of September 15, 1989
(previously filed).
10.11- Letter extending Management Agreement with Sunrise
Commodities Inc. dated June 26, 1990 (filed as Exhibit 10.11
to Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference).
36
<PAGE>
10.12- Letter extending Management Agreement with PRAGMA, Inc. dated June
26, 1990 (filed as Exhibit 10.12 to Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference). 10.13 -
Letter extending Management Agreement with John W. Henry & Co., Inc.
dated June 26, 1990 (filed as Exhibit 10.13 to Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by
reference).
10.14- Letter extending Management Agreement with Zack Hampton Bacon, III
dated June 25, 1990 (filed as Exhibit 10.14 to Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by
reference).
10.15- Letter extending Management Agreement with Sunrise Commodities, Inc.
dated July 16, 1991 (filed as Exhibit 10.15 to Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by
reference).
10.16- Letter extending Management Agreement with PRAGMA, Inc. dated July
16, 1991 (filed as Exhibit 10.16 to Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference).
37
<PAGE>
10.17- Letter extending Management Agreement with John W. Henry &
Co., Inc. dated July 16, 1991 (filed as Exhibit 10.17 to Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference). 10.18 - Letter extending Management
Agreement with Zack Hampton Bacon, III dated July 16, 1991 and
(filed as Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference).
10.19- Letter extending Management Agreement with Sunrise Commodities
Inc. dated June 30, 1992 (filed as Exhibit 10.19 to Form 10-K for
the fiscal year ended December 31, 1992).
10.20- Letter extending Management Agreement with PRAGMA, Inc. dated
June 30, 1992 ( filed as Exhibit 10.20 to Form 10-K for the
fiscal year ended December 31, 1992).
10.21- Letter extending Management Agreement with John W. Henry &
Co., Inc. dated June 30, 1992 (filed as Exhibit 10.21 to Form
10-K for the fiscal year ended December 31, 1992).
10.22- Letter extending Management Agreement with Zack Hampton Bacon,
III dated June 30, 1992 (filed as Exhibit 10.22 to Form 10-K for
the fiscal year ended December 31, 1992)
38
<PAGE>
10.23- Letter terminating Management Agreement with Zack Hampton
Bacon, III dated March 31, 1993 (filed as Exhibit 10.23 to
Form 10-K for the fiscal year ended December 31, 1993).
10.24- Letter terminating Management Agreement with PRAGMA, Inc.
dated July 29, 1994 (filed as Exhibit 10.24 to Form 10-K for
the fiscal year ended December 31, 1994).
10.25- Management Agreement dated September 1, 1994 the
Partnership, the General Partner and Gill Capital
Management(filed as Exhibit 10.25 to Form 10-K for the
fiscal year ended December 31, 1994).
10.26- Letters extending Management Agreements with John W.
Henry & Co., Sunrise Capital Management, Inc. and Gill
Capital Management dated February 16, 1995 (filed as Exhibit
10.26 to Form 10-K for the fiscal year ended December 31,
1994).
10.27- Letter terminating Management Agreement with Gill Capital
Management dated June 27, 1995 (filed as Exhibit 10.27 to
Form 10-K for the fiscal year ended December 31, 1995).
10.28- Letter terminating Management Agreement with Sunrise
Capital Management dated December 23, 1996 (previously
filed
10.29- Letters extending Managements Agreements with John W.
Henry & Company, Inc. for 1996 and 1997 (Filed as Exhibit
10.29 to Form 10-K for fiscal year ended December 31, 1997).
39
<PAGE>
10.30- Letter extending Management Agreement with John W. Henry
and Company, Inc. for 1998 (filed herein).
(b) Reports on 8-K: None Filed.
40
<PAGE>
Supplemental Information To Be Furnished With Reports Filed Pursuant To
Section 15(d) Of The Act by Registrants Which Have Not Registered
Securities Pursuant To Section 12 Of the Act.
Annual Report to Limited Partners
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 24th day of March 1999.
SHEARSON SELECT ADVISORS FUTURES FUND
By: Smith Barney Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
/s/ David J. Vogel /s/ Jack H. Lehman III
David J. Vogel, Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President
/s/ Michael Schaefer /s/ Daniel A. Dantuono
Michael Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
42
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000811078
<NAME> Shearson Select Advisors Futures Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,145,243
<SECURITIES> 596,728
<RECEIVABLES> 13,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,755,721
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,755,721
<CURRENT-LIABILITIES> 210,056
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,545,665
<TOTAL-LIABILITY-AND-EQUITY> 5,755,721
<SALES> 0
<TOTAL-REVENUES> 480,534
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 321,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 158,830
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,830
<EPS-PRIMARY> 110.78
<EPS-DILUTED> 0
</TABLE>
June 22, 1998
John W. Henry & Company
One Glendinning Place
Westport, Ct. 06880
Attn: Ms. Beth Kenton
Re: Management Agreement Renewal
Select Advisors Futures Fund
Dear Ms. Kenton:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1999
and make the attached modification on Rider 1. All other provisions of the
Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above or fax to 212-723-8985. If you have any questions I can be
reached at 212-723-5416.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Daniel A. Dantuono
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
JOHN W. HENRY & COMPANY
By:
Print Name:
DAD/sr
