FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File Number 0-16526
HUTTON INVESTORS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York 13-3406160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st. Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
September 30, 1996 and December 31,
1995 3
Statements of Income and Expenses and
Partners' Capital for the Three and
Nine Months ended September 30, 1996
and 1995 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
<PAGE>
PART I
Item 1. Financial Statements
HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
(Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $14,927,645 $15,190,088
Net unrealized appreciation on open
futures contracts 1,759,064 835,706
----------- -----------
$16,686,709 $16,025,794
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 97,716 $ 54,276
Incentive fees 12,480 72,172
Other 25,177 25,337
Redemptions payable 247,213 249,753
----------- -----------
382,586 401,538
----------- -----------
Partners' capital
General Partner, 44 Units
equivalents outstanding 175,442 161,605
Limited Partners, 4,045 and 4,210 Units
of Limited Partnership Interest
outstanding in 1996 and 1995,respectively 16,128,681 15,462,651
----------- -----------
16,304,123 15,624,256
----------- -----------
$16,686,709 $16,025,794
=========== ===========
See Notes to Financial Statements.
3
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HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading
of commodity futures:
Realized gains (losses) on
closed positions $ (651,202) $ (125,111) $ 647,495 $ 5,474,908
Change in unrealized gains /
losses on open positions 885,167 (342,645) 923,358 (1,215,445)
------------ ------------ ------------ ------------
233,965 (467,756) 1,570,853 4,259,463
Less, brokerage commissions and
clearing fees ($4,722,
$4,160, $12,648 and
$12,787, respectively) (200,994) (139,843) (489,976) (366,887)
------------ ------------ ------------ ------------
Net realized and unrealized
gains (losses) 32,971 (607,599) 1,080,877 3,892,576
Interest income 153,596 171,952 452,226 482,071
------------ ------------ ------------ ------------
186,567 (435,647) 1,533,103 4,374,647
Expenses:
Incentive fees 12,480 170,233 493,593
Other 14,261 10,372 39,809 33,177
------------ ------------ ------------ ------------
26,741 10,372 210,042 526,770
Net income (loss) 159,826 (446,019) 1,323,061 3,847,877
Redemptions (247,213) (165,449) (643,194) (579,740)
------------ ------------ ------------ ------------
Net increase (decrease) in
Partners' capital (87,387) (611,468) 679,867 3,268,137
Partners' capital, beginning
of period 16,391,510 15,508,800 15,624,256 11,629,195
------------ ------------ ------------ ------------
Partners' capital, end
of period $ 16,304,123 $ 14,897,332 $ 16,304,123 $ 14,897,332
============ ============ ============ ============
Net Asset Value per Unit
(4,089 and 4,322
Units outstanding at
September 30, 1996 and 1995, $ 3,987.31 $ 3,446.86 $ 3,987.31 $ 3,446.86
============ ============ ============ ============
respectively)
Net income per Unit of Limited
Partnership Interest and General
Partnership Unit equivalent $ 38.50 $ (102.06) $ 314.47 $ 856.26
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. General:
Hutton Investors Futures Fund L.P. II (the "Partnership") is a limited
partnership, organized on March 31, 1987 under the partnership laws of the State
of Delaware, to engage in the speculative trading of commodity futures contracts
and other commodity interests, including futures and option contracts on U.S.
Treasuries and other financial instruments, foreign currencies and stock
indices. The commodity interests that are traded by the Partnership are volatile
and involve a high degree of market risk. The Partnership commenced operations
on July 24, 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 for the Partnership are made by John W. Henry & Company, Inc. and
TrendLogic Associates, Inc. (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at September 30, 1996 and the results of its operations for the three
and nine months ended September 30, 1996 and 1995. 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, 1995.
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
<PAGE>
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1996 and 1995 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Net realized and unrealized
gains (losses) $ 7.94 $ (139.04) $ 256.76 $ 865.20
Interest income 37.00 39.35 107.66 108.76
Expenses (6.44) (2.37) (49.95) (117.70)
--------- --------- --------- ---------
Increase (decrease) for
period 38.50 (102.06) 314.47 856.26
Net Asset Value per Unit,
beginning of period 3,948.81 3,548.92 3,672.84 2,590.60
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $3,987.31 $3,446.86 $3,987.31 $3,446.86
========= ========= ========= =========
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
activities are shown in the statements of income and expenses.
The Customer Agreement between the Partnership and SB gives the Partnership
the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1996 was $1,759,064 and the average fair value during
the nine months then ended, based on monthly calculation, was $1,127,301.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, 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
6
<PAGE>
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, gains and loss transactions, and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1996, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $164,494,429 and $61,295,743, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1996. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1996 the Partnership had net unrealized
trading gains of $1,759,064, as detailed below.
7
<PAGE>
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
----------- ----------- -----------
Currencies
- - Exchange Traded Contracts $ 2,665,043 $ 3,591,900 $ 80,785
- - OTC Contracts 25,875,981 36,421,167 242,204
Energy 1,495,240 66,450 181,375
Grains 176,220 1,192,188 68,722
Interest Rates-US 7,719,063 5,971,969 (129,288)
Interest Rates-Non US 121,959,116 0 1,100,490
Livestock 68,460 0 300
Metals 461,563 11,887,465 212,069
Softs 1,113,200 1,640,204 954
Indices 2,960,543 524,400 1,453
------------ ------------ ------------
Totals $164,494,429 $ 61,295,743 $ 1,759,064
============ ============ ============
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 (such as U.S. Treasury Bills, which constituted
approximately 75% of the Partnership's assets at September 30, 1996) and net
unrealized appreciation (depreciation) on open futures and forward contracts.
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 substantial decrease
in liquidity, no such losses occurred in the Partnership's third quarter of
1996.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 1996, Partnership capital increased
4.4% from $15,624,256 to $16,304,123. This increase was attributable to net
income from operations of $1,323,061 which was partially offset by the
redemption of 165 Units resulting in an outflow of $643,194 for the nine months
ended September 30, 1996. Future redemptions can impact the amount of funds
available for investments in commodity contract positions in subsequent months.
Results of Operations
During the Partnership's third quarter of 1996, the net asset value per
Unit increased 1.0% from $3,948.81 to $3,987.31, as compared to the third
quarter of 1995 in which the net asset value per Unit decreased 2.9%. The
Partnership experienced a net trading gain before commissions and expenses in
the third quarter of 1996 of $233,965. Gains were recognized in the trading of
commodity futures in interest rates and energy products and were partially
offset by losses recognized in currencies, indices, agricultural products and
metals. The Partnership experienced a net trading loss before commissions and
expenses in the third quarter of 1995 of $467,756. Losses were recognized in the
trading of interest rates, indices, agricultural and energy products and metals
and were partially offset by a gain in currencies.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly
9
<PAGE>
those price trends. 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 Advisors are able to identify them, the Partnership expects to
increase capital through operations.
Interest income earned on U.S. Treasury Bills decreased by $18,356 and
$29,845 for the three and nine months ended September 30, 1996, respectively, as
compared to the corresponding periods in 1995. The decrease in interest income
is primarily due to the effect of redemptions on the Partnership's assets as
well as a decrease in interest rates in 1996 as compared to 1995.
Brokerage commissions are based on the number of trades executed by the
Advisors. Brokerage commissions and clearing fees for the three and nine months
ended September 30, 1996 increased by $61,151 and $123,089, respectively, as
compared to the corresponding periods in 1995.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor. Trading performance for the three months ended
September 30, 1996 resulted in an incentive fee of $12,480. Trading performance
for the nine months ended September 30, 1996 resulted in a decrease in incentive
fees of $323,360, as compared to the corresponding period in 1995.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3, Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUTTON INVESTORS FUTURES FUND L.P. II
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and Director
Date: 11/11/96
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812818
<NAME> Hutton Investors Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,927,645
<SECURITIES> 1,759,064
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,686,709
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,686,709
<CURRENT-LIABILITIES> 382,586
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,304,123
<TOTAL-LIABILITY-AND-EQUITY> 16,686,709
<SALES> 0
<TOTAL-REVENUES> 1,533,103
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 210,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,323,061
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,323,061
<EPS-PRIMARY> 314.47
<EPS-DILUTED> 0
</TABLE>
