FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1997
Commission File Number 0-16526
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:
Statement of Financial Condition at
September 30, 1997 and December 31, 1996. 3
Statement of Income and Expenses and
Partners' Capital for the three and nine
months ended September 30, 1997 and 1996. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
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PART I
Item 1. Financial Statements
HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1997 1996
ASSETS:
------------- ------------
(Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $19,738,120 $19,731,337
Net unrealized appreciation on open
futures contracts 1,011,857 474,335
----------- -----------
$20,749,977 $20,205,672
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 91,418 $ 62,937
Incentive fees 96,503 717,446
Other 30,100 35,022
Redemptions payable 212,364 237,102
----------- -----------
430,385 1,052,507
----------- -----------
Partners' capital
General Partner, 44 Unit
equivalents outstanding in 1997 and 1996 227,903 208,650
Limited Partners, 3,879 and 3,995 Units
of Limited Partnership Interest
outstanding in 1997 and 1996, respectively 20,091,689 18,944,515
----------- -----------
20,319,592 19,153,165
----------- -----------
$20,749,977 $20,205,672
=========== ===========
See Notes to Financial Statements.
3
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HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading
of commodity futures:
Realized gains (losses) on
closed positions $ 1,404,647 $ (651,202) $ 1,463,491 $ 647,495
Change in unrealized gains /
losses on open positions 320,642 885,167 537,522 923,358
____________ ____________ ____________ ____________
1,725,289 233,965 2,001,013 1,570,853
Less, brokerage commissions and
clearing fees ($5,562, $4,722, $11,679
and $12,648, respectively) (181,507) (200,994) (499,543) (489,976)
____________ ____________ ____________ ____________
Net realized and unrealized gains (losses) 1,543,782 32,971 1,501,470 1,080,877
Interest income 194,924 153,596 577,289 452,226
____________ ____________ ____________ ____________
1,738,706 186,567 2,078,759 1,533,103
____________ ____________ ____________ ____________
Expenses:
Incentive fees 96,503 12,480 298,741 170,233
Other 13,146 14,261 33,829 39,809
____________ ____________ ____________ ____________
109,649 26,741 332,570 210,042
____________ ____________ ____________ ____________
Net income 1,629,057 159,826 1,746,189 1,323,061
Redemptions (212,364) (247,213) (579,762) (643,194)
------------ ------------ ------------ ------------
Net increase (decrease) in Partners' capital 1,416,693 (87,387) 1,166,427 679,867
Partners' capital, beginning of period 18,902,899 16,391,510 19,153,165 15,624,256
____________ ____________ ____________ ____________
Partners' capital, end of period $ 20,319,592 $ 16,304,123 $ 20,319,592 $ 16,304,123
============ ============ ============ ============
Net Asset Value per Unit
(3,923 and 4,089 Units outstanding at
September 30, 1997 and 1996, respectively) $ 5,179.61 $ 3,987.31 $ 5,179.61 $ 3,987.31
============ ============ ============ ============
Net income per Unit of Limited
Partnership Interest and General
Partner Unit equivalent $ 410.97 $ 38.50 $ 437.55 $ 314.47
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(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 a diversified portfolio of
commodity interests including futures contracts, options and forward contracts.
The commodity interests that are traded by the partnership are volatile and
involve a high degree of market risk. The Partnership commenced 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 (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, 1997 and the results of its operations for the three
and nine months ended September 30, 1997 and 1996. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Partnership's annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 1996.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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2. Net Asset Value Per Unit
Changes in net asset value per Unit for the three and nine months ended
September 30, 1997 and 1996 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
Net realized and unrealized
gains $ 389.46 $ 7.94 $ 376.06 $ 256.76
Interest income 49.17 37.00 144.38 107.66
Expenses (27.66) (6.44) (82.89) (49.95)
--------- --------- --------- ---------
Increase for period 410.97 38.50 437.55 314.47
Net Asset Value per Unit,
beginning of period 4,768.64 3,948.81 4,742.06 3,672.84
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $5,179.61 $3,987.31 $5,179.61 $3,987.31
========= ========= ========= =========
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1997 was $1,011,857 and the average fair value during
the nine months then ended, based on monthly calculation, was $1,030,965.
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 financial instrument. These instruments may be traded on
an
6
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exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $170,510,373 and $53,842,887, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1997. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1997, the fair value of the Partnership's
derivatives, including options thereon, was $1,011,857, as detailed below.
7
<PAGE>
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies:
- - Exchange Traded Contracts $ 1,152,713 $ 98,750 $ (1,687)
- - OTC Contracts 31,776,445 40,823,434 77,032
Energy 507,236 1,781,210 (78,634)
Grains 1,160,253 155,875 (24,335)
Interest Rates US 24,820,040 0 46,903
Interest Rates Non-US 105,297,899 3,713,952 791,177
Livestock 0 153,900 1,680
Metals 2,632,788 1,920,358 117,867
Softs 2,240,925 1,443,125 (41,254)
Indices 922,074 3,752,283 123,108
------------- ------------ ----------
Totals $170,510,373 $53,842,887 $1,011,857
============= ============ ==========
5. Pending Merger:
On September 24, 1997, Travelers Group Inc. ("Travelers") and Salomon
Inc ("Salomon") announced an agreement and plan of merger pursuant to which
Salomon will become a wholly owned subsidiary of Travelers and Smith Barney
Holdings Inc., the parent company of Smith Barney Inc. and Smith Barney Futures
Management Inc., will be merged into Salomon forming Salomon Smith Barney
Holdings Inc. The transaction is expected to be completed by year-end 1997.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents (such as U.S. Treasury Bills, which constitutes
approximately 71% of the Partnership's assets at September 30, 1997) and net
unrealized appreciation (depreciation) on open futures 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 1997.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 1997, Partnership capital
increased 6.1% from $19,153,165 to $20,319,592. This increase was attributable
to net income from operations of $1,746,189 which was partially offset by the
redemption of 116 units resulting in an outflow of $579,762 for the nine months
ended September 30, 1997. Future redemptions can impact the amount of funds
available for investment in commodity contract positions in subsequent months.
Results of Operations
During the Partnership's third quarter of 1997, the net asset value per
Unit increased 8.6% from $4,768.64 to $5,179.61, as compared to the third
quarter of 1996 in which the net asset value per Unit increased 1.0%. The
Partnership experienced a net trading gain before commissions and expenses in
the third quarter of 1997 of $1,725,289. Gains were recognized in the trading of
commodity futures in currencies, U.S. and non U.S. interest rates and indices
and were partially offset by losses recognized in metals, softs, energy
products, grains and livestock. The Partnership experienced a net trading gain
before commissions and expenses in the second quarter of 1996 of $233,965. Gains
were recognized in the trading of U.S. and non U.S. interest rates and energy
products and were partially offset by losses in currencies, agricultural
products, indices and metals.
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
9
<PAGE>
price trends and the ability of the Advisors to identify correctly 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 for the three and nine
months ended September 30, 1997 increased by $41,328 and $125,063, respectively,
as compared to the corresponding periods in 1996. This increase in interest
income was attributable to an increase in Partnership capital as a result of
positive trading performance which was partially offset by redemptions during
1996 and through the third quarter of 1997.
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, 1997 decreased by $19,487 and increased by $9,567,
respectively, as compared to the corresponding periods in 1996.
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 and nine
months ended September 30, 1997 resulted in incentive fees of $96,503 and
$298,741, respectively. Trading performance for the three and nine months ended
June 30, 1996 resulted in incentive fees of $12,480 and $170,233, respectively.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3, Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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: 11/12/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and Director
Date: 11/12/97
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812818
<NAME> Hutton Investors Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,738,120
<SECURITIES> 1,011,857
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,749,977
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,749,977
<CURRENT-LIABILITIES> 430,385
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,319,592
<TOTAL-LIABILITY-AND-EQUITY> 20,749,977
<SALES> 0
<TOTAL-REVENUES> 2,078,759
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 332,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,746,189
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,746,189
<EPS-PRIMARY> 437.55
<EPS-DILUTED> 0
</TABLE>
