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, 2000
Commission File Number 0-16526
HUTTON INVESTORS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
Delaware 13-3406160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th. 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>
16
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, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
2000 and 1999 (unaudited). 4
Notes to Financial Statements
(unaudited) 5 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10 - 11
Item 3. Quantitative and Qualitative Disclosures
of Market Risk 12 - 13
PART II - Other Information 14
2
<PAGE>
PART I
Item 1. Financial Statements
HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENT OF FINANCIAL CONDITION
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
ASSETS:
Equity in commodity futures
trading account:
Cash $ 14,678,443 $ 19,229,078
Net unrealized appreciation
(depreciation) on open contracts (956,195) 324,506
------------ ------------
13,722,248 19,553,584
Interest Income 74,065 -
------------ ------------
$ 13,796,313 $ 19,553,584
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 85,783 $ 73,856
Other 49,375 63,409
Redemptions payable 1,519,857 562,238
------------ ------------
1,655,015 699,503
------------ ------------
Partners' capital :
General Partner, 44 Unit equivalents
outstanding in 2000 and 1999,
respective1y 93,277 240,179
Limited Partners, 2,720 and 3,410 Units
of Limited Partnership Interest
outstanding in 2000 and 1999, respectively 11,948,021 18,613,902
------------ ------------
12,141,298 18,854,081
------------ ------------
$ 13,796,313 $ 19,553,584
============ ============
See Notes to Financial Statements.
3
<PAGE>
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,
---------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains (losses) on closed positions $ (101,201) $ (188,680) $ (2,225,788) $ 1,575,221
Change in unrealized losses on open
positions (966,895) (1,859,291) (1,280,701) (2,131,887)
------------ ------------ ------------ ------------
(1,068,096) (2,047,971) (3,506,489) (556,666)
Less, brokerage commissions including clearing fees
of $3,631, $5,610, $14,235 and $16,914, respectively (174,754) (187,139) (568,980) (607,404)
------------ ------------ ------------ ------------
Net realized and unrealized losses (1,242,850) (2,235,110) (4,075,469) (1,164,070)
Interest income 241,386 190,818 608,386 552,035
------------ ------------ ------------ ------------
(1,001,464) (2,044,292) (3,467,083) (612,035)
------------ ------------ ------------ ------------
Expenses:
Other - 22,274 26,332 47,445
Incentive fees - - - 222,126
------------ ------------ ------------ ------------
- 22,274 26,332 269,571
------------ ------------ ------------ ------------
Net loss (1,001,464) (2,066,566) (3,493,415) (881,606)
Redemptions (1,519,857) (59,829) (3,219,368) (816,045)
------------ ------------ ------------ ------------
Net decrease in Partners' capital (2,521,321) (2,126,395) (6,712,783) (1,697,651)
Partners' capital, beginning of period 14,662,619 23,407,518 18,854,081 22,978,774
------------ ------------ ------------ ------------
Partners' capital, end of period $ 12,141,298 $ 21,281,123 $ 12,141,298 $ 21,281,123
------------ ------------ ------------ ------------
Net asset value per Unit
(2,764 and 3,557 Units outstanding
at September 30, 2000 and 1999, respectively) $ 4,392.65 $ 5,982.89 $ 4,392.65 $ 5,982.89
------------ ------------ ------------ ------------
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (322.02) $ (579.35) $ (1,065.97) $ (249.49)
------------ ------------ ------------ ------------
</TABLE>
See Notes to Finanacial Statements
4
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(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 LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
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.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. All trading decisions 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, 2000 and December 31, 1999 and the results of its
operations for the three and nine months ended September 30, 2000 and 1999.
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, 1999.
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>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net realized and unrealized
losses $ (399.63) $ (626.61) $(1,245.23) $ (327.43)
Interest income 77.61 53.50 187.04 152.21
Expenses - (6.24) (7.78) (74.27)
--------- ---------- ---------- ----------
Decrease for period (322.02) (579.35) (1,065.97) (249.49)
Net Asset Value per Unit,
beginning of period 4,714.67 6,562.24 5,458.62 6,232.38
---------- ---------- ---------- ---------
Net Asset Value per Unit,
end of period $4,392.65 $5,982.89 $4,392.65 $5,982.89
========== ========== ========== =========
</TABLE>
6
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
(Continued)
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 SSB 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 average fair value during the periods ended September 30,
2000 and December 31, 1999, based on a monthly calculation, was $361,741 and
$1,049,373, respectively. The fair value of these commodity interests, including
options thereon, if applicable, at September 30, 2000 and December 31, 1999, was
$(956,195) and $324,506, respectively, as detailed below.
Fair Value
September 30, December 31,
2000 1999
------------- -----------
Currency:
- Exchange Traded Contracts $ (15,863) $ 5,475
- OTC Contracts (975,954) (156,409)
Energy 2,062 76,787
Grains 119,912 37,761
Interest Rates U.S. 51,594 262,064
Interest Rates Non-U.S. (225,753) 71,821
Livestock 840 810
Metals 27,889 (116,506)
Softs (13,717) 86,055
Indices 72,795 56,648
---------- ---------
Total $(956,195) $ 324,506
========== =========
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
may include forwards, futures and options, whose value is based upon an
underlying asset,
7
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
(Continued)
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,
through physical delivery or with another financial instrument. These
instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange
traded instruments are standardized and include futures and certain option
contracts. OTC contracts are negotiated between contracting parties and include
forwards and certain options. Each of these instruments is subject to various
risks similar to those related to the underlying financial instruments including
market and credit risk. In general, the risks associated with OTC contracts are
greater than those associated with exchange traded instruments because of the
greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is 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
8
<PAGE>
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
(Continued)
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. The majority of these instruments mature
within one year of September 30, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
9
<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, net unrealized appreciation (depreciation) on open futures and forward
contracts and interest receivable. Because of the low margin deposits normally
required in commodity futures trading, relatively small price movements may
result in substantial losses to the Partnership. While substantial losses could
lead to a substantial decrease in liquidity, no such losses occurred in the
Partnership's third quarter of 2000.
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, 2000, Partnership capital
decreased 35.6% from $18,854,081 to $12,141,298. This decrease was attributable
to net loss from operations of $3,493,415 coupled with the redemption of 690
units resulting in an outflow of $3,219,368 for the nine months ended September
30, 2000. 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 2000, the net asset value per
unit decreased 6.8% from $4,714.67 to $4,392.65 as compared to a decrease of
8.8% in the third quarter of 1999. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the third quarter of 2000
of $1,068,096. Losses were primarily attributable to the trading of commodity
contracts in currencies, non-U.S. interest rates, metals, softs and indices and
were partially offset by gains in energy, grains, U.S. interest rates and
livestock. The Partnership experienced a net trading loss before commissions and
related fees in the third quarter of 1999 of $2,047,971. Losses were primarily
attributable to the trading of commodity contracts in currencies, U.S. and
non-U.S. interest rates, grains, metals, livestock and indices and were
partially offset by gains in energy and softs.
Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity trading but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
10
<PAGE>
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily equity maintained in
cash was earned at the monthly average 13-week U.S. Treasury Bill yield.
Interest income for the three and nine months ended September 30, 2000 increased
by $50,568 and $56,351, respectively, as compared to the corresponding periods
in 1999. The increase in interest income is primarily due to the fact that the
fund no longer holds U.S. Treasury bills, rather the excess cash is held in the
trading account were it earns interest at a higher rate than in the previous
periods.
Brokerage commissions are based on the number of trades executed by the
Advisors. Accordingly, they must be analyzed in relation to the fluctuations in
the monthly net asset values. Brokerage commissions and fees for the three and
nine months ended September 30, 2000 decreased by $12,385 and $38,424,
respectively, as compared to the corresponding periods in 1999.
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. There were no incentive fees earned for the
three and nine months ended September 30, 2000. Trading performance for the
three and nine months ended September 30, 1999 resulted in incentive fees of $ 0
and $222,126, respectively.
11
<PAGE>
Item 3. Quantitative and Qualitative Disclosures of Market Risk
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, 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.
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. 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.
12
<PAGE>
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of September 30, 2000.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of September 30, 2000, the
Partnership's total capitalization was $12,141,298. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 1999.
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Currencies:
- Exchange Traded Contracts $ 15,300 0.12% $217,375 $ 8,319
- OTC Contracts 564,758 4.65% 990,070 398,746
Energy 205,200 1.69% 227,200 45,000
Grains 28,700 0.23% 41,850 28,450
Interest Rates U.S. 91,700 0.76% 327,700 44,793
Interest Rates Non-U.S. 482,853 3.98% 1,102,465 473,662
Livestock 4,500 0.04% 4,925 2,100
Metals 165,950 1.37% 397,750 93,750
Softs 62,868 0.52% 157,204 31,371
Indices 324,047 2.67% 466,824 121,147
----------- ------
Total $1,945,876 16.03%
========== ======
</TABLE>
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning the matter entitled MKP Master Fund,
LDC et al. v. Salomon Smith Barney Inc., see the description that
appears in the ninth paragraph under the caption "Legal Proceedings"
of the Annual Report on Form 10-K of the Partnership for the year
ended December 31, 1999. In September 2000, the court denied
plaintiffs' motion to dismiss SSB's counterclaims based on
indemnification and contribution.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
14
<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 LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
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 LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and Director
Date: 11/14/00
15
