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 0-18467
SHEARSON HUTTON PERFORMANCE PARTNERS
(Exact name of registrant as specified in its charter)
Delaware 13-3486116
(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>
SHEARSON HUTTON PERFORMANCE PARTNERS
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
SHEARSON HUTTON PERFORMANCE PARTNERS
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------- ----------
(Unaudited)
ASSETS
Equity in commodity futures trading account:
Cash and cash equivalents $2,319,007 $3,219,888
Net unrealized appreciation
on open futures contracts 273,522 116,804
---------- ----------
2,592,529 3,336,692
Interest receivable 8,193 12,031
---------- ----------
$2,600,722 $3,348,723
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions $ 16,254 $ 20,929
Management fees 4,838 6,217
Incentive fees - 1,896
Other 24,257 21,986
Redemptions payable 241,391 119,161
---------- ----------
286,740 170,189
---------- ----------
Partners' Capital
General Partner, 24 Unit
equivalents outstanding in 1996
and 1995, respectively 31,147 33,254
Limited Partners, 1,759 and 2,270
Units of Limited Partnership Interest
outstanding in 1996 and 1995,
respectively 2,282,835 3,145,280
---------- ----------
2,313,982 3,178,534
---------- ----------
$2,600,722 $3,348,723
========== ==========
See Notes to Financial Statements.
3
<PAGE>
SHEARSON HUTTON PERFORMANCE PARTNERS
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 $ 5,671 $ (120,335) $ (210,640) $ 866,900
Change in unrealized gains /
losses on open positions 219,681 (29,107) 156,718 4,877
----------- ----------- ----------- -----------
225,352 (149,442) (53,922) 871,777
Less, brokerage commissions and
clearing fees ($1,236, $997,
$3,793 and $4,519, respectively) (51,131) (71,007) (173,229) (233,750)
----------- ----------- ----------- -----------
Net realized and unrealized
gains (losses) 174,221 (220,449) (227,151) 638,027
Interest income 24,810 38,075 83,531 120,854
----------- ----------- ----------- -----------
199,031 (182,374) (143,620) 758,881
----------- ----------- ----------- -----------
Expenses:
Management fees 13,838 19,251 46,666 56,874
Incentive fees 139,686
Other 11,719 12,211 34,908 33,400
----------- ----------- ----------- -----------
25,557 31,462 81,574 229,960
----------- ----------- ----------- -----------
Net income (loss) 173,474 (213,836) (225,194) 528,921
Redemptions (241,391) (148,864) (639,358) (763,554)
----------- ----------- ----------- -----------
Net decrease in Partners' capital (67,917) (362,700) (864,552) (234,633)
Partners' capital, beginning
of period 2,381,899 3,583,582 3,178,534 3,455,515
----------- ----------- ----------- -----------
Partners' capital, end
of period $ 2,313,982 $ 3,220,882 $ 2,313,982 $ 3,220,882
=========== =========== =========== ===========
Net Asset Value per Unit
(1,783 and 2,380 Units
outstanding at September 30,
1996 and 1995, respectively) $ 1,297.80 $ 1,353.31 $ 1,297.80 $ 1,353.31
=========== =========== =========== ===========
Net income (loss) per Unit of Limited
Partnership Interest and General
Partnership Unit equivalent $ 88.10 $ (85.88) $ (87.79) $ 179.56
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
SHEARSON HUTTON PERFORMANCE PARTNERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. General:
Shearson Hutton Performance Partners (the "Partnership") was organized
under the laws of the State of Delaware on October 3, 1988 with the name SLH
Performance Partners Futures Fund L.P. The Partnership engages in the
speculative trading of commodity interests including forward contracts on
foreign currencies, commodity options and commodity futures contracts on U.S.
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 operations on
June 6, 1989.
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 being made by SJO, Inc. and Hyman Beck &
Company, Inc. (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 as of 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>
SHEARSON HUTTON PERFORMANCE PARTNERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Continued)
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) $ 88.48 $ (88.54) $ (88.60) $ 217.97
Interest income 12.60 15.29 38.61 44.76
Expenses (12.98) (12.63) (37.80) (83.17)
--------- --------- --------- ---------
Increase (decrease)
for period 88.10 (85.88) (87.79) 179.56
Net Asset Value per Unit,
beginning of period 1,209.70 1,439.19 1,385.59 1,173.75
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $1,297.80 $1,353.31 $1,297.80 $1,353.31
========= ========= ========= =========
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 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 $273,522 and the average fair value during
the nine months then ended, based on monthly calculation, was $105,969.
6
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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 exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions, and collateral positions.
7
<PAGE>
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 $49,420,153 and $5,157,109, 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 $273,522, as detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
----------- ------- -----------
Currencies* $ 3,095,113 $ 2,974,685 $ 597
Interest Rates Non US 45,412,970 368,101 262,969
Metals 433,775 1,504,529 7,801
Softs - 309,794 3,013
Indices 478,295 - (858)
----------- ----------- --------
Totals $49,420,153 $5,157,109 $273,522
=========== ========== ========
*The notional or contractual commitment amounts and the net unrealized gain
amount listed for the currency sector represent OTC contracts. All other sectors
listed represent exchange traded contracts.
5. Subsequent Event:
Effective October 1, 1996, Hyman Beck & Company Inc. was terminated as an
Advisor to the fund and the assets previously managed by Hyman Beck were
allocated to the Fund's Advisor, SJO, Inc.
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, net unrealized
appreciation (depreciation) on open futures and forward contracts and interest
receivable. Because of the low margin deposits normally required in commodity
futures trading, relatively small price movements may result in substantial
losses to the Partnership. While substantial losses could lead to a decrease in
liquidity, no such losses occurred in the 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 decreased
27.2% from $3,178,534 to $2,313,982. This decrease was attributable to the
redemption of 511 limited partnership Units resulting in an outflow of $639,358
and by a net loss from operations of $225,194 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 periods.
Results of Operations
During the Partnership's third quarter of 1996, the net asset value per
Unit increased 7.3% from $1,209.70 to $1,297.80 as compared to the third quarter
of 1995 in which the net asset value per Unit decreased 6.0%. The Partnership
experienced a net trading gain before commissions and expenses in the third
quarter of 1996 of $225,352. This gain was primarily attributable to the trading
of commodity futures in interest rates and was partially offset by losses
recognized in metals, indices, agricultural products and currencies. The
Partnership experienced a net trading loss before commissions and expenses in
the third quarter of 1995 of $149,442. Losses were recognized in the trading of
commodity futures in agricultural products, interest rates, and metals and were
partially offset by gains recognized in currencies and indices.
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,
9
<PAGE>
among other things, changing supply and demand relationships, weather,
governmental, agricultural, commercial and trade programs and policies, national
and international political and economic events and changes in interest rates.
To the extent that market trends exist and the Advisors are able to identify
them, the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily average equity was earned
at the monthly average 13-week U.S. Treasury bill yield. Interest income for the
three and nine months ended September 30, 1996 decreased by $13,265 and $37,323,
respectively, as compared to the corresponding periods in 1995. This decrease
was attributable to a decrease in interest rates in 1996 as compared to 1995
coupled with the effect of redemptions on the Partnership's equity maintained in
cash.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and, therefore, vary according to trading performance and
redemptions. Accordingly, they must be compared in relation to the fluctuations
in the monthly net asset values. Commissions and clearing fees for the three and
nine months ended September 30, 1996 decreased by $19,876 and $60,521, as
compared to the corresponding periods in 1995.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. Management fees for the three and nine months ended September
30, 1996 decreased by $5,413 and $10,208 respectively, as compared to the
corresponding periods in 1995.
Incentive fees are based on the new appreciation generated by each Advisor
as defined in the advisory agreements between the Partnership, the General
Partner and each Advisor. No incentive fees were earned during the three and
nine months ended September 30, 1996. Trading performance for the nine months
ended September 30, 1995 resulted in incentive fees of $139,686.
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 - None
(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.
SHEARSON HUTTON PERFORMANCE PARTNERS
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> 0000841941
<NAME> Shearson Hutton Performance Partners
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,319,007
<SECURITIES> 273,522
<RECEIVABLES> 8,193
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,600,722
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,600,722
<CURRENT-LIABILITIES> 286,740
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,313,982
<TOTAL-LIABILITY-AND-EQUITY> 2,600,722
<SALES> 0
<TOTAL-REVENUES> (143,620)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 81,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (225,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (225,194)
<EPS-PRIMARY> (87.79)
<EPS-DILUTED> 0
</TABLE>
