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, 1997
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 60,000 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 to Item 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 [ ]
<PAGE>
PART I
Item 1. Business.
(a) General development of business. Shearson Hutton Performance Partners
(the "Partnership") is a limited partnership organized on October 3, 1988 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 other financial instruments,
foreign currencies and stock indices. The Partnership commenced trading on June
6, 1989. A total of 60,000 Units of Limited Partnership Interest in the
Partnership (the "Units") were offered to the public. A Registration Statement
on Form S-1 relating to the public offering of 60,000 Units became effective on
December 29, 1988. Redemptions for the years ended December 31, 1997, 1996 and
1995 are reported in the Statement of Partners' Capital on page F-5 under "Item
8. Financial Statements and Supplementary Data."
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of Smith
Barney Inc. ("SB"). SB acts as commodity broker for the Partnership. On November
28, 1997, Smith Barney Holdings Inc. was merged with Salomon Inc to form Salomon
Smith Barney Holdings Inc. ("SSBH"), a wholly owned subsidiary of Travelers
Group Inc. SB is a wholly owned subsidiary of SSBH.
2
<PAGE>
The Partnership ceased trading during December 1997. The General Partner
withdrew effective December 31, 1997, and the Partnership terminated operations
as of that date. Distribution of the Partnership's capital was made subsequent
to that date.
Under the Limited Partnership Agreement, the General Partner administers
the business and affairs of the Partnership. At December 31, 1997, the General
Partner, on behalf of the Partnership, had entered into Management Agreements
(the "Management Agreement") with SJO, Inc. and TrendLogic Associates Inc. (the
"Advisors") who make all commodity trading decisions for the Partnership. Two of
the principals of TrendLogic Associates, Mr. Paul E. Dean and Mr. Richard
Semels, are employees of SB. TrendLogic Associates was added as an Advisor to
the Partnership effective April 3, 1997.
Pursuant to the terms of the Management Agreement, the Partnership is
obligated to pay SJO, Inc. and TrendLogic Associates Inc. a monthly management
fee equal to 2.5% and 2% per annum of the Partnership's Net Assets,
respectively, and an incentive fee, payable quarterly, equal to 20% of the
Partnership's Trading Profits. Trading Profits do not include interest paid to
the Partnership by SB under the terms of the Customer Agreement (the "Customer
Agreement").
Under the terms of the Customer Agreement entered into with SB, the
Partnership is obligated to pay SB a monthly brokerage fee equal to .625% of
month-end Trading Assets (7-1/2% per year) in lieu of brokerage commissions on a
per trade basis. SB pays a
3
<PAGE>
portion of such brokerage fees to certain of its financial consultants, who are
employees that sold Units in the initial offering. Such financial consultants
will receive a portion of the brokerage fees deemed to be attributable to the
Units sold by them. Brokerage fees will be paid for the life of the Partnership,
although the rate at which such fees will be paid may be changed. The
Partnership will pay, or reimburse, SB for National Futures Association,
exchange, clearing and floor brokerage fees. These fees depend on the number of
trades entered into by the Advisor. The Customer Agreement between the
Partnership and SB gives the Partnership the legal right to net unrealized gains
and losses.
In addition, SB pays the Partnership interest on 80% of the average daily
equity maintained in cash in its account during each month the rate equal to the
average non competitive yield of 13- week U.S. Treasury Bills as determined at
the weekly auctions thereof during the month.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity futures
contracts. 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,
1997, 1996, 1995, 1994 and 1993 is set forth under "Item 6. Select Financial
Data." The Partnership's capital as of December 31, 1997 was $1,225,424.
4
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(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.
Item 2. Description of Properties.
The Partnership does not own or lease any properties. The General Partner
operates out of facilities provided by its affiliate, SB.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnership is a party
or to which any of its assets is subject. No material legal proceedings
affecting the Partnership were terminated during the fiscal year.
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.
5
<PAGE>
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 Limited Partnership
Interest as of December 31, 1997 was 160.
(c) Distribution. The Partnership did not declare a distribution in
1997 or 1996.
6
<PAGE>
Item 6. Select Financial Data.
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, 1997, 1996, 1995, 1994 and 1993 and
total assets at December 31, 1997, 1996, 1995, 1994, and 1993 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Realized and unrealized
trading gains (losses)
net of brokerage commissions
and clearing fees of $171,941,
$229,376, $298,137, $401,015
and $549,846, respectively $ (253,676) $ 12,275 $ 709,968 $ (330,325) $ 414,381
Interest Income 77,643 109,523 156,521 150,334 149,634
------------ ------------ ----------- ----------- ----------
$ (176,033) $ 121,798 $ 866,489 $ (179,991) $ 564,015
=========== ============ =========== =========== =========
Net Income (loss) $ (269,399) $ (9,306) $ 605,734 $ (434,321) $ 282,283
=========== ============ =========== =========== ==========
Increase (decrease) in net
asset value per unit $(143.72) $ 33.29 * $211.84 $(139.00) $ 54.86
========= ========= ======== ========= =======
Total assets $1,268,821 $2,604,771 $3,348,723 $3,707,481 $5,838,014
=========== ============ =========== =========== ==========
<FN>
* The amount shown per Unit in 1996 does not accord with the net loss as
shown in the Statement of Income and Expenses for the year ended December
31, 1996 because of the timing of redemptions of the Partnership's Units
in relation to the fluctuating values of the Partnership's commodity
interests.
</FN>
</TABLE>
7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Liquidity. The Partnership ceased trading during December 1997.
The General Partner withdrew effective December 31, 1997, and the Partnership
terminated operations as of that date. Distribution of the Partnership's capital
was made subsequent to that date.
The Partnership does not engage in sales of goods or services.
Its only assets are its commodity futures trading accounts, consisting of cash
and cash equivalents, 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.
(3) The Partnership does not initiate additional positions in any
commodity if such additional positions would result in aggregate positions for
all commodities requiring as margin more that 66-2/3% of the Partnership's net
assets.
(4) The Partnership may occasionally accept delivery of
8
<PAGE>
a commodity. Unless such delivery is disposed of promptly by retendering the
warehouse receipts representing the delivery to the appropriate clearing house,
the physical commodity position is fully hedged.
(5) 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.
(6) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(7) The Advisors 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 two 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
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
9
<PAGE>
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
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.)
(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, 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 fundamental
and technical factors which the Partnership 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 and the ability of the Advisors to identify and take advantage of
price movements in the commodity markets, in addition to the level of Net Assets
maintained. Furthermore, interest income is dependent upon
10
<PAGE>
interest rates over which the Partnership has no control. No forecast can be
made as to the level of redemptions in any given period. For the year ended
December 31, 1997, 711 Limited Partnership Units were redeemed for a total of
$877,551. For the year ended December 31, 1996, 622 Units were redeemed for a
total of $796,854. For the year ended December 31, 1995, 624 Units were redeemed
for a total of $846,690 and the General Partner redeemed 26 Unit equivalents
totaling $36,025.
(c) Results of operations. For the year ended December 31, 1997, the net
asset value per Unit decreased 10.1%, from $1,418.88 to $1,275.16. For the year
ended December 31, 1996, the net asset value per Unit increased 2.4% from
$1,385.59 to $1,418.88. For the year ended December 31, 1995, the net asset
value per unit increased 18.0% from $1,173.75 to $1,385.59.
The Partnership experienced net trading losses of $81,735 before
commissions and expenses for the year ended December 31, 1997. Losses were
attributable to losses incurred in grains, non U.S. interest rates, livestock,
metals, softs and indices and were partially offset by gains in U.S. interest
rates, energy products and currencies.
The Partnership experienced net trading gains of $241,651 before
commissions and expenses for the year ended December 31, 1996. Gains were
attributable to gains incurred in the trading of commodity futures in interest
rates. These gains were partially offset by losses in metals, indices, foreign
currencies and agricultural commodity futures.
11
<PAGE>
The Partnership experienced net trading gains of $1,008,105 before
commissions and expenses for the year ended December 31, 1995. Realized trading
gains of $852,203 were attributable to gains incurred in the trading of
commodity futures in interest rates, stock indices and currencies. These
realized gains were partially offset by realized losses in precious metals and
agricultural commodity futures.
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 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 Advisors are able to identify them,
the Partnership expects to increase capital through operations.
12
<PAGE>
Item 8. Financial Statements and Supplementary Data.
SHEARSON HUTTON PERFORMANCE PARTNERS
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants. F-2
Financial Statements:
Statement of Financial Condition at
December 31, 1997 (termination of
operations) and 1996. F-3
Statement of Income and Expenses for
the years ended December 31, 1997,
(termination of operations), 1996 and
1995. F-4
Statement of Partners' Capital for
the years ended December 31, 1997
(termination of operations), 1996 and
1995. F-5
Notes to Financial Statements. F-6 - F-11
F-1
<PAGE>
Report of Independent Accountants
To the Partners of
Shearson Hutton Performance Partners:
We have audited the accompanying statement of financial condition of SHEARSON
HUTTON PERFORMANCE PARTNERS (a Delaware Limited Partnership) as of December 31,
1997 (termination of operations) and 1996, and the related statements of income
and expenses and of partners' capital for the years ended December 31, 1997,
1996 and 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by the
management of the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shearson Hutton Performance
Partners as of December 31, 1997 (termination of operations) and 1996, and the
results of its operations for the years ended December 31, 1997, 1996 and 1995,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 6, 1998
F-2
<PAGE>
Shearson Hutton Performance Partners
Statement of Financial Condition
December 31, 1997 (termination of operations) and 1996
1997 1996
Assets:
Equity in commodity futures
trading account:
Cash and cash equivalents (Note 3b) $1,264,449 $2,570,817
Net unrealized appreciation
on open futures
contracts -- 25,099
---------- ----------
1,264,449 2,595,916
Interest receivable 4,372 8,855
---------- ----------
$1,268,821 $2,604,771
---------- ----------
Liabilities and Partners'
Capital:
Liabilities:
Accrued expenses:
Commissions $ 9,917 $ 16,280
Management fees 2,372 5,393
Incentive fees -- 27,557
Professional fees 27,849 22,649
Other 3,259 3,022
Redemptions payable (Note 5) -- 157,496
---------- ----------
43,397 232,397
Partners' capital (Notes 1, 5, and 6):
General Partner, 24 Unit
equivalents outstanding in 30,604 34,053
1997 and 1996
Limited Partners, 937 and 1,648
Units of Limited
Partnership Interest 1,194,820 2,338,321
outstanding in 1997 and 1996,
respectively 1,225,424 2,372,374
---------- ----------
$1,268,821 $2,604,771
---------- ----------
See notes to financial statements.
F-3
<PAGE>
Shearson Hutton Performance Partners
Statement of Income and Expenses
for the years ended
December 31, 1997 (termination of operations),
1996 and 1995
1997 1996 1995
Income:
Net gains (losses)
on trading of commodity
interests:
Realized gains
(losses) on
closed positions $ (56,636) $ 333,356 $ 852,203
Change in unrealized
gains/ losses on
open positions (25,099) (91,705) 155,902
----------- ----------- -----------
(81,735) 241,651 1,008,105
Less, Brokerage
commissions and
clearing fees
($7,723, $5,970, and
$5,365, respectively)
(Note 3b) (171,941) (229,376) (298,137)
----------- ----------- -----------
Net realized and
unrealized gains (253,676) 12,275 709,968
(losses)
Interest income 77,643 109,523 156,521
----------- ----------- -----------
(Note 3b)
(176,033) 121,798 866,489
----------- ----------- -----------
Expenses:
Management fees 44,418 63,161 75,214
(Note 3a)
Incentive fees (Note 3a) -- 27,557 141,581
Other expenses 48,948 40,386 43,960
----------- ----------- -----------
93,366 131,104 260,755
----------- ----------- -----------
Net income (loss) $ (269,399) $ (9,306) $ 605,734
----------- ----------- -----------
Net income (loss) per
Unit of Limited Partnership
Interest and General Partner
Unit equivalent (Notes 1
and 6) $ (143.72) $ 33.29* $ 211.84
----------- ----------- -----------
* The amount shown per Unit in 1996 does not accord with the net loss as
shown in the Statement of Income and Expenses for the year ended December
31, 1996 because of the timing of redemptions of the Partnership's Units in
relation to the fluctuating values of the Partnership's commodity
interests.
See notes to financial statements.
F-4
<PAGE>
Shearson Hutton Performance Partners
Statement of Partners' Capital for the years ended
December 31, 1997 (termination of operations),
1996, and 1995
Limited General
Partners Partner Total
Partners' capital at
December 31, 1994 $ 3,396,827 $ 58,688 $ 3,455,515
Net income 595,143 10,591 605,734
Redemption of 624 Units
of Limited
Partnership Interest
and General Partner
redemption representing
26 Unit equivalents (846,690) (36,025) (882,715)
----------- ----------- -----------
Partners' capital at
December 31, 1995 3,145,280 33,254 3,178,534
Net loss (Note 6) (10,105) 799 (9,306)
Redemption of 622 Units
of Limited (796,854) -- (796,854)
----------- ----------- -----------
Partnership Interest
Partners' capital at
December 31, 1996 2,338,321 34,053 2,372,374
Net loss (265,950) (3,449) (269,399)
Redemption of 711 Units
of Limited (877,551) -- (877,551)
----------- ----------- -----------
Partnership Interest
Partners' capital at
December 31, 1997 $ 1,194,820 $ 30,604 $ 1,225,424
----------- ----------- -----------
See notes to financial statements.
F-5
<PAGE>
Shearson Hutton Performance Partners
Notes to Financial Statements
1. Partnership Organization:
Shearson Hutton Performance Partners (the "Partnership") is a limited
partnership which was organized on October 3, 1988 under the partnership
laws of the State of Delaware and commenced trading operations on June 6,
1989. 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 60,000 Units of Limited Partnership
Interest ("Units") during the public offering period.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of
Smith Barney Inc. ("SB"). SB acts as commodity broker for the Partnership
(see Note 3b). On November 28, 1997, Smith Barney Holdings Inc. was merged
with Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"), a
wholly owned subsidiary of Travelers Group Inc. SB is a wholly owned
subsidiary of SSBH.
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 ceased trading during December 1997. The General Partner
withdrew effective December 31, 1997, and the Partnership terminated
operations as of that date. Distribution of the Partnership's capital was
made subsequent to that date. (See Note 8.)
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 market value for
those commodity interests for which market quotations are readily
available or at fair value on the last business day of the year.
Investments in commodity interests denominated in foreign currency are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gain (loss) 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.
F-6
<PAGE>
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.
3. Agreements:
a. Management Agreement:
The General Partner, on behalf of the Partnership, has entered into
Management Agreements with SJO, Inc. and Trendlogic Associates Inc.
(collectively the "Advisors"). Two of the principals of Trendlogic
Associates, Mr. Paul E. Dean and Mr. Richard Semels, are employees of SB.
The agreements provide that the Advisors have sole discretion in
determining the investment of the assets of the Partnership allocated to
the Advisors by the General Partner. As compensation for services, the
Partnership is obligated to pay SJO, Inc. and Trendlogic Associates Inc a
management fee payable monthly equal to 2.5% per annum and 2.0% per annum
respectively, of the Net Assets managed by the Advisors and an incentive
fee payable quarterly equal to 20% of Trading Profits. Trendlogic
Associates Inc was added as an Advisor to the Partnership effective April
3, 1997. The Management Agreements were effective until December 31,
1997, the date the Partnership terminated operations.
F-7
<PAGE>
b. Customer Agreement:
The Partnership has entered into a Customer Agreement which was assigned
to SB whereby SB provides services which include, among other things, the
execution of transactions for the Partnership's account in accordance
with orders placed by the Advisors. The Partnership is obligated to pay
brokerage commissions to SB at .625% of month-end Trading Assets per
month (7.5% per year) in lieu of brokerage commissions on a per trade
basis. A portion of this fee is paid to employees of SB who have sold
Units of the Partnership. This fee does not include exchange, clearing,
user, give-up, floor brokerage and NFA fees which will be borne by the
Partnership. All of the Partnership's assets are deposited in the
Partnership's account at SB. The Partnership's cash is deposited by SB in
segregated bank accounts, as required by Commodity Futures Trading
Commission regulations. At December 31, 1997 and 1996, the amount of cash
held for margin requirements was $0 and $425,859, respectively. SB will
pay the Partnership interest on 80% of the average daily equity in its
account 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 SB gives the Partnership the legal right to net unrealized gains and
losses. The Customer Agreement was effective until December 31, 1997, the
date the Partnership terminated operations.
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.
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 December 31, 1997 and 1996 was $0 and $25,099, respectively, and
the average fair value during the years then ended, based on monthly
calculation, was $74,970 and $118,151, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, a limited partner may redeem all or some of his
Units at the Net Asset Value thereof as of the last day of any calendar
quarter on fifteen days written notice to the General Partner, provided that
no redemption may result in the limited partner holding fewer than three
Units after redemption is effected.
F-8
<PAGE>
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31,
1997 (termination of operations), 1996 and 1995 were as follows:
1997 1996 1995
Net realized and
unrealized
gains (losses) $ (130.17) $ 45.70 $ 248.21
Interest income 52.29 53.19 59.74
Expenses (65.84) (65.60) (96.11)
--------- --------- ---------
Increase (decrease)
for year (143.72) 33.29* 211.84
Net asset value per
Unit, beginning of 1,418.88 1,385.59 1,173.75
--------- --------- ---------
year
Net asset value per
Unit, end of year $1,275.16 $1,418.88 $1,385.59
--------- --------- ---------
* The amount shown per Unit in 1996 does not accord with the net loss as
shown in the Statement of Income and Expenses for the year ended December
31, 1996 because of the timing of redemptions of the Partnership's Units in
relation to the fluctuating values of the Partnership's commodity
interests.
7. 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.
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 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.
F-10
<PAGE>
At December 31, 1997 (termination of operations), the Partnership held no
open positions and as a result had no commitment to purchase or sell any
instruments.
At December 31, 1996, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was
$47,001,136 and $8,603,362, respectively, and the fair value of the
Partnership's derivatives, including options thereon, was $25,099 as
detailed below.
December 31, 1996
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
---------------------------------------------
Interest
Rate Non-U.S $47,001,136 $ 8,603,362 $ 25,099
----------- ----------- -----------
8. Liquidation of the Partnership:
The General Partner withdrew from the Partnership effective December 31,
1997 (termination of operations) after having given the required 90 days
written notice to each Limited Partner. Distribution of the Partnership's
capital was made subsequent to that date.
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 the Advisors.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by
Smith Barney Futures Management Inc., its General Partner, which receives
compensation for its services, as set forth under "Item 1. Business." SB, 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, 1997, SB earned $171,941 in
brokerage commissions and clearing fees.
The Advisors manage the Partnership's assets and receive a monthly
management fee and a quarterly incentive fee, as described under "Item 1.
Business." and "Item 8. Financial Statements and Supplementary Data.", Note 3a.
For the year ended December 31, 1997, the Advisors earned $44,418 in management
fees. No incentive fees were earned for the year ended December 31, 1997.
13
<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 24 Units (2.5%) of Limited Partnership Interest as of December 31,
1997.
(c). Changes in control. None.
Item 13. Certain Relationship and Related Transactions.
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 8. Financial Statements and
Supplementary Data.", Notes 3a and 3b 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, 1997 and 1996.
Statement of Income and Expenses for the years ended December 31,
1997, 1996 and 1995.
Statement of Partners' Capital for the years ended December 31,
1997, 1996 and 1995.
(2) Financial Statement Schedules: Financial Data Schedule
for the year ended December 31, 1997.
(3) Exhibits:
3.1 - Limited Partnership Agreement (filed as Exhibit 3.1 to the
Registration Statement No.33-25255 and incorporated herein by
reference).
3.2 - Certificate of Limited Partnership of the Partnership
as filed on October 3, 1988 (filed as Exhibit 3.2 to
the Registration Statement No. 33-25255 and
incorporated herein by reference).
10.1- Customer Agreement between the Partnership and Shearson
Lehman Hutton Inc. dated as of December 28, 1988
(previously filed).
10.2- Escrow Agreement between the Partnership and European American
Bank (previously filed).
10.3- Management Agreement among the Partnership, Hayden
Commodities Corp. and Advisors dated as of December 28,
1988 (previously filed).
10.4- Letter dated May 31, 1990 from General Partner to Advisors
extending Management Agreements (filed as Exhibit 10.4 to Form
10-K for the fiscal year ended December 31, 1990 and incorporated
herein by reference).
14
<PAGE>
10.5- Letter dated May 24, 1991 from General Partner to Advisors
extending Management Agreement (filed as Exhibit 10.5 to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.6- Subscription Agreement dated July 31, 1991 among the Partnership
and the Moore Currency Fund, Ltd. (filed as Exhibit 10.6 to Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.7- Letter dated November 20, 1992 from General Partner to MCMI
terminating the Management Agreement effective as of November 30,
1992 (filed as Exhibit 10.7 to Form 10- K for the fiscal year
ended December 31, 1992 and incorporated herein by reference).
10.8- Letter dated November 20, 1992 from General Partner to Bacon
Investment Corp. revising the compensation structure effective as
of December 1, 1992 (filed as Exhibit 10.8 to Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
10.9- Request for Redemption from the Moore Currency Fund, Ltd. dated
December 14, 1992 (filed as Exhibit 10.9 to Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by
reference).
15
<PAGE>
10.10- Management Agreement among the Partnership, the General Partner
and SJO, Inc. dated December 1, 1992 (filed as Exhibit 10.10 to
Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10.11- Management Agreement among the Partnership, the General Partner
and Hyman Beck & Company, Inc. dated January 19, 1993 (filed as
Exhibit 10.11 to Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference).
10.12- Letter dated February 3, 1993 from the Moore Currency Fund, Ltd.
confirming the Partnership's Request for Redemption as of
December 31, 1992 (filed as Exhibit 10.12 to Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference).
10.13- Letter dated June 23, 1994 terminating Bacon Investment Corp. as
a trading advisor effective June 30, 1994 (filed as Exhibit 10.13
to Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.14- Letter dated February 16, 1995 from General Partner to SJO,
Inc. and Hyman Beck and Company, Inc. extending Management
Agreements to June 30, 1995 (filed as Exhibit 10.14 to Form 10-K
for the fiscal year ended December 31, 1995 and incorporated
herein by reference).
16
<PAGE>
10.15- Letter dated September 26, 1996 from General Partner to Hyman
Beck and Company, Inc. terminating the Management Agreement
effective as of October 1, 1996 (previously filed).
10.16- Management Agreement among the Partnership, the General Partner
and TrendLogic Associates Inc. (filed herein).
10.17- Letter extending Mangement Agreement with SJO, Inc.
(filed herein).
(b) Reports on 8-K: None Filed.
17
<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
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 1998.
SHEARSON HUTTON PERFORMANCE PARTNERS
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 Act of 1933, 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
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000841941
<NAME> Shearson Hutton Performance Partners
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,264,449
<SECURITIES> 0
<RECEIVABLES> 4,372
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,268,821
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,268,821
<CURRENT-LIABILITIES> 43,397
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,225,424
<TOTAL-LIABILITY-AND-EQUITY> 1,268,821
<SALES> 0
<TOTAL-REVENUES> (176,033)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 93,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (269,399)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (269,399)
<EPS-PRIMARY> (143.72)
<EPS-DILUTED> 0
</TABLE>
May 31, 1996
SJO INC.
10 W. State Street
Suite 201
Geneva, Illinois 60134
Attention: Mr. Zafar Fakroddin &
Mr. Irwin Berger
Re: Management Agreement Renewal
Shearson Hutton Performance Partners
Dear Mr. Fakroddin & Mr. Berger:
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, 1997.
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.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
SJO INC.
By:
Print Name:
DAD/sr
June 24, 1997
SJO INC.
10 W. State Street
Suite 201
Geneva, Illinois 60134
Attention: Mr. Zafar Fakroddin &
Mr. Irwin Berger
Re: Management Agreement Renewal
Shearson Hutton Performance Partners
Dear Mr. Fakroddin & Mr. Berger:
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, 1998.
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.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
SJO INC.
By:
Print Name:
DAD/sr
MANAGEMENT AGREEMENT
AGREEMENT made as of the 1st day of April, 1997 among SMITH
BARNEY FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SLH PERFORMANCE
PARTNERS FUTURES FUND L.P., a Delaware limited partnership doing business as
SHEARSON HUTTON PERFORMANCE PARTNERS FUTURES FUND (the "Partnership") and
TRENDLOGIC ASSOCIATES, INC., a Delaware corporation (the "Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of SHEARSON HUTTON
PERFORMANCE PARTNERS FUTURES FUND, a limited partnership organized for the
purpose of speculative trading of commodity interests, including futures
contracts, options and forward contracts on U.S. and non-U.S. markets with the
objective of achieving substantial capital appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the
Partnership (the "Limited Partnership Agreement") permits SBFM to delegate to
one or more commodity trading advisors SBFM's authority to make trading
decisions for the Partnership; and
WHEREAS, the Advisor is registered as a commodity trading
advisor with the Commodity Futures Trading Commission ("CFTC") and is a member
of the National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with
the CFTC and is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter
into this Agreement in order to set forth the terms and conditions upon which
the Advisor will render and implement advisory services in connection with the
conduct by the Partnership of its commodity trading activities during the term
of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) The Advisor shall have sole
authority and responsibility, as one of the Partnership's agents and
attorneys-in-fact, for directing the trading of the assets and funds of the
Partnership allocated to it from time to time by the General Partner in
commodity interests, including commodity futures contracts, options and forward
contracts. All such trading on behalf of the Partnership shall be in accordance
with the trading policies set forth in the Prospectus dated December 29, 1988 as
such trading policies may be changed from time to time upon receipt by the
Advisor of prior written notice of such change and pursuant to the trading
strategy selected by SBFM to be utilized by the Advisor in managing the
Partnership's assets. SBFM has initially selected the Advisor's Diversified
Program as the trading strategy which the Advisor shall utilize to manage the
Partnership's assets allocated to it. Any open positions or other investments at
the time of receipt of such notice of a change in trading policy shall not be
deemed to violate the changed policy and shall be closed or sold in the ordinary
course of trading. The Advisor may not deviate from the trading policies set
forth in the Prospectus without the prior written consent of the Partnership
given by SBFM. The Advisor makes no representation or warranty that the trading
to be directed by it for the Partnership will be profitable or will not incur
losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure
Document dated _____________ as filed with the CFTC. All trades made by the
Advisor for the account of the Partnership shall be made through such commodity
broker or brokers as SBFM shall direct, and the Advisor shall have no authority
or responsibility for selecting or supervising any such broker in connection
with the execution, clearance or confirmation of transactions for the
Partnership or for the negotiation of brokerage rates charged therefor. However,
the Advisor, with the prior written permission (by either original or fax copy)
of SBFM, may direct any and all trades in commodity futures and options to a
futures commission merchant or independent floor broker it chooses for execution
with instructions to give-up the trades to the broker designated by SBFM,
provided that the futures commission merchant or independent floor broker and
any give-up or floor brokerage fees are approved in advance by SBFM. All give-up
or similar fees relating to the foregoing shall be paid by the Partnership after
all parties have executed the relevant give-up agreements (by either original or
fax copy).
(c) The initial allocation of the Partnership's assets to the
Advisor will be made to the Advisor's Diversified Program. In the event the
Advisor wishes to use a trading system or methodology other than or in addition
to the Diversified Program in connection with its trading for the Partnership,
either in whole or in part, it may not do so unless the Advisor gives SBFM prior
written notice of its intention to utilize such different trading system or
methodology and SBFM consents thereto in writing. In addition, the Advisor will
provide five days' prior written notice to SBFM of any change in the trading
system or methodology to be utilized for the Partnership which the Advisor deems
material. If the Advisor deems such change in system or methodology or in
markets traded to be material, the changed system or methodology or markets
traded will not be utilized for the Partnership without the prior written
consent of SBFM. Non-material changes in the trading system or methodology
utilized for the Partnership may be instituted by the Advisor without such prior
written consent. The Advisor will provide the Partnership with a current list of
all commodity interests to be traded for the Partnership's account and will not
trade any additional commodity interests for such account without providing
notice thereof to SBFM and receiving SBFM's written approval. The Advisor also
agrees to provide SBFM, on a monthly basis, with a written report of the assets
under the Advisor's management together with all other matters deemed by the
Advisor to be material changes to its business not previously reported to SBFM.
(d) The Advisor agrees to make all material disclosures to
the Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor shall not
be required to disclose the actual trading results of proprietary accounts of
the Advisor or its principals unless SBFM reasonably determines that such
disclosure is required in order to fulfill its fiduciary obligations to the
Partnership or the reporting, filing or other obligations imposed on it by
Federal or state law or NFA rule or order. The Partnership and SBFM acknowledge
that the trading advice to be provided by the Advisor is a property right
belonging to the Advisor and that they will keep all such advice confidential.
Further, SBFM agrees to treat as confidential any results of proprietary
accounts and/or proprietary information with respect to trading systems obtained
from the Advisor. Nothing contained in this Agreement shall be deemed or
construed to require the Advisor to disclose any confidential or proprietary
details of the Advisor's trading strategies and methodologies.
(e) The Advisor understands and agrees that SBFM may
designate other trading advisors for the Partnership and apportion or
reapportion to such other trading advisors the management of an amount of Net
Assets (as defined in Section 3(b) hereof) as it shall determine in its absolute
discretion. The designation of other trading advisors and the apportionment or
reapportionment of Net Assets to any such trading advisors pursuant to this
Section 1 shall neither terminate this Agreement nor modify in any regard the
respective rights and obligations of the parties hereunder.
(f) SBFM may, from time to time, in its absolute discretion,
select additional trading advisors and reapportion funds among the trading
advisors for the Partnership as it deems appropriate. SBFM shall use its best
efforts to make reapportionments, if any, as of the first day of a calendar
month. The Advisor agrees that it may be called upon at any time promptly to
liquidate positions in SBFM's sole discretion so that SBFM may reallocate the
Partnership's assets, meet margin calls on the Partnership's account, fund
redemptions, or for any other reason, except that SBFM will not require the
liquidation of specific positions by the Advisor. SBFM will use its best efforts
to give two days' prior notice to the Advisor of any reallocations or
liquidations.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
(i) the Advisor will be liable to the Partnership with respect to losses
incurred due to errors committed or caused by it or any of its principals or
employees in communicating improper trading instructions or orders to any broker
on behalf of the Partnership and (ii) the Advisor will be liable to the
Partnership with respect to losses incurred due to errors committed or caused by
any executing broker (other than any SBFM affiliate) selected by the Advisor,
(it also being understood that SBFM, with the assistance of the Advisor, will
first attempt to recover such losses from the executing broker).
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the
Advisor shall be deemed to be an independent contractor and, except as otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Partnership in any way and shall not be deemed an agent, promoter
or sponsor of the Partnership, SBFM, or any other trading advisor. The Advisor
shall not be responsible to the Partnership, the General Partner, any trading
advisor or any limited partners for any acts or omissions of any other trading
advisor no longer acting as an advisor to the Partnership.
3. COMPENSATION. (a) In consideration of and as compensation
for all of the services to be rendered by the Advisor to the Partnership under
this Agreement, the Partnership shall pay the Advisor (i) an incentive fee
payable quarterly equal to 20% of New Trading Profits (as such term is defined
below) earned by the Advisor for the Partnership and (ii) a monthly fee for
professional management services equal to 1/6 of 1% (2% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in
Paragraph 7(d)(1) of the Limited Partnership Agreement dated as of October 3,
1988 and amended as of December 29, 1988, and without regard to further
amendments thereto, provided that in determining the Net Assets of the
Partnership on any date, no adjustment shall be made to reflect any
distributions, redemptions or incentive fees payable as of the date of such
determination.
(c) "New Trading Profits" shall mean the excess, if any, of
Net Assets managed by the Advisor at the end of the fiscal period over Net
Assets managed by the Advisor at the end of the highest previous fiscal period
or Net Assets allocated to the Advisor at the date trading commences, whichever
is higher, and as further adjusted to eliminate the effect on Net Assets
resulting from new capital contributions, redemptions, reallocations or capital
distributions, if any, made during the fiscal period, decreased by interest or
other income, not directly related to trading activity, earned on the
Partnership's assets during the fiscal period, whether the assets are held
separately or in margin accounts. Ongoing expenses will be attributed to the
Advisor based on the Advisor's proportionate share of Net Assets. Ongoing
expenses will not include expenses incurred in connection with litigation or
administrative proceedings not involving the activities of the Advisor on behalf
of the Partnership. Ongoing expenses include offering and organizational
expenses of the Partnership. No incentive fee shall be paid until the end of the
first full calendar quarter of trading by the Advisor, which fee shall be based
on New Trading Profits earned from the commencement of trading by the Advisor on
behalf of the Partnership through the end of the first full calendar quarter.
Interest income earned, if any, will not be taken into account in computing New
Trading Profits earned by the Advisor. If Net Assets allocated to the Advisor
are reduced due to redemptions, distributions or reallocations (net of
additions), there will be a corresponding proportional reduction in the related
loss carryforward amount that must be recouped before the Advisor is eligible to
receive another incentive fee.
(d) Quarterly incentive fees and monthly management fees
shall be paid within twenty (20) business days following the end of the period,
as the case may be, for which such fee is payable. In the event of the
termination of this Agreement as of any date which shall not be the end of a
fiscal quarter or a calendar month, as the case may be, the quarterly incentive
fee shall be computed as if the effective date of termination were the last day
of the then current quarter and the monthly management fee shall be prorated to
the effective date of termination. If, during any month, the Partnership does
not conduct business operations or the Advisor is unable to provide the services
contemplated herein for more than two successive business days, the monthly
management fee shall be prorated by the ratio which the number of business days
during which SBFM conducted the Partnership's business operations or utilized
the Advisor's services bears in the month to the total number of business days
in such month.
(e) The provisions of this Paragraph 3 shall survive the
termination of this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services
provided by the Advisor hereunder are not to be deemed exclusive. SBFM on its
own behalf and on behalf of the Partnership acknowledges that, subject to the
terms of this Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other
clients and accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity accounts during the term of this Agreement
and to use the same information, computer programs and trading strategies,
systems, methodologies, programs or formulas which they obtain, produce or
utilize in the performance of services to SBFM for the Partnership. However, the
Advisor represents, warrants and agrees that it believes the rendering of such
consulting, advisory and management services to other accounts and entities will
not require any material change in the Advisor's basic trading strategies and
will not affect the capacity of the Advisor to continue to render services to
SBFM for the Partnership as contemplated by this Agreement.
(b) If, at any time during the term of this Agreement, the
Advisor is required to aggregate the Partnership's commodity positions with the
positions of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that under no circumstances
will it knowingly or deliberately use trading strategies or methods for the
Partnership that are inferior to strategies or methods employed for any other
client or account and that it will not knowingly or deliberately favor any
client or account managed by it over any other client or account in any manner,
it being acknowledged, however, that different trading strategies or methods may
be utilized for differing sizes of accounts, accounts with different trading
policies, accounts experiencing differing inflows or outflows of equity,
accounts which commence trading at different times, accounts which have
different portfolios or different fiscal years, accounts utilizing different
executing brokers and accounts with other differences, and that such differences
may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers,
employees, directors and shareholder(s) presently act, and it is agreed that
they may continue to act, as advisor for other accounts managed by them, and may
continue to receive compensation with respect to services for such accounts in
amounts which may be more or less than the amounts received from the
Partnership.
(d) The Advisor agrees that it shall make such information
available to SBFM respecting the performance of the Partnership's account as
compared to the performance of other accounts managed by the Advisor or its
principals as shall be reasonably requested by SBFM. The Advisor presently
believes and represents that existing speculative position limits will not
materially adversely affect its ability to manage the Partnership's account
given the potential size of the Partnership's account and the Advisor's and its
principals' current accounts and all proposed accounts for which they have
contracted to act as trading manager.
5. TERM. (a) This Agreement shall continue in effect until
June 30, 1998. SBFM may, in its sole discretion, renew this Agreement for
additional one-year periods upon notice to the Advisor not less than 30 days
prior to the expiration of the previous period. At any time during the term of
this Agreement, SBFM may terminate this Agreement at any month-end upon 30 days'
notice to the Advisor. At any time during the term of this Agreement, SBFM may
elect to immediately terminate this Agreement upon 30 days' notice to the
Advisor if (i) the Net Asset Value per Unit shall decline as of the close of
business on any day to $500 or less; (ii) the Net Assets allocated to the
Advisor (adjusted for redemptions, distributions, withdrawals or reallocations,
if any) decline by 50% or more as of the end of a trading day from such Net
Assets' previous highest value; (iii) limited partners owning at least 50% of
the outstanding Units shall vote to require SBFM to terminate this Agreement;
(iv) the Advisor fails to materially comply with the terms of this Agreement;
(v) SBFM, in good faith, reasonably determines that the performance of the
Advisor has been such that SBFM's fiduciary duties to the Partnership require
SBFM to terminate this Agreement; or (vi) SBFM reasonably believes that the
application of speculative position limits resulting from the aggregation of the
Partnership's commodity positions with the positions of any other accounts
managed or advised by the Advisor or its principals will substantially affect
the performance of the Partnership. At any time during the term of this
Agreement, SBFM may elect immediately to terminate this Agreement if (i) the
Advisor merges, consolidates with another entity, sells a substantial portion of
its assets, or becomes bankrupt or insolvent, except as provided in Section 10
hereof, (ii) J. Richard Semels dies, becomes incapacitated, leaves the employ of
the Advisor or ceases to be a controlling principal of the Advisor or is
otherwise not actively participating in the management of the trading programs
or systems of the Advisor, or (iii) the Advisor's registration as a commodity
trading advisor with the CFTC or its membership in the NFA or any other
regulatory authority, is terminated or suspended. This Agreement will
immediately terminate upon dissolution of the Partnership or upon cessation of
trading prior to dissolution.
(b) The Advisor may terminate this Agreement by giving not
less than 30 days' notice to SBFM (i) in the event that the trading policies of
the Partnership as set forth in the Prospectus are changed in such manner that
the Advisor reasonably believes will adversely affect the performance of its
trading strategies; (ii) after June 30, 1998; (iii) in the event that the
General Partner or Partnership fails to comply with the terms of this Agreement;
or (iv) SBFM fails to consent to a change in the trading strategy pursuant to
Section 1(c) of this Agreement. The Advisor may immediately terminate this
Agreement if SBFM's registration as a commodity pool operator or its membership
in the NFA is terminated or suspended.
(c) Except as otherwise provided in this Agreement, any
termination of this Agreement in accordance with this Paragraph 5 or Paragraph
1(e) shall be without penalty or liability to any party, except for any fees due
to the Advisor pursuant to Section 3 hereof.
6. INDEMNIFICATION. (a)(i) In any threatened, pending or
completed action, suit, or proceeding to which the Advisor was or is a party or
is threatened to be made a party arising out of or in connection with this
Agreement or the management of the Partnership's assets by the Advisor or the
offering and sale of units in the Partnership, SBFM shall, subject to
subparagraph (a)(iii) of this Paragraph 6, indemnify and hold harmless the
Advisor against any loss, liability, damage, cost, expense (including, without
limitation, attorneys' and accountants' fees), judgments and amounts paid in
settlement actually and reasonably incurred by it in connection with such
action, suit, or proceeding if the Advisor acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Partnership as a commodity trading advisor, unless and only to the extent that
the court or administrative forum in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the Advisor is fairly and reasonably
entitled to indemnity for such expenses which such court or administrative forum
shall deem proper; and further provided that no indemnification shall be
available from the Partnership if such indemnification is prohibited by Section
16 of the Limited Partnership Agreement. The termination of any action, suit or
proceeding by judgment, order or settlement shall not, of itself, create a
presumption that the Advisor did not act in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership.
(ii) Without limiting sub-paragraph (i) above, to the extent
that the Advisor has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subparagraph (i) above, or in
defense of any claim, issue or matter therein, SBFM shall indemnify the Advisor
against the expenses (including, without limitation, attorneys' and accountants'
fees) actually and reasonably incurred by it in connection therewith.
(iii) Any indemnification under subparagraph (i) above,
unless ordered by a court or administrative forum, shall be made by SBFM only as
authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that such indemnification is proper in the
circumstances because the Advisor has met the applicable standard of conduct set
forth in subparagraph (i) above. Such independent legal counsel shall be
selected by SBFM in a timely manner, subject to the Advisor's approval, which
approval shall not be unreasonably withheld. The Advisor will be deemed to have
approved SBFM's selection unless the Advisor notifies SBFM in writing, received
by SBFM within five days of SBFM's telecopying to the Advisor of the notice of
SBFM's selection, that the Advisor does not approve the selection.
(iv) In the event the Advisor is made a party to any claim,
dispute or litigation or otherwise incurs any loss or expense as a result of, or
in connection with, any activities or claimed activities of the Partnership,
SBFM or another commodity trading advisor to the Partnership unrelated to the
Advisor, SBFM shall indemnify, defend and hold harmless the Advisor against any
loss, liability, damage, cost or expense (including, without limitation,
attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall
include the Advisor, its principals, officers, directors, stockholders and
employees and the term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold
harmless SBFM, the Partnership and their affiliates against any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees), judgments and amounts paid in settlement actually and
reasonably incurred by them (A) as a result of the material breach of any
material representations and warranties made by the Advisor in this Agreement,
or (B) as a result of any act or omission of the Advisor relating to the
Partnership if there has been a final judicial or regulatory determination or,
in the event of a settlement of any action or proceeding with the prior written
consent of the Advisor, a written opinion of an arbitrator pursuant to Paragraph
14 hereof, to the effect that such acts or omissions violated the terms of this
Agreement in any material respect or involved negligence, bad faith,
recklessness or intentional misconduct on the part of the Advisor (except as
otherwise provided in Section 1(g)).
(ii) In the event SBFM, the Partnership or any of their
affiliates is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of, or in connection with, the activities
or claimed activities of the Advisor or its principals, officers, directors,
shareholder(s) or employees unrelated to SBFM's or the Partnership's business,
the Advisor shall indemnify, defend and hold harmless SBFM, the Partnership or
any of their affiliates against any loss, liability, damage, cost or expense
(including, without limitation, attorneys' and accountants' fees) incurred in
connection therewith.
(iii) J. Richard Semels shall have no liability to the
Partnership or SBFM or any of their respective officers, directors, employees,
partners or affiliates under this Agreement or in connection with the
transactions contemplated by this Agreement except in the case of fraud or
willful misconduct by J. Richard Semels.
(c) In the event that a person entitled to indemnification
under this Paragraph 6 is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Paragraph
6 shall be applicable with respect to default judgments, confessions of judgment
or settlements entered into by the party claiming indemnification without the
prior written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the
termination of this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) The Advisor's Disclosure Document referred to in
Paragraph 1(b) above is in full compliance with the Commodity Exchange Act and
the rules and regulations promulgated thereunder; and (ii) is accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact which is necessary to make the statements
therein not misleading.
(ii) The information with respect to the Advisor set forth in
the actual performance tables in the Advisor's Disclosure Document is based on
all of the customer commodity interest accounts managed on a discretionary basis
by the Advisor's principals and/or the Advisor during the period covered by such
tables and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading
advisor with respect to the Partnership and not as a securities investment
adviser and is duly registered with the CFTC as a commodity trading advisor, is
a member of the NFA, and is in compliance with such other registration and
licensing requirements as shall be necessary to enable it to perform its
obligations hereunder, and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full power and authority to enter into this Agreement and to provide the
services required of it hereunder.
(v) The Advisor will not, by acting as a commodity trading
advisor to the Partnership, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or regulation to which it is a party or by
which it is bound.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by the Advisor and is a valid and binding agreement
enforceable in accordance with its terms.
(vii) At any time during the term of this Agreement that a
prospectus relating to the Units is required to be delivered in connection with
the offer and sale thereof, the Advisor agrees upon the request of SBFM to
provide the Partnership with such information as shall be necessary so that, as
to the Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the
Partnership that:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full corporate
power and authority to perform its obligations under this Agreement.
(ii) SBFM and the Partnership have the capacity and authority
to enter into this Agreement on behalf of the Partnership.
(iii) This Agreement has been duly and validly authorized,
executed and delivered on SBFM's and the Partnership's behalf and is a valid and
binding agreement of SBFM and the Partnership enforceable in accordance with its
terms.
(iv) SBFM will not, by acting as General Partner to the
Partnership, and the Partnership will not, breach or cause to be breached any
undertaking, agreement, contract, statute, rule or regulation to which it is a
party or by which it is bound which would materially limit or affect the
performance of its duties under this Agreement.
(v) It is registered as a commodity pool operator and is a
member of the NFA, and it will maintain and renew such registration and
membership during the term of this Agreement.
(vi) The Partnership is a limited partnership duly organized
and validly existing under the laws of the State of Delaware and has full power
and authority to enter into this Agreement and to perform its obligations under
this Agreement.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the
Partnership, the Advisor will comply with all applicable rules and regulations
of the CFTC and/or the commodity exchange on which any particular transaction is
executed.
(ii) The Advisor will promptly notify SBFM of the
commencement of any material suit, action or proceeding involving it, whether or
not any such suit, action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's
account and for the accounts of any other client, the Advisor will utilize a
pre-determined, systematic, fair and reasonable order entry system, which shall,
on an overall basis, taking into consideration that the Advisor utilizes other
programs for trading other accounts, be no less favorable to the Partnership
than to any other account managed by the Advisor. The Advisor acknowledges its
obligation to review the Partnership's positions, prices and equity in the
account managed by the Advisor daily and within two business days to notify, in
writing, the broker and SBFM and the Partnership's brokers of (i) any error
committed by the Advisor or its principals or employees; (ii) any trade which
the Advisor believes was not executed in accordance with its instructions; and
(iii) any discrepancy with a value of $10,000 or more (due to differences in the
positions, prices or equity in the account) between its records and the
information reported on the account's daily and monthly broker statements.
(iv) The Advisor will demonstrate to SBFM's satisfaction its
ability to bear its responsibilities arising under this Agreement, by
presentation of supporting documentation (such as financial statements together
with a certification of accuracy or, in certain cases, the individual obligation
of the controlling principal of the Advisor for the Advisor's responsibilities
hereunder) as SBFM may reasonably request. In this connection, Advisor agrees
that it shall cause the Promissory Note attached hereto as Rider A to be
executed.
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable
rules and regulations of the CFTC and/or the commodity exchange on which any
particular transaction is executed.
(ii) SBFM will promptly notify the Advisor of the
commencement of any material suit, action or proceeding involving it or the
Partnership, whether or not such suit, action or proceeding also involves the
Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any
party without the express written consent of the other parties, except that the
Advisor may incorporate or transfer all of its assets, trading programs or
goodwill to, or merge or consolidate with, any corporation, partnership or sole
proprietorship controlled by J. Richard Semels, and may assign this Agreement to
any such corporation, partnership or sole proprietorship; provided, that said
corporation, partnership or sole proprietorship assumes all rights and
obligations of the Advisor under this Agreement and is entitled to and agrees to
use the trading methods and systems of the Advisor for the benefit of the
Partnership.
11. AMENDMENT. This Agreement may not be amended except by the
written consent of the parties.
12. NOTICES. All notices, demands or requests required to be
made or delivered under this Agreement shall be in writing and delivered
personally or by registered or certified mail or expedited courier, return
receipt requested, postage prepaid, to the addresses below or to such other
addresses as may be designated by the party entitled to receive the same by
notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: David J. Vogel
If to the Advisor:
TRENDLOGIC ASSOCIATES, INC.
One Fawcett Place
Greenwich, Connecticut 06830
Attention: Mr. J. Richard Semels
with a copy to:
Perez C. Ehrich, Esq.
Dorsey & Whitney LLP
250 Park Avenue
New York, New York 10177
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to principles of conflicts of law.
14. ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement or the interpretation
thereof, shall be settled by arbitration in accordance with the rules, then in
effect, of the National Futures Association or, if the National Futures
Association shall refuse jurisdiction, then in accordance with the rules, then
in effect, of the American Arbitration Association; provided, however, that the
power of the arbitrator shall be limited to interpreting this Agreement as
written and the arbitrator shall state in writing his reasons for his award.
Judgment upon any award made by the arbitrator may be entered in any court of
competent jurisdiction.
15. NO THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries to this Agreement.
16. FEE ACKNOWLEDGMENT. SBFM acknowledges for itself and the
Partnership that (i) the incentive fee payable to the Advisor under Section 3 of
this Agreement is compensation for advice provided by the Advisor which relates
to the trading of commodity interests, (ii) such fee is not based on the capital
gains or capital appreciation of securities of any type, and (iii)
notwithstanding the Advisor's registration as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), such fee is
not computed in accordance with requirements under the Advisers Act applicable
to performance fees.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
SMITH BARNEY
FUTURES MANAGEMENT INC.
By: /s/ David J. Vogel
David J. Vogel
President and Director
SHEARSON HUTTON PERFORMANCE PARTNERS FUTURES FUND
By: Smith Barney
Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel
David J. Vogel
President and Director
TRENDLOGIC ASSOCIATES, INC.
By: /s/ J. Richard Semels ____
J. Richard Semels
Chairman and Chief Executive Officer
<PAGE>
RIDER A
PROMISSORY NOTE
Greenwich, Connecticut
Date: April 1, 1997
FOR VALUE RECEIVED, the undersigned, J. Richard Semels,
promises to pay on demand, to the order of SHEARSON HUTTON PERFORMANCE PARTNERS
FUTURES FUND (the "Fund") or Smith Barney Futures Management Inc. ("SBFM") as
the Fund or SBFM shall elect, the sum of One Hundred Thousand Dollars
($100,000). This note shall be callable by the Fund or SBFM only if and to the
extent that TrendLogic Associates, Inc. ("TrendLogic"), a Delaware corporation,
does not have sufficient assets to fulfill TrendLogic's obligations associated
with the Management Agreement dated April 1, 1997 among SBFM, the Fund and
TrendLogic.
/s/ J. Richard Semels ____
J. Richard Semels
