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 March 31, 1998
Commission File Number 0-21584
F-1000 FUTURES FUND L.P., SERIES VIII
(Exact name of registrant as specified in its charter)
New York 13-3653624
(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
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F-1000 FUTURES FUND L.P., SERIES VIII
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
March 31, 1998 and December 31, 1997. 3
Statement of Income and Expenses and
Partners' Capital for the Three Months
ended March 31, 1998 and 1997. 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 - 12
2
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PART I
Item 1. Financial Statements
F-1000 FUTURES FUND L.P., SERIES VIII
STATEMENT OF FINANCIAL CONDITION
March 31, December 31,
1998 1997
ASSETS: ---------- -----------
Equity in commodity futures trading account:
Cash and cash equivalents $2,013,667 $2,088,122
Net unrealized appreciation
on open futures contracts 130,597 105,253
Zero Coupons, $6,297,000 and $6,720,000
principal amount in 1998 and 1997,
respectively, due November 15, 1998 at
market value (amortized cost $6,064,184
and $6,373,685 in 1998 and 1997,
respectively) 6,086,366 6,404,564
---------- ----------
8,230,630 8,597,939
Receivable from SB on sale of Zero Coupons 408,825 316,203
Interest receivable 6,805 7,301
__________ __________
$8,646,260 $8,921,443
========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions 20,093 20,452
Management fees 4,635 4,777
Other 35,040 27,140
Redemptions payable 540,488 417,546
---------- ----------
600,256 469,915
---------- ----------
Partners' Capital:
General Partner, 175 Unit 223,607 220,092
equivalents outstanding in 1998 and 1997
Limited Partners, 6,122 and 6,545
Units of Limited Partnership
Interest outstanding in 1998 and 1997,
respectively 7,822,397 8,231,436
---------- ----------
8,046,004 8,451,528
---------- ----------
$8,646,260 $8,921,443
========== ==========
See Notes to Financial Statements.
3
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F-1000 FUTURES FUND L.P., SERIES VIII
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
------------ --------------
Income:
Net gains on trading of commodity
futures:
Realized gains on closed positions $ 86,127 $ 423,682
Change in unrealized gains/losses
on open positions 25,344 214,761
____________ ____________
111,471 638,443
Less, brokerage commissions and clearing fees
($904 and $2,497, respectively) (61,266) (130,120)
____________ ____________
Net realized and unrealized gains 50,205 508,323
Gain (loss) on sale of Zero Coupons 1,464 (768)
Unrealized depreciation
on Zero Coupons (8,697) (80,175)
Interest income 118,399 219,109
____________ ____________
161,371 646,489
____________ ____________
Expenses:
Management fees 13,641 28,751
Other 12,766 15,795
Incentive fees - 92,755
____________ ____________
26,407 137,301
____________ ____________
Net income 134,964 509,188
Redemptions (540,488) (518,313)
____________ ____________
Net decrease in Partners' capital (405,524) (9,125)
Partners' capital, beginning of period 8,451,528 15,925,812
____________ ____________
Partners' capital, end of period $ 8,046,004 $ 15,916,687
------------ ------------
Net asset value per Unit
(6,297 and 12,652 Units outstanding
at March 31, 1998 and 1997, respectively) $ 1,277.75 $ 1,258.04
------------ ------------
Net income per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 20.08 $ 38.98
------------ ------------
4
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F-1000 FUTURES FUND L.P., SERIES VIII
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. General:
F-1000 Futures Fund L.P., Series VIII (the "Partnership") is a limited
partnership organized under the laws of the State of New York on January 16,
1992 to engage in the speculative trading of a diversified portfolio of
commodity interests, including futures contracts, options and forward contracts.
The commodity interests that are traded by the Partnership are volatile and
involve a high degree of market risk. The Partnership maintains a portion of its
assets in interest payments stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program whose payments are due approximately six years from
the date trading commenced ("Zero Coupons"). The Partnership commenced trading
on August 18, 1992.
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 are being made for the Partnership by TrendLogic Associates, Inc., and
Willowbridge Associates, Inc. (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at March 31, 1998 and the results of its operations for the three
months ended March 31, 1998 and 1997. 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, 1997.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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F-1000 FUTURES FUND L.P., SERIES VIII
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three months ended March 31,
1998 and 1997 were as follows:
THREE-MONTHS ENDED
MARCH 31,
1998 1997
Net realized and unrealized
gains $ 7.47 $ 38.91
Realized and unrealized
losses on Zero Coupons (1.26) (6.19)
Interest income 17.80 16.77
Expenses (3.93) (10.51)
---------- ----------
Increase for period 20.08 38.98
Net Asset Value per Unit,
beginning of period 1,257.67 1,219.06
---------- ---------
Net Asset Value per Unit,
end of period $1,277.75 $1,258.04
========== =========
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 March 31, 1998 and 1997 was $130,597 and $329,706, respectively, and
the average fair value during the three months then ended, based on monthly
calculation, was $150,326 and $449,279, respectively.
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
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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.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent
7
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of the Partnership's involvement in these instruments. At March 31, 1998, the
notional or contractual amounts of the Partnership's commitment to purchase and
sell these instruments was $13,707,298 and $11,937,939, respectively as detailed
below. All of these instruments mature within one year of March 31, 1998.
However, due to the nature of the Partnership's business, these instruments may
not be held to maturity. At March 31, 1998, the fair value of the Partnership's
derivatives, including options thereon, was $130,597, as detailed below.
MARCH 31, 1998
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies:
- - Exchange Traded contracts $ 1,487,990 $ 1,581,463 $ 41,025
- - OTC Contracts 2,952,332 4,239,991 22,291
Energy 285,600 122,448 17,647
Grains 197,763 48,150 (2,513)
Interest Rates Non-U.S. 6,996,590 2,110,306 22,617
Interest Rates U.S. 907,125 2,951,433 (3,055)
Metals 304,220 407,210 23,713
Softs 140,555 104,483 2,136
Indices 435,123 372,455 6,736
------------ ------------ --------
Total $13,707,298 $11,937,939 $130,597
============ ============ ========
At March 31, 1997, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was $11,765,573
and $39,177,488, respectively, and the fair value of the Partnership's
derivatives, including options thereon, was $329,706, as detailed below.
MARCH 31, 1997
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies:
- - Exchange Traded contracts $ 1,645,273 $ 4,437,273 $ (15,115)
- - OTC Contracts 1,591,614 1,886,297 (8,577)
Energy 84,210 349,569 1,998
Grains 1,891,085 - 176,675
Interest Rates Non-U.S. 1,734,721 20,346,782 45,052
Interest Rates U.S. 707,774 10,091,052 79,634
Livestock 439,130 - 2,700
Metals 2,021,923 1,202,732 26,727
Softs 687,265 175,405 12,891
Indices 962,578 688,378 7,721
------------ ------------ --------
Totals $11,765,573 $39,177,488 $329,706
============ ============ ========
8
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures contracts, interest receivable and receivable
from SB on the sale of Zero Coupons. 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 during the first
quarter of 1998.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading and Zero Coupons, expenses, interest income, redemptions of Units and
distributions of profits, if any.
For the three months ended March 31, 1998, Partnership capital decreased
4.8% from $8,451,528 to $8,046,004. This decrease was attributable to the
redemption of 423 Units, resulting in an outflow of $540,488 which was offset
with net income from operations of $134,964 during the three months ended March
31, 1998. 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 first quarter of 1998, the net asset value per
Unit increased 1.6% from $1,257.67 to $1,277.75, as compared to the first
quarter of 1997 in which the net asset value per Unit increased 3.2%. The
Partnership experienced a net trading gain before commissions and expenses in
the first quarter of 1998 of $111,471. These gains were primarily attributable
to the trading of commodity futures in currencies, energy products, non- U.S.
interest rates, livestock and metals contracts and were partially offset by
losses realized in grains, softs, indices and U.S. interest rates. The
Partnership experienced a net trading gain before commissions and expenses in
the first quarter of 1997 of $638,443. These gains were recognized in the
trading of commodity futures in currencies, grains, metals, softs, indices and
domestic interest rate products which were partially offset by losses recognized
in energies, livestock and foreign interest rate products.
Commodity futures markets are highly volatile. Broad price
9
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fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
Partnership depends on the existence of major price trends and the ability of
the Advisors to identify correctly those price trends. Price trends are
influenced by, among 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 75% of the Partnership's daily average equity
maintained in cash was earned on the monthly average 13-week U.S. Treasury Bill
yield. Also included in interest income is the amortization of original issue
discount on the Zero Coupons based on the interest method. Interest income for
the three months ended March 31, 1998 decreased by $99,496 as compared to the
corresponding period in 1997, primarily as a result of the effect of redemptions
on the Partnership's Zero Coupons and 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 months ended March 31, 1998 decreased by $68,854 as compared to the
corresponding period in 1997.
All trading decisions for the Partnership are currently being made by the
Advisors. 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 months ended March
31, 1998 decreased by $15,110 as compared to the corresponding period in 1997.
Incentive fees are based on the new trading profits generated by the
Advisors as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor. Incentives fees of $92,755 were earned for the
three months ended March 31, 1997. There were no incentives earned for the three
months ended March 31, 1998.
10
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
Between May 1994 and the present, Salomon Brothers Inc. ("SBI"), SB and
The Robinson Humphrey Company, Inc. ("R- H"), all currently subsidiaries
of Salomon Smith Barney Holdings Inc. ("SSBHI"), along with a number of
other broker-dealers, were named as defendants in approximately 25
federal court lawsuits and two state court lawsuits, principally
alleging that companies that make markets in securities traded on NASDAQ
violated the federal antitrust laws by conspiring to maintain a minimum
spread of $.25 between the bid and asked price for certain securities.
The federal lawsuits and one state court case were consolidated for
pre-trial purposes in the Southern District of New York in the fall of
1994 under the caption In re NASDAQ Market-Makers Antitrust Litigation,
United States District Court, Southern District of New York No.
94-CIV-3996 (RWS); M.D.L. No. 1023. The other state court suit, Lawrence
A. Abel v. Merrill Lynch & Co., Inc. et al.; Superior Court of San
Diego, Case No. 677313, has been dismissed without prejudice in
conjunction with a tolling agreement.
In consolidated action, the plaintiffs purport to represent a class of
persons who bought one or more of what they currently estimate to be
approximately 1,650 securities on NASDAQ between May 1, 1989 and May 27,
1994. They seek unspecified monetary damages, which would be trebled
under the antitrust laws. The plaintiffs also seek injunctive relief, as
well as attorney's fees and the costs of the action. (The state cases
seek similar relief.) Plaintiffs in the consolidated action filed an
amended consolidated complaint that defendants answered in December
1995. On November 26, 1996, the Court certified a class composed of
retail purchasers. A motion to include institutional investors in the
class and to add class representatives was granted. In December 1997,
SBI, SB and R-H, along with several other broker-dealer defendants,
executed a settlement agreement with the plaintiffs. This agreement has
been preliminarily approved by the U.S. District Court for the Southern
District of New York but is subject to final approval.
On July 17, 1996, the Antitrust Division of the Department of Justice
filed a complaint against a number of firms that act as market makers in
NASDAQ stocks. The
11
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complaint basically alleged that a common understanding arose among
NASDAQ market makers which worked to keep quote spreads in NASDAQ stocks
artificially wide. Contemporaneous with the filing of the complaint,
SBI, SB and other defendants entered into a stipulated settlement
agreement, pursuant to which the defendants would agree not to engage in
certain practices relating to the quoting of NASDAQ securities and would
further agree to implement a program to ensure compliance with federal
antitrust laws and with the terms of the settlement. In entering into
the stipulated settlement, SBI and SB did not admit any liability. There
are no fines, penalties, or other payments of monies in connection with
the settlement. In April 1997, the U.S. District Court for the Southern
District of New York approved the settlement. In May 1997, plaintiffs in
the related civil action (who were permitted to intervene for limited
purposes) appealed the district court's approval of the settlement. The
appeal is pending.
The Securities and Exchange Commission ("SEC") is also conducting a
review of the NASDAQ marketplace, during which it has subpoenaed
documents and taken the testimony of various individuals including SBI
and SB personnel. In July 1996, the SEC reached a settlement with the
National Association of Securities Dealers and issued a report detailing
certain conclusions with respect to the NASD and the NASDAQ market.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms,
including SB, in the U.S. Bankruptcy Court for the Central District of
California. Plaintiff alleged, among other things, that the defendants
recommended and sold to plaintiff unsuitable securities. The case
(County of Orange et al. v. Bear Sterns & Co. Inc. et al.) Has been
stayed by agreement of the parties.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
12
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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.
F-1000 FUTURES FUND L.P., SERIES VIII
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/15/98
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: 5/15/98
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/15/98
13
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<NAME> SMITH BARNEY F-1000 FUTURES FUND L.P., Series VIII
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<PERIOD-START> JAN-01-1998
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