<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File Number 33-91742
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3823300
(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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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition
at September 30, 1996 and December 31,
1995 3
Statements of Income and Expenses
and Partners' Capital for the Three
and Nine Months ended September 30, 1996 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9 - 10
PART II - Other Information 11
2
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PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- ------------
ASSETS (Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $10,976,461 $13,548,113
Net unrealized appreciation
on open futures contracts 1,613,568 1,276,831
Zero Coupons, $35,849,000 and $37,507,000
principal amount in 1996 and 1995
due February 15, 2003 at market value
(amortized cost $24,816,828 and $24,867,412,
respectively) 23,686,868 25,399,365
Commodity options owned, at market value
(cost $2,010, respectively) - 2,070
----------- -----------
36,276,897 40,226,379
Receivable from SB on sale of Zero Coupons 381,010 -
----------- -----------
$36,657,907 $40,226,379
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Management fees $ 43,143 $ 47,650
Commissions 102,249 115,109
Incentive fees - 361,011
Due to Smith Barney 126,445 480,508
Other 11,573 36,700
Commodity options written, at market
value (premiums received $900) - 960
Redemptions payable 578,189 -
----------- -----------
861,599 1,041,938
----------- -----------
Partners' Capital
General Partner, 376 Unit 375,447 392,815
equivalents outstanding in 1996 and 1995
Limited Partners, 35,473 and 37,131
Units of Limited Partnership
Interest outstanding in 1996 and 1995 35,420,861 38,791,626
----------- -----------
35,796,308 39,184,441
----------- -----------
$36,657,907 $40,226,379
=========== ===========
See Notes to Financial Statements
3
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -------------
1996 1996
--------------- -------------
<S> <C> <C>
Income:
Net gains (losses) on trading of
commodity interests:
Realized losses on closed positions $ (819,677) $ (569,983)
Change in unrealized gains (losses) on
open positions 879,171 336,737
------------ ------------
59,494 (233,246)
Less, brokerage commissions and clearing
fees ($9,498 and $32,185, respectively) (337,281) (1,068,959)
------------ ------------
Net realized and unrealized losses (277,787) (1,302,205)
Realized losses on sale of Zero Coupons (18,362) (54,600)
Unrealized appreciation (depreciation) on Zero Coupons 75,012 (1,661,913)
Interest income 455,713 1,440,422
------------ ------------
234,576 (1,578,296)
------------ ------------
Expenses:
Management fees 130,381 406,063
Other 18,710 46,763
Incentive fees - (304,589)
------------ ------------
149,091 148,237
------------ ------------
Net income (loss) 85,485 (1,726,533)
Redemptions (578,189) (1,661,600)
------------ ------------
Net decrease in Partners' capital (492,704) (3,388,133)
Partners' capital, beginning of period 36,289,012 39,184,441
Partners' capital, end of period $ 35,796,308 $ 35,796,308
============ ============
Net Asset Value per Unit
(35,849 Units outstanding at
September 30, 1996) $ 998.53 $ 998.53
============ ============
Net income (loss) per Unit of Limited Partnership
Interest and General Partnership Unit equivalent $ 2.29 $ (46.19)
============ ============
Redemption Net Asset Value per Unit $ 1,002.06 $ 1,002.06
============ ============
</TABLE>
4
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. General:
Smith Barney Principal Plus Futures Fund L.P. (the "Partnership") is a
limited partnership which was initially organized on January 25, 1993 under the
partnership laws of the State of New York and was capitalized on April 12, 1995.
No activity occurred between January 25, 1993 and April 12, 1995. The
Partnership engages in the speculative trading of commodity interests, including
forward contracts on foreign currencies, commodity options and commodity futures
contracts, including futures contracts on U.S. Treasuries and certain other
financial instruments, foreign currencies and stock indices. 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 which payments are due approximately seven years from the date trading
commenced ("Zero Coupons").
Between July 12, 1995 and November 16, 1995, 37,130 Units were sold at
$1,000 per Unit. The proceeds of the offering were held in an escrow account
until November 17, 1995, at which time they were turned over to the Partnership
for trading.
Smith Barney Inc. ("SB") acts as the commodity broker for the Partnership.
The General Partner of the Partnership is a wholly- owned subsidiary of SB. All
trading decisions are made for the Partnership by John W. Henry & Co., Inc.,
Abraham Trading Co. and Rabar Market Research Inc. (collectively, the
"Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 1996 and the results of its operations for the three
and nine months ended September 30, 1996. These financial statements present the
results of interim periods and do not include all disclosures normally provided
in annual financial statements. It is suggested that these financial statements
be read in conjunction with the financial statements and notes included in the
Partnership's annual report on Form 10-K filed with Security and Exchange
Commission for the year ended December 31, 1995.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1996 were as follows:
THREE-MONTHS NINE-MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
Net realized and unrealized
gains (losses) $ (7.63) $ (34.94)
Realized and unrealized gains
(losses) on Zero Coupons 1.56 (45.72)
Interest income 12.51 38.75
Expenses (4.09) (4.05)
Other (0.06) (0.23)
--------- ---------
Increase (decrease) for period 2.29 (46.19)
Net Asset Value per Unit,
beginning of period 996.24 1,044.72
--------- ---------
Net Asset Value per Unit,
end of period $ 998.53 $ 998.53
========= =========
Redemption Net Asset
Value per Unit * $1,002.06 $1,002.06
========= =========
* For the purpose of a redemption, any accrued liability for reimbursement of
offering and organization expenses will not reduce redemption net asset value
per unit.
3. Offering and Organization Costs:
Offering and organization expenses of $550,000 relating to the issuance and
marketing of Units offered were initially paid by SB. The accrued liability for
reimbursement of offering and organization expenses will not reduce Net Asset
Value per Unit for any purpose (other than financial reporting), including
calculation of advisory and brokerage fees and the redemption value of Units.
Interest earned by the Partnership will be used to reimburse SB for the offering
and organization expenses of the Partnership until such time as such expenses
are fully reimbursed. As of September 30, 1996, the Partnership had reimbursed
SB for $423,555 of offering and organization expenses.
6
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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
activities are shown in the statements of income and expenses.
The Customer Agreement between the Partnership and SB gives the Partnership
the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1996 was $1,613,568 and the average fair value during
the nine months then ended, based on monthly calculation, was $1,119,000.
5. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
7
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Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1996, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $212,463,047 and $59,973,144, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1996. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1996, the Partnership had net unrealized
trading gains of $1,613,568, as detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
Currencies
- - Exchange Traded Contracts $ 8,379,555 $ 6,533,342 $ 49,996
- - OTC Contracts 15,088,255 16,969,300 85,257
Energy 1,832,956 210,000 10,797
Interest Rates US - 9,614,669 (153,088)
Interest Rates Non US 179,441,463 - 1,224,803
Grains 778,110 2,767,481 103,698
Livestock 1,282,430 - 1,860
Softs 685,656 1,693,412 (41,390)
Metals 2,704,446 22,184,940 325,273
Indices 2,270,176 - 6,362
------------ ----------- -----------
Total $212,463,047 $59,973,144 $ 1,613,568
============ =========== ===========
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 and forward contracts, commodity options and
interest receivable. Because of the low margin deposits normally required in
commodity futures trading, relatively small price movements may result in
substantial losses to the Partnership. While substantial losses could lead to a
substantial decrease in liquidity no such losses occurred in the Partnership's
third quarter of 1996.
The Partnership's capital consists of capital contributions, 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 nine months ended September 30, 1996, Partnership capital decreased
8.6% from $39,184,441 to $35,796,308. This decrease was attributable to a net
loss from operations of $1,726,533 and to redemptions of 1,658 Units totaling
$1,661,600, for the nine months ended September 30, 1996. Future redemptions can
impact the amount of funds available for investments in commodity contract
positions in subsequent periods.
Results of Operations
During the Partnership's third quarter of 1996, the net asset value per
Unit increased .2% from $996.24 to $998.53. The Partnership experienced a net
trading gain before commissions and expenses in the third quarter of 1996 of
$59,494. Gains were recognized in the trading of commodity futures in interest
rates and energy products and were partially offset by losses recognized in
currencies, indices, metals and agricultural products.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisors to
identify correctly those price trends. Price trends are influenced by, among
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.
9
<PAGE>
Interest income on 80% of the Partnership's daily average equity maintained
in cash was earned on the monthly average noncompetitive yield of 30 day U.S.
Treasury Bills. Also included in interest income is the amortization of original
issue discount on the Zero Coupons based on the interest method.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and are affected by trading performance and redemptions.
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.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor.
10
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PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY PRINCIPALPLUS FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/11/96
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944697
<NAME> SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,976,461
<SECURITIES> 25,300,436
<RECEIVABLES> 381,010
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,657,907
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,657,907
<CURRENT-LIABILITIES> 861,599
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 35,796,308
<TOTAL-LIABILITY-AND-EQUITY> 36,657,907
<SALES> 0
<TOTAL-REVENUES> (1,578,296)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 148,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,726,533)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,726,533)
<EPS-PRIMARY> (46.19)
<EPS-DILUTED> 0
</TABLE>
