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, 1997
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:
Statement of Financial Condition
at March 31, 1997 and December 31,
1996. 3
Statement of Income and Expenses
and Partners' Capital for the Three
Months ended March 31, 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
2
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PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS:
Equity in commodity futures trading account:
Cash and cash equivalents $14,781,915 $15,167,522
Net unrealized appreciation
on open futures contracts 1,025,537 445,494
Zero Coupons, $34,146,000 and $34,660,000
principal amount in 1997 and 1996, respectively,
due February 15, 2003 at market value
(amortized cost $24,327,318 and $24,344,837
in 1997 and 1996, respectively) 23,025,672 23,726,503
Commodity options owned, at market value
(cost $4,313 and $3,505 in 1997 and
1996, respectively ) 1,575 1,987
----------- -----------
38,834,699 39,341,506
Receivable from SB on sale of Zero Coupons 346,112 813,930
Other assets 62,847
Interest receivable 53,298 -
----------- -----------
$39,234,109 $40,218,283
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Management fees $ 51,887 $ 52,377
Commissions 120,886 119,361
Incentive fees 209,763 372,390
Due to SB - 62,847
Other 47,913 42,412
Commodity options written, at market
value (premiums received $2,400 ) - 2,916
Redemption payable 575,449 1,312,276
----------- -----------
1,005,898 1,964,579
----------- -----------
Partners' Capital:
General Partner, 376 Unit
equivalents outstanding in 1997 and 1996 420,951 414,984
Limited Partners, 33,770 and 34,284
Units of Limited Partnership Interest
outstanding in 1997 and 1996 , respectively 37,807,260 37,838,720
----------- -----------
38,228,211 38,253,704
----------- -----------
$39,234,109 $40,218,283
=========== ===========
See Notes to Financial Statements.
3
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE-MONTHS THREE-MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
------------ ------------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains (losses) on closed positions $ 1,004,970 $ (503,838)
Change in unrealized gain/losses on
open positions 579,339 (465,358)
------------ ------------
1,584,309 (969,196)
Less, brokerage commissions and clearing
fees ($9,690 and $13,168) (381,235) (375,592)
------------ ------------
Net realized and unrealized gains (losses) 1,203,074 (1,344,788)
Unrealized depreciation on Zero Coupons (19,882) (1,330,251)
Loss on sale of Zero Coupons (683,312) -
Interest income 499,124 487,912
------------ ------------
999,004 (2,187,127)
------------ ------------
Expenses:
Management fees 151,958 138,723
Incentive fees 209,763 (315,710)
Other 87,327 13,142
------------ ------------
449,048 (163,845)
------------ ------------
Net income (loss) 549,956 (2,023,282)
Redemptions (575,449)
------------ ------------
Net decrease in Partners' capital (25,493) (2,023,282)
Partners' capital, beginning of period 38,253,704 39,184,441
------------ ------------
Partners' capital, end of period $ 38,228,211 $ 37,161,159
============ ============
Net Asset Value per Unit
(34,146 and 37,507 Units outstanding at
March 31, 1997 and 1996, respectively ) $ 1,119.55 $ 990.78
============ ============
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 15.87 $ (53.94)
============ ============
Redemption Net Asset Value per Unit $ 1,119.55 $ 1,000.11
============ ============
4
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(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 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 which payments are due approximately seven years from
the date trading commenced ("Zero Coupons").
Smith Barney Futures Management Inc. is the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner, acts as the commodity broker for the Partnership. All
trading decisions are made for the Partnership by John W. Henry & Company, 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 March 31, 1997 and the results of its operations for the three
months ended March 31, 1997 and 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, 1996.
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 months ended March 31,
1997 and 1996 were as follows:
THREE-MONTHS ENDED
MARCH 31,
1997 1996
Net realized and unrealized
gains (losses) $ 34.71 $ (35.85)
Realized and unrealized
losses on Zero Coupons (20.29) (35.57)
Interest income 14.40 13.10
Expenses (12.95) 4.38
---------- ---------
Increase (decrease) for period 15.87 (53.94)
Net Asset Value per Unit,
beginning of period 1,103.68 1,044.72
---------- ---------
Net Asset Value per Unit,
end of period $1,119.55 $ 990.78
========== =========
Redemption Net Asset
Value per Unit* $1,119.55 $1,000.11
========== =========
* 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 relating to the issuance and marketing of
Units during the offering period were initially paid by SB. Such expenses were
initially estimated to be $550,000 and were charged against the initial capital
of the Partnership. During 1996, the Partnership's total offering and
organization expenses were determined to be $612,847. As of December 31, 1996,
the Partnership had reimbursed SB for $550,000 of offering and organization
expense plus interest at the prime rate quoted by the Chase Manhattan Bank
totaling $33,339 from interest paid to the Partnership. As of March 31, 1997,
the Partnership has reimbursed SB for the excess of $62,847 of offering and
organization expense plus interest at the prime rate quoted by the Chase
Manhattan Bank totaling $1,155 from interest paid to the Partnership and has
recorded such amounts as an expense.
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
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, 1997 was $1,027,112 and the average fair value during the
three months then ended, based on monthly calculation, was $1,463,722.
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 Partnership's risk
7
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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 March 31, 1997, the notional or contractual amounts of
the Partnership's commitment to purchase and sell these instruments was
$36,045,505 and $158,611,832, respectively, as detailed below. All of these
instruments mature within one year of March 31, 1997. However, due to the nature
of the Partnership's business, these instruments may not be held to maturity. At
March 31, 1997, the fair value of the Partnership's derivatives, including
options thereon, was $1,027,112, as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies
- - Exchange Traded Contracts $ 2,776,693 $ 9,510,257 $ 2,473
- - OTC Contracts 6,295,477 11,584,598 (78,579)
Energy 0 1,564,011 40,899
Interest Rates U.S. 0 31,446,977 253,253
Interest Rates Non-U.S. 8,992,767 100,126,402 99,627
Grains 5,309,888 72,000 427,265
Livestock 867,020 328,420 (40,410)
Softs 2,865,248 1,167,318 145,607
Metals 7,591,443 2,327,725 174,499
Indices 1,346,969 484,124 2,478
----------- ----------- ----------
Totals $36,045,505 $158,611,832 $1,027,112
=========== ============ ==========
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures 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 first quarter
of 1997.
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 three months ended March 31, 1997, Partnership capital decreased
.1% from $38,253,704 to $38,228,211. This decrease was attributable to the
redemption of 514 Units totaling $575,449 which was partially offset by net
income from operations of $549,956 for the three months ended March 31, 1997.
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 1997, the net asset value per
Unit increased 1.4% from $1,103.68 to $1,119.55, as compared to a decrease of
5.2% in the first quarter of 1996. The Partnership experienced a net trading
gain before commissions and expenses in the first quarter of 1997 of $1,584,309.
Gains were recognized in the trading of commodity futures in currencies, grains,
indices, metals and softs and were partially offset by losses recognized in
interest rates, livestock and energy products. The Partnership experienced a net
trading loss before commissions and expenses in the first quarter of 1996 of
$969,196. Losses were recognized in the trading of commodity futures in stock
indices, interest rates, energy products, precious metals and agricultural
products and were partially offset by gains recognized in currencies.
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
9
<PAGE>
correctly those price trends. These 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 80% of the Partnership's daily average equity
maintained in cash was earned at a 30 day Treasury bill rate. 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, 1997 increased by $11,212 as compared to the corresponding period in
1996 as a result of positive trading performance and an increase in interest
rates in the first quarter of 1997 as compared to 1996.
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, 1997 increased by $5,643 as compared to the
corresponding period in 1996.
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, 1997 increased by $13,235 as compared to the corresponding period in 1996.
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. Trading performance for the three months ended
March 31, 1997 resulted in incentive fees of $209,763. Trading performance for
the three months ended March 31, 1996 resulted in a decrease in accrued
incentive fees of $315,710.
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 PRINCIPAL PLUS FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/12/97
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: 5/12/97
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/12/97
12
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<NAME> SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,781,915
<SECURITIES> 24,052,784
<RECEIVABLES> 399,410
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