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 0-28350
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
<PAGE>
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, 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 - 9
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10 - 11
PART II - Other Information 12 - 13
3
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Equity in commodity futures trading account:
Cash and cash equivalents $12,561,004 $13,346,392
Net unrealized appreciation
on open futures contracts 326,804 1,079,612
Zero Coupons, $28,322,000 and $29,201,000
principal amount in 1998 and 1997, respectively,
due February 15, 2003 at market value
(amortized cost $21,380,416 and $21,727,880
in 1998 and 1997, respectively) 21,543,696 21,834,171
----------- -----------
34,431,504 36,260,175
Receivable from SB on sale of Zero Coupons 667,047 575,066
Interest receivable 46,862 48,485
----------- -----------
$35,145,413 $36,883,726
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 105,539 $ 114,693
Management fees 45,953 50,926
Incentive fees 30,505 154,823
Other 25,468 27,024
Redemption payable 1,051,689 939,857
----------- -----------
1,259,154 1,287,323
----------- -----------
Partners' Capital:
General Partner, 376 Unit
equivalents outstanding in 1998 and 1997 449,869 458,348
Limited Partners, 27,946 and 28,825
Units of Limited Partnership Interest
outstanding in 1998 and 1997 , respectively 33,436,390 35,138,055
----------- -----------
33,886,259 35,596,403
----------- -----------
$35,145,413 $36,883,726
=========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains on closed positions $ 106,858 $ 1,004,970
Change in unrealized gains/losses on open
positions (752,808) 579,339
------------ ------------
(645,950) 1,584,309
Less, brokerage commissions and clearing fees
($12,245 and $9,690, respectively) (345,837) (381,235)
------------ ------------
Net realized and unrealized gains (losses) (991,787) 1,203,074
Gain (loss) on sale of Zero Coupons 3,485 (19,882)
Unrealized appreciation (depreciation)
on Zero Coupons 56,989 (683,312)
Interest income 454,004 499,124
------------ ------------
(477,309) 999,004
------------ ------------
Expenses:
Management fees 136,465 151,958
Incentive fees 30,505 209,763
Other 14,176 87,327
------------ ------------
181,146 449,048
------------ ------------
Net income (loss) (658,455) 549,956
Redemptions (1,051,689) (575,449)
------------ ------------
Net decrease in Partners' capital (1,710,144) (25,493)
Partners' capital, beginning of period 35,596,403 38,253,704
------------ ------------
Partners' capital, end of period $33,886,259 $ 38,228,211
============ ============
Net asset value per Unit
(28,322 and 34,146 Units outstanding
at March 31, 1998 and 1997, respectively) $ 1,196.46 $ 1,119.55
============ ============
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (22.55) $ 15.87
============ ============
</TABLE>
4
<PAGE>
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(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, 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 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.
6
<PAGE>
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, 1998 and 1997 were as follows:
THREE-MONTHS ENDED
MARCH 31,
1998 1997
Net realized and unrealized
gains (losses) $ (33.96) $ 34.71
Realized and unrealized
gains(losses) on Zero Coupons 2.07 (20.29)
Interest income 15.54 14.40
Expenses (6.20) (12.95)
--------- ---------
Increase (decrease) for period (22.55) 15.87
Net Asset Value per Unit,
beginning of period 1,219.01 1,103.68
--------- ---------
Net Asset Value per Unit,
end of period $ 1,196.46 $ 1,119.55
========= =========
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. The
Partnership has charged the excess of $62,847 to expense. As of December 31,
1997 the Partnership had reimbursed SB for the offering and organization expense
plus interest at the prime rate quoted by the Chase Manhattan Bank totaling
$34,494 from interest paid to the Partnership.
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.
7
<PAGE>
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 $326,804 and $1,027,112, respectively,
and the average fair value during the three months then ended, based on monthly
calculation, was $551,945 and $1,463,722, respectively.
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 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
8
<PAGE>
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, 1998, the notional or contractual
amounts of the Partnership's commitment to purchase and sell these instruments
was $124,700,623 and $91,942,792, 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 $326,804, as detailed below.
MARCH 31, 1998
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies
- - Exchange Traded Contracts $ 6,809,669 $ 6,247,840 $ 82,291
- - OTC Contracts 6,688,198 13,591,544 156,673
Energy 968,890 258,250 (20,703)
Grains 476,377 3,800,175 130,684
Interest Rates Non-U.S 104,769,273 35,777,009 (1,557)
Interest Rates U.S. 1,064,195 27,704,100 (63,075)
Livestock 310,830 941,440 55,580
Metals 1,940,740 2,137,230 (18,734)
Softs 691,063 1,485,204 (7,283)
Indices 981,388 -- 12,928
------------ ------------ ------------
Totals $124,700,623 $ 91,942,792 $ 326,804
============ ============ ============
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, and, the fair value of the Partnership's
derivatives, including options thereon, was $1,027,112, as detailed below.
MARCH 31, 1997
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 -- 1,564,011 40,899
Interest Rates U.S. -- 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
=========== ============ ==========
9
<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 1998.
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, 1998, Partnership capital
decreased 4.8% from $35,596,403 to $33,886,259. This decrease was attributable
to the redemption of 879 Units totaling $1,051,689 coupled with net loss from
operations of $658,455 for 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 decreased 1.8% from $1,219.01 to $1,196.46, as compared to an increase of
1.4% in the first quarter of 1997. The Partnership experienced a net trading
loss before commissions and expenses in the first quarter of 1998 of $645,950.
Losses were recognized in the trading of commodity futures in currencies, U.S.
interest rates, grains, indices and metals and were partially offset by gains
recognized in non-U.S. interest rates, softs, livestock and energy products. 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 indices, currencies, grains, softs and metals and were
partially offset by losses recognized in interest rates, livestock and energy
products.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in
10
<PAGE>
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 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, 1998 decreased by $45,120 as compared to the corresponding period in
1997.
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 $35,398 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 $15,493 as compared to the corresponding period in
1997.
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, 1998 and 1997 resulted in incentive fees of $30,505 and $209,763,
respectively.
11
<PAGE>
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
complaint basically alleged that a common
12
<PAGE>
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
13
<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:
David J. Vogel, President
Date:
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:
David J. Vogel, President
Date:
By
Daniel A. Dantuono
Chief Financial Officer and
Director
Date:
14
<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: 5/15/98
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
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000944697
<NAME> SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,561,004
<SECURITIES> 21,870,500
<RECEIVABLES> 713,909
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,145,413
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,145,413
<CURRENT-LIABILITIES> 1,259,154
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 33,886,259
<TOTAL-LIABILITY-AND-EQUITY> 35,145,413
<SALES> 0
<TOTAL-REVENUES> (477,309)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 181,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (658,455)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<CHANGES> 0
<NET-INCOME> (658,455)
<EPS-PRIMARY> (22.55)
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</TABLE>
