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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th 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
September 30, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
2000 and 1999 (unaudited). 4
Notes to Financial Statements
(unaudited). 5 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 11 - 12
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 13 - 14
PART II - Other Information 15
2
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- ------------
<S> <C> <C>
ASSETS:
Equity in commodity futures trading account:
Cash $ 3,418,324 $ 8,748,980
Net unrealized appreciation (depreciation)
on open contracts (88,228) 478,762
Zero coupons, $11,923,000 and $22,678,000
principal amount in 2000 and 1999, respectively,
due February 15, 2003 at market value
(amortized cost $10,421,433 and $18,971,524
in 2000 and 1999, respectively) 10,374,083 18,629,297
Commodity options owned, at market value
(cost $0 and $22,793 in 2000 and 1999, respectively) -- 8,409
------------ ------------
13,704,179 27,865,448
Receivable from SSB on sale of zero coupons 1,100,901 1,184,588
Interest receivable 14,000 29,784
------------ ------------
$ 14,819,080 $ 29,079,820
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Management fees $ 5,375 $ 32,020
Commissions 26,193 79,735
Other 38,894 48,061
Redemption payable 1,415,705 1,730,099
------------ ------------
1,486,167 1,889,915
------------ ------------
Partners' Capital:
General Partner, 376 Unit
equivalents outstanding in 2000 and 1999 420,462 450,809
Limited Partners, 11,547 and 22,302 Units
of Limited Partnership Interest
outstanding in 2000 and 1999, respectively 12,912,451 26,739,096
------------ ------------
13,332,913 27,189,905
------------ ------------
$ 14,819,080 $ 29,079,820
============ ============
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
interests:
Realized losses on closed positions $ (166,981) $ (539,113) $ (1,485,849) $ (327,923)
Change in unrealized gains (losses) on
open positions 90,141 (831,241) (552,606) (1,304,993)
------------ ------------ ------------ ------------
(76,840) (1,370,354) (2,038,455) (1,632,916)
Less, brokerage commissions including
clearing fees of $3,485, $8,401, $20,075 and
$26,961, respectively (89,801) (280,424) (505,644) (900,216)
------------ ------------ ------------ ------------
Net realized and unrealized losses (166,641) (1,650,778) (2,544,099) (2,533,132)
Gain (loss) on sale of Zero Coupons (5,661) (2,053) (122,095) 10,855
Unrealized appreciation (depreciation)
on Zero Coupons 83,037 (71,538) 294,877 (1,011,208)
Interest income 210,121 393,152 878,883 1,184,750
------------ ------------ ------------ ------------
120,856 (1,331,217) (1,492,434) (2,348,735)
------------ ------------ ------------ ------------
Expenses:
Management fees 16,777 107,514 161,823 340,337
Other 8,527 18,699 38,061 51,071
------------ ------------ ------------ ------------
25,304 126,213 199,884 391,408
------------ ------------ ------------ ------------
Net income (loss) 95,552 (1,457,430) (1,692,318) (2,740,143)
Redemptions (1,415,705) (448,953) (12,164,674) (2,107,208)
------------ ------------ ------------ ------------
Net decrease in Partners' capital (1,320,153) (1,906,383) (13,856,992) (4,847,351)
Partners' capital, beginning of period 14,653,066 31,333,438 27,189,905 34,274,406
------------ ------------ ------------ ------------
Partners' capital, end of period $ 13,332,913 $ 29,427,055 $ 13,332,913 $ 29,427,055
------------ ------------ ------------ ------------
Net asset value per Unit
(11,923 and 24,121 Units outstanding
at September 30, 2000 and 1999, respectively) $ 1,118.25 $ 1,219.98 $ 1,118.25 $ 1,219.98
------------ ------------ ------------ ------------
Net gain (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 7.24 $ (59.51) $ (80.71) $ (108.43)
------------ ------------ ------------ ------------
</TABLE>
See Notes to Finanacial Statements
4
<PAGE>
Smith Barney Principal Plus Futures Fund L.P.
Notes to Financial Statements
September 30, 2000
(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 will maintain a portion of
its assets in principal amounts 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, 37,131 Units of Limited
Partnership Interest ("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. The Partnership was
authorized to sell 100,000 Units during the offering period of the Partnership.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. As of September 30, 2000, all trading decisions are made by Fort
Orange Capital Management and Rabar Market Research Inc. (collectively, the
"Advisors"). Effective July 1, 2000, John W. Henry and Company, Inc. was
terminated as an Advisor to the Partnership.
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 September 30, 2000 and December 31, 1999 and the results of its
operations for the three and nine months ended September 30, 2000 and 1999.
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
5
<PAGE>
Smith Barney Principal Plus Futures Fund L.P.
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
annual report on Form 10-K filed with the Securities and Exchange Commission for
the year ended December 31, 1999.
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
September 30, 2000
(Unaudited)
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------- -------- -------- --------
Net realized and unrealized
losses $ (12.63)$ (67.41)$ (128.75)$ (100.63)
Realized and unrealized
gains (losses) on Zero
Coupons 5.87 (3.00) 10.57 (39.41)
Interest income 15.93 16.05 47.63 47.22
Expenses (1.93) (5.15) (10.16) (15.61)
--------- --------- --------- ---------
Increase(decrease) for period 7.24 (59.51) (80.71) (108.43)
Net Asset Value per Unit,
beginning of period 1,111.01 1,279.49 1,198.96 1,328.41
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $ 1,118.25 $ 1,219.98 $ 1,118.25 $ 1,219.98
========= ========= ========= =========
</TABLE>
7
<PAGE>
Smith Barney Principal Plus Futures Fund L.P.
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
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 SSB 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 average fair value during the periods ended September 30,
2000 and December 31, 1999, based on a monthly calculation, was $273,318 and
$465,450, respectively. The fair value of these commodity interests, including
options thereon, if applicable, at September 30, 2000 and December 31, 1999, was
$(88,228) and $487,171, respectively, as detailed below.
Fair Value
September 30, December 31,
2000 1999
----------- ----------
Currency:
- Exchange Traded Contracts $ (38,349) $ 27,204
- OTC Contracts 1,198 (85,269)
Energy (57,649) (29,936)
Grains 4,220 18
Interest Rates U.S. 21,069 131,062
Interest Rates Non-U.S (33,171) 48,053
Livestock 1,760 2,885
Metals (9,674) 97,976
Softs 5,195 (10,624)
Indices 5,909 308,607
Lumber 11,264 (2,805)
--------- ---------
Total $ (88,228) $ 487,171
========= =========
8
<PAGE>
Smith Barney Principal Plus Futures Fund L.P.
Notes to Financial Statements
September 30, 2000
(Unaudited)
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 business. These financial instruments
may 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, through physical delivery 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 SSB.
9
<PAGE>
Smith Barney Principal Plus Futures Fund L.P.
Notes to Financial Statements
September 30, 2000
(Unaudited)
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. The majority of these instruments mature
within one year of September 30, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
10
<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 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 2000.
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, 2000, Partnership capital
decreased 51.0% from $27,189,905 to $13,332,913. This decrease was attributable
to net loss from operations of $1,692,318 coupled with the redemption of 10,755
Units totaling $12,164,674 for the nine months ended September 30, 2000. 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 2000, the net asset value per
unit increased 0.7% from $1,111.01 to $1,118.25 as compared to a decrease of
4.7% in the third quarter 1999. The Partnership experienced a net trading loss
before brokerage commissions and related fees in the third quarter of 2000 of
$76,840. Losses were primarily attributable to the trading of commodity
contracts in grains, non U.S. interest rates, metals, softs, livestock and
indices and were partially offset by gains in currencies, U.S. interest rates
and energy. The Partnership experienced a net trading loss before commissions
and related fees in the third quarter of 1999 of $1,370,354. Losses were
primarily attributable to the trading of commodity contracts in currencies, U.S
and non U.S. interest rates, livestock, indices, grains and metals and were
partially offset by gains in energy and softs.
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
11
<PAGE>
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 U.S. 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 and nine
months ended September 30, 2000 decreased by $183,031 and $305,867,
respectively, as compared to the corresponding periods in 1999. The decrease in
interest income is primarily due to the effect of redemptions on the
Partnership's Zero Coupons and equity maintained in cash during the nine month
period ended September 30, 2000.
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 fees for the
three and nine months ended September 30, 2000 decreased by $190,623 and
$394,572, respectively, as compared to the corresponding periods in 1999.
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 and nine months ended
September 30, 2000 decreased by $90,737 and $178,514, respectively, as compared
to the corresponding periods in 1999.
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. There were no incentive fees earned for the
three and nine months ended September 30, 2000 or 1999.
12
<PAGE>
Item. 3 Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Exchange maintenance margin requirements have been used by the
Partnership as the measure of its Value at Risk. Maintenance margin requirements
are set by exchanges to equal or exceed the maximum losses reasonably expected
to be incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component, which is not relevant to Value at Risk.
13
<PAGE>
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of September 30, 2000.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of September 30, 2000, the
Partnership's total capitalization was approximately $13,332,913. There has been
no material change in the trading Value at Risk information previously disclosed
in the Form 10-K for the year ended December 31, 1999.
September 30, 2000
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk
-------------------------------------------------------------------------------
Currencies:
- Exchange Traded Contracts $ 93,031 0.70% $263,939 $ 29,018
- OTC Contracts 31,768 0.24% 347,886 31,768
Energy 90,000 0.68% 212,500 45,351
Grains 18,950 0.14% 141,400 9,600
Interest Rates U.S. 31,300 0.23% 258,745 11,300
Interest Rates Non-U.S 92,910 0.70% 629,165 36,963
Livestock 3,200 0.02% 40,175 1,680
Metals 104,400 0.78% 342,750 28,000
Softs 17,500 0.13% 136,800 17,500
Indices 58,875 0.44% 606,091 27,980
Lumber 8,800 0.07% 8,800 1,800
-------- --------
Total $550,734 4.13%
======== ========
14
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning the matter entitled MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc., see the description that appears in the ninth
paragraph under the caption "Legal Proceedings" of the Annual Report on Form
10-K of the Partnership for the year ended December 31, 1999. In September 2000,
the court denied plaintiffs' motion to dismiss SSB's counterclaims based on
indemnification and contribution.
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
15
<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 LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
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 LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/14/00
16
