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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[No Fee Required]
For the year ended December 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from _______________to
______________________
Commission File Number 0-12431
COLUMBIA FUTURES FUND
(Exact name of registrant as specified in its Limited Partnership
Agreement)
NEW YORK 13-
3103617 .
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y.
10048 .
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code
(212) 392-5454 .
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class
on which registered
None
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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
Indicate by check-mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (section 229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment of this Form 10-K. [X]
State the aggregate market value of the Units of Limited
Partnership Interest held by non-affiliates of the registrant.
The aggregate market value shall be computed by reference to the
price at which units were sold, as of a specified date within 60
days prior to the date of filing: $8,176,062 at January 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
COLUMBIA FUTURES FUND
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . .
. . . . . . . . . 1
Part I .
Item 1. Business. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . 2-3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 3
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . .
. . . . . . . 3-5
Item 4. Submission of Matters to a Vote of Security Holders
. . . . . . . . 5
Part II.
Item 5. Market for the Registrant's Partnership Units
and Related Security Holder Matters . . . . . . . .
. . .. . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . .
. . .. . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . .
. . . . . . . 8-20
Item 7A. Quantitative
and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . .
. . . . . . . 20-32
Item 8. Financial Statements and Supplementary Data. . . . . .
. . . . . 32-33
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .
. . . . . . 33
Part III.
Item10. Directors and Executive Officers of the Registrant
. . . . . . .34-38
Item11. Executive Compensation . . . . . . . . . . . . . .
. . . . . . . . 38
Item12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .
. . . . . . . 38
Item13. Certain Relationships and Related Transactions . .
. . . . . . . .39
Part IV.
Item14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . .
. . . . . . . 40
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
as follows:
Documents Incorporated Part of
Form 10-K
Partnership's Prospectus dated
July 15, 1983 I
Annual Report to Columbia Futures
Fund Limited Partners for the year
ended December 31, 1999 II, III & IV
PART I
Item 1. BUSINESS
(a) General Development of Business. Columbia Futures Fund (the
"Partnership") is a New York limited partnership organized to
engage primarily in the speculative trading of futures contracts
and forward contracts in foreign currencies, financial
instruments, and other commodity interests (collectively,
"futures interests"). The Partnership commenced trading on July
15, 1983.
The general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds Inc. ("DWR") and an unaffiliated clearing commodity
broker, Carr Futures Inc. ("Carr"), provides clearing and
execution services. Both Demeter and DWR are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
sole trading advisor to the Partnership is John W. Henry &
Company, Inc. (or the "Trading Advisor").
The Partnership's Net Asset Value per unit of limited partnership
interest ("Unit(s)") as of December 31, 1999 was $2,900.13,
representing a decrease of 8.5 percent from the Net Asset Value
per Unit of $3,170.99 at December 31, 1998. For a more detailed
description of the Partnership's business, see subparagraph (c).
(b) Financial Information about Industry Segments. For financial
information reporting purposes, the Partnership is deemed to
engage in one industry segment, the speculative trading of
futures interests. The relevant financial information is
presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading of futures interests, pursuant to
trading instructions provided by the Trading Advisor.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales.
The Partnership has not engaged in any operations in foreign
countries; however, the Partnership (through the commodity
brokers) enters into forward contract transactions where foreign
banks are the contracting party and trades in futures interests
on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the
offices of DWR. The DWR offices utilized by the Partnership are
located at Two World Trade Center, 62nd Floor, New York, NY
10048.
Item 3. LEGAL PROCEEDINGS
The class actions first filed in 1996 in California and in New
York State
courts were each dismissed in 1999. However, in the New York
State class action, plaintiffs appealed the trial court's
dismissal of their case on March 3, 2000.
On September 6, 10, and 20, 1996, and on March 13, 1997,
purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all
purchasers of interests in limited partnership commodity pools
sold by DWR. Named defendants include DWR, Demeter, Dean Witter
Futures & Currency Management Inc. ("DWFCM"), MSDW, certain
limited partnership commodity pools of which Demeter is the
general partner (all such parties referred to hereafter as the
"Morgan Stanley Dean Witter Parties") and certain trading
advisors to those pools. On June 16, 1997, the plaintiffs in the
above actions filed a consolidated amended complaint, alleging,
among other things, that the defendants committed fraud, deceit,
negligent misrepresentation, various violations of the California
Corporations Code, intentional and negligent breach of fiduciary
duty, fraudulent and unfair business practices, unjust
enrichment, and conversion in the sale and operation of the
various limited partnership commodity pools. The complaints seek
unspecified amounts of compensatory and punitive damages and
other relief. The court entered an order denying class
certification on August 24, 1999. On September 24, 1999, the
court entered an order dismissing the case without prejudice on
consent. Similar purported class actions were also filed on
September 18 and 20, 1996, in the Supreme Court of the State of
New York,
New York County, and on November 14, 1996 in the Superior Court
of the State of Delaware, New Castle County, against the Morgan
Stanley Dean Witter Parties and certain trading advisors on
behalf of all purchasers of interests in various limited
partnership commodity pools sold by DWR. A consolidated and
amended complaint in the action pending in the Supreme Court of
the State of New York was filed on August 13, 1997, alleging that
the defendants committed fraud, breach of fiduciary duty, and
negligent misrepresentation in the sale and operation of the
various limited partnership commodity pools. The complaints seek
unspecified amounts of compensatory and punitive damages and
other relief. The New York Supreme Court dismissed the New York
action in November 1998, but granted plaintiffs leave to file an
amended complaint, which they did in early December 1998. The
defendants filed a motion to dismiss the amended complaint with
prejudice on February 1, 1999. By decision dated December 21,
1999, the New York Supreme Court dismissed the case with
prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs,
the action pending in the Superior Court of the State of Delaware
was voluntarily dismissed without prejudice.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY
HOLDER MATTERS
(a) Market Information
There is no established public trading market for Units of the
Partnership.
(b) Holders
The number of holders of Units at December 31, 1999 was
approximately 553.
(c) Distributions
No distributions have been made by the Partnership since it
commenced operations on July 15, 1983. Demeter has sole
discretion to decide what distributions, if any, shall be made to
investors in the Partnership. Demeter currently does not intend
to make any distribution of Partnership profits.
Item 6. SELECTED FINANCIAL DATA (in dollars)
For the Years Ended December 31,
1999 1998 1997 1996
1995 .
Total Revenues
(including interest) 71,795 2,028,466 2,827,745 2,295,4892
,756,685
Net Income (Loss) (795,984)1,102,9081,782,050 1,340,9381,815,259
Net Income (Loss)
Per Unit (Limited
& General Partners) (270.86)340.08 521.85 370.17 426.63
Total Assets 8,496,409 10,248,682 9,737,821 8,628,0637
,892,138
Total Limited Partners'
Capital 8,065,143 9,827,470 9,177,928 8,110,0797
,493,781
Net Asset Value Per
Unit 2,900.13 3,170.99 2,830.91 2,309.06 1
,938.89
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Liquidity - The Partnership deposits its assets with DWR as non-
clearing broker and Carr as clearing broker in separate futures
trading accounts established for the Trading Advisor, which
assets are used as margin to engage in trading. The assets are
held in either non-interest-bearing bank accounts or in
securities and instruments permitted by the Commodity Futures
Trading Commission ("CFTC") for investment of customer segregated
or secured funds. The Partnership's assets held by the commodity
brokers may be used as margin solely for the Partnership's
trading. Since the Partnership's sole purpose is to trade in
futures and forwards it is expected that the Partnership will
continue to own such liquid assets for margin purposes.
The Partnership's investment in futures and forwards, may, from
time to time, be illiquid. Most U.S. futures exchanges limit
fluctuations in prices during a single day by regulations
referred to as "daily price fluctuations limits" or "daily
limits". Trades may not be executed at prices beyond the daily
limit. If the price for a particular futures contract has
increased or decreased by an amount equal to the daily limit,
positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or
within the limit. Futures prices have occasionally moved the
daily limit for several consecutive days with little or no
trading. These market conditions
could prevent the Partnership from promptly liquidating its
futures contracts and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currencies. The markets for some world
currencies have low trading volume and are illiquid, which may
prevent the Partnership from trading in potentially profitable
markets or prevent the Partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to
substantial losses. Either of these market conditions could
result in restrictions on redemptions.
The Partnership has never had illiquidity affect a material
portion of its assets.
Capital Resources. The Partnership does not have, or expect to
have, any capital assets. Redemptions of Units in the future
will affect the amount of funds available for investments in
futures interests in subsequent periods. It is not possible to
estimate the amount and therefore, the impact of future
redemptions of Units.
Results of Operations.
General. The Partnership's results depend on its Trading Advisor
and the ability of the Trading Advisor's trading programs to take
advantage of price
movements or other profit opportunities in the futures, forwards,
and options markets. The following presents a summary of the
Partnership's operations for the three years ended December 31,
1999 and a general discussion of its trading activities during
each period. It is important to note, however, that the Trading
Advisor trades in various markets at different times and that
prior activity in a particular market does not mean that such
market will be actively traded by the Trading Advisor or will be
profitable in the future. Consequently, the results of
operations of the Partnership are difficult to discuss other than
in the context of its Trading Advisor's trading activities on
behalf of the Partnership as a whole and how the Partnership has
performed in the past.
At December 31, 1999, the Partnership's total capital was
$8,355,156, a decrease of $1,789,413 from the Partnership's total
capital of $10,144,569 at December 31, 1998. For the year ended
December 31, 1999, the Partnership generated a net loss of
$795,984 and total redemptions aggregated $993,429.
For the year ended December 31, 1999, the Partnership recorded
total trading revenues, including interest income, of $71,795 and
posted a decrease in Net Asset Value per Unit. The most
significant losses of approximately 6.32% were recorded from
global interest rate futures trading as the volatile and choppy
price movement experienced during the year limited the ability to
capitalize on
trends. Most global bond markets dropped during the fourth
quarter on a resurgence of inflation and interest rate fears
initiated by consistently strong U.S. economic data, evidence of
rising inflation in Germany and an increase in oil prices. In
the commodities markets, rapid trend reversals in a number of
markets, such as silver, gold and coffee, created losses of
approximately 3.27%, 1.67% and 1.13%, respectively, for the
Partnership. A portion of the Partnership's overall losses were
offset by gains of approximately 5.73% recorded in the energy
markets from long crude oil futures positions as oil prices
climbed higher throughout a majority of the year. Additional
gains of approximately 1.91% were recorded in the currency
markets due primarily to the upward momentum in the U.S. dollar
relative to the euro and Swiss franc, as well as the continued
strengthening of the Japanese yen versus other major currencies
during November. Total expenses for the year were $867,779,
resulting in a net loss of $795,984. The value of a Unit
decreased from $3,170.99 at December 31, 1998 to $2,900.13 at
December 31, 1999.
At December 31, 1998, the Partnership's total capital was
$10,144,569, an increase of $683,550 from the Partnership's total
capital of $9,461,019 at December 31, 1997. For the year ended
December 31, 1998, the Partnership generated net income of
$1,102,908 and total redemptions aggregated $419,358.
For the year ended December 31, 1998, the Partnership recorded
total trading revenues, including interest income, of $2,028,466
and posted an increase in Net Asset Value per Unit. In 1998, the
Partnership recorded its fourth straight year of double-digit
returns due primarily to gains of approximately 8.12% and 7,44%
recorded in the currency and interest rate futures markets,
respectively. In currencies, profits of approximately 11.23%
were recorded primarily from short South African rand positions
as the value of the rand fell significantly relative to the U.S.
dollar during the second quarter on concerns regarding the South
African economy. Additional currency gains of approximately
7.59% were recorded primarily from long Japanese yen positions as
the value of the yen strengthened during the fourth quarter amid
optimism regarding the Japanese financial crisis. Gains of
approximately 5.68% were also recorded in the interest rate
futures markets primarily from long futures positions in Japanese
bonds during the first half of 1998, as Japanese interest rates
declined sharply due to economic worries in Japan, and from short
positions in this same market during December, as bond yields
spiked higher. Total expenses for the year were $925,558,
resulting in net income of $1,102,908. The value of a Unit
increased from $2,830.91 at December 31, 1997 to $3,170.99 at
December 31, 1998.
At December 31, 1997, the Partnership's total capital was
$9,461,019, an increase of $1,120,034 from the Partnership's
total capital of $8,340,985 at
December 31, 1996. For the year ended December 31, 1997, the
Partnership generated net income of $1,782,050 and total
redemptions aggregated $662,016.
For the year ended December 31, 1997, the Partnership recorded
total trading revenues, including interest income, of $2,827,745
and posted an increase in Net Asset Value per Unit. The
Partnership recorded strong gains in 1997. Gains of
approximately 31.45% were recorded in the currency markets
primarily from sustained price movements during January and
February, and then again in the fourth quarter from short
positions in most Pacific Rim currencies as their values declined
relative to the U.S. dollar. Additional gains of approximately
6.27% were recorded in the global interest rate futures markets
primarily from long positions as prices in these markets trended
upward during the third quarter. These gains, coupled with the
Trading Advisor's ability to limit losses during periods of short-
term price volatility and sharp trend reversals, contributed to
the overall success of the Partnership during the year. Total
expenses for the year were $1,045,695, resulting in net income of
$1,782,050. The value of a Unit increased from $2,309.06 at
December 31, 1996 to $2,830.91 at December 31, 1997.
The Partnership's overall performance record represents varied
results of trading in different futures interests markets. For a
further description of 1999 trading results, refer to the letter
to the Limited Partners in the accompanying Annual Report to
Limited Partners for the year ended December 31,
1999, which is incorporated by reference to Exhibit 13.01 of this
Form 10-K. The Partnership's gains and losses are allocated
among its partners for income tax purposes.
Credit Risk.
Financial Instruments. The Partnership is a party to financial
instruments with elements of off-balance sheet market and credit
risk. The Partnership may trade futures, forwards, and options
to gain long biased exposure to global stock markets and global
bond markets, as well as long and short exposure to a component
of managed futures contracts in agricultural commodities, energy
products, foreign currencies, precious and base metals, and soft
commodities. In entering into these contracts, the Partnership
is subject to the market risk that such contracts may be
significantly influenced by market conditions, such as interest
rate volatility, resulting in such contracts being less valuable.
If the markets should move against all of the positions held by
the Partnership at the same time, and if the Trading Advisor were
unable to offset positions of the Partnership, the Partnership
could lose all of its assets and investors would realize a 100%
loss.
In addition to the Trading Advisor's internal controls, the
Trading Advisor must comply with the trading policies of the
Partnership. These trading policies include standards for
liquidity and leverage with which the
Partnership must comply. The Trading Advisor and Demeter monitor
the Partnership's trading activities to ensure compliance with
the trading policies. Demeter may require the Trading Advisor to
modify positions of the Partnership if Demeter believes they
violate the Partnership's trading policies. In addition to
market risk, in entering into futures, forwards, and options
contracts there is a credit risk to the Partnership that the
counterparty on a contract will not be able to meet its
obligations to the Partnership. The ultimate counterparty or
guarantor of the Partnership for futures contracts traded in the
United States and the foreign exchanges on which the Partnership
trades is the clearinghouse associated with such exchange. In
general, a clearinghouse is backed by the membership of the
exchange and will act in the event of non-performance by one of
its members or one of its member's customers, which should
significantly reduce this credit risk. For example, a
clearinghouse may cover a default by drawing upon a defaulting
member's mandatory contributions and/or non-defaulting members'
contributions to a clearinghouse guarantee fund, established
lines or letters of credit with banks, and/or the clearinghouse's
surplus capital and other available assets of the exchange and
clearinghouse, or assessing its members. In cases where the
Partnership trades off-exchange forward contracts with a
counterparty, the sole recourse of the Partnership will be the
forward contracts counterparty.
There is no assurance that a clearinghouse or exchange will meet
its obligations to the Partnership, and Demeter and the commodity
brokers will not indemnify the Partnership against a default by
such parties. Further, the law is unclear as to whether a
commodity broker has any obligation to protect its customers from
loss in the event of an exchange or clearinghouse defaulting on
trades effected for the broker's customers. Any such obligation
on the part of a broker appears even less clear where the default
occurs in a non-U.S. jurisdiction.
Demeter deals with these credit risks of the Partnership in
several ways. First, it monitors the Partnership's credit
exposure to each exchange on a daily basis, calculating not only
the amount of margin required for it but also the amount of its
unrealized gains at each exchange, if any. The commodity brokers
inform the Partnership, as with all their customers, of its net
margin requirements for all its existing open positions, but do
not break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it to monitor the
Partnership's potential margin liability, exchange by exchange.
As a result, Demeter is able to monitor the Partnership's
potential net credit exposure to each exchange by adding the
unrealized trading gains on that exchange, if any, to the
Partnership's margin liability thereon.
Second, the Partnership's trading policies limit the amount of
its Net Assets that can be committed at any given time to futures
contracts and require, in addition, a minimum amount of
diversification in the Partnership's trading, usually over
several different products. One of the aims of such trading
policies has been to reduce the credit exposure of the
Partnership to a single exchange and, historically, the
Partnership's exposure to any one exchange has typically amounted
to only a small percentage of its total Net Assets. On those
relatively few occasions where the Partnership's credit exposure
may climb above that level, Demeter deals with the situation on a
case by case basis, carefully weighing whether the increased
level of credit exposure remains appropriate. Material changes
to the trading policies may be made only with the prior written
approval of the limited partners owning more than 50% of Units
then outstanding.
Third, Demeter has secured, with respect to Carr acting as the
clearing broker for the Partnership, a guarantee by Credit
Agricole Indosuez, Carr's parent, of the payment of the "net
liquidating value" of the transactions (futures and forward
contracts) in the Partnership's account.
With respect to forward contract trading, the Partnership trades
with only those counterparties which Demeter, together with DWR,
have determined to be creditworthy. At the date of this filing,
the Partnership deals only with
Carr as its counterparty on forward contracts. The guarantee by
Carr's parent, discussed above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial Statements
in the Partnership's Annual Report to Limited Partners for the
year ended December 31, 1999, which is incorporated by reference
to Exhibit 13.01 of this Form 10-K.
Year 2000. Commodity pools, like financial and business
organizations and individuals around the world, depend on the
smooth functioning of computer systems. The Year 2000 issue
arose since many of the world's computer systems (including those
in non-information technology systems) traditionally recorded
years in a two-digit format. If not addressed, such computer
systems may have been unable to properly interpret dates beyond
the year 1999, which may have led to business disruptions in the
U.S. and internationally. Such disruptions could have adversely
affected the handling or determination of futures trades and
prices and other services for the Partnership. Accordingly,
Demeter has fully participated in a firmwide initiative
established by MSDW to address issues associated with the Year
2000. As part of this initiative, MSDW reviewed its global
software and hardware infrastructure for mainframe, server and
desktop computing environments and engaged in extensive
remediation and testing. The Year 2000
initiative also encompassed the review of agencies, vendors and
facilities for Year 2000 compliance.
Since 1995, MSDW prepared actively for the Year 2000 issue to
ensure that it would have the ability to respond to any critical
business process failure, to prevent the loss of workspace and
technology, and to mitigate any potential financial loss or
damage to its global franchise. Where necessary, contingency
plans were expanded or developed to address specific Year 2000
risk scenarios, supplementing existing business policies and
practices. In conjunction with MSDW's Year 2000 preparations,
Demeter monitored the progress of Carr and the Trading Advisor
throughout 1999 in their Year 2000 compliance and, where
applicable, tested its external interfaces, with Carr and the
Trading Advisor. In addition, Demeter, the commodity brokers,
the Trading Advisor and all U.S. futures exchanges were subjected
to monitoring by the CFTC of their Year 2000 preparedness, and
the major foreign futures exchanges engaged in market-wide
testing of their Year 2000 compliance during 1999.
MSDW and Demeter consider the transition into the Year 2000
successful from the perspective of their internal systems and
global external interactions. Over the millennial changeover
period, no material issues were encountered, and MSDW, Demeter
and the Partnership conducted business as usual.
Risks Associated With the Euro. On January 1, 1999, eleven
countries in the European Union established fixed conversion
rates on their existing sovereign currencies and converted to a
common single currency (the euro). During a three-year
transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion
to the euro prevents the Trading Advisor from trading those
sovereign currencies and thereby limits its ability to take
advantage of potential market opportunities that might otherwise
have existed had separate currencies been available to trade.
This could adversely affect the performance results of the
Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures interests. The market-sensitive instruments
held by the Partnership are acquired for speculative trading
purposes only and, as a result, all or substantially all of the
Partnership's assets are at risk of trading loss. Unlike an
operating company, the risk of market-sensitive instruments is
central, not incidental, to the Partnership's main business
activities.
The futures interests traded by the Partnership involve varying
degrees of market risk. Market risk is often dependent upon
changes in the level or volatility of interest rates, exchange
rates, and prices of financial
instruments and commodities. Fluctuations in market risk based
upon these factors result in frequent changes in the fair value
of the Partnership's open positions, and, consequently, in its
earnings and cash flow.
The Partnership's total market risk is influenced by a wide
variety of factors, including the diversification among the
Partnership's open positions, the volatility present within the
markets, and the liquidity of the markets. At different times,
each of these factors may act to increase or decrease the market
risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative
of its future results. Any attempt to numerically quantify the
Partnership's market risk is limited by the uncertainty of its
speculative trading. The Partnership's speculative trading may
cause future losses and volatility (i.e. "risk of ruin") that far
exceed the Partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the
Partnership's market risk exposures contain "forward-looking
statements" within the meaning of the safe harbor from civil
liability provided for such statements by the Private Securities
Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934).
All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor,
except for statements of historical fact.
The Partnership accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of the
Partnership's open positions is directly reflected in the
Partnership's earnings, whether realized or unrealized, and its
cash flow. Profits and losses on open positions of exchange-
traded futures interests are settled daily through variation
margin.
The Partnership's risk exposure in the market sectors traded by
the Trading Advisor is estimated below in terms of Value at Risk
("VaR"). The VaR model used by the Partnership includes many
variables that could change the market value of the Partnership's
trading portfolio. The Partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%.
Historical simulation involves constructing a distribution of
hypothetical daily changes in the value of a trading portfolio.
The VaR model takes into account linear exposures to price and
interest rate risk. Market risks that are incorporated in the
VaR model include equity and commodity prices, interest rates,
foreign exchange rates, and correlation among these variables.
The hypothetical changes in portfolio value are based on daily
percentage changes observed in key market indices or other market
factors ("market risk factors") to which the portfolio is
sensitive. The
historical observation period of the Partnership's VaR is
approximately four years. The one-day 99% confidence level of
the Partnership's VaR corresponds to the negative change in
portfolio value that, based on observed market risk factors,
would have been exceeded once in 100 trading days.
VaR models, including the Partnership's, are continuously
evolving as trading portfolios become more diverse and modeling
techniques and systems capabilities improve. Please note that
the VaR model is used to numerically quantify market risk for
historic reporting purposes only and is not utilized by either
Demeter or the Trading Advisor in their daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following tables indicates the VaR associated with the
Partnership's open positions as a percentage of total Net Assets
by primary market risk category as of December 31, 1999 and 1998.
As of December 31, 1999 and 1998, the Partnership's total
capitalization was approximately $8 million and $10 million,
respectively.
Primary Market December 31, 1999
December 31, 1998
Risk Category Value at Risk
Value at Risk
Interest Rate (.58)% (.60)%
Currency (1.51) (1.07)
Equity (.28) (.31)
Commodity (.50) (.52)
Aggregate Value at Risk (1.64)%
(1.47)%
Aggregate Value at Risk represents the aggregate VaR of all the
Partnership's open positions and not the sum of the VaR of the
individual Market Categories listed above. Aggregate VaR will be
lower as it takes into account correlation among different
positions and categories.
The table above represents the VaR of the Partnership's open
positions at December 31, 1999 and 1998 only and is not
necessarily representative of either the historic or future risk
of an investment in the Partnership. Because the Partnership's
only business is the speculative trading of futures interests,
the composition of its trading portfolio can change significantly
over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively
materially impact market risk as measured by VaR.
The table below supplements the year end VaR by presenting the
Partnership's
high, low and average VaR, as a percentage of total net assets
for the four quarterly reporting periods from January 1, 1999
through December 31, 1999.
Primary Market Risk Category High Low
Average
Interest Rate (.98)% (.58)% (.79)%
Currency (3.0) (1.51)
(2.56)
Equity (.37) (.23) (.31)
Commodity (.67) (.49) (.54)
Aggregate Value at Risk (3.13)% (1.64)%
(2.67)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the
Partnership is typically many times the applicable margin
requirements. Margin requirements generally range between 2% and
15% of contract face value. Additionally, the use of leverage
causes the face value of the market sector instruments held by
the Partnership to typically be many times the total
capitalization of the Partnership. The value of the
Partnership's open positions thus creates a "risk of ruin" not
typically found in other investments. The relative size of the
positions held may cause the Partnership to incur losses greatly
in excess of VaR within a short period of time, given the effects
of the leverage employed and market volatility. The VaR tables
above, as well as the past performance of the Partnership, gives
no indication of such "risk of ruin". In
addition, VaR risk measures should be viewed in light of the
methodology's limitations, which include the following:
past changes in market risk factors will not always result
in accurate predictions of the distributions and correlations of
future market movements;
changes in portfolio value in response to market movements
may differ from those of the VaR model;
VaR results reflect past trading positions while future risk
depends on future positions;
VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged
within one day; and
the historical market risk factor data used for VaR
estimation may provide only limited insight into losses that
could be incurred under certain unusual market movements.
The VaR tables above present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an
aggregate basis at December 31, 1999 and for the end of the four
quarterly reporting periods during calendar year 1999. Since VaR
is based on historical data, VaR should not be viewed as
predictive of the Partnership's future financial performance or
its ability to manage or monitor risk. There can be no assurance
that the Partnership's actual losses on a particular day will not
exceed the VaR amounts
indicated above or that such losses will not occur more than 1 in
100 trading days.
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market
risk they may represent are immaterial. The Partnership also
maintains a substantial portion (approximately 84%) of its
available assets in cash at DWR. A decline in short-term
interest rates will result in a decline in the Partnership's cash
management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an
assessment of reasonably possible market movements and any
associated potential losses, taking into account the leverage,
optionality and multiplier features of the Partnership's market-
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (A) those disclosures that are
statements of historical fact and (B) the descriptions of how the
Partnership manages its primary market risk exposures -
constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnership's primary market risk
exposures as well as the strategies
used and to be used by Demeter and the Trading Advisor for
managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual
results of the Partnership's risk controls to differ materially
from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the
emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors
could result in material losses as well as in material changes to
the risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or
substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the
Partnership as of December 31, 1999, by market sector. It may be
anticipated however, that these market exposures will vary
materially over time.
Currency. The primary market exposure in the Partnership at
December 31, 1999 was in the currency sector. The Partnership's
currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs. Interest rate
changes as well as political and general economic conditions
influence these fluctuations. The Partnership trades in a large
number of currencies, including cross-rates - i.e., positions
between two currencies other than the
U.S. dollar. For the fourth quarter of 1999, the Partnership's
major exposures were in outright U.S. dollar positions.
(Outright positions consist of the U.S. dollar vs. other
currencies. These other currencies include the major and minor
currencies). Demeter does not anticipate that the risk profile
of the Partnership's currency sector will change significantly in
the future. The currency trading VaR figure includes foreign
margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the
dollar-based Partnership in expressing VaR in a functional
currency other than dollars.
Interest Rate. The second largest market exposure in the fourth
quarter was in the interest rate complex. Exposure was spread
across the Japanese, U.S., German and Australian interest rate
sectors. Interest rate movements directly affect the price of
the sovereign bond futures positions held by the Partnership and
indirectly affect the value of its stock index and currency
positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's
primary interest rate exposure is generally to interest rate
fluctuations in the United States and the other G-7 countries.
The G-7 countries consist of France, U.S., Britain, Germany,
Japan, Italy and Canada. However, the Partnership also takes
futures positions in the government debt of smaller nations -
e.g. Australia. Demeter anticipates that G-7 and Australian
interest rates will remain the primary interest rate
exposure of the Partnership for the foreseeable future. The
changes in interest rates, which have the most effect on the
Partnership, are changes in long-term, as opposed to short-term,
rates. Most of the speculative futures positions held by the
Partnership are in medium to long-term instruments.
Consequently, even a material change in short-term rates would
have little effect on the Partnership, were the medium to long-
term rates to remain steady.
Equity. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded
by the Partnership are by law limited to futures on broadly based
indices. As of December 31, 1999, the Partnership's primary
exposures were in the All Ordinaries (Australia) and Nikkei
(Japan) stock indices. The Partnership is primarily exposed to
the risk of adverse price trends or static markets in the
Australian and Japanese indices. (Static markets would not cause
major market changes but would make it difficult for the
Partnership to avoid being "whipsawed" into numerous small
losses).
Commodity.
Soft Commodities and Agriculturals. On December 31, 1999, the
Partnership had a reasonable amount of exposure in the markets
that comprise these sectors. Most of the exposure, however, was
in the coffee, sugar and corn markets. Supply and demand
inequalities, severe weather disruption and market expectations
affect price movements in these markets.
Energy. On December 31, 1999, the Partnership's energy exposure
was in the crude and heating oil markets. Price movements in
these markets result from political developments in the Middle
East, weather patterns, and other economic fundamentals. As oil
prices have increased approximately 100% this year, and, given
that the agreement by OPEC to cut production is approaching
expiration in March 2000, it is possible that volatility will
remain on the high end. Significant profits and losses have been
and are expected to continue to be experienced in this market.
Metals. The Partnership's primary metals market exposure is to
fluctuations in the price of gold and silver. Although the
Partnership will, from time to time, trade base metals such as
copper, the principal market exposures of the Partnership have
consistently been in precious metals, gold and silver. A
reasonable amount of exposure was evident in the gold market as
the price of gold retreated during the fourth quarter. However,
silver prices have remained volatile over this period, and the
Trading Advisor has, from time to time, taken substantial
positions as perceived market opportunities developed. Demeter
anticipates that gold and silver will remain the primary metals
market exposure for the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership as of December 31, 1999:
Foreign Currency Balances. The Partnership's primary foreign
currency balances at December 31, 1999 were in Australian
dollars. The Partnership controls the non-trading risk of these
balances by regularly converting these balances back into dollars
upon liquidation of the respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisor, separately, attempt to
manage the risk of the Partnership's open positions in
essentially the same manner in all market categories traded.
Demeter attempts to manage market exposure by diversifying the
Partnership's assets among different market sectors and trading
approaches, and monitoring the performance of the Trading Advisor
daily. In addition, the Trading Advisor establishes
diversification guidelines, often set in terms of the maximum
margin to be committed to positions in any one market sector or
market-sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-
trading instrument, cash. Cash is the only Partnership
investment directed by Demeter, rather than the Trading Advisor.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the
Partnership's Annual Report which is filed as Exhibit 13.01
hereto.
Supplementary data specified by Item 302 of Regulation S-K
(selected quarterly financial data) is not applicable.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINNCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Partnership.
The Partnership is managed by Demeter.
Directors and Officers of the General Partner
The directors and officers of Demeter are as follows:
Robert E. Murray, age 39, is Chairman of the Board, President and
a Director of Demeter. Mr. Murray is also Chairman of the Board,
President and a Director of DWFCM. Effective as of the close of
business on January 31, 2000, Mr. Murray replaced Mr. Hawley as
Chairman of the Board of Demeter and DWFCM. Mr. Murray is
currently a Senior Vice President of DWR's Managed Futures
Department. Mr. Murray began his career at DWR in 1984 and is
currently the Director of the Managed Futures Department. In this
capacity, Mr. Murray is responsible for overseeing all aspects of
the firm's Managed Futures Department. Mr. Murray currently
serves as Vice Chairman and a Director of the Managed Funds
Association, an industry association for investment professionals
in futures, hedge funds and other alternative investments. Mr.
Murray graduated from Geneseo State University in May 1983 with a
B.A. degree in Finance.
Mitchell M. Merin, age 46, is a Director of Demeter. Mr. Merin
is also a Director of DWFCM. Mr. Merin was appointed the Chief
Operating Officer of Individual Asset Management for MSDW in
December 1998 and the President and Chief Executive Officer of
Morgan Stanley Dean Witter Advisors in February 1998. He has
been an Executive Vice President of DWR since 1990, during which
time he has been director of DWR's Taxable Fixed Income and
Futures divisions, Managing Director in Corporate Finance and
Corporate Treasurer. Mr. Merin received his Bachelor's degree
from Trinity College in Connecticut and his M.B.A. degree in
finance and accounting from the Kellogg Graduate School of
Management of Northwestern University in 1977.
Joseph G. Siniscalchi, age 54, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President,
Director of General Accounting and served as a Senior Vice
President and Controller for DWR's Securities Division through
1997. He is currently Executive Vice President and Director of
the Operations Division of DWR. From February 1980 to July 1984,
Mr. Siniscalchi was Director of Internal Audit at Lehman Brothers
Kuhn Loeb, Inc.
Edward C. Oelsner, III, age 57, is a Director of Demeter. Mr.
Oelsner is currently an Executive Vice President and head of the
Product Development Group at Morgan Stanley Dean Witter Advisors,
an affiliate of DWR. Mr. Oelsner joined DWR in 1981 as a Managing
Director in DWR's Investment Banking
Department specializing in coverage of regulated industries and,
subsequently, served as head of the DWR Retail Products Group.
Prior to joining DWR, Mr. Oelsner held positions at The First
Boston Corporation as a member of the Research and Investment
Banking Departments from 1967 to 1981. Mr. Oelsner received his
M.B.A. in Finance from the Columbia University Graduate School of
Business in 1966 and an A.B. in Politics from Princeton
University in 1964.
Lewis A. Raibley, III, age 37, is Vice President, Chief Financial
Officer, and a Director of Demeter. Mr. Raibley is also a
Director of DWFCM. Mr. Raibley is currently Senior Vice
President and Controller in the Individual Asset Management Group
of MSDW. From July 1997 to May 1998, Mr. Raibley served as
Senior Vice President and Director in the Internal Reporting
Department of MSDW and prior to that, from 1992 to 1997, he
served as Senior Vice President and Director in the Financial
Reporting and Policy Division of Dean Witter Discover & Co. He
has been with MSDW and its affiliates since June 1986.
Richard A. Beech, age 48, is a Director of Demeter. Mr. Beech
has been associated with the futures industry for over 23 years.
He has been at DWR since August 1984 where he is presently Senior
Vice President and head of Branch Futures. Mr. Beech began his
career at the Chicago Mercantile Exchange, where he became the
Chief Agricultural Economist doing market
analysis, marketing and compliance. Prior to joining DWR, Mr.
Beech also had worked at two investment banking firms in
operations, research, managed futures and sales management.
Ray Harris, age 43, is a Director of Demeter. Mr. Harris is
currently Senior Vice President, Planning and Administration for
Morgan Stanley Dean Witter Asset Management and has worked at DWR
or its affiliates since July 1982, serving in both financial and
administrative capacities. From August 1994 to January 1999, he
worked in two separate DWR affiliates, Discover Financial
Services and Novus Financial Corp., culminating as Senior Vice
President. Mr. Harris received his B.A. degree from Boston
College and his M.B.A. in finance from the University of Chicago.
Mark J. Hawley, age 56, served as Chairman of the Board and a
Director of Demeter and DWFCM throughout 1999. Mr. Hawley joined
DWR in February 1989 as Senior Vice President and served as
Executive Vice President and Director of DWR's Product Management
for Individual Asset Management throughout 1999. In this
capacity, Mr. Hawley was responsible for directing the activities
of the firm's Managed Futures, Insurance, and Unit Investment
Trust Business. From 1978 to 1989, Mr. Hawley was a member of
the senior management team at Heinold Asset Management, Inc., a
commodity pool operator, and was responsible for a variety of
projects in public futures funds. From 1972 to
1978, Mr. Hawley was a Vice President in charge of institutional
block trading for the Mid-West at Kuhn Loeb & Company. Mr.
Hawley resigned effective January 31, 2000.
All fo the foregoing directors have indefinite terms.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a
limited partnership, the business of the Partnership is managed
by Demeter, which is responsible for the administration of the
business affairs of the Partnership but receives no compensation
for such services.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of
December 31, 1999 there were no persons known to be beneficial
owners of more than 5 percent of the Units.
(b) Security Ownership of Management - At December 31, 1999,
Demeter owned 100 Units of General Partnership Interest in the
Partnership representing a 3.5 percent interest in the
Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to
Financial Statements", in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, which is
incorporated by reference to Exhibit 13.01 of this Form 10-K. In
its capacity as the Partnership's retail commodity broker, DWR
received commodity brokerage commissions (paid and accrued by the
Partnership) of $385,530 for the year ended December 31, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON
FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent
auditors, all appearing in the accompanying Annual Report to
Limited Partners for the year ended December 31, 1999, are
incorporated by reference to Exhibit 13.01 of this Form 10-K:
- - Report of Deloitte & Touche LLP, independent auditors, for
the years ended December 31, 1999, 1998 and 1997.
- - Statements of Financial Condition as of December 31,
1999 and 1998.
- - Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 1999, 1998 and 1997.
- - Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the Annual Report
to Limited Partners for the year ended December 31, 1999 is not
deemed to be filed with this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with
this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during
the last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
SIGNATURES
Pursuant to the requirements of Sections 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.
COLUMBIA FUTURES
FUND
(Registrant)
BY: Demeter
Management Corporation,
General
Partner
March 29, 2000 BY: /s/ Robert E. Murray .
Robert E. Murray, Director,
Chairman of the Board and
President
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.
Demeter Management Corporation.
BY: /s/ Robert E. Murray ____ March 29,
2000
Robert E. Murray, Director,
Chairman of the Board and
President
/s/ Joseph G. Siniscalchi ___ March 29,
2000
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III ____ March 29,
2000
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin _______ March 29, 2000
Mitchell M. Merin, Director
/s/ Richard A. Beech _______ March 29, 2000
Richard A. Beech, Director
/s/ Ray Harris ___ March 29,
2000
Ray Harris, Director
/s/ Lewis A. Raibley, III ___ March 29,
2000
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
EXHIBIT INDEX
Item METHOD
OF FILING
- -3.01 Amendment
to Limited Partnership (1)
Agreement of Columbia Futures Fund,
dated as of February 14, 1985.
- -10.01 Advisory
Agreement among the Partnership, (2)
Demeter and JWH dated as of January
20, 1987.
- -13.01 December 31, 1999 Annual Report to Limited Partners. (3)
(1)
Incorporated by reference to Exhibit 3.01 of the Partnership's
Annual
Report on Form 10-K for the fiscal year ended December 31, 1985,
File No. 0-
12431.
(2)
Incorporated by reference to Exhibit 10.03 of the Partnership's
Annual
Report on Form 10-K for the fiscal year ended December 31, 1986,
File No. 0-
12431.
(3) Filed
herewith.
Columbia
Futures
Fund
December 31, 1999
Annual Report
MORGAN STANLEY DEAN WITTER
Demeter Management Corporation
Two World Trade Center 62nd Floor
New York, NY 10048 Telephone (212) 392-8899
Columbia Futures Fund
Annual Report
1999
Dear Limited Partner:
This marks the seventeenth annual report for the Columbia Futures Fund (the
"Fund"). This is the fifteenth report filed by Demeter Management Corporation,
the Fund's General Partner since February 1985. The Fund began the year trading
at a Net Asset Value per Unit of $3,170.99 and decreased by 8.5% to $2,900.13
on December 31, 1999. Since its inception in 1983, the Fund has increased by
195.9% (a compound annualized return of 6.8%). Since Demeter took over as Gen-
eral Partner, the Fund has increased by 356.2% (a compound annualized return of
10.8%).
Overall, the Fund recorded a loss in Net Asset Value per Unit during 1999. The
most significant losses were recorded from global interest rate futures trading
as the volatile and choppy markets experienced during the year limited the
ability to capitalize on trends. Most global bond markets dropped during the
fourth quarter on a resurgence of inflation and interest rate fears initiated
by consistently strong U.S. economic data, evidence of rising inflation in Ger-
many and an increase in oil prices. In the commodities markets, rapid trend
reversals in a number of markets, such as silver, gold and coffee, created
losses for the Fund. A portion of the Fund's overall losses was offset by gains
recorded in the energy markets from long crude oil futures positions as oil
prices climbed higher, particularly during November. Additional gains were rec-
orded in the currency markets due to the upward momentum in the U.S. dollar
relative to the euro and Swiss franc, as well as the continued strengthening of
the Japanese yen versus other major currencies.
While we are disappointed that the Fund had a difficult year in 1999, we remind
investors that managed futures funds such as Columbia Futures Fund are designed
to provide diversification and non-correlation, that is the ability to perform
independently, of global equities and bonds. Managed futures have historically
performed independently of traditional investments, such as stocks and bonds.
This is referred to as non-correlation, or the potential for managed futures to
perform when traditional markets such as stocks and bonds may experience diffi-
culty performing. Of course, managed futures funds will not automatically be
profitable during unfavorable periods for these traditional investments and
vice versa. The degree of non-correlation of any given managed futures fund
will vary, particularly as a result of market conditions, and some funds will
have significantly lesser degrees of non-correlation (i.e., greater correla-
tion) with stocks and bonds than others. 1999 proved to be another strong year
for equities, due in large part to continued growth and stability in most major
world economies accompanied by low inflation. This environment, while strong
for equities, provided few major sustained price trends in the world's futures
and currency markets, and as such, a difficult trading environment for the mon-
ey manager in this Fund whose trading strategies rely on the existence of long-
er-term price trends for trading opportunities. Nevertheless, we remain confi-
dent in the role that managed futures investments play in the overall invest-
ment portfolio, and we believe this confidence is well-founded based on the
longer-term diversified non-correlated returns of this alternative investment.
Demeter Management Corporation, as General Partner to the Fund, has been and
continues to be an active investor with more than $18 million invested among
the 24 managed futures funds to which we act as General Partner.
Should you have any questions concerning this report, please feel free to con-
tact Demeter Management Corporation at Two World Trade Center, 62nd Floor, New
York, NY 10048, or your Morgan Stanley Dean Witter Financial Advisor.
I hereby affirm, that to the best of my knowledge and belief, the information
contained in this report is accurate and complete. Past performance is not a
guarantee of future results.
Sincerely,
/s/ Robert E. Murray
Robert E. Murray
Chairman
Demeter Management Corporation
General Partner
Columbia Futures Fund
Independent Auditors' Report
The Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Columbia
Futures Fund (the "Partnership") as of December 31, 1999 and 1998 and the re-
lated statements of operations, changes in partners' capital, and cash flows
for each of the three years in the period ended December 31, 1999. These finan-
cial statements are the responsibility of the Partnership's management. Our re-
sponsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of materi-
al misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such financial statements present fairly, in all material re-
spects, the financial position of Columbia Futures Fund at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
February 14, 2000
(March 3, 2000 as to Note 6)
New York, New York
Columbia Futures Fund
Statements of Financial Condition
December 31,
--------------------
1999 1998
--------- ----------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 8,131,783 9,719,676
Net unrealized gain on open contracts 334,288 499,104
--------- ----------
Total Trading Equity 8,466,071 10,218,780
Interest receivable (DWR) 30,338 29,902
--------- ----------
Total Assets 8,496,409 10,248,682
========= ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Administrative expenses payable 61,609 54,390
Redemptions payable 51,621 15,855
Accrued management fee 28,023 33,868
--------- ----------
Total Liabilities 141,253 104,113
--------- ----------
PARTNERS' CAPITAL
Limited Partners (2,780.964 and 3,099.179 Units, respec-
tively) 8,065,143 9,827,470
General Partner (100 Units) 290,013 317,099
--------- ----------
Total Partners' Capital 8,355,156 10,144,569
--------- ----------
Total Liabilities and Partners'
Capital 8,496,409 10,248,682
========= ==========
NET ASSET VALUE PER UNIT 2,900.13 3,170.99
========= ==========
The accompanying notes are an integral part of these financial statements.
Columbia Futures Fund
Statements of Operations
For the Years Ended
December 31,
------------------------------
1999 1998 1997
-------- --------- ---------
$ $ $
REVENUES
Trading Profit (Loss):
Realized (117,881) 1,758,602 2,224,474
Net change in unrealized (164,816) (112,647) 245,775
-------- --------- ---------
Total Trading Results (282,697) 1,645,955 2,470,249
Interest income (DWR) 354,492 382,511 357,496
-------- --------- ---------
Total Revenues 71,795 2,028,466 2,827,745
-------- --------- ---------
EXPENSES
Brokerage commissions (DWR) 385,530 311,716 341,945
Management fee 370,827 388,997 344,682
Administrative expenses 86,000 69,000 79,000
Transaction fees and costs 25,235 21,881 28,955
Incentive fee 187 133,964 251,113
-------- --------- ---------
Total Expenses 867,779 925,558 1,045,695
-------- --------- ---------
NET INCOME (LOSS) (795,984) 1,102,908 1,782,050
======== ========= =========
Net Income (Loss) Allocation:
Limited Partners (768,898) 1,068,900 1,729,865
General Partner (27,086) 34,008 52,185
Net Income (Loss) per Unit:
Limited Partners (270.86) 340.08 521.85
General Partner (270.86) 340.08 521.85
Statements of Changes in Partners' Capital
For the Years Ended December 31, 1999, 1998 and 1997
Units of
Partnership Limited General
Interest Partners Partner Total
----------- --------- ------- ----------
$ $ $
Partners' Capital,
December 31, 1996 3,612.282 8,110,079 230,906 8,340,985
Net income -- 1,729,865 52,185 1,782,050
Redemptions (270.236) (662,016) -- (662,016)
--------- --------- ------- ----------
Partners' Capital,
December 31, 1997 3,342.046 9,177,928 283,091 9,461,019
Net income -- 1,068,900 34,008 1,102,908
Redemptions (142.867) (419,358) -- (419,358)
--------- --------- ------- ----------
Partners' Capital,
December 31, 1998 3,199.179 9,827,470 317,099 10,144,569
Net loss -- (768,898) (27,086) (795,984)
Redemptions (318.215) (993,429) -- (993,429)
--------- --------- ------- ----------
Partners' Capital, December 31,
1999 2,880.964 8,065,143 290,013 8,355,156
========= ========= ======= ==========
The accompanying notes are an integral part of these financial statements.
Columbia Futures Fund
Statements of Cash Flows
For the Years Ended
December 31,
--------------------------------
1999 1998 1997
---------- --------- ---------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (795,984) 1,102,908 1,782,050
Noncash item included in net
income (loss):
Net change in unrealized 164,816 112,647 (245,775)
(Increase) decrease in operating
assets:
Interest receivable (DWR) (436) 3,868 (5,196)
Increase (decrease) in
operating liabilities:
Administrative expenses payable 7,219 (2,372) (10,786)
Accrued management fee (5,845) 1,705 3,782
Incentive fee payable -- (173,722) 23,619
Accrued brokerage commissions (DWR) -- -- (16,631)
Accrued transaction fees and
costs -- -- (1,324)
---------- --------- ---------
Net cash provided by (used for) operating
activities (630,230) 1,045,034 1,529,739
---------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase (decrease) in redemptions payable 35,766 1,700 (8,936)
Redemptions of Units (993,429) (419,358) (662,016)
---------- --------- ---------
Net cash used for financing
activities (957,663) (417,658) (670,952)
---------- --------- ---------
Net increase (decrease) in cash (1,587,893) 627,376 858,787
Balance at beginning of period 9,719,676 9,092,300 8,233,513
---------- --------- ---------
Balance at end of period 8,131,783 9,719,676 9,092,300
========== ========= =========
The accompanying notes are an integral part of these financial statements.
Columbia Futures Fund
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Organization--Columbia Futures Fund (the "Partnership") is a limited partner-
ship organized to engage primarily in the speculative trading of futures con-
tracts and forward contracts in foreign currencies, financial instruments and
other commodity interests (collectively, "futures interests").
The general partner is Demeter Management Corporation ("Demeter"). The non-
clearing commodity broker is Dean Witter Reynolds Inc. ("DWR") and an unaffili-
ated clearing commodity broker, Carr Futures Inc. ("Carr"), provides clearing
and execution services. Both Demeter and DWR are wholly-owned subsidiaries of
Morgan Stanley Dean Witter & Co. ("MSDW").
On May 31, 1997, Morgan Stanley Group Inc. was merged with and into Dean Wit-
ter, Discover & Co. ("DWD"). At that time DWD changed its corporate name to
Morgan Stanley, Dean Witter, Discover & Co. ("MSDWD"). Effective February 19,
1998, MSDWD changed its corporate name to Morgan Stanley Dean Witter & Co.
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by Demeter and the limited partners
based upon their proportional ownership interests.
Use of Estimates--The financial statements are prepared in accordance with gen-
erally accepted accounting principles, which require management to make esti-
mates and assumptions that affect the reported amounts in the financial state-
ments and related disclosures. Management believes that the estimates utilized
in the preparation of the financial statements are prudent and reasonable. Ac-
tual results could differ from those estimates.
Revenue Recognition--Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change
in unrealized gains and losses is reflected in the change in unrealized profits
(loss) on open contracts from one period to the next in the statements of oper-
ations. Monthly, DWR pays the Partnership interest income based upon 80% of its
average equity at a rate equal to the average yield on 13-week U.S. Treasury
bills. For purposes of such interest payments, Net Assets do not include monies
due the Partnership on futures interests, but not actually received.
Net Income (Loss) per Unit--Net income (loss) per unit of limited partnership
interest ("Unit(s)") is computed using the weighted average number of Units
outstanding during the period.
Columbia Futures Fund
Notes to Financial Statements--(Continued)
Equity in Futures Interests Trading Accounts--The Partnership's asset "Equity
in futures interests trading accounts," reflected in the statements of finan-
cial condition, consists of (A) cash on deposit with DWR and Carr to be used as
margin for trading and (B) net unrealized gains or losses on open contracts,
which are valued at market and calculated as the difference between original
contract value and market value.
The Partnership, in the normal course of business, enters into various con-
tracts with Carr acting as its commodity broker. Pursuant to brokerage agree-
ments with Carr, to the extent that such trading results in unrealized gains or
losses, the amounts are offset and reported on a net basis on the Partnership's
statements of financial condition.
The Partnership has offset the fair value amounts recognized for forward con-
tracts executed with the same counterparty as allowable under terms of the mas-
ter netting agreement with Carr, the sole counterparty on such contracts. The
Partnership has consistently applied its right to offset.
Brokerage Commissions and Related Transaction Fees and Costs--Brokerage commis-
sions are accrued at 80% of DWR's published non-member rates on a half-turn ba-
sis. Transaction fees and costs are accrued on a half-turn basis. Total broker-
age commissions and transaction fees combined are capped at 13/20 of 1% per
month (a maximum 7.8% annual rate) of the Partnership's Net Assets as of the
last day of each month.
Operating Expenses--The Partnership bears all operating expenses related to its
trading activities. These include filing fees, clerical, administrative, audit-
ing, accounting, mailing, printing, and other incidental operating expenses as
permitted by the Limited Partnership Agreement. In addition, the Partnership
incurs a monthly management fee and may incur an incentive fee. Demeter bears
all other operating expenses.
Income Taxes--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of the Partnership's revenues
and expenses for income tax purposes.
Distributions--Distributions, other than redemptions of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
Redemptions--Limited Partners may redeem their Units as of the end of any cal-
endar month upon ten days advance notice by redemption form to Demeter.
Dissolution of the Partnership--The Partnership will terminate on December 31,
2002 regardless of its finan-
Columbia Futures Fund
Notes to Financial Statements--(Continued)
cial condition at such time, or at an earlier date if certain conditions occur
as defined in the Limited Partnership Agreement.
2. Related Party Transactions
The Partnership pays brokerage commissions to DWR as described in Note 1. The
Partnership's cash is on deposit with DWR and Carr in futures interests trading
accounts to meet margin requirements as needed. DWR pays interest on these
funds as described in Note 1. For general administrative services performed for
the Partnership, Demeter receives a monthly administration fee which equals
$1.50 per limited partner outstanding. For the years ended December 31, 1999,
1998 and 1997 Demeter received $10,196, $11,241 and $11,979, respectively, for
such administrative services.
3. Trading Advisor
Demeter, on behalf of the Partnership, retains a commodity trading advisor to
make all trading decisions for the Partnership. Since January 22, 1988, John W.
Henry & Company, Inc. ("JWH") has served as the sole trading advisor.
Compensation to the trading advisor consists of a management fee and an incen-
tive fee as follows:
Management Fee--The management fee is accrued daily at the rate of 1/3 of 1%
per month (a 4% annual rate) of the Partnership's managed Net Assets at each
month-end.
Incentive Fee--At the end of each quarter or upon redemption of a Partnership
Unit, an incentive fee is assessed each Unit equal to 15 percent of the excess
("New Appreciation") of the Unit value, excluding interest earned during the
period, over the Unit value at the time immediately following the last incen-
tive payment. Such incentive fee is accrued in each month in which New Appreci-
ation occurs. In those months in which New Appreciation is negative, previous
accruals, if any, during each fiscal quarter will be reduced.
4. Financial Instruments
The Partnership trades futures contracts and forward contracts in foreign cur-
rencies, financial instruments and other commodity interests. Futures and for-
wards represent contracts for delayed delivery of an instrument at a specified
date and price. Risk arises from changes in the value of these contracts and
the potential inability of counterparties to perform under the terms of the
contracts. There are numerous factors which may significantly influence the
market value of these contracts, including interest rate volatility.
Columbia Futures Fund
Notes to Financial Statements--(Continued)
In June 1998, the Financial Accounting Standards Board ("FASB") issued State-
ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriva-
tive Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of SFAS No. 133," which defers the required implementation of SFAS No. 133
until fiscal years beginning after June 15, 2000. However, the Partnership had
previously elected to adopt the provisions of SFAS No. 133 beginning with the
fiscal year ended December 31, 1998. SFAS No. 133 supercedes SFAS No. 119 and
No. 105, which required the disclosure of average aggregate fair values and
contract/notional values, respectively, of derivative financial instruments for
an entity which carries its assets at fair value. The application of SFAS No.
133 does not have a significant effect on the Partnership's financial state-
ments.
The net unrealized gain on open contracts is reported as a component of "Equity
in futures interests trading accounts" on the statements of financial condition
and totaled $334,288 and $499,104 at December 31, 1999 and 1998, respectively.
Of the $334,288 net unrealized gain on open contracts at December 31, 1999,
$308,189 related to exchange-traded futures contracts and $26,099 related to
off-exchange-traded forward currency contracts.
Of the $499,104 net unrealized gain on open contracts at December 31, 1998,
$694,869 related to exchange-traded futures contracts and $(195,765) related to
off-exchange-traded forward currency contracts.
Exchange-traded futures contracts held by the Partnership at December 31, 1999
and 1998 mature through December 2000 and September 1999, respectively. Off-ex-
change-traded forward currency contracts held by the Partnership at December
31, 1999 and 1998 mature through March 2000 and March 1999, respectively.
The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is in-
volved is limited to the amounts reflected in the Partnership's statements of
financial condition.
The Partnership also has credit risk because DWR and Carr act as the futures
commission merchants or the counterparties, with respect to most of the Part-
nership's assets. Exchange-traded futures contracts are marked to market on a
daily basis, with variations in value settled on a daily basis. Each of DWR and
Carr, as a futures commission merchant for the Partnership's exchange-traded
futures contracts, is required pursuant to regulations of the Commodity Futures
Trading Commission to
Columbia Futures Fund
Notes to Financial Statements--(Continued)
segregate from their own assets, and for the sole benefit of their commodity
customers, all funds held by them with respect to exchange-traded futures con-
tracts, including an amount equal to the net unrealized gain on all open
futures contracts, which funds, in the aggregate, totaled $8,439,972 and
$10,414,545 at December 31, 1999 and 1998, respectively. With respect to the
Partnership's off-exchange-traded forward currency contracts, there are no dai-
ly settlements of variations in value nor is there any requirement that an
amount equal to the net unrealized gain on open forward contracts be segregat-
ed. With respect to those off-exchange-traded forward currency contracts, the
Partnership is at risk to the ability of Carr, the sole counterparty on all of
such contracts, to perform. The Partnership has a netting agreement with Carr.
This agreement, which seeks to reduce both the Partnership's and Carr's expo-
sure on off-exchange-traded forward currency contracts, should materially de-
crease the Partnership's credit risk in the event of Carr's bankruptcy or in-
solvency. Carr's parent, Credit Agricole Indosuez, has guaranteed to the Part-
nership payment of the net liquidating value of the Partnership's account with
Carr (including foreign currency contracts).
5. Legal Matters
The class actions first filed in 1996, in California and in New York State
courts were each dismissed in 1999. On September 6, 10, and 20, 1996, and on
March 13, 1997, purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all purchasers of in-
terests in limited partnership commodity pools sold by DWR. Named defendants
include DWR, Demeter, Dean Witter Futures & Currency Management Inc., MSDW,
certain limited partnership commodity pools of which Demeter is the general
partner (all such parties referred to hereafter as the "Morgan Stanley Dean
Witter Parties") and certain trading advisors to those pools. On June 16, 1997,
the plaintiffs in the above actions filed a consolidated amended complaint, al-
leging, among other things, that the defendants committed fraud, deceit, negli-
gent misrepresentation, various violations of the California Corporations Code,
intentional and negligent breach of fiduciary duty, fraudulent and unfair busi-
ness practices, unjust enrichment, and conversion in the sale and operation of
the various limited partnership commodity pools. The complaints seek unspeci-
fied amounts of compensatory and punitive damages and other relief. The court
entered an order denying class certification on August 24, 1999. On September
24, 1999, the court entered an order dismissing the case without prejudice on
consent. Similar purported class actions were also filed on September 18 and
20, 1996, in the Supreme Court of the State of New York, New York County, and
on November 14, 1996 in the
Columbia Futures Fund
Notes to Financial Statements--(Concluded)
Superior Court of the State of Delaware, New Castle County, against the Morgan
Stanley Dean Witter Parties and certain trading advisors on behalf of all pur-
chasers of interests in various limited partnership commodity pools sold by
DWR. A consolidated and amended complaint in the action pending in the Supreme
Court of the State of New York was filed on August 13, 1997, alleging that the
defendants committed fraud, breach of fiduciary duty, and negligent misrepre-
sentation in the sale and operation of the various limited partnership commodi-
ty pools. The complaints seek unspecified amounts of compensatory and punitive
damages and other relief. The New York Supreme Court dismissed the New York ac-
tion in November 1998, but granted plaintiffs leave to file an amended com-
plaint, which they did in early December 1998. The defendants filed a motion to
dismiss the amended complaint with prejudice on February 1, 1999. By decision
dated December 21, 1999, the New York Supreme Court dismissed the case with
prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily dis-
missed without prejudice.
6. Subsequent Event
On March 3, 2000, the plaintiffs in the New York action referred to in Note 5
filed an appeal of the order dismissing the consolidated complaint.
MORGAN STANLEY DEAN WITTER & CO.
Two World Trade Center
62nd Floor
New York, NY 10048
Presorted
First Class Mail
U.S. Postage Paid
Brooklyn, NY
Permit No. 148