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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, 2000 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: $7,950,928 at January 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
COLUMBIA FUTURES FUND
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2000
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . .
. . . . 1
Part I .
Item 1. Business.
. . . . . . . . . . . . . . . . . . . . . . . 2-3
Item 2. Properties. . .
. . . . . . . . . . . . . . . . . . . . . 3
Item 3. Legal
Proceedings. . . . . . . . . . . . . . . . . . . 4-5
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. . . . . . . . . .
.8-19
Item 7A. Quantitative
and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . .
.19-33
Item 8. Financial
Statements and Supplementary Data. . . . . . . .34
Item 9. Changes in
and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . ..
. 34
Part III.
Item 10. Directors
and Executive Officers of the Registrant. .35-39
Item 11. Executive
Compensation . . . . . . . . . . . . . . . . . .39
Item 12. Security
Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . .
. .40
Item 13. Certain
Relationships and Related Transactions . . . . . .40
Part IV.
Item 14. Exhibits,
Financial Statement Schedules, and
Reports on Form
8-K . . . . . . . . . . . . . . . . . . .41
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, 2000 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.
The general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter
Reynolds, Inc. ("DWR"). The clearing commodity brokers are
Morgan Stanley & Co. Inc. ("MS & Co.") and Morgan Stanley & Co.
International Limited ("MSIL") which provide clearing and
execution services. Prior to May 2000, Carr Futures Inc.
provided clearing and execution services to the Partnership.
Demeter, DWR, MS & Co. and MSIL 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, 2000 was $3,163.59,
representing an increase of 9.1 percent from the net asset value
per Unit of $2,900.13 at December 31, 1999. For a more detailed
description of the Partnership's business, see subparagraph (c).
(b) Financial Information about Segments. For financial
information reporting purposes, the Partnership is deemed to
engage in one industry segment, the speculative trading of
futures and forwards. 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 and forwards, pursuant
to trading instructions provided by the Trading Advisor.
(d) Financial Information about Geographic Areas.
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 and
forwards 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
Similar class actions were filed in 1996 in California and New
York State courts. Each of these actions were dismissed in 1999.
However, the New York State class action discussed below is still
pending because plaintiffs appealed the trial court's dismissal
of their case on March 3, 2000.
On September 18 and 20, 1996, purported class actions were filed
in the Supreme Court of the State of New York, New York County,
on behalf of all purchasers of interests in limited partnership
commodity pools sold by DWR. Named defendants include DWR,
Demeter, MSDW, certain limited partnership commodity pools of
which Demeter is the general partner and certain trading advisors
to those pools. 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 sought 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. However,
on March 3, 2000, plaintiffs appealed the trial court's dismissal
of their case.
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, 2000 was
approximately 515.
(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,
2000 1999 1998 1997
1996 .
Total Revenues
(including interest) 1,479,080 71,795 2,028,466 2,827,7452
,295,489
Net Income (Loss) 706,618 (795,984)1,102,9081,782,050 1,340,938
Net Income (Loss)
Per Unit (Limited
& General Partners) 263.46 (270.86) 340.08 521.85370.17
Total Assets 8,605,694 8,496,40910,248,6829,737,8218,628,063
Total Limited Partners'
Capital 8,187,878 8,065,143 9,827,470 9,177,9288
,110,079
Net Asset Value Per
Unit 3,163.59 2,900.13 3,170.99 2,830.91 2
,309.06
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 MS & Co. and MSIL as clearing brokers in
separate futures and forwards 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 and forwards 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 and forwards markets. The following presents a summary
of the Partnership's operations for the three years ended
December 31, 2000 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, 2000, the Partnership's total capital was
$8,504,237, an increase of $149,081 from the Partnership's total
capital of $8,355,156 at December 31, 1999. For the year ended
December 31, 2000, the Partnership generated net income of
$706,618 and total redemptions aggregated $557,537.
For the year ended December 31, 2000, the Partnership recorded
total trading revenues, including interest income, of $1,479,080
and posted an increase in net asset value. Overall, three major
themes developed during the year; the rise in energy, the decline
and revival of the euro, and the bond rally caused by
expectations of the central banks easing in the face of an
economic slowdown. All were interrelated and display how
different trends will feed on each other to create continual or
rotating opportunities across sectors. Currencies were the
primary driver of performance, with gains of approximately 5.2%
in year to date performance, for the Partnership. Currencies
benefited from the strong trend in the euro, but the
deterioration of the yen during the last two months from the
economic problems in Japan was a key boost to this sector.
Additionally, the Partnership captured the current strengthening
of the euro because of the relatively higher growth versus the
U.S. Global stock indices benefited, with gains of approximately
4.7% in year to date performance, primarily from short futures
positions in the NASDAQ Index. Energy futures were profitable,
with profits of approximately 3.1% recorded for the year, as the
price rise in crude oil was due to a shortage of production to
meet the unexpected high demand around the world. The demand
side of the equation has been the main driver of price. Metals,
interest rates and agricultural commodity
futures ended the year unprofitable. Total expenses for the year
were $772,462, resulting in net income of $706,618. The net
asset value of a Unit increased from $2,900.13 at December 31,
1999 to $3,163.59 at December 31, 2000.
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, after expenses, 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 net asset 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 net asset value of a
Unit increased from $2,830.91 at December 31, 1997 to $3,170.99
at December 31, 1998.
The Partnership's overall performance record represents varied
results of trading in different futures and forwards markets.
For a further description of 2000 trading results, refer to the
letter to the Limited Partners in the accompanying Annual Report
to Limited Partners for the year ended December 31, 2000, 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 and forwards 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 moved against all of the positions held by the
Partnership at the same time, and if the Trading Advisor was
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 and forwards
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
and forwards 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, with respect to forward contract trading, the Partnership
trades with only those counterparties which Demeter, together
with DWR, have determined to be creditworthy. The Partnership
presently deals with MS & Co. as the sole counterparty on 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, 2000, which is incorporated by reference
to Exhibit 13.01 of this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction
The Partnership is a commodity pool involved in the speculative
trading of futures and forwards. 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 and forwards traded by the Partnership involve
varying degrees of related 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 and forwards 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 table 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, 2000 and 1999.
As of December 31, 2000 and 1999, the Partnership's total
capitalization was approximately $9 million and $8 million,
respectively.
Primary Market December 31, 2000 December 31, 1999
Risk Category Value at Risk Value at Risk
Currency (2.44)% (1.51)%
Interest Rate (1.02) (0.58)
Equity (0.62) (0.28)
Commodity (0.75) (0.50)
Aggregate Value at Risk (3.05)% (1.64)%
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, 2000 and 1999 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 and forwards,
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 December 31, 2000 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, 2000 through December 31, 2000.
Primary Market Risk Category High Low Average
Currency (2.92)% (1.82)% (2.46)%
Interest Rate (1.19) (0.99) (1.05)
Equity (0.88) (0.49) (0.69)
Commodity (0.95) (0.75) (0.84)
Aggregate Value at Risk (3.40)% (2.57)% (2.95)%
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
usually 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, give
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, 2000 and 1999, and for the end of
the four quarterly reporting periods during calendar year 2000.
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 once 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. At December 31, 2000, the
Partnership's cash balance at DWR was approximately 90% of its
total net asset value. 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 to be 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, 2000, 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, 2000 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. For the fourth quarter of 2000, 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 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 at December
31, 2000 was in the global interest rate complex. Exposure was
primarily spread across the Japanese, U.S., and German 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 may materially
impact the Partnership's profitability. The Partner-ship'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 at December
31, 2000 was 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. At December 31, 2000, the
Partnership's primary exposures were to the NASDAQ (U.S.), DAX
(Germany), and All Ordinaries (Australia) stock indices. The
Partnership is primarily exposed to the risk of adverse price
trends or static markets in the G-7 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.
Energy. At December 31, 2000, the Partnership's energy exposure
was shared primarily by futures contracts 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. It is possible that volatility
will remain high and that significant profits and losses, which
have been experienced in the past, are expected to continue to be
experienced in this market.
Soft Commodities and Agriculturals. At December 31, 2000, the
Partnership had exposure in the markets that comprise these
sectors. Most of the exposure, however, was to the sugar, corn,
and cotton markets. Supply and demand inequalities, severe
weather disruption, and market expectations affect price
movements in these markets.
Metals. The Partnership's primary metals market exposure was 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 to precious metals, such as gold and silver.
Market exposure to precious metals was evident, as gold prices
continued to be volatile during the quarter. Silver prices
remained volatile over this period as well. The Trading Advisor
has, from time to time, taken positions when market opportunities
developed.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the
Partnership at December 31, 2000:
Foreign Currency Balances. The Partnership's primary
foreign currency balances at December 31, 2000 were in
euros, Australian dollars, and Canadian dollars. The
Partnership controls the non-trading risk of these balances
by regularly converting these balances back into U.S.
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:
Summary of Quarterly Results (Unaudited)
Net
Income/
(Loss) Per
Quarter Net Unit of Limited
Ended Revenue Income/(Loss)
Partnership Interest
2000
March 31 $ 111,738 $ (103,025) $
(37.65)
June 30 (164,709) (356,282) (129.24)
September 30 (178,632) (360,270) (131.15)
December 31 1,710,683 1,526,195
561.50
Total $ 1,479,080 $ 706,618 $
263.46
1999
March 31 $ 145,616 $ (66,404) $
(20.15)
June 30 389,934 171,778 56.28
September 30 (148,651) (378,475) (127.52)
December 31 (315,104) (522,883) (179.47)
Total $ 71,795 $ (795,984)
$(270.86)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNT-
ING 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 40, is Chairman of the Board, President and
a Director of Demeter. Mr. Murray is also Chairman of the Board,
President and a Director of Dean Witter Futures & Currency
Management Inc. ("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 previously served 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 47, 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 55, 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 59, 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.
Richard A. Beech, age 49, 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.
Raymond A. Harris, age 44, 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.
Anthony J. DeLuca, age 38, became a Director of Demeter on
September 14, 2000. Mr. DeLuca is also a Director of DWFCM. Mr.
DeLuca was appointed the Controller of Asset Management for MSDW
in June 1999. Prior to that, Mr. DeLuca was a partner at the
accounting firm of Ernst & Young LLP, where he had MSDW as a
major client. Mr. DeLuca had worked continuously at Ernst &
Young LLP ever since 1984, after he graduated from Pace
University with a B.B.A. degree in Accounting.
Raymond E. Koch, age 45, is Chief Financial Officer of Demeter.
Effective July 10, 2000, Mr. Koch replaced Mr. Raibley as Chief
Financial Officer of Demeter. Mr. Koch began his career at MSDW
in 1988, has overseen the Managed Futures Accounting function
since 1992, and is currently First Vice President, Director of
Managed Futures and Realty Accounting. From November 1979 to
June 1988, Mr. Koch held various positions at Thomson McKinnon
Securities, Inc. culminating as Manager, Special Projects in the
Capital Markets Division. From August 1977 to November 1979 he
was an auditor, specializing in financial services at Deloitte
Haskins and Sells. Mr. Koch received his B.B.A. in accounting
from Iona College in 1977, an M.B.A. in finance from Pace
University in 1984 and is a Certified Public Accountant.
Lewis A. Raibley, III, age 38, served as Vice President, Chief
Financial Officer, and a Director of Demeter and DWFCM until his
resignation from MSDW on July 1, 2000.
All of 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, 2000 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, 2000,
Demeter owned 100 Units of General Partnership Interest
representing a 3.7 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, 2000, 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 $368,419 for the year ended December 31, 2000.
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, 2000, 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, 2000, 1999 and 1998.
- - Statements of Financial Condition as of December 31, 2000
and 1999.
- - Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 2000, 1999 and 1998.
- - 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, 2000 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 30, 2001 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 30,
2001
Robert E. Murray, Director,
Chairman of the Board and
President
/s/ Mitchell M. Merin March 30,
2001
Mitchell M. Merin, Director
/s/ Joseph G. Siniscalchi March 30,
2001
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 30,
2001
Edward C. Oelsner III, Director
/s/ Richard A. Beech March 30,
2001
Richard A. Beech, Director
/s/ Raymond A. Harris March 30,
2001
Raymond A. Harris, Director
/s/ Anthony J. DeLuca March
30, 2001
Anthony J. DeLuca, Director
/s/ Raymond E. Koch March
30, 2001
Raymond E. Koch, Chief
Financial Officer and Principal
Accounting Officer
EXHIBIT INDEX
Item
3.01 Amendment to Limited Partnership Agreement of Columbia
Futures Fund, dated as of February 14, 1985 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.
10.01 Advisory Agreement among the Partnership, Demeter
and JWH dated as of January 20, 1987
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.
10.03Amended and Restated Customer Agreement, dated as of
December 1, 1997, between the Partnership and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.03
of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, File no. 0-12431.
10.04 Customer Agreement, dated as of December 1, 1997,
among the Partnership, Carr Futures, Inc., and Dean Witter
Reynolds Inc. is incorporated by reference to Exhibit 10.04
of the Partnership's quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, File No. 0-12431.
10.05 International Foreign Exchange Master Agreement,
dated as of August 1, 1997, between the Partnership and Carr
Futures, Inc. is incorporated by reference to Exhibit 10.05
of the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, File No. 0-12431.
10.06 Customer Agreement, dated as of May 1, 2000,
between Morgan Stanley & Co. Incorporated, the Partnership
and Dean Witter Reynolds Inc. is incorporated by reference
to Exhibit 10.06 of the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000, (File No. 0-
12431).
10.07 Foreign Exchange and Options Master Agreement,
dated as of April 30, 2000, between the Partnership and
Morgan Stanley & Co. Inc. is incorporated by reference to
Exhibit 10.07 of the Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, (File No. 0-
12431).
10.08 Amendment No. 3 to Advisory Agreement between
Columbia Futures Fund and John W. Henry & Company, Inc.,
dated November 30, 2000, is incorporated by reference to the
Partnership's Form 8-K, filed with the Securities and
Exchange Commission on January 3, 2001.
13.01 December
31, 2000 Annual Report to Limited Partners is filed
herewith.
Columbia
Futures
Fund
December 31, 2000
Annual Report
MORGAN STANLEY DEAN WITTER
Columbia Futures Fund
Historical Fund Performance
Presented below is the percentage change in Net Asset Value per Unit from the
start of each calendar year the Fund has traded. Also provided is the incep-
tion-to-date return and the annualized return since inception for the Fund.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Return
---- ------
1983 (5 1/2 months) -18.3%
1984 -23.0%
1985 6.0%
1986 -23.0%
1987 48.9%
1988 0.1%
1989 3.8%
1990 58.1%
1991 11.7%
1992 2.0%
1993 14.4%
1994 -5.7%
1995 28.2%
1996 19.1%
1997 22.6%
1998 12.0%
1999 -8.5%
2000 9.1%
Inception-to-Date Return: 222.8%
Annualized Return: 6.9%
Demeter Management Corporation
Two World Trade Center 62nd Floor
New York, NY 10048 Telephone (212) 392-8899
Columbia Futures Fund
Annual Report
2000
Dear Limited Partner:
This marks the eighteenth annual report for the Columbia Futures Fund (the
"Fund"). This is the sixteenth report filed by Demeter Management Corporation,
the Fund's General Partner since February 1985. The Fund began the year trad-
ing at a Net Asset Value per Unit of $2,900.13 and increased by 9.1% to
$3,163.59 on December 31, 2000. Since Demeter took over as General Partner,
the Fund has increased by 397.6% (a compound annualized return of 10.7%). A
review of trading results for the year is provided in the Annual Report of the
Trading Manager located on the next page of this report.
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
Annual Report of the Trading Manager
Overall, three major themes developed during the year; the rise in energy, the
decline and revival of the euro, and the bond rally caused by expectations of
the central banks easing in the face of an economic slowdown. All were inter-
related and display how different trends will feed on each other to create
continual or rotating opportunities across sectors. Currencies were the prima-
ry driver of performance for the Fund. Currencies benefited from the strong
trend in the euro, but the deterioration of the yen during the last two months
from the economic problems in Japan was a key boost to this sector. Addition-
ally, the Fund captured the current strengthening of the euro because of the
relatively higher growth versus the U.S. global stock indices, benefited from
short futures positions in the NASDAQ Index as it ended the year down 39.3%.
Energy futures were profitable as the price rise in crude oil was not a tradi-
tional supply shock as much as a shortage of production to meet the unexpected
high demand around the world. The high demand, especially in the U.S., precip-
itated a price spike which now has started to affect overall economic produc-
tion and consumer behavior around the world. OPEC potentially can increase
production to meet most demand, but currently it is expected to drop produc-
tion in order to stabilize price. The demand side of the equation has been the
main driver of price. Metals, interest rates and agricultural commodity
futures trading ended the year unprofitable.
John W. Henry & Co., Inc.
Note: Investors are cautioned that past results are not necessarily indicative
of future results.
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, 2000 and 1999 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, 2000. These fi-
nancial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally ac-
cepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits pro-
vide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Columbia Futures Fund at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
February 16, 2001
Columbia Futures Fund
Statements of Financial Condition
December 31,
-------------------
2000 1999
--------- ---------
$ $
ASSETS
Equity in futures interests trading accounts:
Cash 7,719,952 8,131,783
Net unrealized gain on open contracts (MS&Co.) 852,352 --
Net unrealized gain on open contracts (MSIL) 750 --
Net unrealized gain on open contracts (Carr) -- 334,288
--------- ---------
Total net unrealized gain on open
contracts 853,102 334,288
--------- ---------
Total Trading Equity 8,573,054 8,466,071
Interest receivable (DWR) 32,640 30,338
--------- ---------
Total Assets 8,605,694 8,496,409
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Administrative expenses payable 65,078 61,609
Redemptions payable 22,145 51,621
Accrued management fees 14,234 28,023
--------- ---------
Total Liabilities 101,457 141,253
--------- ---------
PARTNERS' CAPITAL
Limited Partners (2,588.159 and 2,780.964 Units, respec-
tively) 8,187,878 8,065,143
General Partner (100 Units) 316,359 290,013
--------- ---------
Total Partners' Capital 8,504,237 8,355,156
--------- ---------
Total Liabilities and
Partners' Capital 8,605,694 8,496,409
========= =========
NET ASSET VALUE PER UNIT 3,163.59 2,900.13
========= =========
The accompanying notes are an integral part of these financial statements.
Columbia Futures Fund
Statements of Operations
For the Years Ended
December 31,
-----------------------------
2000 1999 1998
--------- -------- ---------
$ $ $
REVENUES
Trading profit (loss):
Realized 582,252 (117,881) 1,758,602
Net change in unrealized 518,814 (164,816) (112,647)
--------- -------- ---------
Total Trading Results 1,101,066 (282,697) 1,645,955
Interest income (DWR) 378,014 354,492 382,511
--------- -------- ---------
Total Revenues 1,479,080 71,795 2,028,466
--------- -------- ---------
EXPENSES
Brokerage commissions (DWR) 368,419 385,530 311,716
Management fees 303,037 370,827 388,997
Administrative expenses 81,000 86,000 69,000
Transaction fees and costs 20,006 25,235 21,881
Incentive fees -- 187 133,964
--------- -------- ---------
Total Expenses 772,462 867,779 925,558
--------- -------- ---------
NET INCOME (LOSS) 706,618 (795,984) 1,102,908
========= ======== =========
Net Income (Loss)
Allocation:
Limited Partners 680,272 (768,898) 1,068,900
General Partner 26,346 (27,086) 34,008
Net Income (Loss) per Unit:
Limited Partners 263.46 (270.86) 340.08
General Partner 263.46 (270.86) 340.08
Statements of Changes in Partners' Capital
For the Years Ended December 31, 2000, 1999 and 1998
Units of
Partnership Limited General
Interest Partners Partner Total
----------- --------- ------- ----------
$ $ $
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
Net income -- 680,272 26,346 706,618
Redemptions (192.805) (557,537) -- (557,537)
--------- --------- ------- ----------
Partners' Capital,
December 31, 2000 2,688.159 8,187,878 316,359 8,504,237
========= ========= ======= ==========
The accompanying notes are an integral part of these financial statements.
Columbia Futures Fund
Statements of Cash Flows
For the Years Ended
December 31,
--------------------------------
2000 1999 1998
--------- ---------- ---------
$ $ $
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) 706,618 (795,984) 1,102,908
Noncash item included in net
income (loss):
Net change in unrealized (518,814) 164,816 112,647
(Increase) decrease in operating
assets:
Interest receivable (DWR) (2,302) (436) 3,868
Increase (decrease) in operating
liabilities:
Administrative expenses payable 3,469 7,219 (2,372)
Accrued management fees (13,789) (5,845) 1,705
Incentive fees payable -- -- (173,722)
--------- ---------- ---------
Net cash provided by (used for) operating
activities 175,182 (630,230) 1,045,034
--------- ---------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase (decrease) in
redemptions payable (29,476) 35,766 1,700
Redemptions of Units (557,537) (993,429) (419,358)
--------- ---------- ---------
Net cash used for financing
activities (587,013) (957,663) (417,658)
--------- ---------- ---------
Net increase (decrease) in cash (411,831) (1,587,893) 627,376
Balance at beginning of period 8,131,783 9,719,676 9,092,300
--------- ---------- ---------
Balance at end of period 7,719,952 8,131,783 9,719,676
========= ========== =========
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"). Morgan Stanley
& Co., Inc. ("MS&Co.") and Morgan Stanley & Co. International Limited ("MSIL")
provide clearing and execution services. Prior to May 2000, Carr Futures Inc.
("Carr") provided clearing and execution services to the Partnership. Demeter,
DWR, MS&Co. and MSIL are wholly-owned subsidiaries of Morgan Stanley Dean Wit-
ter & Co. ("MSDW").
Effective February 19, 1998, Morgan Stanley, Dean Witter, Discover & Co.
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 ac-
counting principles generally accepted in the United States of America, which
require management to make estimates and assumptions that affect the reported
amounts in the financial statements and related disclosures. Management be-
lieves that the estimates utilized in the preparation of the financial state-
ments are prudent and reasonable. Actual 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 profit
(loss) on open contracts from one period to the next in the statements of op-
erations. 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. Treas-
ury 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, MS&Co. and MSIL 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 MS&Co. and MSIL acting as its commodity brokers. Pursuant to bro-
kerage agreements with MS&Co. and MSIL, to the extent that such trading re-
sults 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
master netting agreement with MS&Co., the sole counterparty on such contracts.
The Partnership has consistently applied its right to offset.
Brokerage Commissions and Related Transaction Fees and Costs--Brokerage com-
missions are accrued at 80% of DWR's published non-member rates on a half-turn
basis. Transaction fees and costs are accrued on a half-turn basis. Total bro-
kerage 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,
auditing, accounting, mailing, printing, and other incidental operating ex-
penses 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.
Columbia Futures Fund
Notes to Financial Statements--(Continued)
Dissolution of the Partnership--The Partnership will terminate on December 31,
2002 regardless of its financial 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, MS&Co., and MSIL in futures inter-
ests 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 Decem-
ber 31, 2000, 1999 and 1998, Demeter received $9,211, $10,196 and $11,241, re-
spectively, 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--Since December 1, 2000, the management fee is accrued daily at
the rate of 1/6 of 1% per month (a 2% annual rate) of the Partnership's man-
aged Net Assets at each month-end. Prior to December 1, 2000, the management
fee was 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--Effective December 1, 2000, at the end of each quarter or upon
redemption of a Partnership Unit, an incentive fee is paid on each Unit equal
to 20% of the excess ("New Appreciation") of the Unit value, excluding inter-
est earned during the period, over the Unit value at the time immediately fol-
lowing the last incentive payment. Prior to December 1, 2000, incentive fee
was assessed each Unit equal to 15% of the excess. Such incentive fee is ac-
crued in each month in which New Appreciation occurs. In those months in which
New Appreciation is negative, previous accruals (on Units currently outstand-
ing), if any, during each fiscal quarter will be reduced.
Columbia Futures Fund
Notes to Financial Statements--(Continued)
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.
In June 1998, the Financial Accounting Standards Board ("FASB") issued State-
ment of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Deriv-
ative Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 2000, as amended by SFAS No. 137. The Partnership adopted the
provisions of SFAS No. 133 beginning with the fiscal year ended December 31,
1998. SFAS No. 133 superceded SFAS Nos. 119 and 105, which required the dis-
closure of average aggregate fair values and contractual/notional values, re-
spectively, of derivative financial instruments for an entity that carries its
assets at fair value. SFAS No. 133 was further amended by SFAS No. 138, which
clarifies issues surrounding interest rate risk, foreign currency denomina-
tions, normal purchases and sales and net hedging. The application of SFAS No.
133, as amended by SFAS No. 137 and SFAS No. 138, did not have a significant
effect on the Partnership's financial statements.
SFAS No. 133 defines a derivative as a financial instrument or other contract
that has all three of the following characteristics:
1) One or more underlying notional amounts or payment provisions;
2) Requires no initial net investment or a smaller initial net investment
than would be required relative to changes in market factors;
3) Terms require or permit net settlement.
Generally derivatives include futures, forwards, swaps or option contracts, or
other financial instruments with similar characteristics such as caps, floors
and collars.
The net unrealized gain on open contracts is reported as a component of "Equi-
ty in futures interests trading accounts" on the statements of financial con-
dition and totaled $853,102 and $334,288 at December 31, 2000 and 1999, re-
spectively.
Columbia Futures Fund
Notes to Financial Statements--(Continued)
Of the $853,102 net unrealized gain on open contracts at December 31, 2000,
$635,392 related to exchange-traded futures contracts and $217,710 related to
off-exchange-traded forward currency contracts.
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.
Exchange-traded futures contracts held by the Partnership at December 31, 2000
and 1999 mature through December 2001 and December 2000, respectively. Off-ex-
change-traded forward currency contracts held by the Partnership at December
31, 2000 and 1999 mature through March 2001 and March 2000, respectively.
The Partnership has credit risk associated with counterparty nonperformance.
The credit risk associated with the instruments in which the Partnership is
involved is limited to the amounts reflected in the Partnership's statements
of financial condition.
The Partnership also has credit risk because DWR, MS&Co., and MSIL act as the
futures commission merchants or the counterparties with respect to most of the
Partnership's assets. Exchange-traded futures contracts are marked to market
on a daily basis, with variations in value settled on a daily basis. DWR,
MS&Co. and MSIL, each as a futures commission merchant for the Partnership's
exchange-traded futures contracts, are required, pursuant to regulations of
the Commodity Futures Trading Commission to 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 contracts, including an amount equal
to the net unrealized gain on all open futures contracts, which funds, in the
aggregate, totaled $8,355,344 and $8,439,972 at December 31, 2000 and 1999,
respectively. With respect to the Partnership's off-exchange-traded forward
currency contracts, there are no daily settlements of variations in value nor
is there any requirement that an amount equal to the net unrealized gain on
open forward contracts be segregated. With respect to those off-exchange-
traded forward currency contracts, the Partnership is at risk to the ability
of MS&Co., the sole counterparty on all of such contracts, to perform. The
Partnership has a netting agreement with MS&Co. This agreement, which seeks to
reduce both the Partnership's and MS&Co.'s exposure on off-exchange-traded
forward currency contracts, should materially decrease the Partnership's
credit risk in the event of MS&Co.'s bankruptcy or insolvency.
Columbia Futures Fund
Notes to Financial Statements--(Concluded)
5. Legal Matters
Similar class actions were filed in 1996 in California and New York state
courts. Each of the actions were dismissed in 1999. However, the New York
state class action discussed below is still pending because plaintiffs ap-
pealed the final court's dismissal of their case on March 3, 2000.
On September 18 and 20, 1996, purported class actions were filed in the
Supreme Court of the State of New York, New York County, 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., MSDW, certain limited partnership commodity pools of which
Demeter is the general partner and certain trading advisors to those pools. 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 sought 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. However, on March 3, 2000, plaintiffs appealed the trial
court's dismissal of their case.
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. 529