UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2003
Commission File Number 0-16627
SHEARSON SELECT ADVISORS FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3405705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Citigroup Managed Futures LLC
399 Park Avenue. - 7th Fl.
New York, New York 10022
(Address and Zip Code of principal executive offices)
(212) 559-2011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Redeemable 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 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 to this
form 10-K [X]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----
Limited Partnership Redeemable Units with an aggregate value of $4,440,822 were
outstanding and held by non-affiliates as of the last business day of the
registrants most recently completed second fiscal quarter.
As of February 29, 2004, 1,108 Limited Partnership Redeemable Units were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART 1
Item 1. Business.
(a) General development of business. Shearson Select Advisors Futures Fund
L.P. (the "Partnership") is a limited partnership organized on February 10, 1987
under the partnership laws of the State of Delaware. The Partnership engages in
speculative trading of commodity interests, including forward contracts on
foreign currencies, commodity options and commodity futures contracts including
futures contracts on United States Treasuries and certain other financial
instruments and foreign currencies. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell 50,000 redeemable units of Limited
Partnership Interest ("Redeemable Units"). The Partnership commenced trading on
July 1, 1987. Redemptions for the years ended December 31, 2003, 2002 and 2001
are reported in the Statements of Partners' Capital on page F-9 under "Item 8.
Financial Statements and Supplementary Data."
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2007; a decline in net asset value per Redeemable Unit
on any business day after trading to less than $350 per unit; a decline in net
assets after trading commences to less than $1,000,000; or under certain other
circumstances as defined in the limited partnership agreement (the "Limited
Partnership Agreement").
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the general partner (the "General Partner") of the Partnership. The
Partnership's commodity broker is Citigroup Global Markets Inc. ("CGM"),
formerly Salomon Smith Barney Inc. CGM is an affiliate of the General Partner.
The General Partner is wholly owned by Citigroup Global Markets Holding Inc.
("CGMHI"), formerly Salomon Smith Barney Holdings Inc., which is the sole owner
of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc. ("Citigroup")
The Partnership's trading of futures, forwards and options contracts, if
applicable, on commodities is done primarily on United States of America
commodities exchanges and may, to a lesser extent, be done on some foreign
commodity exchanges. It engages in such trading through a commodity brokerage
account maintained with CGM.
Under the limited partnership agreement of the Partnership (the "Limited
Partnership Agreement"), the General Partner has sole responsibility for the
administration of the business and affairs of the Partnership, but may delegate
trading discretion to one or more trading advisors. The Partnership is obligated
to pay the General Partner an incentive fee payable quarterly equal to 5% of New
Trading Profits of the Partnership.
The General Partner has entered into a management agreement (the
"Management Agreement") with John W. Henry & Company, Inc. ("JWH" or the
"Advisor"). The Advisor is not affiliated with the General Partner or CGM. The
Advisor is not responsible for the organization or operation of the Partnership.
Reference should be made to "Item 8. Financial Statements and Supplementary
Data." for further information regarding the Advisor included in the Notes to
Financial Statements.
The Management Agreement requires the Partnership to pay the Advisor a
monthly management fee of 1/3 of 1% (4% per year) of month-end Net Assets
managed by the Advisor. Month-end Net Assets for the purpose of calculating
management fees are Net Assets, as defined in the Limited Partnership Agreement,
prior to the reduction of redemptions and incentive fees. In addition, the
Partnership is obligated to pay an incentive fee equal to 10% of the New Trading
Profits (as defined in the Management Agreement) earned on the Net Assets
managed by the Advisor during each quarter.
Pursuant to the terms of the customer agreement entered into with CGM (the
"Customer Agreement"), the Partnership is obligated to pay a monthly commodity
brokerage fee. Effective January 1, 1997, the Partnership pays CGM a monthly
brokerage fee equal to .5% of month end net assets (6% per year) in lieu of
brokerage commissions on a per trade basis. Month-end Net Assets for the purpose
of calculating commissions are Net Assets, as defined in the Limited Partnership
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Agreement, prior to the reduction of accrued expenses and redemptions payable.
The Partnership will pay for clearing fees, but not for floor brokerage which
will be borne by CGM. Reference should be made to "Item 8. Financial Statements
and Supplementary Data." for further information regarding the brokerage
commissions included in the Notes to Financial Statements.
In addition, CGM pays the Partnership interest on 70% of the average daily
equity maintained in cash in its accounts during each month at the rate of the
average non-competitive yield of the 13-week U.S. Treasury Bills as determined
at the weekly auctions thereof during the month. The Customer Agreement between
the Partnership and CGM gives the Partnership the legal right to net unrealized
gains and losses. The Customer Agreement may be terminated upon notice by either
party.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests, including forward contracts on foreign currencies, commodity options
and commodity futures contracts (including futures contracts on U.S. Treasuries
and other financial instruments, foreign currencies and stock indices). The
Partnership does not engage in sales of goods or services. The Partnership's net
income (loss) from operations for the years ended December 31, 2003, 2002, 2001,
2000 and 1999 are set forth under "Item 6. Selected Financial Data." The
Partnership's capital as of December 31, 2003 was $4,493,233.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership does not
engage in sales of goods or services or own any long lived assets, and therefore
this item is not applicable.
(e) Available Information. The Partnership does not have an Internet
address. The Partnership will provide paper copies of its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to these reports free of charge upon request.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner
operates out of facilities provided by its affiliate, CGM.
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Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which CGMHI or its
subsidiaries is a party or to which any of their property is subject. There are
no material legal proceedings pending against the Partnership or the General
Partner.
CGM is a New York corporation with its principal place of business at 388
Greenwich Street, New York, New York 10013. CGM is registered as a broker-dealer
and futures commission merchant ("FCM"), and provides futures brokerage and
clearing services for institutional and retail participants in the futures
markets. CGM and its affiliates also provide investment banking and other
financial services for clients worldwide.
There have been no administrative, civil or criminal actions pending, on
appeal or concluded against CGM or any of its individual principals within the
past five years that management believes may have a material impact on CGM's
ability to act as an FCM. In the ordinary course of its business, CGM is a party
to various claims and regulatory inquiries.
Settlement of Certain Legal and Regulatory Matters
On April 28, 2003, CGM announced final agreements with the SEC, the
National Association of Securities Dealers ("NASD"), the New York Stock Exchange
("NYSE") and the New York Attorney General to resolve on a civil basis all of
their outstanding investigations into its research and IPO allocation and
distribution practices (the "Research Settlement"). To effectuate the Research
Settlement, the SEC filed a Complaint and Final Judgment in the United States
District Court for the Southern District of New York. On October 31, 2003, final
judgment was entered against CGM and nine other investment banks. The NASD has
accepted the Letter of Acceptance, Waiver and Consent entered into with CGM in
connection with the Research Settlement. In May 2003, the NYSE advised CGMI that
the Hearing Panel's Decision, in which it accepted the Research Settlement, had
become final. As required by the Research Settlement, CGMI has entered into
separate settlement agreements with 48 states and various U.S. territories and
is in settlement negotiations with the remaining 2 states.
Enron Corp.
In April 2002, Citigroup was named as a defendant along with, among others,
commercial and/or investment banks, certain current and former Enron officers
and directors, lawyers and accountants in a putative consolidated class action
complaint that was filed in the United States District Court for the Southern
District of Texas seeking unspecified damages. The action, brought on behalf of
individuals who purchased Enron securities (NEWBY, ET AL. V. ENRON CORP., ET
AL.), alleges violations of Sections 11 and 15 of the Securities Act of 1933, as
amended, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended. Citigroup's motion to dismiss the complaint was denied in December
2002, and Citigroup filed an answer in January 2003. In May 2003, plaintiffs
filed an amended consolidated class action complaint, and Citigroup filed a
motion to dismiss in June 2003. Plaintiffs filed a motion for class
certification in May 2003. Discovery is proceeding pending the Court's decision
on class certification.
Additional actions have been filed against Citigroup and certain of its
affiliates, including CGM, along with other parties, including (i) actions
brought by a number of pension and benefit plans, investment funds, mutual
funds, and other individual and institutional investors in connection with the
purchase of Enron and Enron-related equity and debt securities, alleging
violations of various state and federal securities laws, state unfair
4
competition statutes, common law fraud, misrepresentation, unjust enrichment,
breach of fiduciary duty, conspiracy, and other violations of state law; (ii) an
action by banks that participated in two Enron revolving credit facilities,
originally alleging fraud, gross negligence, breach of implied duties, aiding
and abetting and civil conspiracy in connection with defendants' administration
of a credit facility with Enron; the Court granted Citigroup's motion to dismiss
with respect to all claims except for certain claims of aiding and abetting and
civil conspiracy; (iii) an action brought by several funds in connection with
secondary market purchases of Enron debt securities, alleging violations of the
federal securities law, including Section 11 of the Securities Act of 1933, as
amended, and claims for fraud and misrepresentation; (iv) a series of putative
class actions by purchasers of NewPower Holdings common stock, alleging
violations of the federal securities law, including Section 11 of the Securities
Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of
1934, as amended; (v) a putative class action brought by clients of CGM in
connection with research reports concerning Enron, alleging breach of contract;
(vi) an action brought by a retirement and health benefits plan in connection
with the purchase of certain Enron notes, alleging violation of federal
securities law, including Section 11 of the Securities Act of 1933, as amended,
violations of state securities and unfair competition law, and common law fraud
and breach of fiduciary duty; (vii) an action brought by the Attorney General of
Connecticut in connection with various commercial and investment banking
services provided to Enron; (viii) an action brought by purchasers in the
secondary market of Enron bank debt, alleging claims for common law fraud,
conspiracy, gross negligence, negligence and breach of fiduciary duty; (ix) an
action brought by an investment company, alleging that Enron fraudulently
induced it to enter into a commodity sales contract; (x) five adversary
proceedings filed by Enron in its chapter 11 bankruptcy proceedings to recover
alleged preferential payments and fraudulent transfers involving Citigroup,
certain of its affiliates and other entities, and to disallow or to subordinate
claims that Citigroup and other entities have filed against Enron; (xi)
third-party actions brought by former Enron officers and directors, alleging
violation of state securities and other laws and a right to contribution from
Citigroup, in connection with claims under state securities and common law
brought against the officers and directors and others; and (xii) a purported
class action brought on behalf of Connecticut municipalities, alleging violation
of state statutes, conspiracy to commit fraud, aiding and abetting a breach of
fiduciary duty and unjust enrichment. Several of these cases have been
consolidated or coordinated with the NEWBY action and are now generally inactive
pending the Court's decision on the pending motion on class certification.
Dynegy Inc.
On June 6, 2003, the complaint in a pre-existing putative class action
pending in the United States District Court for the Southern District of Texas
(IN RE: DYNEGY INC. SECURITIES LITIGATION) brought by purchasers of publicly
traded debt and equity securities of Dynegy Inc. was amended to add Citigroup,
Citibank and CGMI as defendants. The plaintiffs allege violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, against the
Citigroup defendants.
WorldCom, Inc.
Citigroup, CGM and certain executive officers and current and former
employees have been named as defendants--along with twenty-two other investment
banks, certain current and former WorldCom officers and directors, and
WorldCom's former auditors--in a consolidated class action brought on behalf of
individuals and entities who purchased or acquired publicly traded securities of
WorldCom between April 29, 1999 and June 25, 2002 (IN RE: WORLDCOM INC.
5
SECURITIES LITIGATION). The class action complaint asserts claims against CGM
under (i) Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended, in
connection with certain bond offerings in which it served as underwriter, and
(ii) Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated under Section 10(b), alleging that it
participated in the preparation and/or issuance of misleading WorldCom
registration statements and disseminated misleading research reports concerning
WorldCom stock. On May 19, 2003, the Court denied CGM's motion to dismiss the
consolidated class action complaint. On October 24, 2003, the Court granted the
plaintiffs' motion for class certification. On December 31, 2003, the United
States Court of Appeals for the Second Circuit granted CGM's petition seeking
leave for an interlocutory appeal of the class certification order. The District
Court has scheduled trial to begin in January 2005.
Pursuant to an order entered May 28, 2003, the District Court consolidated
approximately seventy individual actions with the class action for pretrial
proceedings. Certain individual plaintiffs have appealed the district court's
order denying their motions to remand. The claims asserted in these individual
actions are substantially similar to the claims alleged in the class action and
assert state and federal securities law claims based on CGMI's research reports
concerning WorldCom and/or CGMI's role as an underwriter in WorldCom offerings.
Numerous other actions asserting claims against CGM in connection with its
research reports about WorldCom and/or its role as an investment banker for
WorldCom are pending in other federal and state courts. These actions have been
remanded to various state courts, are pending in other federal courts, or have
been conditionally transferred to the United States District Court for the
Southern District of New York to be consolidated with the class action. In
addition, actions asserting claims against Citigroup and certain of its
affiliates relating to its WorldCom research reports are pending in numerous
arbitrations around the country. These arbitration proceedings assert claims
that are substantially similar to the claims asserted in the class action.
Global Crossing
On or about January 28, 2003, lead plaintiff in a consolidated putative
class action in the United States District Court for the Southern District of
New York (IN RE: GLOBAL CROSSING, LTD. SECURITIES LITIGATION) filed a
consolidated complaint on behalf of purchasers of the securities of Global
Crossing and Asia Global Crossing, which names as defendants, among others,
Citigroup, CGMI, CGMHI and certain executive officers and current and former
employees. The putative class action complaint asserts claims against these
Citigroup defendants under (i) Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933, as amended, and Section 14(a) of the Securities Exchange Act of
1934, as amended and Rule 14A-9A promulgated thereunder, in connection with
certain offerings in which CGMI served as underwriter and in connection with
certain transactions in which CGMI issued fairness opinions, and (ii) Section
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule
10b-5 promulgated thereunder, alleging that they disseminated misleading
research reports concerning Global Crossing and Asia Global Crossing. The
Citigroup-related defendants have moved to dismiss these claims.
In addition, actions asserting claims against Citigroup and certain of its
affiliates relating to its Global Crossing research reports are pending in
numerous arbitrations around the country. These arbitration proceedings assert
claims that are substantially similar to the claims asserted in the putative
class action.
6
Adelphia Communications Corporation
On July 6, 2003, an adversary proceeding was filed by the Official
Committee of Unsecured Creditors on behalf of Adelphia Communications
Corporation against certain lenders and investment banks, including CGM,
Citibank, N.A., Citicorp USA, Inc., and Citigroup Financial Products, Inc.
(together, the Citigroup Parties). The complaint alleges that the Citigroup
Parties and numerous other defendants committed acts in violation of the Bank
Holding Company Act and the common law. The complaints seek equitable relief and
an unspecified amount of compensatory and punitive damages. In November 2003, a
similar adversary proceeding was filed by the Equity Holders Committee of
Adelphia.
In addition, CGM is among the underwriters named in numerous civil actions
brought to date by investors in Adelphia debt securities in connection with
Adelphia securities offerings between September 1997 and October 2001. Three of
the complaints also assert claims against Citigroup Inc. and Citibank, N.A. All
of the complaints allege violations of federal securities laws, and certain of
the complaints also allege violations of state securities laws and the common
law. The complaint seeks unspecified damages. In December 2003, a second amended
complaint was filed and consolidated before the same judge of the United States
District Court for the Southern District of New York.
Mutual Funds
In 2003, several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. CGM has received subpoenas and other
requests for information from various government regulators regarding market
timing, fees, sales practices and other mutual fund issues in connection with
various investigations, including an investigation by the Securities and
Exchange Commission and a United States Attorney into the arrangements under
which we became the transfer agent for many of the mutual funds in the Smith
Barney fund complex. CGM is cooperating fully with all such reviews.
Research
Since May 2002, Citigroup, CGM and certain executive officers and current
and former employees have been named as defendants in numerous putative class
action complaints, individual actions, and arbitration demands by purchasers of
various securities, alleging that they violated federal securities law,
including Sections 10 and 20 of the Securities Exchange Act of 1934, as amended,
and certain state laws for allegedly issuing research reports without a
reasonable basis in fact and for allegedly failing to disclose conflicts of
interest with companies in connection with published investment research,
including AT&T Corp., Winstar Communications, Inc., Rhythm NetConnections, Inc.,
Level 3 Communications, Inc., Metromedia Fiber Network, Inc., XO Communications,
Inc., Williams Communications Group Inc., and Qwest Communications International
Inc. The putative class actions relating to research of these companies are
pending before a single judge in the United States District Court for the
Southern District of New York for coordinated proceedings. The Court has
consolidated these actions into separate proceedings corresponding to the
companies named above. On January 30, 2004, plaintiffs in the Rhythm
NetConnections, Inc. action voluntarily dismissed their complaint with
prejudice.
In addition, actions asserting claims against Citigroup and certain of its
affiliates relating to its research reports on these companies are pending in
numerous arbitrations around the country. These arbitration proceedings assert
claims that are substantially similar to the claims asserted in the class and
individual actions.
7
Three additional putative class actions are pending in federal courts
against Citigroup and certain of its affiliates, including CGM, and certain of
their current and former directors, officers and employees, along with other
parties, on behalf of persons who maintained accounts with CGM. These actions
assert, among other things, common law claims, claims under state statutes, and
claims under the Investment Advisers Act of 1940, for allegedly failing to
provide objective and unbiased investment research and investment management,
seeking, among other things, return of fees and commissions. In all three of
these actions, the Citigroup-related defendants have moved to dismiss the
complaints. In two of these putative class actions, these motions were granted
and appeals are now pending.
In May 2003, the SEC, NYSE and NASD issued a subpoena and letters to CGM
requesting documents and information with respect to their continuing
investigation of individuals in connection with the supervision of the research
and investment banking departments of CGM. Other parties to the Research
Settlement have received similar subpoena and letters.
On June 23, 2003, the West Virginia Attorney General filed an action
against CGM and nine other firms that were parties to the Research Settlement.
The West Virginia Attorney General alleges that the firms violated the West
Virginia Consumer Credit and Protection Act in connection with their research
activities and seeks monetary penalties. CGM and the other defendants have moved
to dismiss the action.
Other
In April 2002, consolidated amended complaints were filed against CGM and
other investment banks named in numerous putative class actions filed in the
United States District Court for the Southern District of New York, alleging
violations of certain federal securities laws (including Section 11 of the
Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange
Act of 1934, as amended) with respect to the allocation of shares for certain
initial public offerings and related aftermarket transactions and damage to
investors caused by allegedly biased research analyst reports. On February 19,
2003, the Court issued an opinion denying defendants' motion to dismiss. Also
filed in the Southern District of New York against CGMI and other investment
banks were several putative class actions that were consolidated into a single
class action, alleging violations of certain federal and state antitrust laws in
connection with the allocation of shares in initial public offerings when acting
as underwriters. On November 3, 2003, the Court granted CGM's motion to dismiss
the consolidated amended complaint in the antitrust case.
Additional lawsuits containing similar claims to those described above may
be filed in the future.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote during
the last fiscal year covered by this report.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There is
no established public trading market for the Redeemable Units of
Limited Partnership Interest.
(b) Holders. The number of holders of Redeemable Units of Limited
Partnership Interest as of December 31, 2003 was 301.
(c) Distribution. The Partnership did not declare a distribution in
2003 or 2002.
(d) Use of Proceeds. There were no additional sales of Redeemable
Units in the years ended December 31, 2003, 2002 and 2001.
Item 6. Selected Financial Data. Net realized and unrealized trading gains
(losses), interest income, net income (loss) and increase (decrease) in Net
Asset Value per Redeemable Unit for the years ended December 31, 2003, 2002,
2001, 2000 and 1999 and total assets at December 31, 2003, 2002, 2001, 2000 and
1999 were as follows:
2003 2002 2001 2000 1999
------- ---------- --------- --------- --------
Net realized and unrealized
trading gains (losses) net of
brokerage commissions and clearing
fees of $283,408, $226,451,
$216,379, $189,032 and $300,092
respectively $919,661 $1,483,403 $159,010 $139,628 $(991,124)
Interest income 31,236 38,736 82,770 121,989 157,603
--------- --------- --------- --------- ---------
$950,897 $1,522,139 $241,780 $261,617 $(833,521)
--------- --------- --------- --------- ---------
Net income (loss) $693,305 $1,220,121 $71,103 $106,856 $(1,076,852)
--------- --------- --------- --------- ---------
Increase(decrease) in Net Asset
Value per Redeemable Unit $579.64 $945.40 $37.64 $155.53 $(590.19)
Total assets $4,574,180 $4,305,348 $3,282,220 $3,520,482 $4,020,521
--------- --------- --------- --------- ---------
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Partnership aims to achieve substantial capital appreciation through
speculative trading in U.S. and international markets for currencies, interest
rates, stock indices, agricultural and energy products and precious and base
metals. The Partnership may employ futures, options on futures, forward, spot
and swap contracts in those markets.
The General Partner manages all business of the Partnership. The General
Partner has delegated its responsibility for the investment of the Partnership's
assets to JWH. The General Partner employs a team of approximately 15
professionals whose primary emphasis is on attempting to maintain quality
control among the Advisor to the Partnership operated or managed by the General
Partner. A full-time staff of due diligence professionals use state-of-the-art
technology and on-site evaluations to monitor new and existing futures money
managers. The accounting and operations staff provides processing of trading
activity and reporting to limited partners and regulatory authorities. In
selecting the Advisor for the Partnership, the General Partner considered past
performance, trading style, volatility of markets traded and fee requirements.
Responsibilities of the General Partner include:
o due diligence examinations of the Advisor;
o selection, appointment and termination of the Advisor;
o negotiation of the management agreement; and
o monitoring the activity of the Advisor.
In addition, the General Partner prepares the books and records and
provides the administrative and compliance services that are required by law or
regulation from time to time in connection with operation of the Partnership.
These services include the preparation of required books and records and reports
to limited partners, government agencies and regulators; computation of net
asset value; calculation of fees; effecting subscriptions, redemptions and
limited partner communications; and preparation of offering documents and sales
literature.
The General Partner shall seek the best prices and services available in
its commodity futures brokerage transactions. The General Partner reviews at
least annually, the brokerage rates charged to commodity pools similar to the
Partnership to determine that the brokerage fee the Partnership pays is
competitive with other rates.
The Advisor specializes in managing institutional and individual capital in
the global futures, interest rate and foreign exchange markets. Since 1981, JWH
has developed and implemented proprietary trend-following trading techniques
that focus on long-term trends.
JWH trades its Financials and Metals Portfolio ("F&M") on behalf of the
Partnership. F&M seeks to identify and capitalize on intermediate-term price
movements in four worldwide market sectors: currencies, interest rates, metals
and global stock indices. The program uses the three-phase investment style.
Beginning in August 1992, the position size in relation to account equity in
this program was reduced 50%. Since the changes were implemented in 1992, F&M
has experienced lower volatility.
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(a) Liquidity.
The Partnership does not engage in sales of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and forward contracts and interest receivable. Because of the low margin
deposits normally required in commodity futures trading, relatively small price
movements may result in substantial losses to the Partnership. Such substantial
losses could lead to a material loss in liquidity.
To minimize this risk relating to low margin deposits, the Partnership
follows certain trading policies, including:
(i) The Partnership invests its assets only in commodity interests that the
Advisor believes are traded in sufficient volume to permit ease of taking and
liquidating positions. Sufficient volume, in this context, refers to a level of
liquidity that the Advisor believes will permit it to enter and exit trades
without noticeably moving the market.
(ii) The Advisor will not initiate additional positions in any commodity if
these positions would result in aggregate positions requiring a margin of more
than 66 2/3% of the Partnership's net assets allocated to the Advisor.
(iii) The Partnership may occasionally accept delivery of a commodity.
Unless such delivery is disposed of promptly by reentering the warehouse receipt
representing the delivery to the appropriate clearinghouse, the physical
commodity position is fully hedged.
(iv) The Partnership does not employ the trading technique commonly known
as "pyramiding", in which the speculator uses unrealized profits on existing
positions as margin for the purchases or sale of additional positions in the
same or related commodities.
(v) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(vi) The Advisor may, from time to time, employ trading strategies such as
spreads or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference between the prices
of the two contracts.
(vii) The Partnership will not permit the churning of its commodity trading
account. The term "churning" refers to the practice of entering and exiting
trades with a frequency unwarranted by legitimate efforts to profit from the
trades, driven by the desire to generate commission income.
In the normal course of business, the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments
include forwards, futures, options and swaps, whose values are based upon an
underlying asset, index or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
11
financial instruments at specified terms at specified future dates, or, in the
case of derivative commodity interests, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards, swaps and certain options. Each of these instruments is
subject to various risks similar to those relating to the underlying financial
instruments including market and credit risk. In general, the risks associated
with OTC contracts are greater than those associated with exchange traded
instruments because of the greater risk of default by the counterparty to an OTC
contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statements of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has credit risk and concentration risk because the sole counterparty
or broker with respect to the Partnership's assets is CGM.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions. (See also
"Item 8. Financial Statements and Supplementary Data" for further information on
financial instrument risk included in the Notes to Financial Statements.)
Other than the risks inherent in commodity trading, the Partnership knows
of no trends, demands, commitments, events or uncertainties which will result in
or which are reasonably likely to result in the Partnership's liquidity
increasing or decreasing in any material way. The Limited Partnership Agreement
provides that the Partnership will cease trading operations and liquidate all
open positions under certain circumstances including a decrease in Net Asset
Value per Redeemable Unit to less than $350 as of the close of business on any
business day or a decline in net assets to less than $1,000,000.
(b) Capital resources.
(i) The Partnership has made no material commitments for capital
expenditures.
(ii) The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on trading and by
expenses, interest income, redemptions of Redeemable Units and distributions of
profits, if any. Gains or losses on trading cannot be predicted. Market moves in
12
commodities are dependent upon fundamental and technical factors which the
Advisor may or may not be able to identify, such as changing supply and demand
relationships, weather, government agricultural, commercial and trade programs
and policies, national and international political and economic events and
changes in interest rates. Partnership expenses consist of, among other things,
commissions, advisory fees and administrative fees. The level of these expenses
is dependent upon the level of trading and the ability of the Advisor to
identify and take advantage of price movements in the commodity markets, in
addition to the level of Net Assets maintained. In addition, the amount of
interest income payable by CGM is dependent upon interest rates over which the
Partnership has no control.
No forecast can be made as to the level of redemptions in any given period.
A limited partner may redeem some or all of their Redeemable Units at the net
asset value thereof as of the last day of any calendar quarter on 15 days notice
to the General Partner. For the year ended December 31, 2003, 68 Redeemable
Units were redeemed for a total of $259,485. For the year ended December 31,
2002, 108 Redeemable Units were redeemed for a total of $336,419. For the year
ended December 31, 2001, 98 Redeemable Units were redeemed for a total of
$253,937.
(c) Results of Operations.
For the year ended December 31, 2003, the Net Asset Value per Redeemable
Unit increased 17.3% from $3,354.89 to $3,934.53. For the year ended December
31, 2002, the Net Asset Value per Redeemable Unit increased 39.2%, from
$2,409.49 to $3,354.89. For the year ended December 31, 2001 the Net Asset Value
per Redeemable Unit increased 1.6% from $2,371.85 to $2,409.49.
The Partnership experienced a net trading gain before brokerage commissions
and related fees in 2003 of $1,203,069. Gains were primarily attributable to the
trading of currencies, U.S. interest rates and indices.
In 2003, the markets had periodic strong trends and then just as strong
reversals resulting in a mixed year for the Partnership's overall performance.
The Financial & Metals (F&M) Portfolio had a strong overall year on behalf
of the Partnership for 2003. The foreign currency positions took advantage of a
declining U.S. dollar and provided the primary source of profits for the year.
On a very broad basis, the year 2003 can be divided into three periods: the
time surrounding the Iraq War (January through May), the transition to higher
world growth (June through October), and the renewed dollar decline (November
and December).
The Iraq war was the focus for much of the first half of the year. Like any
uncertain event, there is the market reaction to the impending event, the event
itself when uncertainty is resolved and the response to the event. The first two
months of the year represented the pre-war uncertainty. With uncertainty
concerning when hostilities would begin and the possible impact of these events,
investors showed a desire to move to a defensive and conservative stance. Equity
markets sold-off, the dollar sold-off, gold prices rose, and bond markets
rallied. This was a continuation of many of the trends carried over from 2002.
13
During the first two months of the year, the Advisor's program had strong
performance, up over 15%.
Just prior to the inception of the hostilities, JWH reduced leverage in the
F&M Portfolio along with its other programs by 50 percent, in expectation of
higher volatility in the markets. Markets were more volatile with a reduction of
liquidity in response to events in March. During this period, bond markets
sold-off, the dollar stabilized, and the stock market started to rally. Even
with this reduced leverage the markets were volatile and prior trends disrupted
leading to losses for the month of March. Positions returned to normal leverage
in its programs in April and May saw a substantial recovery of Partnership
performance with profits coming from short dollar and long interest rate
positions. The Advisor's performance during these periods was consistent with
its past actions in uncertain and potentially highly volatile markets. The
General Partner was aware of and acknowledged the Advisor's actions as
appropriate for the conditions of the economic and political environment.
In a transition to economic recovery and growth, the major markets began to
reflect changed expectations in the middle of June. The announcements of
consistent, positive macroeconomic news led to the unexpected announcement of no
further easing actions by the European Central Bank and the U. S. Federal
Reserve. News of stronger growth, especially in the U.S., suggested that
deflationary expectations may have been over-done; consequently, there was a
trend change and interest rates moved up off 40 year lows. Additionally, the
dollar actually rallied on the positive U.S. economic news, reversing the
decline from earlier in the year. In both cases, the JWH program saw a giveback
in trading profits, as the markets transitioned to new trends.
While there were gains in stock index trading, JWH's exposure in these
markets has been relatively low; they were not able to make a sustainable impact
on performance. The third quarter and the beginning of the fourth quarter were
unprofitable for the Advisor's trading program. This was the result of a
transition to higher worldwide economic growth.
The final period of 2003 was the renewed dollar decline beginning in late
November. Regardless of the strong growth exhibited in the United States in the
third quarter, the best in 20 years, the dollar began a new significant decline
against both the euro and yen. This led to significant fourth quarter profits,
which boosted performance for the Partnership to finish the year strongly.
In the General Partner's opinion, the Advisor continues to employ its
trading methods in a consistent and disciplined manner and its results are
consistent with the objectives of the Partnership and expectations for the
Advisor's program. The General Partner continues to monitor the Advisor's
performance on a daily, weekly, monthly and annual basis to assure these
objectives are met.
The Partnership experienced a net trading gain before brokerage commissions
and related fees in 2002 of $1,709,854. Gains were primarily attributable to the
trading of currencies, U.S. and non-U.S. interest rates and indices and were
partially offset by losses in metals.
The Partnership experienced net trading gains of $375,389 before
commissions and expenses in 2001. Gains were primarily attributable to the
trading of U.S. and non-U.S. interest rates currencies, metals and indices.
It should be noted that commodity markets are highly volatile. Broad price
fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
14
Partnership depends on the existence of major price trends and the ability of
the Advisor to identify those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisor is able to
identify them, the Partnership expects to increase capital through operations.
(d) Operational Risk
The Partnership is directly exposed to market risk and credit risk, which
arise in the normal course of its business activities. Slightly less direct, but
of critical importance, are risks pertaining to operational and back office
support. This is particularly the case in a rapidly changing and increasingly
global environment with increasing transaction volumes and an expansion in the
number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership is subject
to increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Partnership's ability to gather, process,
and communicate information efficiently and securely, without interruption, to
customers, among Redeemable Units within the Partnership, and in the markets
where the Partnership participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
Redeemable Unit holders, creditors, and regulators, is free of material errors.
(e) Critical Accounting Policies.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities in the financial statements and accompanying
notes.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statements of financial condition at fair value on the last business day of the
15
period, which represents market value for those commodity interests for which
market quotations are readily available or other measures of fair value deemed
appropriate by management of the General Partner for those commodity interests
and foreign currencies for which market quotations are not readily available,
including dealer quotes for swaps and certain option contracts. Investments in
commodity interests denominated in foreign currencies are translated into U.S.
dollars at the exchange rates prevailing on the last business day of the period.
Realized gains (losses) and changes in unrealized values on commodity interests
and foreign currencies are recognized in the period in which the contract is
closed or the changes occur and are included in net gains (losses) on trading of
commodity interests.
Foreign currency contracts are those contracts where the Partnership agrees
to receive or deliver a fixed quantity of foreign currency for an agreed-upon
price on an agreed future date. Foreign currency contracts are valued daily, and
the Partnership's net equity therein, representing unrealized gain or loss on
the contracts as measured by the difference between the forward foreign exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting dates, is included in the statements of financial condition. Realized
gains (losses) and changes in unrealized values on foreign currency contracts
are recognized in the period in which the contract is closed or the changes
occur and are included in the statements of income and expenses and partners'
capital.
The General Partner believes that the accounting policies that will be most
critical to the Partnership's financial condition and results of operations
relate to the valuation of the Partnership's positions. The majority of the
Partnership's positions will be exchange-traded futures contracts, which will be
valued daily at settlement prices published by the exchanges. If applicable, the
Partnership's spot and forward foreign currency contracts will also be valued at
published daily settlement prices or at dealers' quotes. The General Partner
expects that under normal circumstances substantially all of the Partnership's
assets will be valued by objective measures and without difficulty.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
The risk to the limited partners that have purchased interests in the
Partnership is limited to the amount of their capital contributions to the
Partnership and their share of the Partnership assets and undistributed profits.
This limited liability is a consequence of the organization of the Partnership
as a limited partnership under applicable law.
Market movements result in frequent changes in the fair market value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification results among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
16
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification in this
section should not be considered to constitute any assurance or representation
that the Partnership's losses in any market sector will be limited to Value at
Risk or by the Partnership's attempts to manage its market risk.
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 (such as the terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Partnership's
mark-to-market accounting, any loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings (realized and
unrealized).
Exchange maintenance margin requirements have been used by the Partnership
as the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
In the case of market sensitive instruments which are not exchange traded
(almost exclusively currencies in the case of the Partnership), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
The fair value of the Partnership's futures and forward positions does not
have any optionality component. However, the Advisor may trade commodity
options. The Value at Risk associated with options is reflected in the following
table as the margin requirement attributable to the instrument underlying each
option. Where this instrument is a futures contract, the futures margin, and
where this instrument is a physical commodity, the futures-equivalent
maintenance margin has been used. This calculation is conservative in that it
assumes that the fair value of an option will decline by the same amount as the
fair value of the underlying instrument, whereas, in fact, the fair values of
17
the options traded by the Partnership in almost all cases fluctuate to a lesser
extent than those of the underlying instruments.
In quantifying the Partnership's Value at Risk, 100% positive correlation
in the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been added to determine each trading category's aggregate Value at Risk.
The diversification effects resulting from the fact that the Partnership's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
18
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of December 31, 2003 and the
highest and lowest value at any point during the year. All open position trading
risk exposures of the Partnership have been included in calculating the figures
set forth below. As of December 31, 2003, the Partnership's total capitalization
was $4,493,233.
December 31, 2003
Year to Date
------------------------------------------------
% of Total High Low Average
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Value at Risk*
- --------------------------------------------------------------------------------------------------------------------
Currencies
- - OTC Contracts $ 183,561 4.09% $254,880 $45,571 $ 122,670
Interest rates U.S. 63,050 1.40% 63,250 5,400 22,613
Interest rates Non-U.S. 83,931 1.87% 255,109 41,044 124,029
Metals
- Exchange Traded Contracts 18,000 0.40% 36,000 9,000 12,125
- OTC Contracts 30,775 0.68% 42,625 4,000 14,344
Indices 124,722 2.78% 126,914 24,052 62,786
-------- ------
Total $504,039 11.22%
------ ------
*Monthly average based on month-end Value at Risk
As of December 31, 2002, the Partnership's total capitalization was $4,059,413.
December 31, 2002
Year to Date
---------------------------------------------
% of Total High Low Average
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Value at Risk*
- -----------------------------------------------------------------------------------------------------------------
Currencies
- - OTC Contracts $ 217,890 5.37% $1,637,685 $ 34,388 $ 138,208
Interest rates U.S. 13,200 0.33% 111,200 6,000 37,625
Interest rates Non-U.S. 202,140 4.97% 231,429 28,411 199,159
Metals
- Exchange Traded Contracts 11,000 0.27% 11,000 9,000 10,000
- OTC Contracts 30,125 0.74% 37,375 3,600 25,400
Indices 24,298 0.60% 104,215 5,400 63,841
-------- ------
Total $498,653 12.28%
-------- -----
*Quarterly average based on month-end Value at Risk
19
Material 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 maintenance margin requirement (margin
requirements generally range between 2% and 15% of contract face value) as well
as many times the capitalization of the Partnership. The magnitude of the
Partnership's open positions creates a "risk of ruin" not typically found in
most other investment vehicles. Because of the size of its positions, certain
market conditions unusual, but historically recurring from time to time could
cause the Partnership to incur severe losses over a short period of time. The
foregoing Value at Risk table as well as the past performance of the Partnership
give no indication of this "risk of ruin."
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances
not needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, 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 (i) those disclosures that are statements of
historical fact and (ii) 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 the General Partner and the 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 management strategies of the Partnership.
There can be no assurance that the Partnership's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long- term. 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, 2003, by market sector.
Interest Rates. Interest rate movements directly affect the price of the futures
positions held by the Partnership and indirectly 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
to interest rate fluctuations in the United States and the other G-8 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia.
20
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The General Partner does not anticipate that the
risk profile of the Partnership's currency sector will change significantly in
the future. The currency trading Value at Risk figure includes foreign margin
amounts converted into U.S. dollars with an incremental adjustment to reflect
the exchange rate risk inherent to the U. S. dollar-based Partnership in
expressing Value at Risk in a functional currency other than U.S. dollars.
Stock Indices. The Partnership's primary equity exposure is to equity price risk
in the G-8 countries. The stock index futures traded by the Partnership are
limited to futures on broadly based indices. As of December 31, 2003, the
Partnership's primary exposure was in the EUREX (Germany) stock indices. The
General Partner anticipates little, if any, trading in non-G-8 stock indices.
The Partnership is primarily exposed to the risk of adverse price trends or
static markets in the major U.S., European 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.)
Metals. The Partnership's primary metal market exposure is to fluctuations in
the price of gold and silver. Although the Advisor will from time to time trade
base metals such as copper, the principal market exposures of the Partnership
have consistently been in the precious metals, gold and silver. The General
Partner anticipates that gold and silver will remain the primary metals market
exposure for the Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership
as of December 31, 2003.
Foreign Currency Balances. The Partnership's primary foreign currency balances
are in Japanese yen, British pounds and Australian dollars. The Advisor
regularly converts foreign currency balances to U.S. dollars in an attempt to
control the Partnership's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and accordingly believes that it has effective procedures for evaluating
and limiting the credit and market risks to which the Partnership is subject.
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisor concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require the Advisor to close out individual
positions as well as enter certain positions traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partner primarily relies on the Advisor's own risk control policies
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
The Advisor applies its own risk management policies to its trading. The
Advisor often follows diversification guidelines, margin limits and stop loss
points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
21
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
22
Item 8. Financial Statements and Supplementary Data.
SHEARSON SELECT ADVISORS FUTURES FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page Number
Oath or Affirmation. F-2
Independent Auditors' Report F-3 - F-4
Financial Statements:
Statements of Financial Condition at December 31, 2003 and 2002. F-5
Condensed Schedules of Investments at December 31, 2003 and 2002. F-6 - F-7
Statements of Income and Expenses for the years ended
December 31, 2003, 2002 and 2001. F-8
Statements of Partners' Capital for the years ended
December 31, 2003, 2002 and 2001. F-9
Notes to Financial Statements. F-10 - F-14
Selected Unaudited Quarterly Financial Data. F-15
To the Limited Partners of
Shearson Select Advisors Futures Fund L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By:/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Citigroup Managed Futures LLC
General Partner, Shearson Select
Advisors Futures Fund L.P.
Citigroup Managed Futures LLC
399 Park Avenue
7th Floor
New York, N.Y. 10022
212-559-2011
F-2
Independent Auditors' Report
To the Partners of
Shearson Select Advisors Futures Fund L.P.:
We have audited the accompanying statements of financial condition of Shearson
Select Advisors Futures Fund L.P. (the Partnership), including the condensed
schedules of investments, as of December 31, 2003 and 2002, and the related
statements of income and expenses, and partners' capital for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The statements of income and expenses and
partners' capital of the Partnership for the year ended December 31, 2001 were
audited by other auditors whose report dated February 28, 2002 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting 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 presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shearson Select Advisors
Futures Fund L.P. as of December 31, 2003 and 2002, and the results of its
operations and its partners' capital for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 27, 2004
F-3
Report of Independent Auditors
To the Partners of
Shearson Select Advisors Futures Fund L.P.:
In our opinion, the accompanying statements of income and expenses and partners'
capital present fairly, in all material respects, the results of Shearson Select
Advisors Futures Fund L.P.'s operations for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the management of
the General Partner; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the management
of the General Partner, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-4
Shearson Select Advisors Futures Fund L.P.
Statements of Financial Condition
December 31, 2003 and 2002
2003 2002
---------- -----------
Assets:
Equity in commodity futures trading account:
Cash (restricted $536,151 and $508,469 in 2003 and 2002,
respectively) (Note 3c) $4,256,795 $3,806,735
Net unrealized appreciation on open futures positions 603 223,423
Unrealized appreciation on open forward contracts 314,690 272,376
----------- -----------
4,572,088 4,302,534
Interest receivable (Note 3c) 2,092 2,814
----------- -----------
$4,574,180 $4,305,348
---------- -----------
Liabilities and Partners' Capital:
Liabilities:
Unrealized depreciation on open forward contracts $18,001 $125,373
Accrued expenses:
Commissions (Note 3c) 22,781 20,900
Management fees (Note 3b) 15,054 13,756
Professional fees 13,198 28,296
Other 4,044 3,932
Redemptions payable (Note 5) 7,869 53,678
----------- -----------
80,947 245,935
----------- -----------
Partners' capital (Notes 1 and 5):
General Partner, 34 Unit equivalents outstanding in
2003 and 2002 133,774 114,066
Limited Partners, 1,108 and 1,176 Redeemable Units of Limited
Partnership Interest outstanding in 2003 and 2002, respectively 4,359,459 3,945,347
----------- -----------
4,493,233 4,059,413
----------- -----------
$4,574,180 $4,305,348
----------- -----------
See accompanying notes to financial statements.
F-5
Shearson Select Advisors Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2003
Sector Contract Fair Value
- ------------ -------- -----------
Currencies
Unrealized depreciation on forward contracts (0.40)% $(18,001)
Unrealized appreciation on forward contracts 5.76% 258,796
---------
Total Currencies 5.36% 240,795
---------
Total Interest Rates U.S. (0.31)% Futures contracts sold (0.31)% (14,069)
---------
Total Interest Rates Non-U.S. 0.12% Futures contracts purchased 0.12% 5,474
---------
Metals
Futures contracts purchased 0.48% 21,480
Unrealized appreciation on forward contracts 1.24% 55,894
---------
Total Metals 1.72% 77,374
---------
Indices
Futures contracts sold (0.89)% (39,843)
Futures contracts purchased 0.61% 27,561
---------
Total Indices (0.28)% (12,282)
---------
Total Fair Value 6.61% $297,292
=========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- -------------------- ---------------- ----------------
Germany $ 19,439 6.54%
Japan (39,843) (13.40)
United Kingdom 64,665 21.75
United States 253,031 85.11
-------------- -----------
$297,292 100.00%
============== =============
Percentages are based on Partner's capital unless otherwise indicated.
See accompanying notes to financial statements.
F-6
Shearson Select Advisors Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2002
Number of
Sector Contracts Contract Fair Value
- ------ ---------- ---------- ----------
Currencies
Unrealized depreciation on forward positions (2.58)% $ (104,615)
Unrealized appreciation on forward positions 6.55%
EURO 6,075,000 EURO/USD 4.09%, March 19, 2003 166,218
Other 2.46% 99,730
---------
265,948
Total Currencies 3.97% 161,333
---------
Total Interest Rates U.S. 0.68% Futures contracts purchased 0.68% 27,775
---------
Total Interest Rates Non-U.S. 3.94% Futures contracts purchased 3.94% 159,955
---------
Metals
Futures contracts purchased 0.78% 31,570
Unrealized depreciation on forward positions (0.51)% (20,758)
Unrealized appreciation on forward positions 0.16% 6,428
---------
Total Forward contracts (0.35)% (14,330)
---------
Total Metals 0.43% 17,240
---------
Indices
Futures contracts sold 0.14% 5,813
Futures contracts purchased (0.04)% (1,690)
---------
Total Indices 0.10% 4,123
---------
Total Fair Value 9.12% $370,426
=========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- -------------------- -------------- -----------------
Australia $ 12,096 3.27%
Germany 73,238 19.77
Japan 41,860 11.30
United Kingdom 24,244 6.54
United States 218,988 59.12
-------------- ----------
$370,426 100.00%
============== =========
Percentages are based on Partner's capital unless otherwise indicated.
See accompanying notes to financial statements.
F-7
Shearson Select Advisors Futures Fund L.P.
Statements of Income and Expenses
for the years ended
December 31, 2003, 2002 and 2001
2003 2002 2001
----------- ----------- ----------
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains on closed positions and
foreign currencies $1,276,203 $1,505,525 $841,259
Change in unrealized gains (losses)
on open positions (73,134) 204,329 (465,870)
----------- ----------- ----------
1,203,069 1,709,854 375,389
Interest income (Note 3c) 31,236 38,736 82,770
----------- ----------- ----------
1,234,305 1,748,590 458,159
----------- ----------- ----------
Expenses:
Brokerage commissions including
clearing fees of $4,158, $2,429 and
$2,283, respectively (Note 3c) 283,408 226,451 216,379
Management fees (Note 3b) 181,419 145,558 138,979
Incentive fees (Notes 3a and 3b) 66,775 124,151 --
Professional fees 3,327 27,507 25,919
Other expenses 6,071 4,802 5,779
----------- ----------- ----------
541,000 528,469 387,056
----------- ----------- ----------
Net income $693,305 $1,220,121 $71,103
----------- ---------- ------------
Net income per Redeemable Unit of Limited
Partnership Interest and General Partner
Unit equivalent (Notes 1 and 6) $579.64 $945.40 $37.64
----------- ------------ ---------
See accompanying notes to financial statements.
F-8
Shearson Select Advisors Futures Fund L.P.
Statements of Partners' Capital for the
years ended December 31, 2003, 2002 and 2001
Limited General
Partners Partner Total
------------ ---------- -----------
Partners' capital at December 31, 2000 $3,277,902 $80,643 $3,358,545
Net income 69,823 1,280 71,103
Redemption of 98 Redeemable Units of
Limited Partnership Interest (253,937) -- (253,937)
----------- ---------- -----------
Partners' capital at December 31, 2001 3,093,788 81,923 3,175,711
Net income 1,187,978 32,143 1,220,121
Redemption of 108 Redeemable Units of
Limited Partnership Interest (336,419) -- (336,419)
----------- ----------- -----------
Partners' capital at December 31, 2002 3,945,347 114,066 4,059,413
Net income 673,597 19,708 693,305
Redemption of 68 Redeemable Units of
Limited Partnership Interest (259,485) -- (259,485)
----------- ----------- -----------
Partners' capital at December 31, 2003 $4,359,459 $133,774 $4,493,233
------------ ---------- -----------
See accompanying notes to financial statements.
F-9
Shearson Select Advisors
Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Shearson Select Advisors Futures Fund L.P. (the "Partnership") is a limited
partnership which was organized under the laws of the State of Delaware on
February 10, 1987. The Partnership is engaged in the speculative trading of
a diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell 50,000 redeemable units of Limited
Partnership Interest ("Redeemable Units") during its initial offering
period.
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the general partner (the "General Partner") of the
Partnership. The Partnership's commodity broker is Citigroup Global Markets
Inc. ("CGM"), formerly Salomon Smith Barney Inc. CGM is an affiliate of the
General Partner. The General Partner is wholly owned by Citigroup Global
Markets Holdings Inc. ("CGMHI"), formerly Smith Barney Holdings Inc., which
is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup
Inc.
The General Partner and each limited partner share in the profits and
losses of the Partnership in proportion to the amount of Partnership
interest owned by each except that no limited partner shall be liable for
obligations of the Partnership in excess of their initial capital
contribution and profits, if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2007; a decline in Net Asset Value per Redeemable
Unit on any business day after trading to less than $350 per Redeemable
Unit; a decline in net assets after trading commences to less than
$1,000,000; or under certain other circumstances as defined in the Limited
Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments
and derivative commodity instruments) are used for trading purposes.
The commodity interests are recorded on trade date and open contracts
are recorded in the statements of financial condition at fair value on
the last business day of the year, which represents market value for
those commodity interests for which market quotations are readily
available. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates
prevailing on the last business day of the year. Realized gains
(losses) and changes in unrealized gains (losses) on open positions
are recognized in the period in which the contract is closed or the
changes occur and are included in net gains (losses) on trading of
commodity interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on their share of the Partnership's
income and expenses.
c. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-10
d. Certain prior period amounts have been reclassified to conform to
current year presentation.
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership. The Partnership will pay the General
Partner an incentive fee, payable quarterly, equal to 5% of New
Trading Profits, as defined in the Limited Partnership Agreement. For
the years ended December 31, 2003 and 2002, the General Partner earned
incentive fees of $22,259 and $41,384, respectively.
b. Management Agreement:
The General Partner, on behalf of the Partnership, has entered into a
Management Agreement with John W. Henry & Company, Inc. (the
"Advisor"), a registered commodity trading advisor. The Advisor is not
affiliated with the General Partner or CGM and is not responsible for
the organization or operation of the Partnership. The Partnership pays
the Advisor a monthly management fee equal to 1/3 of 1% (4% per year)
of month-end Net Assets of the Partnership managed by the Advisor.
Month-end Net Assets, for the purpose of calculating management fees
are Net Assets, as defined in the Limited Partnership Agreement, prior
to the reduction of redemptions and incentive fees.
In addition, the Partnership is obligated to pay an incentive fee,
payable quarterly, equal to 10% of New Trading Profits, as defined in
the Management Agreement, earned by the Advisor for the Partnership.
c. Customer Agreement:
The Partnership has entered into a Customer Agreement, which was
assigned to CGM from a predecessor company, whereby CGM provides
services which include, among other things, the execution of
transactions for the Partnership's account in accordance with orders
placed by the Advisor. Effective January 1, 1997, the Partnership pays
CGM a monthly brokerage fee equal to 1/2 of 1% (6% per year) of month
end net assets, in lieu of brokerage commissions on a per trade basis.
Month-end Net Assets, for the purpose of calculating commissions are
Net Assets, as defined in the Limited Partnership Agreement, prior to
the reduction of accrued expenses and redemptions payable. The
Partnership pays for all clearing fees but not floor brokerage
charges. All of the Partnership's cash is deposited in the
Partnership's account at CGM. The Partnership's cash is deposited by
CGM in segregated bank accounts to the extent required by Commodity
Futures Trading Commission regulations. At December 31, 2003 and 2002,
the amount of cash held for margin requirements was $536,151 and
$508,469, respectively. CGM has agreed to pay the Partnership interest
on 70% of the average daily equity in its accounts during each month
at the rate of the average noncompetitive yield of 13-week U.S.
Treasury Bills as determined at the weekly auctions thereof during the
month. The Customer Agreement between the Partnership and CGM gives
the Partnership the legal right to net unrealized gains and losses.
The Customer Agreement may be terminated upon notice by either party.
F-11
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments
and derivative commodity instruments. The results of the Partnership's
trading activities are shown in the statements of income and expenses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the years ended December
31, 2003 and 2002, based on a monthly calculation, was $295,425 and
$397,306, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner; however, each limited partner may redeem some or all
of their Redeemable Units at the Net Asset Value thereof as of the last day
of any calendar quarter on 15 days notice to the General Partner, provided
that no redemption may result in the limited partner holding fewer than
three Redeemable Units after such redemption is effected.
F-12
6. Financial Highlights:
Changes in the Net Asset Value per Redeemable Unit of Limited Partnership
Interest during the years ended December 31, 2003, 2002 and 2001 were as
follows:
2003 2002 2001
------------ ------------ ------------
Net realized and unrealized gains* $770.90 $1,152.90 $101.82
Interest income 26.56 30.43 59.85
Expenses** (217.82) (237.93) (124.03)
---------- ---------- ----------
Increase for the year 579.64 945.40 37.64
Net asset value per Redeemable Unit,
beginning of year 3,354.89 2,409.49 2,371.85
---------- ---------- -----------
Net asset value per Redeemable Unit,
end of year $3,934.53 $3,354.89 $2,409.49
------------ ------------ ------------
* Includes brokerage commissions
** Excludes brokerage commissions
Ratios to Average Net Assets:
Net investment loss before incentive fees*** (10.0)% (10.3)% (8.9)%
------- ------ ------
Operating expenses 10.7% 11.4% 11.3%
Incentive fees 1.5% 3.5% -- %
------ ------ ------
Total expenses 12.2% 14.9% 11.3%
------- ------ ------
Total return:
Total return before incentive fees 19.0% 43.5% 1.6%
Incentive fees (1.7)% (4.3)% -- %
------ ------ ------
Total return after incentive fees 17.3% 39.2% 1.6%
------- ------ ------
*** Interest income less total expenses (exclusive of incentive fees)
The above ratios may vary for individual investors based on the timing of
capital transactions during the year. Additionally, these ratios are calculated
for the Limited Partner class using the Limited Partners' share of income,
expenses and average net assets.
F-13
7. Financial Instrument Risks:
In the normal course of its business, the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial
instruments may include forwards, futures and options, whose values are
based upon an underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash flows, to
purchase or sell other financial instruments at specific terms at specified
future dates, or, in the case of derivative commodity instruments, to have
a reasonable possibility to be settled in cash, through physical delivery
or with another financial instrument. These instruments may be traded on an
exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC
contracts are negotiated between contracting parties and include forwards
and certain options. Each of these instruments is subject to various risks
similar to those related to the underlying financial instruments including
market and credit risk. In general, the risks associated with OTC contracts
are greater than those associated with exchange traded instruments because
of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statements of
financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has credit risk and concentration risk
because the sole counterparty or broker with respect to the Partnership's
assets is CGM.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the
Partnership is subject. These monitoring systems allow the General Partner
to statistically analyze actual trading results with risk-adjusted
performance indicators and correlation statistics. In addition, on-line
monitoring systems provide account analysis of futures, forwards and
options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The majority of these instruments mature within one year of December 31,
2003. However, due to the nature of the Partnership's business, these
instruments may not be held to maturity.
F-14
Selected unaudited quarterly financial data for the years ended December 31,
2003 and 2002 are summarized below:
For the period from For the period from For the period from For the period from
October 1, 2003 to July 1, 2003 to April 1, 2003 to January 1, 2003 to
December 31, 2003 September 30, 2003 June 30, 2003 March 31, 2003
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $ 312,741 $ (247,692) $ 301,545 $ 584,303
Net Income (loss) $ 282,718 $ (297,532) $ 208,385 $ 499,734
Increase (decrease) in Net Asset
Value per Redeemable Unit $ 247.13 $ (256.49) $ 176.00 $ 413.00
For the period from For the period from For the period from For the period from
October 1, 2002 to July 1, 2002 to April 1, 2002 to January 1, 2002 to
December 31, 2002 September 30, 2002 June 30, 2002 March 31, 2002
Net realized and unrealized trading
gains (loss) net of brokerage
commissions and clearing fees
including interest income $ (283,722) $ 1,026,856 $ 1,140,694 $ (361,689)
Net Income (loss) $ (330,201) $ 849,937 $ 1,100,255 $ (399,870)
Increase (decrease) in Net Asset
Value per Redeemable Unit $ (269.33) $ 672.42 $ 845.70 $ (303.39)
F-15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
PricewaterhouseCoopers LLP was previously the principal accountant for the
Partnership. On July 9, 2002, that firm was dismissed as principal accountant
and KPMG LLP was engaged as principal accountant. The decision to change
accountants was approved by the General Partner of the Partnership.
In connection with the audit of the fiscal year ended December 31, 2001,
and through July 9, 2002, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference thereto in their report on the financial statements for the year.
The audit report of PricewaterhouseCoopers LLP on the financial statements
of the Partnership as of and for the year ended December 31, 2001 did not
contain any adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principle.
23
Item 9A. Controls and Procedures.
Based on their evaluation of the Partnership's disclosure controls and
procedures as of year end the Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls during the fourth
quarter of 2003.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are managed by
its General Partner, Citigroup Managed Futures LLC. Investment decisions are
made by John W. Henry & Company, Inc. (the "Advisor").
The Partnership has not adopted a code of ethics that applies to officers
because it has no officers.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed the
General Partner. CGM, an affiliate of the General Partner, is the commodity
broker for the Partnership and receives brokerage commissions for such services,
as described under "Item 1. Business." For the year ended December 31, 2003, CGM
earned $283,408 in brokerage commissions and clearing fees. Management fees and
incentive fees of $181,419 and $66,775, respectively were earned by the Advisor
for the year ended December 31, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners. The Partnership knows
of no person who beneficially owns more than 5% of the Redeemable Units
outstanding.
(b) Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the General
Partner. The General Partner owns Units of general partnership interest
equivalent to 34 Unit equivalents (3.0%) as of December 31, 2003.
(c) Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Citigroup Global Markets Inc. and Citigroup Managed Futures LLC would be
considered promoters for purposes of Item 404 (d) of Regulation S-K. The nature
and the amounts of compensation each promoter will receive from the Partnership
are set forth under "Item 1. Business"., "Item 11. Executive Compensation." and
"Item 8. Financial Statements and Supplementary Data."
24
Item 14. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG LLP for the audit of the
Partnership's annual financial statements, review of financial statements
included in the Partnership's Forms 10-Q and other services normally provided in
connection with regulatory filings or engagements are as follows:
2003 $4,519
2002 $2,645
(b Audit-Related Fees. None.
(c) Tax Fees. The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG LLP for tax compliance and tax
advice given in the preparation of the Partnership's Schedule K1s, the
preparation of the Partnership's Form 1065 and preparation of all State Tax
Returns are as follows:
2003 $4,809
2002 $4,809
(d) All Other Fees. None.
(e) Not Applicable.
(f) Not Applicable.
25
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statements of Financial Condition at December 31, 2003 and 2002.
Condensed Schedule of Investments at December 31, 2003 and 2002.
Statements of Income and Expenses for the years ended December
31, 2003, 2002 and 2001.
Statements of Partners' Capital for the years ended December
31, 2003, 2002 and 2001.
Notes to Financial Statements.
(2) Financial Statement Schedules: Financial Data Schedule for the
year ended December 31, 2003.
(3) Exhibits:
3.1 - Limited Partnership Agreement dated as of February 10, 1987 and
amended as of April 6, 1987 (filed as Exhibit 3.1 to the
Registration Statement on Form S-1 (file No.33-12241) and
incorporated herein by reference).
3.2 - Certificate of Limited Partnership of the Partnership as filed
in the office of the Secretary of State of the State of Delaware
on February 10, 1987 (filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (file No. 33-12241) and incorporated herein
by reference).
10.1-Customer Agreement between Shearson Lehman Select Advisors
Futures Fund L.P. and Smith Barney Shearson Inc. (previously
filed).
10.1(a) - Amendment to Customer Agreement dated as of September 30,
1988 (previously filed).
10.4(a) - Management Agreement between Hayden Commodities Corp. and
Dunn Commodities, Inc. (previously filed).
10.4(b) - Management Agreement between Hayden Commodities Corp. and
Investment Timing Services (previously filed).
10.4(c) - Management Agreement between Hayden Commodities Corp. and
Cresta Commodity Management Inc. (previously filed).
10.4(d) - Management Agreement between Hayden Commodities Corp. and
Computerized Advisory (previously filed).
10.6(e) - Management Agreement between Hayden Commodities Corp. and
Donald J. Guy (previously filed).
26
10.4(f) - Management Agreement between Hayden Commodities Corp. and
I.C.S.C., Inc. (previously filed).
10.4(g) - Management Agreement between Hayden Commodities Corp. and
Orion Inc. (previously filed).
10.4(h) - Management Agreement between Hayden Commodities Corp. and
Bacon Investment Corporation (previously filed).
10.4(i) - Management Agreement between Hayden Commodities Corp. and
PRAGMA, Inc. (previously filed).
10.4(j) - Management Agreement between Hayden Commodities Corp. and
Mint Investment Management Company (previously filed).
10.4(k) - Management Agreement between Hayden Commodities Corp. and
John W. Henry & Company (previously filed).
10.4(l) - Management Agreement between Hayden Commodities Corp. and
Charles M. Wilson & Company (previously filed).
10.4(m) - Management Agreement between Hayden Commodities Corp. and
Sunrise Commodities, Inc. (previously filed).
10.5 - Letter extending Management Agreement with Sunrise Commodities
Inc. dated as of June 30, 1989 (previously filed).
10.6 - Letter extending Management Agreement with Charles M. Wilson &
Company dated as of June 30, 1989
(previously filed).
10.7 - Letter extending Management Agreement with PRAGMA, Inc. dated
June 30, 1989 (previously filed).
10.8 - Letter extending Management Agreement with John W. Henry & Co.,
Inc. dated as of June 30, 1989 (previously filed).
10.9 - Letter extending Management Agreement with Bacon Investment
Corporation dated June 30, 1989 (previously filed).
10.10- Assignment by Bacon Investment Corporation to Zack Hampton
Bacon, III dated as of September 15, 1989 (previously filed).
10.11- Letter extending Management Agreement with Sunrise Commodities
Inc. dated June 26, 1990 (filed as Exhibit 10.11 to Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein
by reference).
10.12- Letter extending Management Agreement with PRAGMA, Inc. dated
June 26, 1990 (filed as Exhibit 10.12 to Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by
reference).
27
10.13- Letter extending Management Agreement with John W. Henry &
Co., Inc. dated June 26, 1990 (filed as Exhibit 10.13 to Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.14- Letter extending Management Agreement with Zack Hampton Bacon,
III dated June 25, 1990 (filed as Exhibit 10.14 to Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein
by reference).
10.15- Letter extending Management Agreement with Sunrise Commodities,
Inc. dated July 16, 1991 (filed as Exhibit 10.15 to Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein
by reference).
10.16- Letter extending Management Agreement with PRAGMA, Inc. dated
July 16, 1991 (filed as Exhibit 10.16 to Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by
reference).
10.17- Letter extending Management Agreement with John W. Henry &
Co., Inc. dated July 16, 1991 (filed as Exhibit 10.17 to Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.18- Letter extending Management Agreement with Zack Hampton Bacon,
III dated July 16, 1991 and (filed as Exhibit 10.18 to Form 10-K
for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.19- Letter extending Management Agreement with Sunrise Commodities
Inc. dated June 30, 1992 (filed as Exhibit 10.19 to Form 10-K for
the fiscal year ended December 31, 1992).
10.20- Letter extending Management Agreement with PRAGMA, Inc. dated
June 30, 1992 (filed as Exhibit 10.20 to Form 10-K for the fiscal
year ended December 31, 1992).
10.21- Letter extending Management Agreement with John W. Henry &
Co., Inc. dated June 30, 1992 (filed as Exhibit 10.21 to Form
10-K for the fiscal year ended December 31, 1992).
10.22- Letter extending Management Agreement with Zack Hampton Bacon,
III dated June 30, 1992 (filed as Exhibit 10.22 to Form 10-K for
the fiscal year ended December 31, 1992).
10.23- Letter terminating Management Agreement with Zack Hampton
Bacon, III dated March 31, 1993 (filed as Exhibit 10.23 to Form
10-K for the fiscal year ended December 31, 1993).
10.24- Letter terminating Management Agreement with PRAGMA, Inc.
dated July 29, 1994 (filed as Exhibit 10.24 to Form 10-K for the
fiscal year ended December 31, 1994).
10.25- Management Agreement dated September 1, 1994 the Partnership,
the General Partner and Gill Capital Management(filed as Exhibit
10.25 to Form 10-K for the fiscal year ended December 31, 1994).
28
10.26- Letters extending Management Agreements with John W. Henry &
Co., Sunrise Capital Management, Inc. and Gill Capital Management
dated February 16, 1995 (filed as Exhibit 10.26 to Form 10-K for
the fiscal year ended December 31, 1994).
10.27- Letter terminating Management Agreement with Gill Capital
Management dated June 27, 1995 (filed as Exhibit 10.27 to Form
10-K for the fiscal year ended December 31, 1995).
10.28- Letter terminating Management Agreement with Sunrise Capital
Management dated December 23, 1996 (previously filed).
10.29- Letters extending Managements Agreements with John W. Henry &
Company, Inc. for 1996 and 1997 (Filed as Exhibit 10.29 to Form
10-K for fiscal year ended December 31, 1997).
10.30- Letter extending Management Agreement with John W. Henry &
Company, Inc. for 1998 (previously filed).
10.31- Letter extending Management Agreement with John W. Henry &
Company, Inc. for 1999 (previously filed).
10.32- Letter extending Management Agreement with John W. Henry &
Company, Inc. for 2000 (previously filed).
10.33- Letter extending Management Agreement with John W. Henry &
Company, Inc. for 2001 (previously filed).
10.34- Letter extending Management Agreements with John W. Henry &
Company, Inc. for 2002 (previously filed)
10.35- Letter extending Management Agreements with John W. Henry &
Company, Inc. for 2003 (filed herein)
16.10 - Letter from PricewaterhouseCoopers LLP (filed herein).
The exhibits required to be filed by Item 601 of Regulation S-K
are incorporated herein by reference.
31.1 - Rule 13a-14(a)/15d-14(a) Certification (Certification of
President and Director)
31.2 - Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief
Financial Officer and Director)
32.1 - Section 1350 Certification (Certification of President and
Director)
32.2 - Section 1350 Certification (Certification of Chief Financial
Officer and Director)
(b) Reports on 8-K: None Filed.
29
Supplemental Information To Be Furnished With Reports Filed Pursuant To Section
15(d) Of The Act by Registrants Which Have Not Registered Securities Pursuant To
Section 12 Of the Act.
Annual Report to Limited Partners
No proxy material has been sent to Limited Partners.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 29th day of March 2004.
SHEARSON SELECT ADVISORS FUTURES FUND L.P.
By: Citigroup Managed Futures LLC
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Shelley Ullman
David J. Vogel Shelley Ullman
President and Director Director
/s/ Maureen O'Toole /s/ Steve J. Keltz
Maureen O'Toole Steve J. Keltz
Director Secretary and Director
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
31
Exhibit 31.1
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this annual report on Form 10-K of Shearson Select Advisors
Futures Fund L.P. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition and results of operations of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, is made known to us
by others within those entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 29, 2004
/s/ David J. Vogel
David J. Vogel
Citigroup Managed Futures LLC
President and Director
32
Exhibit 31.2
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Shearson Select Advisors
Futures Fund L.P. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition and results of operations of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, is made known to us
by others within those entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 29, 2004
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
33
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Shearson Select Advisors Futures Fund
L.P. (the "Partnership") on Form 10-K for the year ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
/s/ David J. Vogel
David J. Vogel
Citigroup Managed Futures LLC
President and Director
Date: March 29, 2004
34
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Shearson Select Advisors Futures Fund
L.P. (the "Partnership") on Form 10-K for the year ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and Director of
Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
Date: March 29, 2004
35
Smith Barney Futures Management LLC
388 Greenwich Street, 7th Floor
New York, New York 10013-2396
June 11, 2002
John W. Henry & Company, Inc.
301 Yamato Road, Suite 2200
Boca Raton, Fl. 33431-4931
Attn: Mr. Ken Webster
Re: Management Agreement Renewals
Dear Mr. Webster:
We are writing with respect to your management agreements concerning the
commodity pools to which reference is made below (the "Management Agreements").
We are extending the term of the Management Agreements through June 30, 2003 and
all other provisions of the Management Agreements will remain unchanged.
o Shearson Mid-West Futures Fund
o Shearson Lehman Select Advisors Futures Fund L.P.
o JWH Strategic Allocation Master FD LLC
o Smith Barney Mid-West Futures Fund L.P. II
o Smith Barney Westport Futures Fund L.P.
o Hutton Investors Futures Fund, L.P. II (HIFF II)
o AURORA 2001
Please acknowledge receipt of this modification by signing one copy of this
letter and returning it to the attention of Mr. Daniel McAuliffe at the address
above or fax to 212-723-8985. If you have any questions I can be reached at
212-723-5435.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT LLC
By: /s/ Daniel R. McAuliffe, Jr.
-------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer & Director
JOHN W. HENRY & COMPANY, INC.
By: /s/ Ken Webster
-------------------------
Print Name: Ken Webster
DRMcA/sr