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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, 2000
Commission File Number 0-16526
HUTTON INVESTORS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
Delaware 13-3406160
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013 (Address
and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units
of Limited
Partnership
Interest
Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]
As of February 28, 2001, Limited Partnership Units with an aggregate value of
$16,042,033 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Hutton Investors Futures Fund L.P. II
(the "Partnership") is a limited partnership organized on March 31, 1987, under
the Delaware Revised Uniform Limited Partnership Act and commenced trading on
July 24, 1987. The Partnership engages in speculative trading of commodity
futures contracts and other commodity interests, including futures contracts on
United States Treasury bills and other financial instruments, foreign currencies
and stock indices. Redemptions of Units of Limited Partnership Interest in the
Partnership ("Units") for the years ended December 31, 2000, 1999 and 1998 are
reported in the Statement of Partners' Capital on page F-6 under "Item 8.
Financial Statements and Supplementary Data."
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General
Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly
owned subsidiary of Citigroup Inc.
The Partnership trades futures, forwards and options contracts, if
applicable, on commodities on United States of America and foreign commodity
exchanges through a commodity brokerage account maintained with SSB.
2
Under the Limited Partnership Agreement of the Partnership (the "Limited
Partnership Agreement"), the General Partner has sole responsibility for the
management of the business and affairs of the Partnership, but may delegate
trading discretion to one or more trading advisors.
As of December 31, 2000, the General Partner has entered into advisory
agreements (the "Management Agreements") with TrendLogic Associates Inc. and
with John W. Henry & Company, Inc. (collectively the "Advisors"). Two of the
principals of TrendLogic Associates, Inc., Mr. Paul E. Dean and Mr. Richard
Semels, are employees of SSB. The Management Agreements provide that the
Advisors will have sole discretion in determining the investment of the assets
of the Partnership but that the Advisors will have no authority to select the
commodity broker through whom transactions will be executed.
The Management Agreements can be terminated by the General Partner at any
time for any reason whatsoever. The Advisors may terminate the Management
Agreements for any reason upon 30 days' notice to the General Partner. The
Advisors may also terminate the Agreements if the trading policies of the
Partnership are changed in a manner that the Advisor reasonably believes will
adversely affect the performance of its trading strategies.
Pursuant to the terms of the Management Agreements, the Partnership will
pay each Advisor an incentive fee, payable quarterly, equal to 20% of each
Advisor's New Trading Profits (as defined in the Management Agreements).
3
Under the terms of a customer agreement between the Partnership and SSB,
(the "Customer Agreement") the Partnership is obligated to pay commodity
brokerage commissions at $50 per round-turn futures transaction and $25 per
option transaction (inclusive of National Futures Association ("NFA"), floor
brokerage, exchange and clearing fees). The Customer Agreement between the
Partnership and SSB gives the Partnership the legal right to net unrealized
gains and losses. Through April 30, 2000 the General Partner (through SSB)
invested approximately eighty percent (80%) of the Partnership's assets in
interest bearing U.S. Treasury obligations (primarily U.S. Treasury Bills).
Effective May 1, 2000, SSB has agreed to pay the Partnership interest on 80% of
the average daily equity maintained in cash in its account during each month at
the rate of the average non-competitive yield of 13 week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. 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,
2000, 1999, 1998, 1997 and 1996 are set forth under "Item 6. Selected Financial
Data." The Partnership's capital at December 31, 2000 was $16,096,441.
(c) Narrative description of business.
See Paragraphs (a) and (b)
above.
(i) through (x) - Not applicable.
4
(xi) 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.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner
operates out of facilities provided by its affiliate, SSB.
Item 3. Legal Proceedings.
Salomon Smith Barney Inc, ("SSB") is a New York corporation with its
principal place of business at 388 Greenwich St., New York, New York 10013. SSB
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. SSB 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 SSB or any of its individual principals within the
past five years that management believes may have a material impact on SSB's
ability to act as an FCM. In the ordinary course of its business, SSB is a
party to various claims and regulatory inquiries. Proceedings deemed to be
material for purposes of CFTC disclosure requirements are:
In September 1992, Harris Trust and Savings Bank (as trustee for
Ameritech Pension Trust), Ameritech Corporation, and an officer of Ameritech
sued Salomon Brothers Inc and Salomon Brothers Realty Corporation in the U.S.
5
District Court for the Northern District of Illinois (Harris Trust Savings
Bank, not individually but solely as trustee for the Ameritech Pension Trust,
Ameritech Corporation and John A. Edwardson v. Salomon Brothers Inc and Salomon
Brothers Realty Corp.). The complaint alleged that purchases by Ameritech
Pension Trust from the Salomon entities of approximately $20.9 million in
participations in a portfolio of motels owned by Motels of America, Inc. and
Best Inns, Inc. violated the Employee Retirement Income Security Act ("ERISA"),
the Racketeer Influenced and Corrupt Organization Act ('RICO") and state law.
Salomon Brothers Inc had acquired the participations issued by Motels of
America and Best Inns to finance purchases of motel portfolios and sold 95% of
three such issues and 100% of one such issue to Ameritech Pension Trust.
Ameritech Pension Trust's complaint sought (1) approximately $20.9 million on
the ERISA claim, and (2) in excess of $70 million on the RICO and state law
claims as well as other relief. In various decisions between August 1993 and
July 1999, the courts hearing the case have dismissed all of the allegations in
the complaint against the Salomon entities. In October 1999, Ameritech appealed
to the U.S. Supreme Court and in January 2000, the Supreme Court agreed to hear
the case. An argument was heard on April 17, 2000. The appeal seeks review of
the decision of the U.S. Court of Appeals for the Seventh Circuit that
dismissed the sole remaining ERISA claim against the Salomon entities. In June
the Supreme Court reversed the Seventh Circuit and the matter has been remanded
to the Trial Courts.
6
Both the Department of Labor and the Internal Revenue Service have
advised Salomon Brothers Inc that they were or are reviewing the transactions
in which Ameritech Pension Trust acquired such participations. With respect to
the Internal Revenue Service review, Salomon Smith Barney Holdings, Salomon
Brothers Inc and Salomon Brothers Realty have consented to extensions of time
for the assessment of excise taxes that may be claimed to be due with respect
to the transactions for the years 1987, 1988 and 1989.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms,
including Salomon Smith Barney, in the U.S. Bankruptcy Court for the Central
District of California. (County of Orange et aL v. Bear Stearns & Co. Inc.
et al.) The complaint alleged, among other things, that the brokerage firms
recommended and sold unsuitable securities to Orange County. Salomon Smith
Barney and the remaining brokerage firms settled with Orange County in mid
1999.
In June 1998, complaints were filed in the U.S. District Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City
Debt of the City of New Orleans v. Smith Barney Inc, et ano. and The City of
New Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans
seeks a determination that Smith Barney Inc. and another underwriter will be
responsible for any damages that the City may incur in the event the
Internal Revenue Service denies tax exempt status to the City's General
Obligation Refunding Bonds Series 1991. The complaints were subsequently
amended. Salomon Smith Barney has asked the court to dismiss the amended
complaints. The Court denied the motion but stayed the case. Subsequently,
the city withdrew its lawsuit.
7
It November 1998, a class action complaint was filed in the United States
District Court for the Middle District of Florida (Dwight Brock as Clerk for
Collier County v. Merrill Lynch, et al.). The complaint alleged that, pursuant
to a nationwide conspiracy, 17 broker-dealer defendants, including Salomon
Smith Barney, charged excessive mark-ups in connection with advanced refunding
transactions. Among other relief, plaintiffs sought compensatory and punitive
damages, restitution and/or rescission of the transactions and disgorgement of
alleged excessive profits. In October 1999, the plaintiff filed a second
amended complaint. Salomon Smith Barney has asked the court to dismiss the
amended complaint.
In connection with the Louisiana and Florida matters, the IRS and SEC
have been conducting an industry-wide investigation into the pricing of
Treasury securities in advanced refunding transactions. In April 2000 SSB and
several other broker-dealers entered into a settlement with the IRS and the
SEC.
In December 1998, Salomon Smith Barney was one of twenty-eight market
making firms that reached a settlement with the SEC in the matter titled In the
Matter of Certain Market Making Activities on NASDAQ. As part of the settlement
of that matter, Salomon Smith Barney, without admitting or denying the factual
allegations, agreed to an order that required that it: (i) cease and desist
from committing or causing any violations of Sections 15(c)(1) and (2) of the
Securities Exchange Act of 1934 and Rules l5cl -2, 15c2-7 and 17a-3 thereunder,
(ii) pay penalties totaling approximately $760,000, and (iii) submit certain
8
policies and procedures to an independent consultant for review.
In March 1999, a complaint seeking in excess of $250 million was filed by
a hedge fund and its investment advisor against Salomon Smith Barney in the
Supreme Court of the State of New York, County of New York (MKP Master Fund,
LDC et al. v. Salomon Smith Barney Inc.). The complaint included allegations
that, while acting as prime broker for the hedge fund, Salomon Smith Barney
breached its contracts with plaintiffs, misused their monies, and engaged in
tortious (wrongful) conduct, including breaching its fiduciary duties. Salomon
Smith Barney asked the court to dismiss the complaint in full. In October 1999,
the court dismissed the tort claims, including the breach of fiduciary duty
claims. The court allowed the breach of contract and misuse of money claims to
stand, Salomon Smith Barney will continue to contest this lawsuit vigorously.
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 year ended December 31, 2000.
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
public market for the Units of Limited Partnership Interest.
(b)Holders. The number of holders of Units of Partnership Interest as of
December 31, 2000 was 291.
11
(c)Distribution. The Partnership did not declare a distribution in 2000 or
1999.
(d)Use of Proceeds. There were no additional sales in the years ended
December 31, 2000, 1999 and 1998.
10
Item 6. Selected Financial Data.
Net realized and unrealized trading gains (losses), interest income,
net income (loss), increase (decrease) in net asset value per Unit
for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 and
total assets as of December 31, 2000, 1999, 1998, 1997 and 1996 were
as follows:
2000 1999 1998 1997 1996
------------ ------------- ------------ ------------ --------
Net realized and unrealized
trading gains (losses) net
of brokerage commissions
and clearing fees of $731,557,
$740,877, $725,585, $653,350
and $609,752, respectively $ 417,740 $(3,188,507) $2,062,231 $3,259,116 $4,725,245
Interest income 699,719 735,148 784,546 777,388 625,578
---------- ------------- ----------- ----------- ----------
$1,117,459 $(2,453,359) $2,846,777 $4,036,504 $5,350,823
=========== ============= =========== =========== ==========
Net income (loss) $1,097,353 $(2,746,410) $2,350,037 $3,348,067 $4,409,205
=========== ============= =========== =========== ==========
Increase (decrease)
in net asset value
per Unit $594.95 $(773.76) $644.44 $845.88 $1,069.22
======== ========== ======== ======== =========
Total assets $16,864,975 $19,553,584 $23,279,963 $22,381,511 $20,205,672
============ ============= ============ ============ ===========
11
34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
(1) Liquidity. The Partnership does not engage in sales of goods or
services. The Partnership's only assets are its equity in its commodity futures
trading account, consisting of cash and net unrealized appreciation
(depreciation) on open positions. Because of the low margin deposits normally
required in commodity trading, relatively small price movements may result in
substantial losses to the Partnership. Substantial losses resulting from such
price movements could lead to a material decrease in liquidity. To minimize this
risk, the Partnership follows certain policies including:
(a) Partnership funds are invested only in commodity interests which
are traded in sufficient volume to permit, in the opinion of the Advisors, ease
of taking and liquidating positions.
(b) The Partnership diversifies its positions among various
commodities. The Partnership does not initiate additional positions in a
commodity if such additional positions would result in a net long or short
position in such commodity requiring as margin more than 15% of the net assets
of the Partnership.
(c) The Partnership does not initiate additional positions in any
commodity if such additional positions would result in aggregate positions for
all commodities requiring as margin more than 66 2/3% of the Partnership's net
assets.
(d) The Partnership may occasionally accept delivery of a commodity.
Unless such delivery is disposed of promptly by retendering the warehouse
receipt representing the delivery to the appropriate clearing house, the
physical commodity position is fully hedged.
12
(e) 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 purchase or sale of additional positions in
the same or related commodities.
(f) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(g) The Advisors 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.
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
financial instruments at specified terms at specified future dates. Each of
these instruments is subject to various risks similar to those relating to the
13
underlying financial instruments including market and credit risk. 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. (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
requires dissolution of the Partnership under certain circumstances as defined
in the Limited Partnership Agreement including, but not limited to, a decrease
in the net asset value of a Unit to less than $500 as of the close of business
on any business day, or a decrease in the aggregate net assets of the
Partnership to less than $1,000,000, or on December 31, 2007.
(2) Capital resources. (a) The Partnership has made no material
commitments for capital expenditures as of the end of the latest fiscal period.
(b) The Partnership's capital consists of the capital contributions
of the Partners as increased or decreased by gains or losses on trading of
commodity interests, expenses, interest income, redemptions of Units and
14
distributions of profits, if any. Gains or losses on commodity trading cannot be
predicted. Market movements in commodities are dependent upon fundamental and
technical factors which the Partnership's Advisors may or may not be able to
identify. Partnership expenses consist of, among other things, commissions and
incentive fees. The level of these expenses is dependent upon the level of
trading and the ability of the Advisors to identify and take advantage of price
movements in the commodity markets, in addition to the level of net assets
maintained.
No forecast can be made as to the level of redemptions in any given
period. A limited partner may redeem some or all of his Units at the net asset
value thereof as of the last day of any calendar quarter on 10 business days
notice to the General Partner. For the year ended December 31, 2000, 795 Units
were redeemed for a total of $3,854,993. For the year ended December 31, 1999,
233 Units were redeemed for a total of $1,378,283. For the year ended December
31, 1998, 168 Units were redeemed for a total of $912,753.
(3) Results of Operations. For the year ended December 31, 2000, the
net asset value per Unit increased 10.9% from $5,458.62 to $6,053.57. For the
year ended December 31, 1999, the net asset value per Unit decreased 12.4% from
$6,232.38 to $5,458.62. For the year ended December 31, 1998 the net asset value
per Unit increased 11.5% from $5,587.94 to $6,232.38.
The Partnership experienced net trading gains of $1,149,297 before
commissions and expenses for the year ended December 31, 2000. Gains were
15
primarily attributable to the trading in currencies, energy products, U.S.
interest rates and indices and were partially offset by losses recognized in the
trading of metals, grains, livestock, non-U.S. interest rates and softs.
The Partnership experienced net trading losses of $2,447,630 before
commissions and expenses for the year ended December 31, 1999. These losses were
primarily attributable to the trading of commodity futures in non-U.S. interest
rates, metals, softs, livestock, grains and indices and were partially offset by
gains in the trading of currencies, energy products and U.S. interest rates.
The Partnership experienced net trading gains of $2,787,816 before
commissions and expenses for the year ended December 31, 1998. These gains were
primarily attributable to the trading of commodity futures in currencies, U.S.
and non-U.S. interest rates, livestock and energy products and were partially
offset by losses realized in metals, softs, grains and indices.
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 Partnership depends on the
existence of major price trends and the ability of the Advisors 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. The
Advisors' technical trading methods do not generally take into account such
fundamental factors. To the extent that market trends exist and the Advisors are
able to identify them, the Partnership expects to increase capital through
operations.
16
(4) 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, with
customers, among units within the Partnership, and in the markets where the
Partnership participates.
17
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
unitholders, creditors, and regulators, is free of material errors.
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.
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
18
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
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
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
19
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 Advisors 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 or 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.
20
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, certain of the Advisors 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
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.
21
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, 2000. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 2000, the
Partnership's total capitalization was $16,096,441.
December 31, 2000
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ----------------------------------------------------------------------------------------------------------------
Currencies
- -Exchange Traded Contracts $ 15,928 0.10% $217,375 $ 8,319
- -OTC Contracts 503,490 3.13% 990,070 398,746
Energy 198,000 1.23% 314,200 27,000
Grains 182,600 1.13% 622,400 28,400
Interest rates U.S. 190,850 1.19% 327,700 44,793
Interest rates Non-U.S. 881,303 5.47% 1,102,465 429,750
Livestock 4,260 0.03% 4,925 2,100
Metals (Exchange Traded and
OTC Contracts) 122,000 0.76% 397,750 93,750
Softs 77,174 0.48% 157,204 31,371
Indices 353,301 2.19% 466,824 121,147
---------- ------
Total $2,528,906 15.71%
========== ======
22
As of December 31, 1999, the Partnership's total capitalization was $18,854,081.
December 31, 1999
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ------------------------------------------------------------------------------------------------------------------
Currencies
- -Exchange Traded Contracts $ 87,654 0.46% $ 87,654 $ 30,707
- -OTC Contracts 772,587 4.10% 1,030,602 532,946
Energy 142,600 0.76% 145,800 121,500
Grains 29,550 0.16% 48,050 28,850
Interest rates U.S. 198,700 1.05% 357,150 159,510
Interest rates Non-U.S. 605,380 3.21% 1,274,425 395,007
Livestock 4,925 0.03% 11,225 2,800
Metals (Exchange Traded and
OTC Contracts) 358,750 1.90% 473,200 71,000
Softs 157,754 0.84% 162,423 70,017
Indices 330,285 1.75% 627,583 127,011
---------- ------
Total $2,688,185 14.26%
========== ======
23
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
24
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 Advisors 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, 2000, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of the
Partnership. Interest rate movements directly affect the price of the futures
positions held by the Partnership and indirectly affect the value of its stock
25
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-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future.
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 dollar-based Partnership in expressing
Value at Risk in a functional currency other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based indices. As of
December 31, 2000, the Partnership's primary exposures were in the Financial
26
Times (England) and Nikkei (Japan) stock indices. The General Partner
anticipates little, if any, trading in non-G-7 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 certain of the Advisors will from time
to time trade base metals such as aluminum and 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.
Softs. The Partnership's primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected
weather conditions. Coffee, cocoa, cotton and sugar accounted for the
substantial bulk of the Partnership's commodity exposure as of December 31,
2000.
Energy. The Partnership's primary energy market exposure is oil price
movements, often resulting from political developments in the Middle East. Oil
prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership
as of December 31, 2000.
27
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, Euro dollar and Swiss francs. The Advisor
regularly converts foreign currency balances to 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 Advisors concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require certain of the Advisors 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 Advisors' own risk control policies
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
Each Advisor applies its own risk management policies to its trading. The
Advisors often follow diversification guidelines, margin limits and stop loss
points to exit a position. The Advisors' research of risk management often
suggests ongoing modifications to their trading programs.
As part of the General Partner's risk management, the General Partner
28
periodically meets with the Advisors to discuss their risk management and to
look for any material changes to the Advisors' portfolio balance and trading
techniques. The Advisors are required to notify the General Partner of any
material changes to their programs.
29
Item 8. Financial Statements and Supplementary Data.
HUTTON INVESTORS FUTURES FUND L.P. II
INDEX TO FINANCIAL STATEMENTS
Page
Number
Oath or Affirmation F-2
Report of Independent Accountants. F-3
Financial Statements:
Statement of Financial Condition at
December 31, 2000 and 1999. F-4
Statement of Income and Expenses for
the years ended December 31, 2000,
1999 and 1998. F-5
Statement of Partners' Capital for the
years ended December 31, 2000, 1999
and 1998 F-6
Notes to Financial Statements. F-7 - F-11
F-1
To The Limited Partners of
Hutton Investors Futures Fund L.P. II
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel A. Dantuono, Chief Financial Officer
Smith Barney Futures Management LLC
General Partner, Hutton Investors Futures
Fund L.P. II
Smith Barney Futures Management LLC
388 Greenwich Street
7th Floor
New York, N.Y. 10013
212-723-5424
F-2
Report of Independent Accountants
To the Partners of
Hutton Investors Futures Fund L.P. II:
In our opinion, the accompanying statement of financial condition and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Hutton Investors
Futures Fund L.P. II at December 31, 2000 and 1999, and the results of its
operations for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2001
F-3
Hutton Investors
Futures Fund L.P. II
Statement of Financial Condition
December 31, 2000 and 1999
2000 1999
Assets:
Equity in commodity futures trading account:
Cash (Note 3b) $14,125,192 $19,229,078
Net unrealized appreciation on open
positions 2,678,594 324,506
----------- -----------
16,803,786 19,553,584
Interest Income 61,189 --
----------- -----------
$16,864,975 $19,553,584
----------- -----------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 93,670 $ 73,856
Professional fees 35,068 40,284
Other 4,171 23,125
Redemptions payable (Note 5) 635,625 562,238
----------- -----------
768,534 699,503
----------- -----------
Partners' capital (Notes 1, 5 and 6):
General Partner, 44 Unit equivalents
outstanding in 2000 and 1999 266,357 240,179
Limited Partners 2,615 and 3,410 Units
of Limited Partnership
Interest outstanding in 2000 and 1999,
respectively 15,830,084 18,613,902
----------- -----------
16,096,441 18,854,081
----------- -----------
$16,864,975 $19,553,584
----------- -----------
See notes to financial statements.
F-4
Hutton Investors
Futures Fund L.P. II
Statement of Income and Expenses
for the years ended
December 31, 2000, 1999 and 1998
2000 1999 1998
Income:
Net gains (losses) on
trading of commodity interests:
Realized gains (losses)
on closed positions $(1,204,791) $ (608,736) $ 1,909,731
Change in unrealized
gains (losses) on
open positions 2,354,088 (1,838,894) 878,085
----------- ----------- -----------
1,149,297 (2,447,630) 2,787,816
Less,
Brokerage commissions
including clearing fees
of $17,497, $21,682 and
$18,793, respectively
(Note 3b) (731,557) (740,877) (725,585)
----------- ----------- -----------
Net realized
and unrealized
gains (losses) 417,740 (3,188,507) 2,062,231
Interest income
(Note 3b) 699,719 735,148 784,546
----------- ----------- -----------
1,117,459 (2,453,359) 2,846,777
----------- ----------- -----------
Expenses:
Professional fees 20,106 46,635 45,634
Other expenses -- 24,290 4,287
Incentive fees
(Note 3a) -- 222,126 446,819
----------- ----------- -----------
20,106 293,051 496,740
----------- ----------- -----------
Net income (loss) $ 1,097,353 $(2,746,410) $ 2,350,037
----------- ----------- -----------
Net income
(loss) per Unit of
Limited Partnership
Interest and General
Partner Unit equivalent
(Notes 1 and 6 $ 594.95 $ (773.76) $ 644.44
----------- ----------- -----------
See notes to financial statements.
F-5
Hutton Investors
Futures Fund L.P. II
Statement of Partners' Capital
for the years ended
December 31, 2000, 1999 and 1998
Limited General
Partners Partner Total
Partners' capital at
December 31, 1997 $ 21,295,621 $ 245,869 $ 21,541,490
Net income 2,321,681 28,356 2,350,037
Redemption of 168
Units of Limited
Partnership Interest (912,753) -- (912,753)
------------ ------------ ------------
Partners' capital at
December 31, 1998 22,704,549 274,225 22,978,774
Net loss (2,712,364) (34,046) (2,746,410)
Redemption of 233 Units of
Limited Partnership
Interest (1,378,283) -- (1,378,283)
------------ ------------ ------------
Partners' capital at
December 31, 1999 18,613,902 240,179 18,854,081
Net income 1,071,175 26,178 1,097,353
Redemption of 795 Units of
Limited Partnership
Interest (3,854,993) -- (3,854,993)
------------ ------------ ------------
Partners' capital at
December 31, 2000 $ 15,830,084 $ 266,357 $ 16,096,441
------------ ------------ ------------
See notes to financial statements.
F-6
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
1. Partnership Organization:
Hutton Investors Futures Fund L.P. II (the "Partnership") is a limited
partnership which was organized under the partnership laws of the State of
Delaware on March 31, 1987 to engage 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 30,000 Units of Limited Partnership
Interest ("Units") during its initial offering period.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker
is Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General
Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly
owned subsidiary of Citigroup Inc.
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 his 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; the net asset value of a Unit decreases to
less than $500 per unit; the aggregate net assets of the Partnership
decline 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 statement 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 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.
b. Commission charges to open and close futures contracts are expensed at
the time the positions are opened.
c. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
d. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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-7
3. Agreements:
a. Management Agreements:
The General Partner has Management Agreements with Trendlogic Associates
and John W. Henry & Company, Inc., (the "Advisors"). Two of the
principals of Trendlogic Associates, Mr. Paul E. Dean and Mr. Richard
Semels, are employees of SSB. The Agreements provide that the Advisors
have sole discretion to determine the investment of the assets of the
Partnership, subject to the Partnership's trading policies set forth in
the Partnership's prospectus. Pursuant to each management agreement, each
Advisor is entitled to an incentive fee, payable quarterly, equal to 20%
of the New Trading Profits, as defined in the Management Agreements, on
the assets under such Advisor's management.
b. Customer Agreement:
The Partnership has entered into a Customer Agreement, which has been
assigned to SSB, from a predecessor company, whereby SSB provides
services which include, among other things, the execution of transactions
for the Partnership's account in accordance with orders placed by the
Advisors. The Partnership is obligated to pay brokerage commissions to
SSB at $50 per roundturn futures and forwards transaction and $25 per
option transaction which includes floor brokerage, exchange, clearing and
NFA fees. All of the Partnerships' assets are deposited in the
Partnership's account at SSB. The Partnership's cash is deposited by SSB
in segregated bank accounts to the extent required by Commodity Futures
Trading Commission regulations. At December 31, 2000 and 1999, the amount
of cash held for margin requirements was $2,790,726 and $3,005,430,
respectively. Through April 30, 2000, the Customer Agreement provided
that approximately 80% of the Partnership's assets be maintained in
interest bearing U.S. Treasury obligations, including assets to be
utilized as margin for commodities positions. Effective May 1, 2000, SSB
has agreed to pay the Partnership interest on 80% of the average daily
equity maintained in cash in its account during each month at the rate of
the average non-competitive 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 SSB gives the Partnership the legal
right to net unrealized gains and losses.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety
of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
F-8
All of the commodity interests owned by the Partnership are held for trading
purposes. The average fair value during the years ended December 31, 2000
and 1999, based on a monthly calculation, was $625,386 and $1,049,373,
respectively. The fair value of these commodity interests, including options
thereon, if applicable, at December 31, 2000 and 1999 was $2,678,594 and
$324,506, respectively, as detailed below.
Fair Market Value
December 31, December 31,
2000 1999
Currencies:
-Exchange Traded Contracts $ 53,797 $ 5,475
-OTC Contracts 1,065,113 (156,409)
Energy 125,770 76,787
Grains 33,440 37,761
Interest Rates U.S. 592,991 262,064
Interest Rates Non-U.S 593,276 71,821
Livestock 6,750 810
Metals (Exchange Traded and OTC Contracts) (41,972) (116,506)
Softs (48,067) 86,055
Indices 297,496 56,648
----------- -----------
Total $ 2,678,594 $ 324,506
----------- -----------
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 his
Units at the net asset value thereof as of the last day of any calendar
quarter on 10 business days' notice to the General Partner, provided that no
redemption may result in the limited partner holding fewer than three Units
after such redemption is effected.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest during the
years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
Net realized and unrealized
gains (losses) $ 380.39 $ (896.58) $ 570.01
Interest income 220.09 203.69 207.46
Expenses (5.53) (80.87) (133.03)
-------- -------- --------
Increase (decrease) for year 594.95 (773.76) 644.44
Net asset value per
Unit, beginning of year 5,458.62 6,232.38 5,587.94
-------- -------- --------
Net asset value per
Unit, end of year $ 6,053.57 $ 5,458.62 $6,232.38
-------- -------- --------
F-9
7. Financial Instrument Risks:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments may include forwards, futures and options, whose value is based
upon an underlying asset, index, or reference rate, and generally represent
future commitments to exchange currencies or cash flows, to purchase or sell
other financial instruments at specific terms at specified future dates, or,
in the case of derivative commodity instruments, to have a reasonable
possibility to be settled in cash, through physical delivery or with another
financial instrument. These instruments may be traded on an exchange or
over-the-counter ("OTC"). Exchange traded instruments are standardized and
include futures and certain option contracts. OTC contracts are negotiated
between contracting parties and include forwards and certain options. Each
of these instruments is subject to various risks similar to those related to
the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the transactions
(see table in Note 4). The Partnership's risk of loss in the event of
counterparty default is typically limited to the amounts recognized in the
statement of financial condition and not represented by the contract or
notional amounts of the instruments. The Partnership has credit risk and
concentration risk because the sole counterparty or broker with respect to
the Partnership's assets is SSB.
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.
F-10
The notional or contractual amounts of these instruments, while
appropriately not recorded in the financial statements, reflect the extent
of the Partnership's involvement in these instruments. The majority of these
instruments mature within one year of December 31, 2000. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity.
F-11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
During the last two fiscal years and any subsequent interim period,
no independent accountant who was engaged as the principal accountant to audit
the Partnership's financial statements has resigned or was dismissed.
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, Smith Barney Futures Management LLC. Investment
decisions are made by the Advisors.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are
managed by the General Partner. See "Item 1. Business." SSB is the commodity
broker for the Partnership and receives brokerage commissions for its services
at an amount equal to $50 per round-turn futures transaction and $25 per option
transaction (inclusive of NFA, exchange and clearing fees) as described in "Item
1. Business." and "Item 8. Financial Statements and Supplementary Data." For the
year ended December 31, 2000, SSB earned $731,557 in brokerage commissions and
clearing fees.
The Advisors manage the Partnership's investments and receive a quarterly
incentive fee, as described under "Item 1. Business." For the year ended
December 31, 2000, the Advisors did not earn an incentive fee.
30
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 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 44 Units (1.6%) of Limited Partnership Interest as of December 31,
2000.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Salomon Smith Barney Inc. and Smith Barney Futures Management LLC
would be considered promoters for purposes of Item 404(d) of Regulation S-K. The
nature and the amount of compensation received by SSB and the General Partner
from the Partnership are set forth under "Item 1. Business.", "Item 8. Financial
Statements and Supplementary Data.", Note 3b. and "Item 11. Executive
Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 2000 and 1999.
Statement of Income and Expenses for the years ended December
31
31, 2000, 1999 and 1998.
Statement of Partners' Capital for the years ended December 31,
2000, 1999 and 1998.
(2) Financial Statement Schedules: Financial Data Schedule for
the year ended December 31, 2000.
(3) Exhibits:
3. Agreement of Limited Partnership of Hutton Investors
Futures Fund L.P. II (the "Partnership") dated as of
March 30, 1987, as amended and restated as of June 1,
1987).
10.1 Form of Subscription Agreement (incorporated by
reference from Exhibit E to the Prospectus contained
in Amendment No. 1 to the Registration Statement on
Form S-1 (File No.33-13485) filed by the Partnership
on June 5, 1987).
10.2 Form of Request for Redemption (incorporated by
reference from Exhibit B to the Prospectus contained
in Amendment No.1 to the Registration Statement on
Form S-1 (File No. 33-13485) filed by the Partnership
on June 5, 1987).
10.3 Escrow Agreement dated June 9, 1987, among the
Partnership, Hutton Commodity Management Inc., E.F.
Hutton & Company Inc. and Chemical Bank (previously
filed).
32
10.4 Brokerage Agreement dated as of July 23, 1987,
between the Partnership and E.F. Hutton & Company
Inc. (previously filed).
10.5 Advisory Agreement dated as of March 31, 1987, among
the Partnership, Hutton Commodity Management Inc.,
Desai & Company and John W. Henry & Company, Inc. the
Partnership, Hutton Commodity Management Inc.,
(previously filed).
10.6 Representation Agreement concerning the Registration
Statement and the Prospectus dated as of June 9,
1987, among the Partnership, Hutton & Company Inc.,
Cresta Commodity Management Inc., Desai & Company and
John W. Henry & Company, Inc. (previously filed).
10.7 Net Worth Agreement dated as of June 3, 1987, between
Hutton Commodity Management Inc. and the E.F. Hutton
Group Inc. (previously filed).
10.8 Copy of executed Promissory Note dated June 3, 1987,
from The E.F. Hutton Group Inc. to Hutton Commodity
Management Inc. (previously filed).
10.9 Letter amending and extending Management Agreement
dated March 31, 1987 among the Partnership, Hutton
33
Commodity Management, Inc., John W. Henry & Company,
Inc. and Desai & Company as of September 26, 1989
(previously filed).
10.10 Letter dated August 28, 1990 from the Partnership
to John W. Henry & Company, Inc. extending Management
Agreement (filed as Exhibit k to Form 10-K for the
fiscal year ended December 31, 1990 and incorporated
herein by reference).
10.11 Letter dated August 28, 1990 from Partnership to
Desai & Company extending Management Agreement (filed
as Exhibit l to Form 10-K for the fiscal year ended
December 31, 1990 and incorporated herein by
reference).
10.12 Letter dated January 17, 1991 from the Partnership
to Desai & Company terminating Management Agreement
(filed as Exhibit m to Form 10-K for the fiscal year
ended December 31, 1990 and incorporated herein
by reference).
10.13 Advisory Agreement dated January 30, 1991 among the
Partnership, the General Partner and TrendLogic
Associates, Inc. (filed as Exhibit n to Form 10-K
for the fiscal year ended December 31, 1990 and
incorporated herein by reference).
34
10.14 Letter dated August 30, 1991 from the General Partner
to John W. Henry & Company, Inc. extending Advisory
Agreement (filed as Exhibit o to Form 10-K for the
fiscal year ended December 31, 1991 and incorporated
herein by reference).
10.15 Letter dated August 30, 1991 from the General Partner
to TrendLogic Associates, Inc. extending Advisory
Agreement (filed as Exhibit p to Form 10-K for the
fiscal year ended December 31, 1991).
10.16 Letter dated August 31, 1992 from the General Partner
to John W. Henry & Company, Inc. (filed as Exhibit q
to Form 10-K for the fiscal year ended December 31,
1991).
10.17 Letter dated August 31, 1992 from the General Partner
to TrendLogic Associates, Inc. extending Advisory
Agreements (filed as Exhibit r to Form 10-K for the
fiscal year ended December 31, 1992 and incorporated
herein by reference).
10.18 Letter dated August 31, 1993 from the General Partner
to John W. Henry & Company, Inc. extending Advisory
Agreements (filed as Exhibit s to Form 10-K for the
35
fiscal year ended December 31, 1993 and incorporated
herein by reference).
10.19 Letter dated August 31, 1993 from the General Partner
to TrendLogic Associates, Inc. (filed as Exhibit t
to Form 10-K for the fiscal year ended December 31,
1993).
10.20 Letter dated February 16, 1995 from the General
Partner to TrendLogic Associates, Inc. extending
Advisory Agreement (filed as Exhibit u to Form 10-K
for the fiscal year ended December 31, 1994).
10.21 Letter dated February 16, 1995 from the General
Partner to John W. Henry & Company, Inc. extending
Advisory Agreement (filed as Exhibit v to Form 10-K
for the fiscal year ended December 31, 1994).
10.22 Letter extending Management Agreements with John W.
Henry & Company, Inc. and TrendLogic Associates, Inc.
for 1996 and 1997 (previously filed).
10.23 Letters extending Management Agreements with John W.
Henry & Company, Inc. and TrendLogic Associates, Inc.
for 1998 (previously filed).
36
10.24 Letter extending Management Agreements with John W.
Henry & Company, Inc. and TrendLogic Associates, Inc.
for 1999 (previously filed).
10.25 Letter extending Management Agreements with John W.
Henry and Company, Inc. and TrendLogic Associates,
Inc. for 2000 (filed herein).
(b) Report on Form 8-K: None Filed
37
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
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of 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 30th day of March 2001.
HUTTON INVESTORS FUTURES FUND L.P.II
By: Smith Barney Futures Management 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/ Jack H. Lehman III
David J. Vogel Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President
/s/ Michael R. Schaefer /s/ Daniel A. Dantuono
Michael R. Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
39