FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2003
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 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)
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 whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes _____ No X
HUTTON INVESTORS FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
June 30, 2003 and December 31,
2002 (unaudited). 3
Condensed Schedules of Investments
at June 30, 2003 and December 31,
2002 (unaudited). 4 - 5
Statements of Income and Expenses
and Partners' Capital for the three and
six months ended June 30, 2003 and 2002
(unaudited). 6
Notes to Financial Statements
(unaudited). 7 - 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12 - 14
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15 - 16
Item 4. Controls and Procedures 17
PART II - Other Information 18
2
PART I
Item 1. Financial Statements
HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
2003 2002
------------- --------------
ASSETS:
Equity in commodity futures trading account:
Cash (restricted $2,946,215 and $2,945,807 in 2003
and 2002, respectively) $ 23,476,464 $ 17,912,046
Net unrealized (depreciation) appreciation on
open positions * (1,563,108) 1,850,754
------------ ------------
21,913,356 19,762,800
Interest receivable 15,241 15,554
------------ ------------
$ 21,928,597 $ 19,778,354
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 104,100 $ 72,150
Incentive fees 38,479 -
Other 63,402 40,361
Redemptions payable 188,311 179,069
------------ ------------
394,292 291,580
------------ ------------
Partners' capital :
General Partner, 44 Unit equivalents
outstanding in 2003 and 2002 414,285 358,139
Limited Partners, 2,243.0950 and 2,350.0950 Units
of Limited Partnership Interest
outstanding in 2003 and 2002, respectively 21,120,020 19,128,635
------------ ------------
21,534,305 19,486,774
------------ ------------
$ 21,928,597 $ 19,778,354
============ ============
* Forward contracts included in this balance are presented gross in the
accompanying Condensed Schedules of Investments.
See Accompanying Notes to Unaudited Financial Statements.
3
Hutton Investors Futures Fund L.P. II
Condensed Schedule of Investments
June 30, 2003
(Unaudited)
Sector Contract Fair Value
- -------------------- ------------------------------------------------- -----------
Currencies
Unrealized appreciation on forward contracts 2.13% $ 458,536
Unrealized depreciation on forward contracts (4.31)% (928,983)
-------------
Total Currencies (2.19)% (470,447)
-------------
Total Energy (0.54)% Futures contracts purchased (0.54)% (116,197)
-------------
Grains
Futures contracts purchased (0.05)% (11,441)
Futures contracts sold 0.11% 23,675
-------------
Total Grains 0.06% 12,234
-------------
Total Interest Rates U.S. (0.53)% Futures contracts purchased (0.53)% (113,900)
-------------
Interest Rates Non-U.S.
Futures contracts purchased (2.91)% (627,491)
Futures contracts sold 0.53% 115,714
-------------
Total Interest Rates Non-U.S. (2.38)% (511,777)
-------------
Total Livestock 0.01% Futures contracts purchased 0.01% 1,580
-------------
Metals
Futures contracts purchased (0.39)% (82,700)
Futures contracts sold (0.02)% (4,750)
-------------
Total futures contracts (0.41)% (87,450)
-------------
Unrealized appreciation on forward contracts 0.04% 7,584
Unrealized depreciation on forward contracts (1.47)% (316,418)
-------------
Total forward contracts (1.43)% (308,834)
-------------
Total Metals (1.84)% (396,284)
-------------
Total Softs (0.35)% Futures contracts sold (0.35)% (75,650)
-------------
Total Indices 0.50% Futures contracts purchased 0.50% 107,333
-------------
Total Fair Value (7.26)% $ (1,563,108)
=============
Investments at % of Investments
Country Composition at Fair Value at Fair Value
- ---------------------- ---------------- ------------
Australia $ (221,362) (14.16)%
Canada (1,912) (0.12)
Germany (135,246) (8.65)
Japan 51,341 3.28
United Kingdom (374,253) (23.94)
United States (881,676) (56.41)
---------------- --------
$ (1,563,108) (100.00)%
================= =======
Percentages are based on Partners' capital unless otherwise indicated
See Accompanying Notes to Unaudited Financial Statements.
4
Hutton Investors
Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2002
Sector Number of Contracts Contract Fair Value
- ------ ------------------- -------- ----------
Currencies Unrealized depreciation on forward contracts (2.21)% $(431,679)
Unrealized appreciation on forward contracts 6.14%
EURO 21,400,000 EURO/USD 2.94%, March 19, 2003 573,398
Other 3.20% 623,722
---------
Total forward contracts 3.93% 765,441
---------
Futures contracts sold 0.05% 11,000
Futures contracts purchased 0.14% 26,588
---------
Total futures contracts 0.19% 37,588
---------
Total Currencies 4.12% 803,029
---------
Total Energy 0.75% Futures contracts purchased 0.75% 145,228
---------
Grains Futures contracts sold 0.43% 84,575
Futures contracts purchased (0.03)% (5,385)
---------
Total Grains 0.40% 79,190
---------
Interest Rates Futures contracts sold (0.48)% (92,719)
Futures contracts purchased 0.72% 140,228
---------
Total Interest Rates U.S. 0.24% 47,509
---------
Total Interest Rates Non-U.S. 3.22% Futures contracts purchased 3.22% 627,010
---------
Livestock Futures contracts sold 0.00% * 740
Futures contracts purchased 0.04% 7,240
---------
Total Livestock 0.04% 7,980
---------
Metals Futures contracts sold (0.01)% (1,470)
Futures contracts purchased 1.03% 200,645
---------
Total futures contracts 1.02% 199,175
Unrealized depreciation on forward contracts (0.54)% (106,773)
Unrealized appreciation on forward contracts 0.11% 22,030
---------
Total forward contracts (0.43)% (84,743)
---------
Total Metals 0.59% 114,432
---------
Softs Futures contracts sold 0.02% 3,245
Futures contracts purchased 0.21% 41,050
---------
Total Softs 0.23% 44,295
---------
Indices Futures contracts sold 0.19% 36,488
Futures contracts purchased (0.28)% (54,407)
---------
Total Indices (0.09)% (17,919)
---------
Total Fair Value 9.50% $1,850,754
==========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- ----------------------- -------------------------- ------------------------
Australia $55,016 2.97%
Canada 4,532 0.24
Germany 228,676 12.36
Japan 197,886 10.69
United Kingdom 64,517 3.49
United States 1,300,127 70.25
--------------------- ------------------------
$1,850,754 100.00%
======================= ========================
Percentages are based on Partners' capital unless otherwise indicated
*Due to rounding
See Accompanying Notes to Unaudited Financial Statements.
5
HUTTON INVESTORS FUTURES FUND L.P. II
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- --------------------------------
2003 2002 2003 2002
---------------- --------------- ------------- --------------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains on closed positions $ 1,485,184 $ 1,971,022 $ 7,147,445 $ 1,120,871
Change in unrealized gains (losses) on open
positions (1,001,643) 2,648,257 (3,413,862) 2,168,738
---------------- --------------- ------------- --------------
483,541 4,619,279 3,733,583 3,289,609
Interest income 48,454 48,566 96,343 98,113
---------------- --------------- ------------- --------------
531,995 4,667,845 3,829,926 3,387,722
---------------- --------------- ------------- --------------
Expenses:
Brokerage commissions including clearing fees
of $7,005, $4,960, $11,807 and $9,364 respectively 278,889 164,673 471,554 346,245
Incentive fees 38,479 128,579 286,455 128,579
Other expenses 12,135 12,326 23,041 24,654
---------------- --------------- ------------- --------------
329,503 305,578 781,050 499,478
---------------- --------------- ------------- --------------
Net income 202,492 4,362,267 3,048,876 2,888,244
Redemptions (283,056) (116,916) (1,001,345) (339,358)
---------------- --------------- ------------- --------------
Net increase (decrease) in Partners' capital (80,564) 4,245,351 2,047,531 2,548,886
Partners' capital, beginning of period 21,614,869 13,892,016 19,486,774 15,588,481
---------------- --------------- ------------- --------------
Partners' capital, end of period $ 21,534,305 $ 18,137,367 $ 21,534,305 $ 18,137,367
================ =============== ============= ==============
Net asset value per Unit
(2,287.0950 and 2,482.0950 Units outstanding
at June 30, 2003 and 2002, respectively) $ 9,415.57 $ 7,307.28 $ 9,415.57 $ 7,307.28
================ =============== ============= ==============
Net income per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 87.14 $ 1,746.24 $ 1,276.05 $ 1,165.48
================ =============== ============= ==============
See Accompanying Notes to Unaudited Financial Statements.
6
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
1. General
Hutton Investors Futures Fund L.P. II (the "Partnership") is a limited
partnership organized on March 31, 1987 under the partnership laws of the State
of Delaware 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 commenced operations on
July 24, 1987.
On April 7, 2003, Smith Barney Futures Management LLC changed its name to
Citigroup Managed Futures LLC. Citigroup Managed Futures 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 Salomon
Smith Barney Holdings Inc., which is the sole owner of CGM. CGMHI is a wholly
owned subsidiary of Citigroup Inc ("Citigroup"). TrendLogic Associates, Inc. was
terminated as an Advisor to the Partnership on March 31, 2003. As of June 30,
2003, all trading decisions are made for the Partnership by John W. Henry &
Company, Inc. (the "Advisor").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at June 30, 2003 and December 31, 2002 and the results of its
operations for the three and six months ended June 30, 2003 and 2002. These
financial statements present the results of interim periods and do not include
all disclosures normally provided in annual financial statements. You should
read these financial statements together with the financial statements and notes
included in the Partnership's annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31, 2002.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
(Continued)
7
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in net asset value per Unit for the three and six months ended June
30, 2003 and 2002 were as follows:
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ----------------------
2003 2002 2003 2002
---------- ---------- -------- ---------
Net realized and unrealized
gains * $ 87.95 $1,783.20 $1,364.99 $1,187.77
Interest income 20.97 19.44 40.97 38.96
Expenses ** (21.78) (56.40) (129.91) (61.25)
---------- ---------- -------- ---------
Increase for period 87.14 1,746.24 1,276.05 1,165.48
Net Asset Value per Unit,
beginning of period 9,328.43 5,561.04 8,139.52 6,141.80
---------- ---------- -------- ---------
Net Asset Value per Unit,
end of period $9,415.57 $7,307.28 $9,415.57 $7,307.28
---------- ---------- -------- ---------
* Includes brokerage commissions.
** Excludes brokerage commissions.
8
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)
(Continued)
Financial Highlights continued:
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ----------------------
2003 2002 2003 2002
---------- ---------- -------- ---------
Ratio to average net assets: ***
Net investment gain(loss) before
Incentive fees **** (4.5)% (3.4)% (3.7)% (3.6)%
====== ===== ===== =====
Operating expenses 5.4% 4.7% 4.6% 4.9%
Incentive fees 0.7% 3.4% 2.7% 1.7%
------ ----- ----- ----
Total expenses 6.1% 8.1% 7.3% 6.6%
===== ===== ===== =====
Total return:
Total return before incentive fees 1.1% 32.3% 17.2% 19.8%
Incentive fees (0.2)% (0.9)% (1.5)% (0.8)%
------ ----- ----- -----
Total return after incentive fees 0.9% 31.4% 15.7% 19.0%
===== ===== ===== =====
*** Annualized
**** 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 period.
9
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
(Continued)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activities are shown in the Statements of Income and Expenses and Partners'
Capital and are discussed in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Customer Agreement between the Partnership and CGM gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair values during the six and twelve months ended
June 30, 2003 and December 31, 2002, based on a monthly calculation, were
$1,507,650 and $1,802,674, respectively. The fair value of these commodity
interests, including options thereon, if applicable, at June 30, 2003 and
December 31, 2002, were $(1,563,108) and $1,850,754, respectively. Fair values
for exchange traded commodity futures and options are based on quoted market
prices for those futures and options. Fair values for all other financial
instruments for which market quotations are not readily available are based on
calculations approved by the General Partner.
4. Financial Instrument Risk:
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
10
HUTTON INVESTORS FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
(Continued)
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 as unrealized appreciation 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 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 June 30, 2003.
However, due to the nature of the Partnership's business, these instruments may
not be held to maturity.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash, 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. While substantial losses could
lead to a substantial decrease in liquidity, no such losses occurred in the
Partnership's second quarter of 2003.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by realized and/or unrealized gains or losses
on commodity futures trading, expenses, interest income, redemptions of Units
and distributions of profits, if any.
For the six months ended June 30, 2003, Partnership capital increased 10.5%
from $19,486,774 to $21,534,305. This increase was attributable to net income
from operations of $3,048,876, which was partially offset by the redemption of
107 Units resulting in an outflow of $1,001,345. Future redemptions can impact
the amount of funds available for investment in commodity contract positions in
subsequent months.
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, disclosures of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
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
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.
Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing on the last
12
business day of the period. Realized gains (losses) and changes in unrealized
values 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.
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 date of entry into the contracts and the forward rates at the
reporting dates, is included in the statement 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 statement of income and expenses and partners'
capital.
Results of Operations
During the Partnership's second quarter of 2003, the net asset value per
Unit increased 0.9% from $9,328.43 to $9,415.57 as compared to an increase of
31.4% in the second quarter of 2002. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the second quarter of 2003
of $483,541. Gains were primarily attributable to the trading of commodity
futures in currencies, U.S interest rates and indices and were partially offset
by losses in energy, softs, non- U.S. interest rates, grains, livestocks and
metals. The Partnership experienced a net trading gain before brokerage
commissions and related fees in the second quarter of 2002 of $4,619,279. Gains
were primarily attributable to the trading of commodity futures in currencies,
livestock, non-U.S. interest rates and indices and were partially offset by
losses in energy, grains, softs, U.S. interest rates and metals.
Commodity futures markets are highly volatile. The potential for broad and
rapid price fluctuations increases the risks involved in commodity trading but
also increases the possibility of profit. The profitability of the Partnership
depends on the existence of major price trends and the ability of the Advisor to
correctly identify those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
13
Interest income on 80% of the Partnership's daily equity maintained in cash
was earned at the monthly average 13-week U.S. Treasury Bill yield. CGM may
continue to maintain the Partnership assets in cash and/or place all of the
Partnership assets in 90-day Treasury bills and pay the Partnership 80% of the
interest earned on the Treasury bills purchased. CGM will retain 20% of any
interest earned on Treasury bills. Interest income for the three and six months
ended June 30, 2003 decreased by $112 and $1,770, respectively, as compared to
the corresponding period in 2002. The decrease in interest income is primarily
due to a decrease in interest rates during the three and six months ended June
30, 2003 as compared to 2002.
Brokerage commissions are based on the number of trades executed by the
Advisor. Brokerage commissions and fees for the three and six months ended June
30, 2003 increased by $114,216 and $125,309, respectively, as compared to the
corresponding period in 2002. The increase in commissions and fees is primarily
due to higher net assets, and therefore higher number of round turns, during the
three and six months ended June 30, 2003 as compared to 2002.
Incentive fees are based on the new trading profits generated by the
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and the Advisor. Trading performance for the three and six
months ended June 30, 2003 resulted in incentive fees of $38,479 and $286,455,
respectively. Trading performance for the three and six months ended June 30,
2002, resulted in incentive fees of $128,579.
14
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair 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 value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification in this
section should not be considered to constitute any assurance or representation
that the Partnership's losses in any market sector will be limited to Value at
Risk or by the Partnership's attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Partnership
as the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
interval. 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.
15
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of June 30, 2003 and the
highest and lowest value at any point during the three and six months ended June
30, 2003. All open position trading risk exposures of the Partnership have been
included in calculating the figures set forth below. As of June 30, 2003, the
Partnership's total capitalization was $21,534,305. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 2002.
June 30, 2003
(Unaudited)
Quarter Ended
June 30, 2003 Year to Date
Market Value at % of Total High Value Low Value High Value Low Value
Sector Risk Capitalization at Risk at Risk at Risk at Risk
- -------------------------------------------------------------------------------------------------------------
Currencies:
- OTC Contracts $ 740,165 3.44% $ 973,089 $317,250 $1,054,384 $ 253,548
Energy 330,000 1.53% 347,000 129,800 439,000 122,300
Grains 37,200 0.17% 37,200 17,750 41,000 17,350
Interest Rates U.S. 135,200 0.63% 280,100 36,750 280,100 36,750
Interest Rates Non-U.S. 679,062 3.15% 1,008,733 338,404 1,008,733 240,324
Livestock 10,200 0.05% 10,200 3,000 10,200 2,400
Metals:
- - Exchange Traded
Contracts 122,900 0.57% 144,500 29,000 144,500 29,000
- OTC Contracts 85,850 0.40% 155,850 77,850 216,600 65,550
Softs 82,130 0.38% 107,493 42,606 107,493 42,185
Indices 475,541 2.21% 514,353 234,186 514,353 208,911
--------- -----
Total $2,698,248 12.53%
========= ======
16
Item 4. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of June 30, 2003, the Chief Executive Officer and Chief Financial
Officer of the General Partner 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 subsequent to the
date of their evaluation.
17
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth
under Part I, Item 3 "Legal Proceedings" in the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002 and under Part II, Item 1
"Legal Proceedings" in the Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 2003.
Enron
On July 28, 2003, Citigroup entered into a final settlement agreement with the
Securities and Exchange Commission ("SEC") to resolve the SEC's outstanding
investigations into Citigroup transactions with Enron and Dynegy. Pursuant to
the settlement, Citigroup has, among other terms, (1) consented to the entry of
an administrative cease and desist order, which bars Citigroup from committing
or causing violations of provisions of the federal securities laws, and (2)
agreed to pay $120 million ($101.25 million allocable to Enron and $18.75
million allocable to Dynegy). Citigroup entered into this settlement without
admitting or denying any wrongdoing or liability, and the settlement does not
establish wrongdoing or liability for purposes of any other proceeding. On July
28, 2003, Citibank, N.A. entered into an agreement with the Office of the
Comptroller of the Currency ("OCC") and Citigroup entered into an agreement with
the Federal Reserve Bank of New York ("FED") to resolve their inquiries into
certain of Citigroup's transactions with Enron. Pursuant to the agreements,
Citibank and Citigroup have agreed to submit plans to the OCC and FED,
respectively, regarding the handling of complex structured finance transactions.
Also on July 28, 2003, Citigroup entered into a settlement agreement with the
Manhattan District Attorney's Office to resolve its investigation into certain
of Citigroup's transactions with Enron; pursuant to the settlement, Citigroup
has agreed to pay $25.5 million and to abide by its agreements with the SEC, OCC
and FED.
Additional Actions Several additional actions, previously identified, have been
consolidated with the Newby action and are stayed, except with respect to
certain discovery, until after the Court's decision on class certification.
Also, in July 2003, an action was brought by purchasers in the secondary market
of Enron bank debt against Citigroup, Citibank, Citigroup Global Markets Inc.
("CGM"), and others, alleging claims for common law fraud, conspiracy, gross
negligence, negligence and breach of fiduciary duty.
Research
On June 23, 2003, the West Virginia Attorney General filed an action against CGM
and nine other firms that were parties to the April 28, 2003 settlement with the
SEC, the National Association of Securities Dealers ("NASD"), the New York Stock
Exchange ("NYSE") and the New York Attorney General (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.
18
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.
In April 2003, 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. The Final Judgment has not yet been entered by the court, and the
court has asked for certain additional information. Also in April 2003, the NASD
accepted the Letter of Acceptance, Waiver and Consent entered into with CGM in
connection with the Research Settlement; and in May 2003, the NYSE advised CGM
that the Hearing Panel's Decision, in which it accepted the Research Settlement,
had become final. CGM is currently in discussion with various of the states with
respect to completion of the state components of the Research Settlement.
Payment will be made in conformance with the payment provisions of the Final
Judgment.
WorldCom, Inc.
On May 19, 2003, a motion to dismiss an amended complaint in the WorldCom, Inc.
Securities Litigation was denied.
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, brought
by purchasers of publicly traded debt and equity securities of Dynegy Inc., was
amended to add Citigroup, Citibank and CGM, as well as other banks, as
defendants. The plaintiffs allege violations of the federal securities laws
against the Citigroup defendants.
Adelphia Communications Corporation
- -----------------------------------
On July 6, 2003, an adversary proceeding was filed by the Official Committee of
Unsecured Creditors on behalf of Adelphia 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 Company Holding Act and the common law. The complaint
seeks equitable relief and an unspecified amount of compensatory and punitive
damages.
In addition, Salomon Smith Barney Inc. (predecessor of Citigroup Global Markets
Inc.) 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 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 complaints seek
unspecified damages.
Other
MKP Master Fund, LDC et al. v. Salomon Smith Barney Inc.
- --------------------------------------------------------
In July 2003, CGM's motion for summary judgment was granted.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
19
Item 6. The exhibits required to be filed by Item 601 of Regulation S-K are
incorporated herein by reference to the exhibit index of the
Partnership's Report on Form 10-K for the period ended December 31,
2002.
(a) Exhibit - 31.1 - Rule 13a-14(a)/15d-14(a) Certifications
(Certifications of President and Director)
Exhibit - 31.2 - Rule 13a-14(a)/15d-14(a) Certifications
(Certifications of Chief financial Officer and Director)
Exhibit - 32.1 - Section 1350 Certifications (Certification of
President and Director).
Exhibit - 32.2 - Section 1350 Certifications (Certification of
Chief Financial Officer and Director).
(b) Reports on Form 8-K - None
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUTTON INVESTORS FUTURES FUND L.P. II
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
David J. Vogel, President and Director
Date: 8/14/03
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
David J. Vogel, President and Director
Date: 8/14/03
By: /s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Date: 8/14/03
21
Exhibit 31.1
CERTIFICATIONS
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hutton Investors
Futures Fund L.P. II (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, including its consolidated
subsidiaries, 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(s) 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):
22
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: August 14, 2003
/s/ David J. Vogel
David J. Vogel
Citigroup Managed Futures LLC
President and Director
23
Exhibit 31.2
CERTIFICATIONS
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hutton Investors
Futures Fund L.P. II (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, including its consolidated
subsidiaries, 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(s) 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):
24
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: August 14, 2003
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
25
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 Quarterly Report of Hutton Investors Futures Fund L.P. II
(the "Partnership") on Form 10-Q for the period ending June 30, 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
August 14, 2003
26
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 Quarterly Report of Hutton Investors Futures Fund L.P. II
(the "Partnership") on Form 10-Q for the period ending June 30, 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
August 14, 2003
27