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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, 1996
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 Inc.
390 Greenwich St. - 1st 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: 30,000 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 [ ]
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 Treasuries 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, 1996,
1995 and 1994 are reported in the Statements of Partners' Capital on page F-5
under "Item 8. Financial Statements and Supplementary Data."
The Partnership trades futures contracts on commodities on United States
and foreign commodity exchanges through a commodity brokerage account maintained
with its commodity broker, Smith Barney Inc. ("SB").
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. SB is an affiliate of the General
Partner.
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.
2
As of December 31, 1996, 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 SB. 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 Trading Profits.
Under the terms of a customer agreement between the Partnership and SB,
(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
3
and SB gives the Partnership the legal right to net unrealized gains and losses.
In addition, the General Partner (through SB) invests approximately eighty
percent (80%) of the Partnership's assets in interest bearing U.S. Treasury
obligations (primarily U.S. Treasury Bills).
(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,
1996, 1995, 1994, 1993 and 1992 are set forth under "Item 6. Selected Financial
Data." The Partnership's capital at December 31, 1996 was $19,153,165.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
4
(d) Financial Information About Foreign and Domestic Operations and Export
Sales. The Partnership does not engage in sales of goods or services, 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, SB.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnership is a party
or to which any of its assets is subject. No material legal proceedings
affecting the Partnership were terminated during the fiscal year 1996.
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, 1996.
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, 1996 was 424.
(c) Distribution. The Partnership did not declare a
distribution in 1996.
5
Item 6. Select 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, 1996, 1995, 1994, 1993 and 1992 and
total assets as of December 31, 1996, 1995, 1994, 1993 and 1992 were
as follows:
1996 1995 1994 1993 1992
------------ ------------- -------------- ------------ --------------
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees of
$609,752, $473,316, $472,333,
$505,394, and $524,371,
respectively $ 4,725,245 $ 4,798,547 $ (653,598) $ 3,828,147 $ (374,971)
Interest income 625,578 640,056 416,641 326,985 359,066
------------ ------------ ------------ ------------ -----------
$ 5,350,823 $ 5,438,603 $ (236,957) $ 4,155,132 $ (15,905)
------------ ============ ============ ============ ============
Net Income (loss) $ 4,409,205 $ 4,824,554 $ (578,344) $ 3,386,679 $ (134,888)
============ ============ ============ ============ ============
Increase (decrease)
in net asset value
per Unit $ 1,069.22 $ 1,082.24 $ (126.76) $ 617.34 $ 26.31
============ ============ ============ ============ ===========
Total assets $20,205,672 $16,025,794 $12,055,108 $14,156,185 $12,545,574
============ ============ ============ ============ ===========
6
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 cash equivalents, and net
unrealized appreciation (depreciation) on open futures contracts. Approximately
80% of the Partnership's assets are maintained in interest bearing U.S. Treasury
obligations. Because of the low margin deposits normally required in commodity
futures 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.
7
(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.
(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.
(h) The Partnership does not trade on a regular basis in forward
contracts on foreign currencies. Such transactions may be effected only in an
attempt to hedge currency risks resulting from trading on foreign exchanges or
to limit or protect profits on existing positions in futures contracts on
foreign currencies in situations in which such positions cannot be closed out
due to market
8
conditions. Such transactions will only be effected with banks having a minimum
combined capital and surplus of $100,000,000.
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
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
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 Statement and Supplementary Data.," for further
information on financial instrument risk included in the notes to financial
statements.)
Other than the risks inherent in commodity futures 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
9
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 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
distributions of profits, if any. Gains or losses on commodity futures 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. For the year ended December 31, 1996, 215 Units were
redeemed for a total of $880,296. For the year ended December 31, 1995, 235
Units were redeemed for a total of $829,493 which includes the General Partner
redemption representing 31 Unit equivalents totaling $113,858. For the year
10
ended December 1994, 589 Units were redeemed for a total of $1,591,200 which
includes the General Partner redemption representing 229 Unit equivalents
totaling $615,586.
(c) Results of Operations. For the year ended December 31, 1996, the
net asset value per Unit increased 29.1% from $3,672.84 to $4,742.06. For the
year ended December 31, 1995, the net asset value per Unit increased 41.8% from
$2,590.60 to $3,672.84. For the year ended December 31, 1994, the net asset
value per Unit decreased 4.7% from $2,717.36 to $2,590.60.
The Partnership experienced net trading gains of $5,334,997 before
commissions and expenses for the year ended December 31, 1996. These gains were
primarily attributable to the trading of commodity futures in interest rates,
metals, currencies and energy and were partially offset by losses in the trading
of agricultural products and indices.
The Partnership experienced net trading gains of $5,271,863 before
commissions and expenses for the year ended December 31, 1995. Realized trading
gains of $5,587,098 were primarily attributable to the trading of commodity
futures in currencies, interest rates and agricultural products. These realized
gains were partially offset by realized trading losses incurred in the trading
of precious metals and energy commodity futures.
The Partnership experienced net trading losses of $181,265 before
commissions and expenses for the year ended December 31, 1994. Realized trading
losses of $83,821 were primarily attributable to net losses incurred in the
trading of precious metals, and stock index
11
commodity futures. These realized trading losses were partially offset by
realized trading gains incurred in the trading of financial, energy,
agricultural and industrial commodity futures.
Commodity futures 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.
12
Item 8. Financial Statements and Supplementary Data.
HUTTON INVESTORS FUTURES FUND L.P. II
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants. F-2
Financial Statements:
Statement of Financial Condition at
December 31, 1996 and 1995. F-3
Statement of Income and Expenses for
the years ended December 31, 1996,
1995 and 1994. F-4
Statement of Partners' Capital for the
years ended December 31, 1996, 1995
and 1994. F-5
Notes to Financial Statements. F-6 - F-11
F-1
Continued
Report of Independent Accountants
To the Partners of
Hutton Investors Futures Fund L.P. II:
We have audited the accompanying statement of financial condition of HUTTON
INVESTORS FUTURES FUND L.P. II (a Delaware Limited Partnership) as of December
31, 1996 and 1995, and the related statements of income and expenses and
partners' capital for the years ended December 31, 1996, 1995 and 1994. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management of the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hutton Investors Futures Fund
L.P. II as of December 31, 1996 and 1995, and the results of its operations for
the years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 28, 1997
F-2
Hutton Investors Futures Fund L.P. II
Statement of Financial Condition
December 31, 1996 and 1995
Assets: 1996 1995
Equity in commodity futures
trading account:
Cash and cash equivalents (Note 3b) $19,731,337 $15,190,088
Net unrealized appreciation
on open futures contracts 474,335 835,706
----------- -----------
$20,205,672 $16,025,794
=========== ===========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 62,937 $ 54,276
Incentive fees 717,446 72,172
Other 35,022 25,337
Redemptions payable (Note 5) 237,102 249,753
----------- -----------
1,052,507 401,538
----------- -----------
Partners' capital (Notes 1, 5, and 6):
General Partner, 44 Unit equivalents
outstanding in 1996 and 1995 208,650 161,605
Limited Partners, 3,995 and 4,210 Units
of Limited Partnership Interest
outstanding in 1996 and 1995,respectively 18,944,515 15,462,651
----------- -----------
19,153,165 15,624,256
----------- -----------
$20,205,672 $16,025,794
=========== ===========
See notes to financial statements.
F-3
Hutton Investors Futures Fund L.P. II
Statement of Income and Expenses
for the years ended
December 31, 1996, 1995, and 1994
1996 1995 1994
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses) on
closed positions $ 5,696,368 $ 5,587,098 $ (83,821)
Change in unrealized gains/
losses on open positions (361,371) (315,235) (97,444)
----------- ----------- -----------
5,334,997 5,271,863 (181,265)
Less, Brokerage commissions and
clearing fees ($17,066, $16,583,
and $16,203, respectively)
(Note 3b) (609,752) (473,316) (472,333)
----------- ----------- -----------
Net realized and unrealized gains
(losses) 4,725,245 4,798,547 (653,598)
Interest income (Note 3b) 625,578 640,056 416,641
----------- ----------- -----------
5,350,823 5,438,603 (236,957)
----------- ----------- -----------
Expenses:
Incentive fees (Note 3a) 887,679 565,765 293,036
Other expenses 53,939 48,284 48,351
----------- ----------- -----------
941,618 614,049 341,387
----------- ----------- -----------
Net income (loss) $ 4,409,205 $ 4,824,554 $ (578,344)
=========== =========== ===========
Net income (loss) per Unit of
Limited Partnership Interest
and General Partner Unit
equivalent (Notes 1 and 6) $ 1,069.22 $ 1,082.24 $ (126.76)
=========== =========== ===========
See notes to financial statements.
F-4
Hutton Investors Futures Fund L.P. II
Statement of Partners' Capital
for the years ended
December 31, 1996, 1995, and 1994
Limited General
Partners Partner Total
Partners' capital at
December 31, 1993 $ 12,972,662 $ 826,077 $ 13,798,739
Net loss (562,148) (16,196) (578,344)
Redemption of 360 Units of
Limited Partnership Interest and
General Partner redemption
representing 229 Unit equivalents (975,614) (615,586) (1,591,200)
------------ ------------ ------------
Partners' capital at
December 31, 1994 11,434,900 194,295 11,629,195
Net income 4,743,386 81,168 4,824,554
Redemption of 204 Units of
Limited Partnership Interest and
General Partner redemption
representing 31 Unit equivalents (715,635) (113,858) (829,493)
------------ ------------ ------------
Partners' capital at
December 31, 1995 15,462,651 161,605 15,624,256
Net income 4,362,160 47,045 4,409,205
Redemption of 215 Units of
Limited Partnership Interest (880,296) -- (880,296)
------------ ------------ ------------
Partners' capital at
December 31, 1996 $ 18,944,515 $ 208,650 $ 19,153,165
============ ============ ============
See notes to financial statements.
F-5
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 the public offering period.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate
of the General Partner, acts as commodity broker for the Partnership (see
Note 3b). 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 market value for those
commodity interests for which market quotations are readily available or at
fair value on the last business day of the year. Investments in commodity
interests denominated in foreign currency are translated into U.S. dollars
at the exchange rates prevailing on the last business day of the year.
Realized gain (loss) and changes in unrealized values on commodity
interests 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.
F-6
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
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.
3. Agreements:
a.Management Agreements:
The General Partner has Management Agreements with Trendlogic Associates
and John W. Henry & Company, Inc., (individually an "Advisor" or
collectively, the "Advisors"). Two of the principals of Trendlogic
Associates, Mr. Paul E. Dean and Mr. Richard Semels, are employees of SB.
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 Trading Profits on
the assets under such Advisor's management.
b.Customer Agreement:
The Partnership has entered into a Customer Agreement, which has been
assigned to SB, whereby SB 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 SB at $50 per roundturn futures 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 SB. The Partnership's cash is deposited by SB in
segregated bank accounts as required by Commodity Futures Trading
Commission regulations. At December 31, 1996 and 1995, the amount of cash
held for margin requirements was $1,888,350 and $2,387,095, respectively.
The Customer Agreement provides 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. The
Customer Agreement between the Partnership and SB gives the Partnership the
legal right to net unrealized gains and losses.
F-7
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
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.
All of the commodity interests owned by the Partnership are held for trading
purposes. The fair value of these commodity interests, including options
thereon, at December 31,1996 and 1995 was $474,335 and $835,706, respectively
and the average fair value during the years then ended, based on monthly
calculation, was $1,599,270 and $1,178,835, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, each limited partner may redeem some or all of 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 during the years ended December
31, 1996, 1995 and 1994 were as follows:
1996 1995 1994
Net realized and
unrealized gains/losses $1,148.02 $1,074.84 $ (144.19)
Interest income 150.06 145.31 85.44
Expenses (228.86) (137.91) (68.01)
--------- --------- ---------
Increase(decrease)
for year 1,069.22 1,082.24 (126.76)
Net asset value per
Unit, beginning of year 3,672.84 2,590.60 2,717.36
--------- --------- ---------
Net asset value per
Unit, end of year $4,742.06 $3,672.84 $2,590.60
========= ========= =========
F-8
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
7. Financial Instrument Risk:
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 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 or with another financial instrument. These instruments
may be traded on an exchange or over-the-counter ("OTC"). Exchange traded
instruments are standardized and include futures and certain option
contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options. Each of these instruments is subject to
various risks similar to those related to the underlying financial
instruments including market and credit risk. In general, the risks
associated with OTC contracts are greater than those associated with exchange
traded instruments because of the greater risk of default by the counterparty
to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity or
security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the transactions.
The Partnership's risk of loss in the event of counterparty default is
typically limited to the amounts recognized in the statement of financial
condition and not represented by the contract or notional amounts of the
instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SB.
F-9
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
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
Hutton Investors
Futures Fund L.P. II
Notes to Financial Statements
The notional or contractual amounts of these instruments, while not recorded
in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At December 31, 1996, the notional or
contractual amounts of the Partnership's commitment to purchase and sell
these instruments was $88,598,223 and $50,468,155, respectively, as detailed
below. All of these instruments mature within one year of December 31, 1996.
However, due to the nature of the Partnership's business, these instruments
may not be held to maturity. At December 31, 1996, the fair value of the
Partnership's derivatives, including options thereon, was $474,335, as
detailed below.
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-Exchange Traded
Contracts $ 907,075 $ 3,003,125 $ 56,960
-OTC Contracts 26,711,692 25,708,186 170,160
Energy 948,928 -- 103,184
Interest Rates U.S. 8,859,369 133,435 (36,697)
Interest Rates
Non-U.S. 48,744,204 12,587,281 (88,616)
Grains 141,000 571,875 31,118
Softs 742,029 1,109,004 12,359
Metals 731,025 5,795,990 155,049
Indices 812,901 1,559,259 70,818
----------- ----------- -----------
Total $88,598,223 $50,468,155 $ 474,335
=========== =========== ===========
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 Inc. 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." SB 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, 1996, SB earned $609,752 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, 1996, the Advisors earned $887,679 in incentive fees.
13
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 of Limited Partnership Interest (1.1%) as of December 31,
1996.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Smith Barney Inc. and Smith Barney Futures Management Inc. would be
considered promoters for purposes of Item 404(d) of Regulation S-K. The nature
and the amount of compensation received by SB 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, 1996, and 1995.
14
Statement of Income and Expenses for the years ended
December 31, 1996, 1995 and 1994.
Statement of Partner's Capital for the years ended
December 31, 1996, 1995 and 1994.
(2) Financial Statement Schedules: None
(3) Exhibits:
a. 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).
b. 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).
c. Form of Request for Redemption (incorporated
by reference form 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).
d. Escrow Agreement dated June 9, 1987, among
the Partnership, Hutton Commodity Management
Inc., E.F. Hutton & Company Inc. and
Chemical Bank (previously filed).
15
e. Brokerage Agreement dated as of July 23,
1987, between the Partnership and E.F.
Hutton & Company Inc. (previously filed).
f. 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).
g. 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).
h. Net Worth Agreement dated as of June 3,
1987, between Hutton Commodity Management
Inc. and the E.F. Hutton Group Inc.
(previously filed).
i. Copy of executed Promissory Note dated June
3, 1987, from The E.F. Hutton Group Inc. to
Hutton Commodity Management Inc.
(previously filed).
16
j. Letter amending and extending Management
Agreement dated March 31, 1987 among the
Partnership, Hutton Commodity Management,
Inc., John W. Henry & Company, Inc. and
Desai & Company as of September 26, 1989 (previously
filed).
k. Letter dated August 28, 1990 from
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).
l. Letter dated August 28, 1990 from Partnership to
Desai & Company extending Management Agreement (filed
as Exhibit 1 to Form 10-K for the fiscal year ended
December 31, 1990 and incorporated herein by
reference).
m. Letter dated January 17, 1991 from 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).
n. 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).
o. Letter dated August 30, 1991 from 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).
p. Letter dated August 30, 1991 from 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).
q. Letter dated August 31, 1992 from General
Partner to John W. Henry & Company, Inc.
(filed as Exhibit q to Form 10-K for the
fiscal year ended December 31, 1991).
r. Letter dated August 31, 1992 from 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).
17
s. Letter dated August 31, 1993 from General
Partner to John W. Henry & Company, Inc.
extending Advisory Agreements (filed as
Exhibit s to Form 10-K for the fiscal year
ended December 31, 1993 and incorporated
herein by reference).
t. Letter dated August 31, 1993 from General
Partner to TrendLogic Associates, Inc.
(filed as Exhibit t to Form 10-K for the
fiscal year ended December 31, 1993).
u. Letter dated February 16, 1995 from 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).
v. Letter dated February 16, 1995 from 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).
(b) Report on Form 8-K: None Filed
18
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
19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement 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 24th day of March 1997.
HUTTON INVESTORS FUTURES FUND L.P.II
By: Smith Barney Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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 Schaefer /s/ Daniel A. Dantuono
Michael Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Philip M. Waterman, Jr. /s/ Daniel R. McAuliffe, Jr.
Philip M. Waterman, Jr. Daniel R. McAuliffe, Jr.
Director and Vice-Chairman Director
/s/ Steve J. Keltz /s/ Shelley Ullman
Steve J. Keltz Shelley Ullman
Secretary and Director Director
21