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 September 30, 2002
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Commission File Number 0-28350
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3823300
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(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
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(Address and Zip Code of principal executive offices)
(212) 723-5424
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(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
----- ----
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
September 30, 2002 and December 31,
2001 (unaudited). 3
Condensed Schedules of Investments
at September 30, 2002 and December 31,
2001 (unaudited). 4 - 5
Statements of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
2002 and 2001 (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 of Market Risk 15 - 16
Item 4. Controls and Procedures 17
PART II - Other Information 18
2
PART I
Item 1. Financial Statements
Smith Barney Principal PLUS Futures Fund L.P.
Statements of Financial Condition
(Unaudited)
September 30, December 31,
2002 2001
------------ ------------
Assets:
Equity in commodity futures trading account:
Cash $ 3,391,919 $ 2,820,810
Net unrealized appreciation on open positions 204,820 327,998
Zero coupons, $8,709,000 and $9,634,000 principal amount in
2002 and 2001, respectively, due February 15, 2003 at fair value
(amortized cost $8,557,966 and $9,061,122 in 2002 and 2001,
respectively) 8,670,593 9,380,529
----------- -----------
12,267,332 12,529,337
Receivable from SSB on sale of zero coupons 120,452 487,523
Interest receivable 3,818 3,722
----------- -----------
$12,391,602 $13,020,582
=========== ===========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 20,879 $ 17,634
Management fees 8,247 6,959
Incentive fees 25,804 30,209
Other 42,990 38,000
Redemptions payable 168,463 639,056
----------- -----------
266,383 731,858
----------- -----------
Partners' Capital:
General Partner, 376 Units equivalents outstanding in 2002 and 2001 523,490 479,611
Limited Partners, 8,333 and 9,258 Units of Limited Partnership
Interest outstanding in 2002 and 2001, respectively 11,601,729 11,809,113
----------- -----------
12,125,219 12,288,724
----------- -----------
$12,391,602 $13,020,582
=========== ===========
3
See Notes to Unaudited Financial Statements.
Smith Barney Principal PLUS Futures Fund L.P.
Condensed Schedule of Investments
September 30, 2002
(Unaudited)
Sector Contract Fair Value
- --------------------------------- -------------------------------------------- -------------
Currencies
Exchange contracts purchased - 0.03% $ 3,400
Exchange contracts sold - 0.23% 27,550
------------
Total Exchange traded - 0.26% 30,950
Over the counter contracts purchased - 0.05% 5,635
Over the counter contracts sold - (0.10)% (11,690)
------------
Total Over the counter - (0.05)% (6,055)
------------
Total Currencies - 0.21% 24,895
------------
Total Energy - 0.60% Futures contracts purchased - 0.60% 72,633
------------
Total Interest Rates U.S. - 0.94% Futures contracts purchased - 0.94% 114,434
------------
Interest Rates Non-U.S. Futures contracts purchased - 0.07% 8,996
Futures contracts sold - (0.11)% (12,731)
------------
Total Interest Rates Non-U.S. - (0.04)% (3,735)
------------
Metals
Futures contracts purchased - (0.72)% (87,274)
Futures contracts sold - 0.62% 75,648
------------
Total Metals - (0.10)% (11,626)
------------
Total Indices - 0.07% Futures contracts sold - 0.07% 8,219
------------
Total Fair Value - 1.69% 204,820
------------
Total Zero Coupons - 71.51% U.S. Treasury, Zero Coupon Bond, 2/15/2003
(amortized cost $8,557,966) 8,670,593
------------
Total Investments - 73.20% $ 8,875,413
============
Investments % of Investments
Country Composition at Value at Value
- -------------------- --------------------- ----------------
Australia $ 78 0.00%*
Canada 2,426 0.03%
Germany 4,964 0.06%
Hong Kong 8,000 0.09%
Japan (12,732) (0.14)%
Singapore 219 0.00%*
United Kingdom (10,428) (0.12)%
United States 8,882,886 100.08%
------------- -------
$ 8,875,413 100.00%
============= ========
Percentages are based on Partners' capital unless otherwise indicated
*Due to rounding
See Notes to Unaudited Financial Statements
4
Smith Barney Principal PLUS
Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2001
Sector Contract Fair Value
Total Currencies - 1.47% Exchange contracts sold - 1.47% $ 180,750
-------
Total Energy - 0.45% Futures contracts sold - 0.45% 55,400
------
Total Grains - 0.02% Futures contracts sold - 0.02% 1,800
-----
Interest Rates U.S. Futures contracts sold - 0.11% 13,562
Futures contracts purchased - 0.02% 2,625
-----
Total Interest Rates U.S. - 0.13% 16,187
------
Total Interest Rates Non-U.S - 0.28% Futures contracts sold - 0.28% 34,196
-------
Metals Futures contracts sold - (0.68)% (83,509)
Futures contracts purchased - 0.94% 115,614
-------
Total Metals - 0.26% 32,105
-------
Total Indices - 0.06% Futures contracts purchased - 0.06% 7,560
-------
Total Fair Value - 2.67% 327,998
-------
Total Zero Coupons - 76.33% U.S. Treasury, Zero Coupon Bond, 2/15/2003 9,380,529
(amortized cost $9,061,122) - 76.33% ---------
---------
Total Investments - 79.00% $9,708,527
=========
Investments % of Investments
Country Composition at Value at Value
------------------- ----------------------------------
Canada $7,560 0.08%
Germany 34,195 0.35%
United Kingdom 32,105 0.33%
United States 9,634,667 99.24%
----------------------------------
$9,708,527 100.00%
==================================
Percentages are based on Partners' capital unless otherwise indicated
See Notes to Unaudited Financial Statements
5
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -----------------------------
2002 2001 2002 2001
------------ ----------- ------------ -------------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains on closed positions $ 472,372 $ 227,207 $ 1,526,385 $ 479,842
Change in unrealized gains (losses) on open positions (328,257) 83,048 (123,178) (302,657)
------------ ------------ ------------ ------------
144,115 310,255 1,403,207 177,185
Gain on sale of Zero Coupons 1,550 12,533 16,787 24,684
Unrealized appreciation (depreciation) on Zero Coupons (73,543) 157,102 (206,780) 234,677
Interest income 139,046 161,039 420,366 498,587
------------ ------------ ------------ ------------
211,168 640,929 1,633,580 935,133
------------ ------------ ------------ ------------
Expenses:
Brokerage commissions including clearing fees
of $5,098, $5,464, $17,528 and $12,982, respectively 69,134 57,508* 197,022 184,522*
Management fees 22,631 19,395 64,895 54,635
Incentive fees 25,804 31,624 238,164 39,593
Other expenses 17,639 14,198 44,893 40,847
------------ ------------ ------------ ------------
135,208 122,725 544,974 319,597
------------ ------------ ------------ ------------
Net income 75,960 518,204 1,088,606 615,536
Redemptions (168,463) (436,205) (1,252,111) (1,130,233)
------------ ------------ ------------ ------------
Net increase (decrease) in Partners' capital (92,503) 81,999 (163,505) (514,697)
Partners' capital, beginning of period 12,217,722 12,549,231 12,288,724 13,145,927
------------ ------------ ------------ ------------
Partners' capital, end of period $ 12,125,219 $ 12,631,230 $ 12,125,219 $ 12,631,230
------------ ------------ ------------ ------------
Net asset value per Unit
(8,709 and 10,135 Units outstanding
at September 30, 2002 and 2001, respectively) $ 1,392.26 $ 1,246.30 $ 1,392.26 $ 1,246.30
------------ ------------ ------------ ------------
Net income per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 8.60 $ 49.43 $ 116.70 $ 58.02
------------ ------------ ------------ ------------
*Amount reclassified for comparative purposes
See Notes to Unaudited Financial Statements
6
Smith Barney Principal PLUS Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
1. General:
Smith Barney Principal PLUS Futures Fund L.P. (the "Partnership") is a
limited partnership which was initially organized on January 25, 1993 under the
partnership laws of the State of New York and was capitalized on April 12, 1995.
No activity occurred between January 25, 1993 and April 12, 1995. The
Partnership engages 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 will maintain a portion of
its assets in principal amounts stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program which payments are due approximately seven years from
the date trading commenced ("Zero Coupons").
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. As of September 30, 2002, all trading decisions are made by
Tucson Asset Management Inc., Potomac Portfolios LLC and Quest Partners
LLC.(each, an "Advisor" and collectively the "Advisors"). On July 12, 2002 Quest
Partners LLC was added as an Advisor to the Partnership and on July 23, 2002
Potomac Portfolios LLC was added as an Advisor to the Partnership.
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 September 30, 2002 and December 31, 2001 and the results of its
operations for the three and nine months ended September 30, 2002 and 2001.
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, 2001.
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.
7
Smith Barney Principal PLUS Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2002 and 2001 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
2002 2001 2002 2001
-------- --------- --------- ----------
Net realized and unrealized
gains * $ 8.49 $ 24.11 $ 128.99 $ 0.13
Realized and unrealized gains
(losses) on zero coupons (8.15) 16.08 (20.56) 24.10
Interest income 15.75 15.46 45.81 46.37
Expenses ** (7.49) (6.22) (37.54) (12.58)
---------- ---------- ---------- ----------
Increase for the period 8.60 49.43 116.70 58.02
Net Asset Value per Unit,
beginning of period 1,383.66 1,196.87 1,275.56 1,188.28
---------- ---------- ---------- -----------
Net Asset Value per Unit,
end of period $1,392.26 $1,246.30 $1,392.26 $1,246.30
========== ========== ========== ==========
* Net realized and unrealized gains is net of commission expense.
** Expenses exclude commission expense.
8
Smith Barney Principal PLUS Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(Continued)
Financial Highlights continued:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
2002 2001 2002 2001
--------- -------- -------- ----------
Ratio to average net assets: ***
Net income before incentive fees 3.32% 17.25% 14.54% 6.80%
Incentive fees (0.84)% (0.99)% (2.61)% (0.41)%
---------- --------- ---------- -----------
Net income after incentive fees 2.48% 16.26% 11.93% 6.39%
========== ========= ========== ===========
Operating expenses 3.57% 2.86% 3.36% 2.91%
Incentive fees 0.84% 0.99% 2.61% 0.41%
---------- ------- ---------- -----------
Total expenses and incentive fees 4.41% 3.85% 5.97% 3.32%
========== ========= ========== ===========
Total return:
Total return before incentive fees 0.84% 4.39% 11.29% 5.21%
Incentive fees (0.22)% (0.26)% (2.14)% (0.33)%
---------- --------- ---------- -----------
Total return after incentive fees 0.62% 4.13% 9.15% 4.88%
========== ========== ========== ===========
*** Annualized
9
Smith Barney Principal PLUS Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(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
activity are shown in the statements of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and SSB 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 nine and twelve months
ended September 30, 2002 and December 31, 2001, based on a monthly calculation,
were $272,330 and $255,048, respectively. The fair value of these commodity
interests, including options thereon, if applicable, at September 30, 2002 and
December 31, 2001, was $204,820 and $327,998, 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:
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 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
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 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.
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. The majority of these instruments mature
within one year of September 30, 2002. 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 and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures and forward contracts, commodity options 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
third quarter of 2002.
The Partnership's capital consists of capital contributions, as increased
or decreased by realized and/or unrealized gains or losses on commodity futures
trading and Zero Coupons, expenses, interest income, redemptions of Units and
distributions of profits, if any.
For the nine months ended September 30, 2002, Partnership capital decreased
1.3% from $12,288,724 to $12,125,219. This decrease was attributable to the
redemption of 925 Units resulting in an outflow of $1,252,111, which was largely
offset by the net income from operations of $1,088,606. Future redemptions can
impact the amount of funds available for investments in commodity contract
positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
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. 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
12
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 third quarter of 2002, the net asset value per
Unit increased 0.6% from $1,383.66 to $1,392.26 to as compared to an increase of
4.1% in the third quarter of 2001. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the third quarter of 2002
of $144,115. Gains were primarily attributable to the trading of commodity
contracts in grains, softs, U.S. interest rates and indices and were partially
offset by losses in metals, energy, non-U.S. interest rates and currencies. The
Partnership experienced a net trading gain before brokerage commissions and
related fees in the third quarter of 2001 of $310,255. Gains were primarily
attributable to the trading of commodity futures in currencies, energy, softs,
indices U.S. interest rates and metals and were partially offset by losses in
grains and non-U.S.interest rates.
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.
Interest income on 80% of the Partnership's daily average equity maintained
in cash was earned at a 30-day U.S. Treasury bill rate. Also included in
interest income is the amortization of original issue discount on the Zero
Coupons based on the interest method. Salomon Smith Barney may continue to
13
maintain the Partnership assets in cash and/or place all of the Partnership
assets in 30-day Treasury bills and pay the Partnership 80% of the interest
earned on the Treasury bills purchased. Salomon Smith Barney will retain 20% of
any interest earned on Treasury bills. Interest income for the three and nine
months ended September 30, 2002 decreased by $21,993 and $78,221, respectively,
as compared to the corresponding periods in 2001. The decrease in interest
income is primarily due to a decrease in interest rates and the effect of
redemptions on the Partnership's equity maintained in cash during the three and
nine months ended September 30, 2002.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and, therefore, vary according to trading performance and
redemptions. Accordingly, they must be compared in relation to the fluctuations
in the monthly net asset values. Commissions and fees for the three and nine
months ended September 30, 2002 increased by $11,626 and $12,500, respectively,
as compared to the corresponding periods in 2001.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. As of March 1, 2001, management fees are calculated on the
Partnership's net asset value and the notional funds traded by the Advisor.
Management fees for the three and nine months ended September 30, 2002 increased
by $3,236 and $10,260, respectively, as compared to the corresponding periods in
2001. The increase in management fees is due to the inclusion of notional funds
in the calculation.
Incentive fees are based on the new trading profits generated by the
Advisor as defined in the advisory agreement between the Partnership, the
General Partner and the Advisor. Trading performance for the three and nine
months ended September 30, 2002 resulted in incentive fees of $25,804 and
$238,164, respectively. Trading performance for the three and nine months ended
September 30, 2001 resulted in an incentive fees of $31,624 and $39,593,
respectively.
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
intervals. 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 September 30, 2002. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of September 30, 2002, the
Partnership's total capitalization was $12,125,219. 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, 2001.
September 30, 2002
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------------------
Currencies:
- Exchange Traded Contracts $142,900 1.18% $259,450 $32,000
- OTC Contracts 62,438 0.51% 62,438 16,180
Energy 156,000 1.29% 217,100 2,500
Interest Rates U.S. 128,900 1.06% 214,000 6,000
Interest Rates Non-U.S. 108,633 0.90% 108,633 9,393
Metals:
- Exchange Traded Contracts 2,000 0.02% 35,000 2,000
- OTC Contracts 5,375 0.04% 45,000 5,375
Indices 25,312 0.21% 303,279 25,312
--------- ------
Total $631,558 5.21%
========= ======
16
Item 4. Control and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of a date within 90 days of the filing of this report, the Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls subsequent to the
date of their evaluation.
17
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
Enron Corp.
In April 2002, Citigroup Inc. ("Citigroup") and, in one case, SSB,
were named as defendants along with, among others, commercial and/or
investment banks, certain current and former Enron officers and directors,
lawyers and accountants in two putative consolidated class action
complaints that were filed in the United States District Court for the
Southern District of Texas seeking unspecified damages. One action, brought
on behalf of individuals who purchased Enron securities (Newby, et al. v.
Enron Corp., et al.), alleges violations of Sections 11 and 15 of the
Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and the other action, brought
on behalf of current and former Enron employees (Tittle, et al. v. Enron
Corp., et al.), alleges violations of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), as well as claims for negligence
and civil conspiracy. On May 8, 2002, Citigroup and SSB filed motions to
dismiss the complaints, which are pending.
In July 2002, Citigroup, SSB, a number of their affiliates and certain
of their officers and other employees were named as defendants, along with,
among others, commercial and/or investment banks, certain current and
former Enron officers and directors, lawyers and accountants in a putative
class action filed in the United States District Court for the Southern
District of New York on behalf of purchasers of the Yosemite Notes and
Enron Credit-Linked Notes, among other securities (Hudson Soft Co., Ltd. v.
Credit Suisse First Boston Corporation, et al.). The amended complaint
alleges violations of RICO and of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and seeks unspecified damages.
Additional actions have been filed against Citigroup and certain of
its affiliates, along with other parties, including (i) two actions brought
in different state courts by state pension plans alleging violations of
state securities law and claims for common law fraud and unjust enrichment;
(ii) an action by banks that participated in two Enron revolving credit
facilities, alleging fraud, gross negligence, and breach of implied duties
in connection with defendants' administration of a credit facility with
Enron; (iii) an action brought by several funds in connection with
secondary market purchases of Enron Corp. debt securities alleging
violations of federal securities laws, including Section 11 of the
Securities Act of 1933, as amended, and claims for fraud and
misrepresentation; (iv) a series of putative class actions by purchasers of
NewPower Holdings common stock alleging violations of the federal
securities law, including Section 11 of the Securities Act of 1933, as
amended, and Section 10(b) of the Securities Exchange Act of 1934, as
amended; (v) an action brought by two investment funds in connection with
purchases of Enron-related securities for alleged violations of state
securities and unfair competition statutes; (vi) an action brought by
18
several investment funds and fund owners in connection with purchases of
notes of the Osprey I and Osprey II Trusts for alleged violation of state
and federal securities laws and claims for common law fraud,
misrepresentation and conspiracy; (vii) an action brought by several
investment funds and fund owners in connection with purchases of notes of
the Osprey I and Osprey II Trusts for alleged violation of state and
federal securities laws and state unfair competition laws and claims for
common law fraud and misrepresentation; and (viii) an action brought by the
Attorney General of Connecticut in connection with various commercial and
investment banking services provided to Enron. Several of these cases have
been consolidated with the Newby action and stayed pending the Court's
decision on the pending motions to dismiss Newby.
Additionally, Citigroup and certain of its affiliates have received
inquiries and requests for information from various regulatory and
governmental agencies and Congressional committees, as well as from the
Special Examiner in the Enron bankruptcy, regarding certain transactions
and business relationships with Enron and its affiliates. Citigroup is
cooperating fully with all such requests.
Research
Since May 2002, SSB and Jack Grubman have been named as defendants in
approximately 62 putative class action complaints by purchasers of various
securities alleging they violated federal securities law, including
Sections 10 and 20 of the Securities Exchange Act of 1934, as amended, for
allegedly issuing research reports without a reasonable basis in fact and
for allegedly failing to disclose conflicts of interest with companies in
connection with published investment research, including Global Crossing,
WorldCom, Inc., AT&T, Winstar, Rhythm Net Connections, Level 3
Communications, MetroMedia Fiber Network, XO Communications and Williams
Communications Group Inc. Similar claims with respect to research have also
been included in approximately 100 cases pending against SSB and other
broker dealers in the IPO Allocation Securities Litigation and the IPO
Allocation Antitrust Litigation, disclosed below under the caption "Other."
Nearly all of these actions are pending in the United States District Court
for the Southern District of New York.
Since April 2002, SSB and several other broker dealers have received
subpoenas and/or requests for information from various governmental and
self-regulatory agencies and Congressional committees, including the
National Association of Securities Dealers (the "NASD"), which has raised
issues about SSB's internal e-mail retention practices and research on
Winstar Communications, Inc. With respect to Winstar, SSB and the NASD have
entered into a settlement agreement. SSB agreed to pay a penalty in the
amount of $5 million and did not admit to any wrongdoing. With respect to
other such matters, these agencies have been engaged in discussions with a
number of broker dealers, including SSB, about resolving potential
enforcement proceedings relating to research. SSB is cooperating fully with
all such requests.
19
WorldCom, Inc.
Citigroup and SSB are involved in a number of lawsuits arising out of
the underwriting of debt securities of WorldCom, Inc. These lawsuits
include putative class actions filed in July 2002 by alleged purchasers of
WorldCom debt securities in the United States District Court for the
Southern District of New York (Above Paradise Investments Ltd. v. WorldCom,
Inc., et al.; Municipal Police Employees Retirement System of Louisiana v.
WorldCom, Inc., et al.), and in the United States District Court for the
Southern District of Mississippi (Longacre Master Fund v. WorldCom, Inc.,
et al.). These putative class action complaints assert violations of
federal securities law, including Sections 11 and 12 of the Securities Act
of 1933, as amended, and seek unspecified damages from the underwriters.
On October 11, 2002, the Above Paradise and Municipal Police Employees
lawsuits filed in the United States District Court for the Southern
District of New York were superseded by the filing of a consolidated
putative class action complaint in the United States District Court for the
Southern District of New York (In re WorldCom, Inc. Securities Litigation).
In the consolidated complaint, in addition to the claims of violations by
the underwriters of federal securities laws, including Sections 11 and 12
of the Securities Act of 1933, as amended, the plaintiffs allege violations
of Section 10(b) of the Securities Exchange Act of 1934, as amended, and
Rule 10b-5 promulgated thereunder, by SSB, arising out of alleged conflicts
of interest of SSB and Jack Grubman. The plaintiffs continue to seek
unspecified compensatory damages. In addition to the consolidated class
action complaint, the Southern District of Mississippi class action has
been transferred by the Judicial Panel on MultiDistrict Litigation to the
Southern District of New York for centralized pre-trial proceedings with
other WorldCom-related actions.
In addition to the putative class actions that have commenced, certain
individual actions have been filed in various federal and state courts
against Citigroup and SSB, along with other parties, concerning WorldCom
debt securities, including individual state court actions brought by
various pension funds in connection with the underwriting of debt
securities of WorldCom alleging violations of Section 11 of the Securities
Act of 1933, as amended, and, in one case, violations of various state
securities laws and common law fraud. Most of these actions have been
removed to federal court and an application has been made to have them
transferred to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions.
A putative class action on behalf of participants in WorldCom's 401(k)
salary savings plan and those WorldCom benefit plans covered by ERISA
alleging violations of ERISA and common law fraud (Emanuele v. WorldCom,
Inc., et al.), which was commenced in the United States District Court for
the District of Columbia, also has been transferred by the Judicial Panel
on MultiDistrict Litigation to the Southern District of New York for
centralized pre-trial proceedings with other WorldCom-related actions.
Additional lawsuits containing similar claims to those described above
may be filed in the future.
20
Other
In April 2002, consolidated amended complaints were filed against
Salomon Smith Barney Holdings Inc. and other investment banks named in
numerous putative class actions filed in the United States District
Court for the Southern District of New York alleging violations of
certain federal securities laws (including Section 11 of the
Securities Act of 1933, as amended, and Section 10(b) of the
Securities Exchange Act of 1934, as amended) with respect to the
allocation of shares for certain initial public offerings and related
aftermarket transactions and damage to investors caused by allegedly
biased research analyst reports. The defendants in these actions have
moved to dismiss the consolidated amended complaints but the Court has
not yet rendered a decision on those motions. Also pending in the
Southern District of New York against Salomon Smith Barney Holdings
Inc. and other investment banks are several putative class actions
which have been consolidated into a single class action alleging
violations of certain federal and state antitrust laws in connection
with the allocation of shares in initial public offerings when acting
as underwriters. The defendants in this action have moved to dismiss
the consolidated amended complaint but the Court has not yet rendered
a decision on those motions.
For information concerning a suit filed by a hedge fund and its
investment advisor against SSB, see the description that appears in
the eleventh paragraph under the caption "Legal Proceedings" of the
Annual Report on Form 10-K of the Partnership for the year ended
December 31, 2001, which is incorporated by reference herein. In
August 2002, SSB filed a motion for summary judgment.
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
Item 6. (a) Exhibit - 99.1 Certificate of Chief Executive Officer.
Exhibit - 99.2 Certificate of Chief Financial Officer.
(b) Reports on Form 8-K - On July 17, 2002 the Partnership filed a
notice on Form 8-K to report a change in accountants from
PricewaterhouseCoopers LLP to KPMG LLP.
21
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.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/02
--------------
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: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/02
-------------
By: /s/ Daniel R. McAuliffe, Jr.
----------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
Date: 11/14/02
-------------
22
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10Q of Smith Barney Principal
PLUS Futures Fund L.P.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
23
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/David J. Vogel
-----------------------
David J. Vogel
Chief Executive Officer
24
CERTIFICATION
I, Daniel R. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10Q of Smith Barney Principal
PLUS Futures Fund L.P.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d. designed such disclosure controls and procedures 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 quarterly
report is being prepared;
e. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
25
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Daniel R. Mcauliffe, Jr.
----------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer
26