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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 33-91742
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3823300
(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: 100,000 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. Smith Barney Principal Plus Futures
Fund L.P. (the "Partnership") is a limited partnership organized on January 25,
1993 under the Partnership Law 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 speculative trading of commodity interests,
including forward contracts on foreign currencies, commodity options and
commodity futures contracts including futures contracts on United States
Treasuries and certain other financial instruments, foreign currencies and stock
indices. The commodity interests that are traded by the Partnership are volatile
and involve a high degree of market risk. The Partnership maintains a portion of
its assets in interest payments stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program ("Zero Coupons") which payments will be due February
15, 2003. The Partnership uses the Zero Coupons and its other assets to margin
its commodities account.
A total of 100,000 Units of Limited Partnership Interest in the
Partnership (the "Units") were offered to the public. Between July 12, 1995 and
November 17, 1995, 37,131 Units were sold to the public at $1,000 per Unit.
Proceeds of the offering along with the General Partners' contribution of
$376,000 were held in escrow until November 17, 1995 at which time an aggregate
of $37,507,000 were turned over to the Partnership and the Partnership commenced
2
trading operations. The Partnership's trading of futures contracts on
commodities is done on United States and foreign commodity exchanges. It engages
in such trading 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 administers the business and
affairs of the Partnership. As of December 31, 1996, all commodity trading
decisions are made for the Partnership by John W. Henry & Company, Inc. ("JWH"),
Rabar Market Research, Inc. and Abraham Trading Co. (collectively, the
"Advisors"). None of the Advisors is affiliated with the General Partner or SB.
The Advisors are not responsible for the organization or operation of the
Partnership.
Pursuant to the terms of the Management Agreement (the "Management
Agreement"), the Partnership is obligated to pay each Advisor a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets (Except
JWH, which will receive a monthly management fee equal to 1/3 of 1% (4% per
year)) of the Partnership allocated to each Advisor. The Partnership will also
pay Abraham Trading Co. an incentive fee payable quarterly equal to 20% of New
Trading Profits earned by it for the Partnership; John W. Henry & Company, Inc.
will receive an incentive fee of 15% of the New
3
Trading Profits; and Rabar Market Research Inc. will receive an incentive fee of
22.5% of New Trading Profits of the Partnership.
The Customer Agreement provides that the Partnership will pay SB a monthly
brokerage fee equal to 7/12 of 1% of month-end Net Assets allocated to the
Advisors (7% per year) in lieu of brokerage commissions on a per trade basis. SB
will pay a portion of its brokerage fees to its financial consultants who have
sold Units and who are registered as associated persons with the Commodity
Futures Trading Commission (the "CFTC"). The Partnership will pay for National
Futures Association ("NFA") fees, exchange and clearing fees, give-up and user
fees and floor brokerage fees. Brokerage fees will be paid for the life of the
Partnership, although the rate at which such fees are paid may be changed. The
Customer Agreement between the Partnership and SB gives the Partnership the
legal right to net unrealized gains and losses. Reference should be made to
"Item 8. Financial Statements and Supplementary Data." for further information
regarding the brokerage commissions included in the notes to the financial state
statements.
4
In addition, SB will pay the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at a 30-day
U.S. Treasury bill rate determined weekly by SB based on the average
non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days from
the date on which such weekly rate is determined.
In the unlikely event that the Partnership is required to meet a margin
call in excess of the cash balance in its trading accounts, Smith Barney
Holdings Inc. will contribute up to an amount equal to the maturity value of the
Zero Coupons held by the Partnership at the time of such call to the capital of
the Partnership to permit it to meet its margin obligations in excess of its
cash balance. The guarantee can only be invoked once. After the guarantee is
invoked, trading will cease and the General Partner will either wait until the
end of the month in which the Zero Coupons come due (February, 2003), (the
"First Payment Date"), or will distribute cash and Zero Coupons to the limited
partners. The General Partner will provide a copy of Smith Barney Holdings
Inc.'s annual report as filed with the SEC to any limited partner requesting it.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests (including, but not limited to, futures contracts, options and forward
contracts on U.S. Treasuries, other financial instruments, foreign currencies,
stock indices and physical commodities). The Partnership does not engage
5
in sales of goods or services. The Partnership's net income from operations for
the year ended December 31, 1996 and for the period from November 17, 1995
(commencement of trading operations) to December 31, 1995 is set forth under
"Item 6. Select Financial Data." Partnership capital as of December 31, 1996 was
$38,253,704.
(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.
(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.
6
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote
during the last fiscal year covered by this report.
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 Limited
Partnership Interest as of December 31, 1996 was 1,700.
(c) Distribution. The Partnership did not declare a
distribution in 1996.
7
Item 6. Select Financial Data. The Partnership commenced trading operations on
November 17, 1995. Realized and unrealized trading gains, realized and
unrealized gains (losses) on Zero Coupons, interest income, net income and
increase in net asset value per Unit for the year ended December 31, 1996 and
for the period from November 17, 1995 (commencement of trading operations) to
December 31, 1995 and total assets at December 31, 1996 and 1995 were as
follows:
1996 1995
------------ ------------
Realized and unrealized
trading gains net of brokerage
commissions and clearing fees
of $1,459,014 and $167,420 $ 2,053,372 $ 1,908,271
Realized and unrealized gains
(losses) on Zero Coupons (1,226,193) 531,953
Interest income 1,935,048 250,172
------------ -----------
$ 2,762,227 $ 2,690,396
============ ===========
Net Income $ 2,043,139 $ 2,227,441
============ ===========
Increase in net asset value
per unit $58.96 $59.38
======= ======
Total assets $40,218,283 $40,226,379
============ ===========
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its equity in its commodity futures trading
account, consisting of cash and cash equivalents, Zero Coupons, net unrealized
appreciation (depreciation) on open futures contracts and interest receivable.
Because of the low margin deposits normally required in commodity futures
trading,
8
relatively small price movements may result in substantial losses to the
Partnership. Such substantial losses could lead to a material decrease in
liquidity. To minimize this risk, the Partnership follows certain policies
including:
(1) Partnership funds are invested only in commodity contracts which are
traded in sufficient volume to permit, in the opinion of the Advisors, ease of
taking and liquidating positions.
(2) No Advisor will 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 assets allocated to
the Advisor.
(3) The Partnership will 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.
(4) The Partnership will not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(5) 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 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.
9
(6) The Partnership will not permit the churning of its
commodity trading accounts.
(7) The Partnership may cease trading and liquidate all open positions
prior to its dissolution if its Net Assets (excluding assets maintained in Zero
Coupons) decrease to 10% of those assets on the day trading commenced (adjusted
for redemptions).
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
10
to result in the Partnership's liquidity increasing or decreasing in any
material way. The Limited Partnership Agreement provides that the General
Partner may, at its discretion, cause the Partnership to cease trading
operations and liquidate all open positions upon the first to occur of the
following: (i) December 31, 2015; (ii) at the end of the month in which the Zero
Coupons purchased by the Partnership come due (February 15, 2003), unless the
General Partner elects otherwise; (iii) the vote to dissolve the Partnership by
limited partners owning more than 50% of the Units; (iv) assignment by the
General Partner of all of its interest in the Partnership or withdrawal,
removal, bankruptcy or any other event that causes the General Partner to cease
to be a general partner under the Partnership Act unless the Partnership is
continued as described in the Limited Partnership Agreement; (v) the Partnership
is required to register under the Investment Company Act of 1940 and the General
Partner determines that dissolution is therefore in the Partnership's best
interest; or (vi) the occurrence of any event which shall make it unlawful for
the existence of the Partnership to be continued.
(b) Capital resources. (i) The Partnership has made no material
commitments for capital expenditures.
(ii) The Partnership's capital will consist of the capital
contributions of the partners as increased or decreased by gains or losses on
commodity futures trading and Zero Coupon appreciation or depreciation, and by
expenses, interest income, redemptions of Units and distributions of profits, if
any. Gains or losses on commodity futures trading cannot be predicted. Market
11
moves in commodities are dependent upon fundamental and technical factors which
the Partnership's Advisors may or may not be able to identify. Partnership
expenses will consist of, among other things, commissions, management fees 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. Furthermore, the Partnership will receive no payment on its Zero
Coupons until their due date. However, the Partnership will accrue interest on
the Zero Coupons and Limited Partners will be required to report as interest
income on their U.S. tax returns in each year their pro-rata share of the
accrued interest on the Zero Coupons even though no interest will be paid prior
to their due date. In addition, the amount of interest income payable by SB is
dependent upon interest rates over which the Partnership has no control.
No forecast can be made as to the level of redemptions in any given
period. Beginning with the first full quarter ending at least six months after
trading commences (June 30, 1996), a Limited Partner may cause all of his Units
to be redeemed by the Partnership at the Redemption Net Asset Value thereof as
of the last day of a quarter (the "Redemption Date") on ten days' written notice
to the General Partner. Redemption fees equal to 2% of Redemption Net Asset
Value per Unit redeemed will be charged to any Limited Partner who redeems his
Units on the first, second or third possible redemption dates and 1% on the
fourth and fifth possible redemption dates, respectively. Thereafter, no
redemption fee will
12
be charged. During 1996, SB received a redemption fee of $59,478. Redemption Net
Asset Value differs from Net Asset Value calculated for financial reporting
purposes in that the accrued liability for reimbursement of offering and
organization expenses will not be included in the calculation of Redemption Net
Asset Value.
Offering and organization expenses relating to the issuance and marketing
of Units offered were initially paid by SB. Such expenses were initially
estimated to be $550,000 and were charged against the initial capital of the
Partnership. During 1996, the Partnership's total offering and organization
expense were determined to be $612,847. The accrued liability for reimbursement
of offering and organization expenses will not reduce Net Asset Value per Unit
for any purpose (other than financial reporting), including calculation of
advisory and brokerage fees and the redemption value of Units. Interest earned
by the Partnership will be used to reimburse SB for the offering and
organization expenses of the Partnership until such time as such expenses are
fully reimbursed. As of December 31, 1996, the Partnership has reimbursed SB in
the amounts of $550,000 plus interest of $33,339 of offering and organization
expenses.
For each Unit redeemed and not offset by a purchase, the Partnership
liquidates $1,000 (principal amount) of Zero Coupons and will continue to
liquidate $1,000 (principal amount) of Zero Coupons per Unit redeemed. These
liquidations will be at market value which will be less than the amount payable
on their due date. Moreover, it is possible that the market value of the Zero
Coupon could be less than its purchase price plus the original issue
13
discount amortized to date.
(c) Results of operations. For the year ended December 31, 1996, the net
asset value per Unit increased 5.6% from $1,044.72 to $1,103.68. For the period
from November 17, 1995 (commencement of trading operations) to December 31,
1995, the net asset value per Unit increased 6.0% from $985.34 to $1,044.72. The
net asset value of $985.34 at commencement of trading operations is reflective
of charging offering and organizational expenses against the initial capital of
the Partnership for financial reporting purposes. The redemption value per unit
at December 31, 1995 is $1,057.53. There were no operations in 1994.
The Partnership experienced net trading gains of $3,512,386 before
commissions and expenses for the year ended December 31, 1996. Gains were
recognized in the trading of commodity futures in currencies, energy products,
metals and interest rates and were partially offset by losses recognized in
indices and agricultural products. The Partnership experienced a realized loss
of $75,906 on Zero Coupons liquidated in conjunction with the redemption of
Units during 1996 and unrealized depreciation of $1,150,287 on Zero Coupons
during 1996.
The Partnership experienced net trading gains of $2,075,691 before
commissions and expenses for the period ended December 31, 1995. Gains were
attributable to the trading of commodity futures in interest rates, stock
indices, energy and agricultural products. These gains were partially offset by
losses experienced in the trading of metals and foreign currencies. The
Partnership experienced unrealized appreciation of $531,953 on Zero Coupons
14
during 1995. The Partnership includes in interest income the amortization of
original issue discount on Zero Coupons based on the interest method.
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. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
15
Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
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 year ended December 31, 1996 and
for the period from November 17, 1995
(commencement of trading operations)
to December 31, 1995. F-4
Statement of Partners' Capital for
the year ended December 31, 1996 and
for the period from April 12, 1995
(date Partnership was capitalized) to
December 31, 1995. F-5
Notes to Financial Statements. F-6 - F-12
F-1
Continued
Report of Independent Accountants
To the Partners of
Smith Barney Principal PLUS Futures Fund L.P.:
We have audited the accompanying statement of financial condition of SMITH
BARNEY PRINCIPAL PLUS FUTURES FUND L.P. (a New York Limited Partnership) as of
December 31, 1996 and 1995, and the related statements of income and expenses
for the year ended December 31, 1996 and for the period from November 17, 1995
(commencement of trading operations) to December 31, 1995, and of partners'
capital for the year ended December 31, 1996 and for the period from April 12,
1995 (date Partnership was capitalized) to December 31, 1995. 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 Smith Barney Principal PLUS
Futures Fund L.P. as of December 31, 1996 and 1995, and the results of its
operations for the year ended December 31, 1996 and for the period from April
12, 1995 (date Partnership was capitalized) to December 31, 1995, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 28, 1997
F-2
Smith Barney Principal PLUS
Futures Fund L.P.
Statement of Financial Condition
December 31, 1996 and 1995
Assets: 1996 1995
Equity in commodity futures
trading account:
Cash and cash equivalents (Note 3c) $15,167,522 $13,548,113
Net unrealized appreciation
on open futures contracts 445,494 1,276,831
Zero Coupons, $34,660,000 and
$37,507,000 principal amount
in 1996 and 1995, respectively,
due February 15, 2003 at market
value (amortized cost $24,344,837
and $24,867,412 in 1996 and 1995,
respectively) (Notes 1 and 2) 23,726,503 25,399,365
Commodity options owned, at
market value (cost $3,505 and
$2,010 in 1996 and 1995,
respectively) 1,987 2,070
----------- -----------
39,341,506 40,226,379
Receivable from SB on sale of Zero
Coupons 813,930
Other assets 62,847
----------- -----------
$40,218,283 $40,226,379
=========== ===========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Management fees $ 52,377 $ 47,650
Commissions 119,361 115,109
Incentive fees 372,390 361,011
Due to SB (Note 6) 62,847 480,508
Other 42,412 36,700
Commodity options written, at
market value (premiums received
$2,400 and $900 in 1996 and 1995,
respectively) 2,916 960
Redemption payable 1,312,276
----------- -----------
1,964,579 1,041,938
----------- -----------
Partners' Capital (Notes 1, 5, and 7):
General Partner, 376 Unit
equivalents outstanding in 1996
and 1995 414,984 392,815
Limited Partners, 34,284 and
37,131 Units of Limited Partnership
Interest outstanding in 1996
and 1995, respectively 37,838,720 38,791,626
----------- -----------
38,253,704 39,184,441
----------- -----------
$40,218,283 $40,226,379
=========== ===========
See notes to financial statements.
F-3
Smith Barney Principal PLUS Futures Fund L.P.
Statement of Income and Expenses
for the year ended December 31, 1996 and
for the period from November 17, 1995 (commencement of trading operations)
to December 31, 1995
1996 1995
Income:
Net gains on trading of
commodity interests:
Realized gains on
closed positions $ 4,345,757 $ 798,860
Change in unrealized gains/
losses on open positions (833,371) 1,276,831
----------- -----------
3,512,386 2,075,691
Less, Brokerage commissions
and clearing fees ($42,740 and
$5,889) (Note 3c) (1,459,014) (167,420)
----------- -----------
Net realized and unrealized
gains 2,053,372 1,908,271
Loss on sale of Zero Coupons (75,906)
Unrealized appreciation
(depreciation) on Zero Coupons (1,150,287) 531,953
Interest income (Notes 3c
and 6) 1,935,048 250,172
----------- -----------
2,762,227 2,690,396
----------- -----------
Expenses:
Management fees (Note 3b) 560,948 65,244
Incentive fees (Note 3b) 67,801 361,011
Other expenses (Note 6) 90,339 36,700
----------- -----------
719,088 462,955
----------- -----------
Net income $ 2,043,139 $ 2,227,441
=========== ===========
Net income per Unit of Limited
Partnership Interest and
General Partner Unit
equivalent (Notes 1 and 7) $ 58.96 $ 59.38
=========== ===========
See notes to financial statements.
F-4
Smith Barney Principal PLUS
Futures Fund L.P.
Statement of Partners' Capital
for the year ended December 31, 1996 and for the period from April 12,
1995 (date Partnership was capitalized) to December 31, 1995
Limited General
Partners Partner Total
Initial capital $ 1,000 $ 1,000 $ 2,000
contributions
Proceeds from offering of
37,130 Units of Limited
Partnership Interest
and General Partner's
contribution representing
375 Unit equivalents
(Note 1) 37,130,000 375,000 37,505,000
Offering and organization
costs (Note 6) (544,486) (5,514) (550,000)
------------ ------------ ------------
Opening Partnership
capital for operations 36,586,514 370,486 36,957,000
Net Income 2,205,112 22,329 2,227,441
------------ ------------ ------------
Partners' capital at
December 31, 1995 38,791,626 392,815 39,184,441
Net income 2,020,970 22,169 2,043,139
Redemption of 2,847
Units of Limited
Partnership Interest (2,973,876) (2,973,876)
------------ ------------ ------------
Partners' capital at
December 31, 1996 $ 37,838,720 $ 414,984 $ 38,253,704
============ ============ ============
See notes to financial statements.
F-5
Smith Barney Principal PLUS
Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
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 interest payments 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").
Between July 12, 1995 and November 16, 1995, 37,130 Units of Limited
Partnership Interest ("Units") were sold at $1,000 per Unit. The proceeds of
the offering were held in an escrow account until November 17, 1995, at which
time they were turned over to the Partnership for trading. The Partnership
was authorized to sell 100,000 Units during the offering period of the
Partnership.
Smith Barney Futures Management Inc. is 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 3c).
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, 2015; at the end of the month in which the Zero Coupons
purchased come due (February, 2003) ("First Payment Date"), unless the
General Partner elects otherwise, or under certain other circumstances as
defined in the Limited Partnership Agreement. The General Partner, in its
sole discretion, may elect not to terminate the Partnership as of the First
Payment Date. In the event that the General Partner elects to continue the
Partnership, each limited partner shall have the opportunity to redeem all or
some of his Units.
F-6
Smith Barney Principal PLUS
Futures Fund L.P.
Notes to Financial Statements
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.
b.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.
c.The original issue discount on the Zero Coupons is being amortized over
their life using the interest method and is included in interest income.
d.Zero Coupons are recorded in the statement of financial condition at market
value. Realized gain (loss) on the sale of Zero Coupons is determined on
the amortized cost basis of the Zero Coupons at the time of sale.
e.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.Limited Partnership Agreement:
The General Partner administers the business and affairs of the Partnership
including selecting one or more advisors to make trading decisions for the
Partnership.
b.Management Agreements:
The General Partner, on behalf of the Partnership, has entered into
Management Agreements with John W. Henry & Company, Inc., Abraham Trading
Co. and Rabar Market Research Inc. (collectively, the "Advisors"), which
provide that the Advisors have sole discretion in determining the
investment of the assets of the Partnership allocated to each Advisor by
the General Partner. As compensation for services, the Partnership is
obligated to pay a monthly management fee of 1/6 of 1% (2% per year) to
Abraham Trading Co. and Rabar Market Research Inc., and 1/3 of 1 % (4% per
year) to John W. Henry & Company, Inc., of month-end Net Assets allocated
to each advisor. The Partnership will also pay Abraham Trading Co. an
incentive fee payable quarterly equal to 20% of New Trading Profits earned
by it for the Partnership; John W. Henry & Company, Inc. will receive an
incentive fee of 15% of the New Trading Profits; and Rabar Market Research
Inc. will receive an incentive fee of 22.5% of New Trading Profits of the
Partnership.
F-7
Smith Barney Principal PLUS
Futures Fund L.P.
Notes to Financial Statements
c.Customer Agreement:
The Partnership has entered into a Customer Agreement with 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 a monthly brokerage
fee to SB equal to 7/12 of 1% of month-end Net Assets (7% per year) in
lieu of brokerage commissions on a per trade basis. A portion of this fee
is paid to employees of SB who have sold Units of the Partnership. This fee
does not include exchange, clearing, user, give-up, floor brokerage and NFA
fees which will be borne by the Partnership. All of the Partnership's
assets are deposited in the Partnership's account at SB. The Partnership
maintains a portion of these assets in Zero Coupons and a portion in cash.
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
$2,155,439 and $3,316,547, respectively. SB will pay the Partnership
interest on 80% of the average daily equity maintained in cash in its
account during each month at a 30-day Treasury bill rate determined weekly
by SB based on the average non-competitive yield on 3-month U.S. Treasury
bills maturing in 30 days from the date on which such weekly rate is
determined. The Customer Agreement between the Partnership and SB gives the
Partnership the legal right to net unrealized gains and losses. The
Customer Agreement may be terminated by either party.
F-8
Smith Barney Principal PLUS
Futures Fund L.P.
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 $444,565 and $1,277,941,
respectively and the average fair value during the years then ended, based on
monthly calculation, was $1,593,103 and $952,636, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner. Beginning with the end of the first full quarter ending at
least six months after trading commences (June 30,1996), on 10 days' notice
to the General Partner, a limited partner may require the Partnership to
redeem his Units at their Redemption Net Asset Value as of the last day of a
quarter. Redemption fees equal to 2% of Redemption Net Asset Value per Unit
redeemed will be charged to any limited partner who redeems his Units on the
first, second or third possible redemption date, and 1% on the fourth and
fifth possible redemption dates. Thereafter, no redemption fee will be
charged. During 1996, SB received redemption fees of $59,478. Redemption Net
Asset Value differs from Net Asset Value calculated for financial reporting
purposes in that any accrued liability for reimbursement of offering and
organization expenses will not be included in the calculation of Redemption
Net Asset Value.
6. Offering and Organization Costs:
Offering and organization expenses relating to the issuance and marketing of
Units during the offering period were initially paid by SB. Such expenses
were initially estimated to be $550,000 and were charged against the initial
capital of the Partnership. During 1996, the Partnership's total offering and
organization expenses were determined to be $612,847. The Partnership will
charge the excess of $62,847 to expense. As of December 31, 1996, the
Partnership had reimbursed SB for $550,000 of offering and organization
expense plus interest at the prime rate quoted by the Chase Manhattan Bank
totaling $33,339 from interest paid to the Partnership.
F-9
Smith Barney Principal PLUS
Futures Fund L.P.
Notes to Financial Statements
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the year ended December 31, 1996
and the period from November 17, 1995 (commencement of trading operations) to
December 31, 1995 were as follows:
1996 1995
Net realized and
unrealized gains $ 58.66 $ 50.88
Interest income 52.41 6.67
Realized and unrealized
gains (losses) on
Zero Coupons (32.04) 14.18
Expenses (20.07) (12.35)
--------- ---------
Increase for period 58.96 59.38
Net asset value per
Unit, beginning of period 1,044.72 985.34
--------- ---------
Net asset value per
Unit, end of period $1,103.68 $1,044.72
========= =========
Redemption net asset value
per Unit, end of period* $1,103.68 $1,057.53
========= =========
*For the purpose of a redemption, any accrued liability for reimbursement of
offering and organization expenses will not reduce redemption net asset value
per Unit.
8. Guarantee:
In the unlikely event that the Partnership is required to meet a margin call
in excess of the cash balance in its trading accounts, Smith Barney Holdings
Inc. will contribute up to an amount equal to the maturity value of the Zero
Coupons held by the Partnership at the time of such call to the capital of
the Partnership to permit it to meet its margin obligations in excess of its
cash balance. The guarantee can only be invoked once. After the guarantee is
invoked, trading will cease and the General Partner will either wait until
the First Payment Date or will distribute cash and Zero Coupons to the
limited partners.
F-10
Smith Barney Principal PLUS
Futures Fund L.P.
Notes to Financial Statements
9. 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-11
Smith Barney Principal PLUS
Futures Fund L.P.
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.
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 Partnership's
commitment to purchase and sell these instruments was $104,830,699 and
$62,734,677, respectively. 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
$444,565, as detailed below.
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-Exchange Traded
Contracts $ 4,542,090 $ 15,846,787 $ 178,873
-OTC Contracts 15,639,841 11,662,894 71,193
Energy 1,293,602 0 (40,305)
Interest Rate U.S. 6,407,319 943,663 (34,538)
Interest Rate
Non-U.S. 70,157,951 16,870,650 (15,784)
Grains 951,750 1,816,095 11,554
Metals 3,472,150 13,216,218 200,474
Indices 449,424 1,399,633 66,931
Softs 417,677 976,337 (3,005)
Livestock 1,498,895 2,400 9,172
------------ ------------ ------------
Total $104,830,699 $ 62,734,677 $ 444,565
============ ============ ============
F-12
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 Smith Barney Futures Management Inc., its General Partner, which
receives compensation for its services, as set forth under "Item 1. Business."
SB, an affiliate of the General Partner, is the commodity broker for the
Partnership and receives brokerage commissions for such services, as described
under "Item 1. Business." Brokerage commissions and clearing fees of $1,459,014
were paid for the year ended December 31, 1996. Management fees and incentive
fees of $560,948 and $67,801, respectively, were paid to the Advisors for the
year ended December 31, 1996.
16
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. As
of March 1, 1997, one beneficial owner who is neither a director nor executive
officer owns more than five percent (5%) of the outstanding Units issued by the
Registrant as follows:
Title Name and Address of Amount and Nature of Percent of
of Class Beneficial Owner Beneficial Ownership Class
Units of CITIC Industrial Bank 5,000 Units 14.4%
Limited No. 6 Xinyuan Nan Lu
Partnership Chaoyang District Beijing
Interest
(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 partnership interest
equivalent to 376 (1.1%) Units of Limited Partnership Interest.
(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 amounts of compensation each promoter will receive from the Partnership
are set forth under "Item 1. Business." and "Item 11. Executive Compensation."
17
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.
Statement of Income and Expenses for the year ended
December 31, 1996 and for period from November 17, 1995
(commencement of trading operations) to December 31, 1995.
Statement of Partners' Capital for the year ended December 31,
1996 and for the period from April 12, 1995 (date Partnership
was capitalized) to December 31, 1995.
(2) Financial Statement Schedules: None.
(3) Exhibits:
3.1 - Limited Partnership Agreement (dated April 3,
1995 and amended as of June 22, 1995), (filed as
Exhibit 3.1 to the Registration Statement on Form
S-1 (File No. 33-01742) and incorporated herein
by reference).
3.2 - Certificate of Limited Partnership of the
Partnership as filed in the office of the
Secretary of State of New York (filed as Exhibit
3.2 to the Registration Statement on Form S-1
(File No. 33-91742) and incorporated herein by
reference).
18
10.1 - Customer Agreement between the Partnership and
Smith Barney Shearson Inc. (filed as Exhibit 10.1
to the Registration Statement on Form S-1 (File
No. 33-91742) and incorporated herein by
reference).
10.3 - Escrow Instructions relating to escrow of
subscription funds (filed as Exhibit 10.3 to the
Registration Statement on Form S-1 (File No. 33-
91742) and incorporated herein by reference).
10.5 - Management Agreement among the Partnership, the
General Partner and John W. Henry & Company, Inc.
(JWH) (filed as Exhibit 10.5 to the Registration
Statement on Form S-1 (File No. 33-91742) and
incorporated herein by reference).
10.6 - Management Agreement among the Partnership, the
General Partner and Rabar Market Research, Inc.
(filed as Exhibit 10.6 to the Registration
Statement on Form S-1 (File No. 33-91742) and
incorporated herein by reference).
10.7 - Management Agreement among the Partnership, the
General Partner and Abraham Trading Co. (filed as
Exhibit 10.7 to the Registration Statement on Form
S-1 (File No. 33-91742) and incorporated herein by
reference).
(b) Reports on 8-K: None Filed.
19
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
20
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.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P.
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