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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, 1997
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 16, 1995, 37,131 Units were sold to the public at $1,000 per Unit.
Proceeds of the offering along with the General Partner's 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.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of Smith
Barney Inc. ("SB"). SB acts as commodity broker for the Partnership. On November
28, 1997, Smith Barney Holdings Inc. was merged with Salomon Inc to form Salomon
Smith Barney Holdings Inc. ("SSBH"), a wholly owned subsidiary of Travelers
Group Inc. SB is a wholly owned subsidiary of SSBH.
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 SB.
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, 1997, 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 Agreements (the "Management
Agreements"), 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
3
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
payable quarterly of 15% of the New Trading Profits (as defined in the
Management Agreements); and Rabar Market Research Inc. will receive an annual
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 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, SSBH 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 SSBH'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 in sales of goods or services. The Partnership's net income from
5
operations for the year ended December 31, 1997, 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, 1997 was $35,596,403.
(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, 1997 was 1,450.
(c) Distribution. The Partnership did not declare a
distribution in 1997 or 1996.
7
Item 6. Select Financial Data. The Partnership commenced trading operations on
November 17, 1995. Realized and unrealized trading gains (losses), realized and
unrealized gains (losses) on Zero Coupons, interest income, net income and
increase in net asset value per Unit for the years ended December 31, 1997, 1996
and for the period from November 17, 1995 (commencement of trading operations)
to December 31, 1995 and total assets at December 31, 1997, 1996 and 1995 were
as follows:
1997 1996 1995
------------ ------------ ----------
Realized and unrealized
trading gains net of
brokerage commissions and
clearing fees of $1,462,372,
$1,459,014 and $167,420,
respectively $ 2,025,344 $ 2,053,372 $ 1,908,271
Realized and unrealized gains
(losses) on Zero Coupons 631,119 (1,226,193) 531,953
Interest income 1,916,217 1,935,048 250,172
------------ ------------ ------------
$ 4,572,680 $ 2,762,227 $ 2,690,396
============ ============ ============
Net Income $ 3,546,888 $ 2,043,139 $ 2,227,441
============ ============ ============
Increase in net asset value
per unit $ 115.33 $ 58.96 $ 59.38
============ ============ ============
Total assets $ 36,883,726 $ 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
8
appreciation (depreciation) on open futures contracts and interest receivable.
Because of the low margin deposits normally required in commodity futures
trading, relatively small price movements may result in substantial losses to
the Partnership. 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
9
a profit from a widening or narrowing of the difference between the prices of
the two contracts.
(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 Statements and Supplementary Data.", for further
information on financial instrument risk included in the notes to financial
statements.)
10
Other than the risks inherent in commodity futures trading, the
Partnership knows of no trends, demands, commitments, events or uncertainties
which will result in or which are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement 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
11
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
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 on ten days' written notice to the General
12
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 be
charged. During 1997 and 1996, SB received a redemption fees of $33,328 and
$59,478, respectively. 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. For the year ended December 31, 1997,
5,459 Units were redeemed totaling $6,204,189. For the year ended December 31,
1996, 2,847 Units were redeemed totaling $2,973,876.
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 Partnership has charged
the excess of $62,847 to expense. As of December 31, 1997, the Partnership had
reimbursed SB for the offering and organization expense plus interest at the
prime rate quoted by the Chase Manhattan Bank totaling $34,494 from interest
paid to the Partnership.
For each Unit redeemed 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 discount amortized to date.
13
(c) Results of operations. For the year ended December 31, 1997 the net
asset value per Unit increased 10.4% from $1,103.68 to $1,219.01. 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 Partnership experienced net trading gains of $3,487,716 before
commissions and expenses for the year ended December 31, 1997. Gains were
recognized in the trading of commodity futures in currencies, softs, grains,
indices, metals and interest rates and were partially offset by losses
recognized in livestock and energy products. The Partnership experienced a
realized loss of $93,506 on Zero Coupons liquidated in conjunction with the
redemption of Units during 1997 and unrealized appreciation of $724,625 on Zero
Coupons during 1997.
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.
14
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 and 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 during 1995.
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, 1997 and 1996. F-3
Statement of Income and Expenses for the years ended
December 31, 1997 and 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 years ended
December 31, 1997 and 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-11
F-1
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, 1997 and 1996, and the related statements of income and expenses
for the years ended December 31, 1997 and 1996 and for the period from November
17, 1995 (commencement of trading operations) to December 31, 1995, and of
partners' capital for the years ended December 31, 1997, 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, 1997 and 1996, and the results of its
operations for the years ended December 31, 1997 and 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
March 6, 1998
F-2
Smith Barney Principal PLUS
Futures Fund L.P.
Statement of Financial Condition
December 31, 1997 and 1996
Assets: 1997 1996
Equity in commodity futures
trading account:
Cash and cash equivalents
(Note 3c) $13,346,392 $15,167,522
Net unrealized appreciation
on open futures contracts 1,079,612 445,494
Zero Coupons, $29,201,000 and
$34,660,000 principal
amount in 1997 and 1996,
respectively, due
February 15, 2003 at
market value (amortized
cost $21,727,880 and
$24,344,837 in 1997 and
1996, respectively)
(Notes 1 and 2) 21,834,171 23,726,503
Commodity options owned, at
market value (cost $3,505
in 1996) -- 1,987
----------- -----------
36,260,175 39,341,506
Receivable from SB on sale of
Zero Coupons 575,066 813,930
Interest receivable 48,485 --
Other assets -- 62,847
----------- -----------
$36,883,726 $40,218,283
----------- -----------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Management fees $ 50,926 $ 52,377
Commissions 114,693 119,361
Incentive fees 154,823 372,390
Due to SB (Note 6) -- 62,847
Other 27,024 42,412
Commodity options written, at
market value (premiums
received $2,400 in 1996) -- 2,916
Redemptions payable 939,857 1,312,276
----------- -----------
1,287,323 1,964,579
Partners' Capital (Notes 1, 5, and 7):
General Partner, 376 Unit
equivalents outstanding in
1997 and 1996 458,348 414,984
Limited Partners, 28,825 and
34,284 Units of Limited
Partnership Interest
outstanding in 1997 and
1996, respectively 35,138,055 37,838,720
----------- -----------
35,596,403 38,253,704
----------- -----------
$36,883,726 $40,218,283
----------- -----------
See notes to financial statements.
F-3
Smith Barney Principal PLUS Futures Fund L.P.
Statement of Income and Expenses
for the years ended December 31, 1997 and 1996 and
for the period from November 17, 1995
(commencement of trading operations)
to December 31, 1995
1997 1996 1995
Income:
Net gains on trading of
commodity interests:
Realized gains on
closed positions $ 2,851,564 $ 4,345,757 $ 798,860
Change in unrealized
gains/ losses on open
positions 636,152 (833,371) 1,276,831
----------- ----------- -----------
3,487,716 3,512,386 2,075,691
Less, Brokerage
commissions
and clearing fees
($37,258, $42,740 and
$5,889, respectively)
(Note 3c) (1,462,372) (1,459,014) (167,420)
----------- ----------- -----------
Net realized and
unrealized gains 2,025,344 2,053,372 1,908,271
Loss on sale of Zero
Coupons (93,506) (75,906) --
Unrealized
appreciation
(depreciation) on
Zero Coupons 724,625 (1,150,287) 531,953
Interest income
(Notes 3c and 6) 1,916,217 1,935,048 250,172
----------- ----------- -----------
4,572,680 2,762,227 2,690,396
----------- ----------- -----------
Expenses:
Management fees (Note 3b) 586,615 560,948 65,244
Incentive fees (Note 3b) 319,273 67,801 361,011
Other expenses (Note 6) 119,904 90,339 36,700
----------- ----------- -----------
1,025,792 719,088 462,955
----------- ----------- -----------
Net income $ 3,546,888 $ 2,043,139 $ 2,227,441
----------- ----------- -----------
Net income per Unit of
Limited Partnership
Interest and
General Partner Unit
equivalent (Notes 1 and 7) $ 115.33 $ 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 years ended December 31, 1997 and 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
Net income 3,503,524 43,364 3,546,888
Redemption of 5,459
Units of Limited
Partnership Interest (6,204,189) -- (6,204,189)
------------ ------------ ------------
Partners' capital at
December 31, 1997 $ 35,138,055 $ 458,348 $ 35,596,403
------------ ------------ ------------
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. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of
Smith Barney Inc. ("SB"). SB acts as commodity broker for the Partnership
(see Note 3c). On November 28, 1997, Smith Barney Holdings Inc. was merged
with Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"),
a wholly owned subsidiary of Travelers Group Inc. SB is a wholly owned
subsidiary of SSBH.
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.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at market value for
those commodity interests for which market quotations are readily
available or at fair value on the last business day of the year.
Investments in commodity interests denominated in foreign currency are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gain (loss) and changes in unrealized
values on commodity interests are recognized in the period in which the
contract is closed or the changes occur and are included in net gains
(losses) on trading of commodity interests.
F-6
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 a quarterly incentive fee of 15% of New Trading Profits; and
Rabar Market Research Inc. will receive an annual incentive fee of 22.5%
of New Trading Profits of the Partnership.
F-7
c. Customer Agreement:
The Partnership has entered into a Customer Agreeent with SB whereby SB
provides services which include, among other things, the execution of
transctions 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, 1997 and 1996, the amount of cash
held for margin requirements was $2,930,178 and $2,155,439, 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 U.S.
Treasury bill rate determined weekly by SB based on the average
noncompetitive 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.
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 31,1997 and 1996 was $1,079,612 and $444,565, respectively and the
average fair value during the years then ended, based on monthly
calculation, was $1,182,103 and $1,593,103, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner. 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 1997 and 1996, SB
received redemption fees of $33,328 and $59,478, respectively. 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.
F-8
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 has charged the excess of $62,847 to expense. As of
December 31, 1997 the Partnership had reimbursed SB for the offering and
organization expense plus interest at the prime rate quoted by the Chase
Manhattan Bank totaling $34,494 from interest paid to the Partnership.
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31,
1997 and 1996 and for the period from November 17, 1995 (commencement of
trading operations) to December 31, 1995 were as follows:
1997 1996 1995
Net realized and
unrealized gains $ 66.66 $ 58.66 $50.88
Interest income 58.85 52.41 6.67
Realized and unrealized
gains (losses) on
Zero Coupons 21.33 (32.04) 14.18
Expenses (31.51) (20.07) (12.35)
--------- --------- ---------
Increase for period 115.33 58.96 59.38
Net asset value per
Unit, beginning of
period 1,103.68 1,044.72 985.34
--------- --------- ---------
Net asset value per
Unit, end of
period $1,219.01 $1,103.68 $1,044.72
-------- --------- ---------
Redemption net asset
value per Unit,
end of period* $1,219.01 $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, SSBH 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-9
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.
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
F-10
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, 1997, the Partnership's commitment to purchase and sell these
instruments was $103,740,103 and $104,099,896, respectively. All of these
instruments mature within one year of December 31, 1997. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity. At December 31, 1997, the fair value of the Partnership's
derivatives, including options thereon, was $1,079,612, as detailed below.
December 31, 1997
---------------------------------------
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-Exchange
Traded
Contracts $ 1,852,635 $ 13,543,743 $ 130,111
-OTC Contracts 11,577,189 22,737,095 (43,636)
Energy -- 2,330,053 81,274
Grains -- 3,197,466 76,852
Interest Rate
Non-U.S 68,669,047 47,748,762 101,593
Interest Rate
U.S 16,567,737 -- 99,253
Livestock -- 1,949,300 55,800
Metals 3,314,600 9,844,978 485,359
Softs 1,709,720 1,695,191 11,764
Indices 49,175 1,053,308 81,242
------------ ------------ ------------
Total $103,740,103 $104,099,896 $ 1,079,612
------------ ------------ ------------
At December 31, 1996, the notional or contractual amounts of the Partnership's
commitment to purchase and sell these instruments was $104,830,699 and
$62,734,677, respectively, and the fair value of the Partnership's derivatives,
including options thereon, was $444,565 as detailed below.
December 31, 1996
---------------------------------------
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-Exchange
Traded $ 4,542,090 $ 15,846,787 $ 178,873
Contracts
-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-11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the last two fiscal years and any subsequent interim
period, no independent accountant who was engaged as the principal accountant
to audit the Partnership's financial statements has resigned or was dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are
managed by its General Partner, Smith Barney Futures Management Inc. Investment
decisions are made by the Advisors.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are
managed by 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 $1,462,372
were paid for the year ended December 31, 1997. Management fees and incentive
fees of $586,615 and $319,273, respectively, were paid to the Advisors for the
year ended December 31, 1997.
16
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a). Security ownership of certain beneficial owners. As
of March 1, 1998, two beneficial owners who are neither a director nor executive
officer own 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 17.1%
Limited No. 6 Xinyuan Nan Lu
Partnership Chaoyang District Beijing
Interest
Units of Naomi R. Wilden 1,500 Units 5.1%
Limited 11727 Pendelton
Partnership Ycaipa, CA 92399
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 (1.3%) 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, 1997
and 1996. Statement of Income and Expenses for the
years ended December 31, 1997 and 1996 and for period
from November 17, 1995 (commencement of trading
operations) to December 31, 1995. Statement of
Partners' Capital for the years ended December 31,
1997 and 1996 and for the period from April 12, 1995
(date Partnership was capitalized) to December 31,
1995.
(2) Financial Statement Schedules:Financial data schedule
for the year ended December 31, 1997.
(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).
10.8 - Letters extending Management Agreements with Rabar
Market Researsh, Inc., Abraham Trading Co. and John
W. Henry & Company Inc. (filed herein).
(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 1998.
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/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
21