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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2003
--------------
Commission File Number 0-22489
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SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
---------------------------------------------------------
New York 13-3862967
-----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Citigroup Managed Futures LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
-----------------------------------------------------------------
(Address and Zip Code of principal executive offices)
(212) 723-5424
---------------------------------------------------------------
(Registrant's telephone number,including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes _____ No X
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
March 31, 2003 and December 31,
2002 (unaudited). 3
Condensed Schedules of Investments
at March 31, 2003 and December 31,
2002 (unaudited). 4 - 5
Statements of Income and Expenses
and Partners' Capital for the
three months ended March 31, 2003 and 2002
(unaudited). 6
Notes to Financial Statements
(unaudited). 7 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 11 - 13
Item 3. Quantitative and Qualitative Disclosures
of Market Risk. 14 - 15
Item 4. Controls and Procedures 16
PART II - Other Information 17
2
PART I
Item 1. Financial Statements
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
2003 2002
------------------------------
ASSETS:
Equity in commodity futures trading account:
Cash (restricted $807,084 and $1,511,921 in 2003 and
2002, respectively) $ 6,086,099 $ 4,723,318
Net unrealized (depreciation) appreciation
on open positions * (149,009) 791,065
U.S. Treasury zero coupon bonds, $9,478,000 and $9,582,000
prinicpal amount in 2003 and 2002, repectively,
due November 15, 2003 at market value
(amortized cost $9,175,347 and $9,129,904
in 2003 and 2002, respectively) 9,417,056 9,492,408
------------ ------------
15,354,146 15,006,791
Receivable from CGM on sale of U.S. Treasury
zero coupon bonds 103,090 265,993
Interest receivable 5,221 4,062
------------ ------------
$ 15,462,457 $ 15,276,846
============ ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 48,727 $ 41,725
Management fees 8,304 7,696
Incentive fees 29,560 --
Other 52,141 39,640
Redemptions payable 166,319 414,731
------------ ------------
305,051 503,792
------------ ------------
Partners' Capital:
General Partner, 203 Unit equivalents
outstanding in 2003 and 2002 324,642 312,975
Limited Partners, 9,275 and 9,379 Units of
Limited Partnership Interest outstanding
in 2003 and 2002, respectively 14,832,764 14,460,079
------------ ------------
15,157,406 14,773,054
------------ ------------
$ 15,462,457 $ 15,276,846
============ ============
* Forward contracts included in this balance are presented gross in the
accompanying Condensed Schedule of Investments.
See Accomapnying Notes to Unaudited Financial Statements.
3
Smtih Barney Principal PLUS
Futures Fund L.P. II
Condensed Schedule of Investments
March 31, 2003
(Unaudited)
Sector Contract Fair Value
- -------------------- --------------------------------- -----------
Currencies
Futures contracts purchased (0.18)% $ (27,848)
Futures contracts sold (0.54)% (82,259)
----------
Total Currencies - (0.72)% (110,107)
---------
Energy
Futures contracts purchased (0.05)% (7,376)
Futures contracts sold (0.01)% (1,530)
----------
Total Energy - (0.06) % (8,906)
----------
Grains
Futures contracts purchased (0.01)% (1,446)
Futures contracts sold 0.05% 7,844
----------
Total Grains - 0.04% 6,398
----------
Interest Rates Non-U.S.
Futures contracts purchased 0.04% 5,471
Futures contracts sold 0.01% 2,295
----------
Total Interest Rates Non-U.S. - 0.05% 7,766
----------
Total Interest Rates U.S. - 0.00% * Futures contracts purchased 0.00% * (422)
----------
Livestock
Futures contracts purchased 0.00% * 220
Futures contracts sold (0.00)% * (300)
-----------
Total Livestock - (0.00)%* (80)
-----------
Metals
Futures contracts purchased 0.00% * 660
Futures contracts sold (0.01)% (1,728)
-----------
Total Futures contracts (0.01)% (1,068)
Unrealized appreciation on forward contracts 0.14% 21,201
Unrealized depreciation on forward contracts (0.37)% (56,473)
----------
Total Forward contracts (0.23)% (35,272)
----------
Total Metals - (0.24)% (36,340)
-----------
Total Lumber - 0.02% Futures contracts sold 0.02% 3,498
-----------
Softs
Futures contracts purchased (0.06)% (9,330)
Futures contracts sold 0.19% 29,179
-------------
Total Softs - 0.13% 19,849
-------------
Indices
Futures contracts purchased (0.20)% (30,895)
Futures contracts sold (0.00)% * 230
-------------
Total Indices - (0.20)% (30,665)
-------------
Total Fair Value - (0.98)% (149,009)
--------------
Total U.S. Treasury zero
coupon bonds - 62.13% U.S. Treasury zero coupon bonds, $9,478,000
principal amount 11/15/2003
(amoritzed cost $ 9,175,347) 9,417,056
--------------
Total Investments - 61.15% $9,268,047
==============
Composition Investments at Value % of Investments at Value
- ------------------ ---------------------- ------------------------
Australia $ (1,066) (0.01)%
Canada 5,447 0.06
Germany 238 0.00
Hong Kong 231 0.00
Japan (2,378) (0.03)
Spain (4,070) (0.04)
United Kingdom (35,908) (0.38)
United States 9,305,553 100.40
--------------- ------------
$ 9,268,047 100.00%
=============== ============
Percentages are based on Partners' capital unless otherwise indicated
* Due to rounding
See Accompanying Notes to Unaudited Financial Statements.
4
Smith Barney Principal PLUS
Futures Fund L.P. II
Condensed Schedule of Investments
December 31, 2002
(Unaudited)
Sector Contract Fair Value
============= ====================== ===========
Currencies Futures contracts purchased 0.93% $137,773
Futures contracts sold (0.02)% (3,989)
----------
Total Currencies 0.91% 133,784
----------
Total Energy 0.88% Futures contracts purchased 0.88% 129,580
----------
Grains Futures contracts purchased (0.04)% (6,827)
Futures contracts sold 0.19% 28,729
----------
Total Grains 0.15% 21,902
----------
Interest Rates Non-U.S. Futures contracts purchased 2.37% 350,884
Futures contracts sold (0.00)% * (105)
----------
Total Interest Rates Non-U.S. 2.37% 350,779
----------
Total Interest Rates U.S 0.73% Futures contracts purchased 0.73% 108,163
----------
Total Livestock 0.01% Futures contracts purchased 0.01% 1,915
----------
Metals Futures contracts purchased 0.40% 60,155
Futures contracts sold (0.00)% * (13)
----------
Total Futures contracts 0. 40% 60,142
Unrealized appreciation on forward contracts 0.15% 22,508
Unrealized depreciation on forward contracts (0.33)% (49,713)
----------
Total forward contracts (0.18)% (27,205)
----------
Total Metals 0.22% 32,937
----------
Total Lumber (0.00)% * Futures contracts sold (0.00)% * (77)
----------
Softs Futures contracts purchased 0.06% 9,244
Futures contracts sold 0.07% 10,511
----------
Total Softs 0.13% 19,755
----------
Indices Futures contracts purchased (0.05)% (7,659)
Futures contracts sold (0.00)% * (14)
----------
Total Indices (0.05)% (7,673)
----------
Total Fair Value of Futures
and Forwards positions 5.35% 791,065
Total U.S. Treasury zero coupon U.S. Treasury zero coupon bonds, $9,582,000
bonds 64.25% principal amount 11/15/2003 (amortized cost $9,129,904) 9,492,408
----------
Total Investments 69.60% $10,283,473
===========
Investments % of Investments
Country Composition at Value at Value
---------------------------------- -------------------------- ----------------
Australia $51,831 0.50%
Canada 32,019 0.31
Germany 99,406 0.97
Japan 12,906 0.13
Spain 2,320 0.02
United Kingdom 153,079 1.49
United States 9,931,912 96.58
-------------------- -------------------
$10,283,473 100.00%
==================== ===================
Percentages are based on Partners' capital unless otherwise indicated
* Due to rounding.
See Accompanying Notes to Unaudited Financial Statements.
5
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-------------------------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains (losses) on closed positions
and foreign currencies $ 1,683,045 $ (634,495)
Change in unrealized (losses) gains on open
positions (940,074) 259,325
------------ ------------
742,971 (375,170)
Gain on sale of U.S. Treasury zero coupon bonds 2,412 20,518
Unrealized depreciation
on U.S. Treasury zero coupon bonds (120,795) (161,068)
Interest income 160,239 171,145
------------ ------------
784,827 (344,575)
------------ ------------
Expenses:
Brokerage commissions including clearing fees
of $7,431 and $7,713, respectively 165,116 119,251
Management fees 26,979 17,716
Other expenses 12,501 11,716
Incentive fees 29,560 --
------------ ------------
234,156 148,683
------------ ------------
Net income (loss) 550,671 (493,258)
Redemptions (166,319) (642,755)
------------ ------------
Net increase (decrease) in Partners' capital 384,352 (1,136,013)
Partners' capital, beginning of period 14,773,054 15,415,522
------------ ------------
Partners' capital, end of period $ 15,157,406 $ 14,279,509
============ ============
Net asset value per Unit
(9,478 and 10,486 Units outstanding
at March 31, 2003 and 2002, respectively) $ 1,599.22 $ 1,361.77
============ ============
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 57.47 $ (45.01)
============ ============
See Accompanying Notes to Unaudited Financial Statements.
6
Smith Barney Principal PLUS Futures Fund L.P. II
Notes to Financial Statements
March 31, 2003
(Unaudited)
1. General
Smith Barney Principal Plus Futures Fund L.P. II (the "Partnership") was
formed under the laws of the State of New York on November 16, 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 maintains a portion of its
assets in principal amounts stripped from U.S. Treasury Bonds under the
Treasury's STRIPS program which payments are due approximately seven years from
the date trading commenced ("Zero Coupons").
On April 7, 2003, Smith Barney Futures Management LLC changed its name to
Citigroup Managed Futures LLC. Citigroup Managed Futures LLC acts as the general
partner (the "General Partner") of the Partnership. The Partnership's commodity
broker is Citigroup Global Markets Inc. ("CGM"), formerly Salomon Smith Barney
Inc. CGM is an affiliate of the General Partner. The General Partner is wholly
owned by Citigroup Global Markets Holdings Inc. ("CGMHI"), formerly Salomon
Smith Barney Holdings Inc., which is the sole owner of CGM. CGMHI is a wholly
owned subsidiary of Citigroup Inc. As of March 31, 2003, all trading decisions
are made for the Partnership by Winton Capital Management Ltd. and Willowbridge
Associates Inc. (each an "Advisor" and collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at March 31, 2003 and December 31, 2002 and the results of its
operations for the three months ended March 31, 2003 and 2002. These financial
statements present the results of interim periods and do not include all
disclosures normally provided in annual financial statements. You should read
these financial statements together with the Partnership's annual report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2002.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
7
Smith Barney Principal PLUS Futures Fund L.P. II
Notes to Financial Statements
March 31, 2003
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in net asset value per Unit for the three months ended March 31, 2003
and 2002 were as follows:
THREE-MONTHS ENDED
MARCH 31
-----------------------------
2003 2002
-------------- --------------
Net realized and unrealized
gains(losses) * $ 60.30 $ (45.12)
Realized and unrealized losses
on Zero Coupons (12.36) (12.82)
Interest income 16.72 15.62
Expenses ** (7.19) (2.69)
--------- ---------
Increase(decrease) for period 57.47 (45.01)
Net Asset Value per Unit,
beginning of period 1,541.75 1,406.78
--------- ---------
Net Asset Value per Unit
end of period $ 1,599.22 $ 1,361.77
========= =========
* Includes brokerage commissions
** Exclude brokerage commissions
Ratios to average net assets: ***
Net investment income(loss) before
Incentive fees **** (1.1)% 0.6%
========= =========
Operating expenses 5.4% 4.1%
Incentive fees 0.8% 0.0%
--------- ---------
Total expenses 6.2% 4.1%
========= =========
Total return:
Total return before incentive fees 3.9% (3.2)%
Incentive fees (0.2)% (0.0)%
--------- ---------
Total return after incentive fees 3.7% (3.2)%
========= =========
*** Annualized
**** Interest income less total expenses (exclusive of incentive fees)
The above ratios may vary for individual investors based on the timing of
capital transactions during the period.
8
Smith Barney Principal PLUS Futures Fund L.P. II
Notes to Financial Statements
March 31, 2003
(Unaudited)
(Continued)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and CGM gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair values during the three and twelve months
ended March 31, 2003 and December 31, 2002, based on a monthly calculation, were
$728,373 and $529,374, respectively. The fair values of these commodity
interests, including options thereon, if applicable, at March 31, 2003 and
December 31, 2002, were $(149,009) and $791,065, respectively.
4. Financial Instrument Risk:
In the normal course of its business the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments
may include forwards, futures and options, whose values are based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options. Each of these instruments is subject to
various risks similar to those related to the underlying financial instruments
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.
9
Smith Barney Principal PLUS Futures Fund L.P. II
Notes to Financial Statements
March 31, 2003
(Unaudited)
(Continued)
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized as unrealized appreciation in the statement of
financial condition and not represented by the contract or notional amounts of
the instruments. The Partnership has credit risk and concentration risk because
the sole counterparty or broker with respect to the Partnership's assets is CGM.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk-adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The majority of these instruments mature within one year of March 31, 2003.
However, due to the nature of the Partnership's business, these instruments may
not be held to maturity.
10
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------------
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, Zero Coupons, net unrealized appreciation
(depreciation) on open futures and forward contracts, commodity options and
interest receivable. Because of the low margin deposits normally required in
commodity futures trading, relatively small price movements may result in
substantial losses to the Partnership. While substantial losses could lead to a
substantial decrease in liquidity no such losses occurred during the first
quarter of 2003.
The Partnership's capital consists of capital contributions, as increased
or decreased by realized and/or unrealized gains or losses on commodity futures
trading and Zero Coupons, expenses, interest income, redemptions of Units and
distributions of profits, if any.
For the three months ended March 31, 2003, Partnership capital increased
2.6% from $14,773,054 to $15,157,406. This increase was attributable to net
income from operations of $550,671 which was partially offset by the redemption
of 104 Units of Limited Partnership Interest resulting in an outflow of
$166,319. Future redemptions can impact the amount of funds available for
investment in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statement of financial condition at fair value on the last business day of the
period, which represents market value for those commodity interests for which
market quotations are readily available. Investments in commodity interests
denominated in foreign currencies are translated into U.S. dollars at the
exchange rates prevailing on the last business day of the period. Realized gains
(losses) and changes in unrealized values on open position 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.
11
Foreign currency contracts are those contracts where the Partnership agrees
to receive or deliver a fixed quantity of foreign currency for an agreed-upon
price on an agreed future date. Foreign currency contracts are valued daily, and
the Partnership's net equity therein, representing unrealized gain or loss on
the contracts as measured by the difference between the forward foreign exchange
rates at the date of entry into the contracts and the forward rates at the
reporting dates, is included in the statement of financial condition. Realized
gains (losses) and changes in unrealized values on foreign currency contracts
are recognized in the period in which the contract is closed or the changes
occur and are included in the statement of income and expenses and partners'
capital.
Results of Operations
During the Partnership's first quarter of 2003, the net asset value per
unit increased 3.7% from $1,541.75 to $1,599.22 as compared to a decrease of
3.2% in the first quarter of 2002. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the first quarter of 2003
of $742,971. Gains were primarily attributable to the trading of commodity
futures in currencies, energy and non-U.S. interest rates, and were partially
offset by losses in livestock, metals, indices, softs and U.S. interest rates.
The Partnership experienced a net trading loss before commissions and related
fees in the first quarter of 2002 of $375,170. Losses were primarily
attributable to the trading of commodity futures in currencies, grains, non-U.S.
interest rates, livestock, metals, indices and softs and were partially offset
by gains in U.S. interest rates and energy.
Commodity futures markets are highly volatile. The potential for broad and
rapid price fluctuations increases the risks involved in commodity trading, but
also increases the possibility of profit. The profitability of the Partnership
depends on the existence of major price trends and the ability of the Advisors
to correctly identify those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisors are able to identify them,
the Partnership expects to increase capital through operations.
12
Interest Income on 80% of the Partnership's daily equity maintained in cash
was earned at the 30-day U.S. Treasury bill rate determined weekly by CGM based
on the average non-competitive yield on 3-month U.S. Treasury bills maturing in
30 days. CGM may continue to maintain the Partnership assets in cash and/or
place all of the Partnership assets in 90-day Treasury bills and pay the
Partnership 80% of the interest earned on the Treasury bills purchased. CGM will
retain 20% of any interest earned on Treasury bills. Interest income for the
three months ended March 31, 2003 decreased by $10,905 as compared to the
corresponding period in 2002. The decrease in interest income is primarily due
to the decrease in interest rates and the effect of redemptions on the
Partnership's equity maintained in cash during the three months ended March 31,
2003 as compared to 2002.
Brokerage commissions are calculated on the Partnership's adjusted net
asset value on the last day of each month and are affected by trading
performance and redemptions. Accordingly, they must be compared in relation to
the fluctuations in the monthly net asset value. Brokerage commissions and fees
for the three months ended March 31, 2003 increased by $45,865 as compared to
the corresponding period in 2002. The increase in brokerage commissions and fees
is due to an increase in the net assets during the three months ended March 31,
2003 as compared to 2002.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. Management fees for the three months ended March 31, 2003
increased by $9,263 as compared to the corresponding period in 2002. The
increase in management fees is due to an increase in net assets during the three
months ended March 31, 2003 as compared to 2002.
Incentive fees are based on the new trading profits generated by each
Advisor as defined in the advisory agreements between the Partnership, the
General Partner and each Advisor. Trading performance for the three months ended
March 31, 2003 and 2002 resulted in incentive fees of $29,560 and $0,
respectively.
13
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification in this
section should not be considered to constitute any assurance or representation
that the Partnership's losses in any market sector will be limited to Value at
Risk or by the Partnership's attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Partnership
as the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component, which is not relevant to Value at Risk.
14
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of March 31, 2003 and the
highest and lowest value at any point during the three months ended March 31,
2003. All open position trading risk exposures of the Partnership have been
included in calculating the figures set forth below. As of March 31, 2003, the
Partnership's total capitalization was $15,157,406. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 2002.
March 31, 2003
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------
Currencies:
- Exchange Traded Contracts $115,193 0.75% $200,529 $103,958
Energy 39,700 0.26% 390,000 12,000
Grains 72,144 0.48% 96,090 29,463
Interest Rates U.S. 54,600 0.36% 181,700 19,700
Interest Rates Non-U.S. 160,143 1.06% 565,336 89,601
Livestock 9,005 0.06% 15,300 7,500
Metals:
- Exchange Traded Contracts 36,300 0.24% 92,200 15,000
- OTC Contracts 7,350 0.05% 57,050 7,350
Softs 72,929 0.48% 96,767 43,045
Indices 95,141 0.63% 241,671 4,933
Lumber 3,300 0.02% 5,000 1,000
-------- -----
Total $665,805 4.39%
========= =====
15
Item 4. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of a date within 90 days of the filing of this report, the Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls subsequent to the
date of their evaluation.
16
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
The following information supplements and amends our discussion set
forth under Part I, Item 3 "Legal Proceedings" in the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002.
Settlement Of Certain Regulatory Matters:
On April 28, 2003, Salomon Smith Barney Inc. (SSB), now named
Citigroup Global Markets Inc., announced final agreements with the
Securities and Exchange Commission, the National Association of Securities
Dealers, the New York Stock Exchange and the New York Attorney General (as
lead state among the 50 states, the District of Columbia and Puerto Rico)
to resolve on a civil basis all of their outstanding investigations into
its research and IPO allocation and distribution practices. As part of the
settlements, SSB has consented to the entry of (1) an injunction under the
federal securities laws to be entered in the United States District Court
for the Southern District of New York, barring SSB from violating
provisions of the federal securities laws and related NASD and NYSE rules
relating to research, certain IPO allocation practices, the safeguarding of
material nonpublic information and the maintenance of required books and
records, and requiring SSB to adopt and enforce new restrictions on the
operation of research; (2) an NASD Acceptance Waiver and Consent requiring
SSB to cease and desist from violations of corresponding NASD rules and
requiring SSB to adopt and enforce the same new restrictions; (3) an NYSE
Stipulation and Consent requiring SSB to cease and desist from violations
of corresponding NYSE rules and requiring SSB to adopt and enforce the same
new restrictions; and (4) an Assurance of Discontinuance with the New York
Attorney General containing substantially the same or similar restrictions.
As required by the settlements, SSB expects to enter into related
settlements with each of the other states, the District of Columbia and
Puerto Rico. Consistent with the settlement-in-principle announced in
December 2002, these settlements require SSB to pay $300 million for
retrospective relief, plus $25 million for investor education, and commit
to spend $75 million to provide independent third-party research to its
clients at no charge. SSB reached these final settlement agreements without
admitting or denying any wrongdoing or liability. The settlements do not
establish wrongdoing or liability for purposes of any other proceeding. The
$300 million was accrued during the fourth quarter of 2002.
17
Enron:
New Power Holdings Actions
On April 17, 2003, the motion to dismiss the complaints in the
putative class actions relating to the New Power Holdings common stock was
denied.
Additional Actions
On March 5, 2003, an action was brought on behalf of the purchasers of
the Yosemite Notes and Enron Credit Linked Notes, alleging violations of
federal securities laws.
On April 9, 2003, an action was brought by a group of related mutual
funds that purchased certain Yosemite Notes, alleging violations of state
securities law and common law claims.
Research:
In Re At&T Corporation Securities Litigation
By order dated March 27, 2003, the court denied plaintiffs' leave to
amend their complaint to add as defendants Citigroup, SSB, and certain of
their executive officers and current and former employees.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. The exhibits required to be filed by Item 601 of Regulation S-K
are incorporated herein by reference to the exhibit index of the
Partnership's Report on Form 10-K for the period ended December
31, 2002.
(a) Exhibit - 99.1 Certificate of President and Director.
Exhibit - 99.2 Certificate of Chief Financial Officer and Director.
(b) Reports on Form 8-K - None
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
David J. Vogel
President and Director
Date: 5/13/03
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
David J. Vogel
President and Director
Date: 5/13/03
By: /s/ Daniel R. McAuliffe, Jr.
----------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
Date: 5/13/03
19
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Smith Barney
Principal PLUS Futures Fund L.P. II;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ David J. Vogel
- -----------------------
David J. Vogel
President and Director
20
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Smith Barney Principal PLUS Futures
Fund L.P. II (the "Partnership") on Form 10-Q for the period ending March 31,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ David J. Vogel
- ---------------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
May 13, 2003
21
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Smith Barney
Principal PLUS Futures Fund L.P. II;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Daniel R. McAuliffe, Jr.
- --------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer
and Director
22
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Smith Barney Principal PLUS Futures
Fund L.P. II (the "Partnership") on Form 10-Q for the period ending March 31,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and
Director of Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Daniel R. McAuliffe, Jr.
- ----------------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
May 13, 2003
23