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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, 2000
Commission File Number 0-24111
SMITH BARNEY WESTPORT FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3939393
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
(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: 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 [X]
As of February 28, 2001, Limited Partnership Units with an aggregate value of
$68,273,889 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Smith Barney Westport Futures Fund
L.P. ("Partnership") is a limited partnership organized on March 21, 1997 under
the partnership laws of the State of New York. The Partnership commenced trading
operations on August 1, 1997. The Partnership engages in speculative trading of
commodity interests, including futures contracts, options and forward contracts.
A Registration Statement on Form S-1 relating to the public offering
became effective on May 30, 1997. Beginning May 30, 1997, 120,000 Units of
Limited Partnership Interest ("Units") were publicly offered at $1,000 per Unit
for a period of ninety days, subject to increase for up to an additional sixty
days at the sole discretion of the General Partner. Between May 30, 1997
(commencement of the offering period) and July 31, 1997, 40,035 Units were sold
at $1,000 per Unit. Proceeds of the offering were held in an escrow account and
were transferred, along with the general partner's contribution of $404,000 to
the Partnership's trading account on August 1, 1997 when the Partnership
commenced trading. The public offering of Units terminated on February 1, 1998.
Sales of additional Units and additional general partner contributions of Units
for the periods ended December 31, 2000, 1999 and 1998, and redemptions of Units
for the periods ended December 31, 2000, 1999 and 1998 are reported in the
Statement of Partners' Capital on page F-6 under "Item 8. Financial Statements
and Supplementary Data."
2
The general partner has agreed to make capital contributions, if necessary,
so that its general partnership interest will be equal to the greater of (i) an
amount to entitle it to 1% of each material item of Partnership income, loss,
deduction or credit and (ii) the greater of (a) 1% of the partners'
contributions to the Partnership or (b) $25,000. The Partnership will be
liquidated upon the first of the following to occur: December 31, 2017; the net
asset value of a Unit decreases to less than $400 as of the close of any
business day; or under certain circumstances as defined in the Limited
Partnership Agreement of the Partnership (the "Limited Partnership Agreement").
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc.
The Partnership's trading of futures, forwards and options contracts,
if applicable, on commodities is done primarily on United States of America and
foreign commodity exchanges. It engages in such trading through a commodity
brokerage account maintained with SSB.
The General Partner has entered into a Management Agreement (the
"Management Agreement") with John W. Henry & Company, Inc. ("JWH"), (the
"Advisor") who will make all commodity trading decisions for the Partnership.
3
The Advisor is not affiliated with the General Partner or SSB. The Advisor is
not responsible for the organization or operation of the Partnership.
Pursuant to the terms of the Management Agreement, for the period
January 1, 2000 through February 29, 2000, the Partnership was obligated to pay
the Advisor a monthly management fee equal to 1/3 of 1% (4% per year) of
month-end Net Assets of the Partnership allocated to the Advisor as of the end
of each month and an incentive fee payable quarterly, equal to 19% of the New
Trading Profits (as defined in the Management Agreement) earned by the Advisor
for the Partnership. Effective March 1, 2000 through September 30, 2000, the
Partnership was obligated to pay the Advisor a monthly management fee equal to
1/3 of 1% (4% per year) of month-end Net Assets allocated to the Advisor and an
incentive fee payable quarterly equal to 15% of New Trading Profits. Effective
October 1, 2000, the Partnership pays the Advisor a monthly management fee equal
to 1/6 of 1% (2% per year) of month-end Net Assets allocated to the Advisor and
an incentive fee payable quarterly equal to 20% of the New Trading Profits.
The Partnership had entered into a Customer Agreement with SSB (the
"Customer Agreement") which provided that, effective January 1, 2000 through
February 29, 2000, the Partnership would pay SSB a monthly brokerage fee equal
to 13/24 of 1% of month-end Net Assets allocated to the Advisors (6.5% per year)
in lieu of brokerage commissions on a per trade basis. Effective March 1, 2000,
the monthly brokerage fee was reduced to 11/24 of 1% (5.5% per year) of
month-end Net Assets, in lieu of brokerage commissions on a per trade basis. SSB
also pays a portion of its brokerage fees to its financial consultants who have
4
sold Units and who are registered as associated persons with the Commodity
Futures Trading Commission (the "CFTC"). The Partnership pays for National
Futures Association ("NFA") fees, exchange and clearing fees, give-up and user
fees and floor brokerage fees. The Customer Agreement between the Partnership
and SSB gives the Partnership the legal right to net unrealized gains and
losses.
In addition, SSB pays 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 SSB 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.
(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. Treasury Bills, 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
operations for the years ended December 31, 2000, 1999, 1998 and the period from
August 1, 1997 (commencement of trading operations) to December 31 1997 is set
forth under "Item 6. Selected Financial Data." The Partnership capital as of
December 31, 2000 was $72,320,072.
5
(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 Geographic Areas. The Partnership does
not engage in sales of goods or services or own any long lived assets, 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, SSB.
Item 3. Legal Proceedings.
Salomon Smith Barney Inc, ("SSB") is a New York corporation with its
principal place of business at 388 Greenwich St., New York, New York 10013. SSB
is registered as a broker-dealer and futures commission merchant ("FCM"), and
provides futures brokerage and clearing services for institutional and retail
participants in the futures markets. SSB and its affiliates also provide
investment banking and other financial services for clients worldwide.
There have been no administrative, civil or criminal actions pending,
on appeal or concluded against SSB or any of its individual principals within
the past five years that management believes may have a material impact on
SSB's ability to act as an FCM. In the ordinary course of its business, SSB is
a party to various claims and regulatory inquiries. Proceedings deemed to be
material for purposes of CFTC disclosure requirements are:
6
In September 1992, Harris Trust and Savings Bank (as trustee for
Ameritech Pension Trust), Ameritech Corporation, and an officer of Ameritech
sued Salomon Brothers Inc and Salomon Brothers Realty Corporation in the U.S.
District Court for the Northern District of Illinois (Harris Trust Savings
Bank, not individually but solely as trustee for the Ameritech Pension Trust,
Ameritech Corporation and John A. Edwardson v. Salomon Brothers Inc and Salomon
Brothers Realty Corp.). The complaint alleged that purchases by Ameritech
Pension Trust from the Salomon entities of approximately $20.9 million in
participations in a portfolio of motels owned by Motels of America, Inc. and
Best Inns, Inc. violated the Employee Retirement Income Security Act ("ERISA"),
the Racketeer Influenced and Corrupt Organization Act ('RICO") and state law.
Salomon Brothers Inc had acquired the participations issued by Motels of
America and Best Inns to finance purchases of motel portfolios and sold 95% of
three such issues and 100% of one such issue to Ameritech Pension Trust.
Ameritech Pension Trust's complaint sought (1) approximately $20.9 million on
the ERISA claim, and (2) in excess of $70 million on the RICO and state law
claims as well as other relief. In various decisions between August 1993 and
July 1999, the courts hearing the case have dismissed all of the allegations in
the complaint against the Salomon entities. In October 1999, Ameritech appealed
to the U.S. Supreme Court and in January 2000, the Supreme Court agreed to hear
the case. An argument was heard on April 17, 2000. The appeal seeks review of
the decision of the U.S. Court of Appeals for the Seventh Circuit that
dismissed the sole remaining ERISA claim against the Salomon entities. In June
the Supreme Court reversed the Seventh Circuit and the matter has been remanded
to the Trial Courts.
7
Both the Department of Labor and the Internal Revenue Service have advised
Salomon Brothers Inc that they were or are reviewing the transactions in which
Ameritech Pension Trust acquired such participations. With respect to the
Internal Revenue Service review, Salomon Smith Barney Holdings, Salomon Brothers
Inc and Salomon Brothers Realty have consented to extensions of time for the
assessment of excise taxes that may be claimed to be due with respect to the
transactions for the years 1987, 1988 and 1989.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
Salomon Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California. (County of Orange et aL v. Bear Stearns & Co. Inc. et al.) The
complaint alleged, among other things, that the brokerage firms recommended and
sold unsuitable securities to Orange County. Salomon Smith Barney and the
remaining brokerage firms settled with Orange County in mid 1999.
In June 1998, complaints were filed in the U.S. District Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City Debt
of the City of New Orleans v. Smith Barney Inc, et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
determination that Smith Barney Inc. and another underwriter will be responsible
for any damages that the City may incur in the event the Internal Revenue
Service denies tax exempt status to the City's General Obligation Refunding
8
Bonds Series 1991. The complaints were subsequently amended. Salomon Smith
Barney has asked the court to dismiss the amended complaints. The Court denied
the motion but stayed the case. Subsequently, the city withdrew its lawsuit
It November 1998, a class action complaint was filed in the United
States District Court for the Middle District of Florida (Dwight Brock as Clerk
for Collier County v. Merrill Lynch, et al.). The complaint alleged that,
pursuant to a nationwide conspiracy, 17 broker-dealer defendants, including
Salomon Smith Barney, charged excessive mark-ups in connection with advanced
refunding transactions. Among other relief, plaintiffs sought compensatory and
punitive damages, restitution and/or rescission of the transactions and
disgorgement of alleged excessive profits. In October 1999, the plaintiff filed
a second amended complaint. Salomon Smith Barney has asked the court to dismiss
the amended complaint.
In connection with the Louisiana and Florida matters, the IRS and SEC
have been conducting an industry-wide investigation into the pricing of
Treasury securities in advanced refunding transactions. In April 2000 SSB and
several other broker-dealers entered into a settlement with the IRS and the
SEC.
In December 1998, Salomon Smith Barney was one of twenty-eight market
making firms that reached a settlement with the SEC in the matter titled In the
Matter of Certain Market Making Activities on NASDAQ. As part of the settlement
of that matter, Salomon Smith Barney, without admitting or denying the factual
allegations, agreed to an order that required that it: (i) cease and desist
9
from committing or causing any violations of Sections 15(c)(1) and (2) of the
Securities Exchange Act of 1934 and Rules l5cl -2, 15c2-7 and 17a-3 thereunder,
(ii) pay penalties totaling approximately $760,000, and (iii) submit certain
policies and procedures to an independent consultant for review.
In March 1999, a complaint seeking in excess of $250 million was filed
by a hedge fund and its investment advisor against Salomon Smith Barney in the
Supreme Court of the State of New York, County of New York (MKP Master Fund,
LDC et al. v. Salomon Smith Barney Inc.). The complaint included allegations
that, while acting as prime broker for the hedge fund, Salomon Smith Barney
breached its contracts with plaintiffs, misused their monies, and engaged in
tortious (wrongful) conduct, including breaching its fiduciary duties. Salomon
Smith Barney asked the court to dismiss the complaint in full. In October 1999,
the court dismissed the tort claims, including the breach of fiduciary duty
claims. The court allowed the breach of contract and misuse of money claims to
stand, Salomon Smith Barney will continue to contest this lawsuit vigorously.
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.
10
(b) Holders. The number of holders of Units of Limited Partnership
Interest as of December 31, 2000 was 2,793.
(c) Distribution. The Partnership did not declare a distribution in
2000 or 1999.
(d) Use of Proceeds. For the twelve months ended December 31, 2000,
there were additionalsales of 87.4301 Units totaling $74,000.
Therewere no additional sales in the year ended December 31,
1999.
For the twelve months ended December 31, 1998, there were
additional sales of 20,887.2038 Units totaling $20,788,000 and
contributions by the General Partner representing 210.0035 Unit
equivalents totaling $209,000.
Proceeds from the sale of additional Units are used in the
trading of commodity interests including futures contracts,
options and forward contracts.
11
Item 6. Selected Financial Data. The Partnership commenced trading operations on
August 1, 1997. Realized and unrealized trading gains (losses), interest income,
net income (loss) and increase (decrease) in net asset value per Unit for the
years ended December 31, 2000, 1999, 1998 and the period from August 1, 1997
(commencement of trading operations) to December 31, 1997 and total assets at
December 31, 2000, 1999, 1998 and 1997 were as follows:
2000 1999 1998 1997
------------- ------------- ------------- ------------
Realized and unrealized trading gains
(losses) net of brokerage commissions and
clearing fees of $4,767,560, $8,105,686,
$8,058,297 and $2,127,374, respectively $ 7,654,176 $ (12,482,163) $ 11,456,921 $ 5,051,247
Interest income 3,451,534 4,092,286 4,191,852 1,161,609
------------- ------------- ------------- -------------
$ 11,105,710 $ (8,389,877) $ 15,648,773 $ 6,212,856
============= ============= ============= =============
Net income (loss) $ 8,154,747 $ (14,122,938) $ 9,558,956 $ 4,152,296
============= ============= ============= =============
Increase (decrease) in net
asset value per unit $ 156.96 $ (130.10) $ 83.01 $ 29.05
============= ============= ============= =============
Total assets $ 74,616,075 $ 103,585,998 $ 125,412,315 $ 103,029,348
============= ============= ============= =============
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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, net unrealized appreciation (depreciation) on open
positions and receivables. Because of the low margin deposits normally required
in commodity 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 interests which
are traded in sufficient volume to permit, in the opinion of the Advisor, ease
of taking and liquidating positions.
(2) No Advisor initiates 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. For the purpose of this limitation, forward contracts
in currencies will be deemed to have the same margin requirements as the same or
similar futures contracts traded on the Chicago Mercantile Exchange.
(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 borrowing except short-term
13
borrowing if the Partnership takes delivery of any cash commodities, provided
that neither the deposit of margin with a commodity broker nor obtaining and
drawing on a line of credit with respect to forward contracts shall constitute
borrowing.
(5) The Advisor may, from time to time, employ trading strategies
such as spread or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference between the prices
of the two contracts.
(6) The Partnership will not permit the churning of its commodity
trading accounts.
The Partnership is party to financial instruments with off-balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose 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
14
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.)
Other than the risks inherent in commodity 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 Partnership will cease trading operations and
liquidate all open positions upon the first to occur of the following: (i)
December 31, 2017; (ii) the vote dissolve the Partnership by limited partners
owning more than 50% of the Units; (iii) 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 New York Revised Limited Partnership Act unless the Partnership is
continued as described in the Limited Partnership Agreement; (iv) net asset
value per Unit falls to less than $400 as of the end of any trading day; or (v)
the occurrence of any event which shall make it unlawful for the existence of
the Partnership to be continued.
15
(b) Capital resources. (i) The Partnership has made no material
commitments for capital expenditures.
(ii) The Partnership's capital consists of the capital
contributions of the partners as increased or decreased by gains or losses on
commodity trading, and by expenses, interest income, redemptions of Units and
distributions of profits, if any. Gains or losses on commodity trading cannot be
predicted. Market moves in commodities are dependent upon fundamental and
technical factors which the Partnership 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 gains or losses 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. In addition, the amount of
interest income payable by SSB 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. A limited partner may require the Partnership to redeem his Units at
their Net Asset Value as of the last day of a month on 10 days' notice to the
General Partner. For the purpose of a redemption, any accrued liability for
reimbursement of offering and organization expenses for the Initial Offering
Period will not reduce Net Asset Value per Unit. There is no fee charged to
limited partners in connection with redemptions. For the year ended December 31,
2000, 38,747.9674 Units were redeemed totaling $35,390,012. For the year ended
16
December 31, 1999, 9,719.2218 Units were redeemed totaling $9,934,685. For the
year ended December 31, 1998, 8,330.0357 Units were redeemed totaling
$8,272,603.
For the year ended December 31, 2000, there were additional sales of
87.4301 Units totaling $74,000, in a private offering pursuant to SEC Regulation
D. There were no additional sales in the year ended December 31, 1999. The
Partnership ceased its public offering of Units effective March 1, 1998. For the
year ended December 31, 1998, there were additional sales of 20,887.2038 Units
totaling $20,788,000 and contributions by the General Partner representing
210.0035 Unit equivalents totaling $209,000.
(c) Results of Operations.
For the year ended December 31, 2000, the Net Asset per Unit increased
16.3% from $964.40 to $1,121.36. For the year ended December 31, 1999, the Net
Asset Value per Unit decreased 11.9% from $1,094.50 to $964.40. For the year
ended December 31, 1998, the Net Asset Value per Unit increased 8.2% from
$1,011.49 to $1,094.50.
The Partnership experienced net trading gains of $12,421,736 before
commissions and expenses in 2000. Gains were primarily attributable to the
trading in currencies, energy products, grains, U.S. interest rates, livestock
and indices and were partially offset by losses recognized in the trading of
non-U.S. interest rates, metals and softs.
17
The Partnership experienced net trading losses of $4,376,477 before
commissions and expenses in 1999. Losses were primarily attributable to the
trading in grains, non-U.S. interest rates, livestock, metals, softs and indices
and were partially offset by gains recognized in the trading of currencies,
energy products and U.S. interest rates.
The Partnership experienced net trading gains of $19,515,218 before
commissions and expenses in 1998. Gains were primarily attributable to the
trading of energy products, grains, U.S. and non-U.S. interest rates and
livestock and were partially offset by losses recognized in the trading of
currencies, metals, softs and indices.
Commodity 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 Advisor 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 Advisor is able to identify them,
the Partnership expects to increase capital through operations.
18
(d) Operational Risk
The Partnership is directly exposed to market risk and credit risk,
which arise in the normal course of its business activities. Slightly less
direct, but of critical importance, are risks pertaining to operational and back
office support. This is particularly the case in a rapidly changing and
increasingly global environment with increasing transaction volumes and an
expansion in the number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership is subject
to increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Partnership's ability to gather, process,
and communicate information efficiently and securely, without interruption, to
customers, among units within the Partnership, and in the markets where the
Partnership participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
19
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
unitholder, creditors, and regulators, is free of material errors.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Introduction
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 market 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 market value of financial instruments and contracts, the
20
diversification results 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
included 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.
21
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's market
risk exposures contain "forward-looking statements" within the meaning of the
safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor except for statements of historical
fact (such as the terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Partnership's
mark-to-market accounting, any loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings (realized or
unrealized).
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. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
22
of the maximum expected near-term one-day price fluctuation. 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.
In the case of market sensitive instruments which are not exchange
traded (almost exclusively currencies in the case of the Partnership), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
The fair value of the Partnership's futures and forward positions does
not have any optionality component. However, certain of the Advisors trade
commodity options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option. Where this instrument is a futures contract, the futures
margin, and where this instrument is a physical commodity, the
futures-equivalent maintenance margin has been used. This calculation is
conservative in that it assumes that the fair value of an option will decline by
the same amount as the fair value of the underlying instrument, whereas, in
fact, the fair values of the options traded by the Partnership in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
In quantifying the Partnership's Value at Risk, 100% positive
correlation in the different positions held in each market risk category has
23
been assumed. Consequently, the margin requirements applicable to the open
contracts have simply been added to determine each trading category's aggregate
Value at Risk. The diversification effects resulting from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have not
been reflected.
24
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of December 31, 2000. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 2000, the
Partnership's total capitalization was $72,320,072.
December 31, 2000
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ---------------------------------------------------------------------------------------------------
Currencies
- -Exchange Traded Contracts $ 168,840 0.23% $1,041,100 $ 75,981
- -OTC Contracts 2,089,562 2.89% 5,242,009 2,089,562
Energy 1,544,400 2.14% 3,197,800 379,000
Grains 160,550 0.22% 1,580,350 107,325
Interest Rates U.S. 824,650 1.14% 1,709,300 142,250
Interest Rates Non-U.S 3,213,403 4.44% 6,009,489 1,417,003
Livestock 4,550 0.01% 18,525 4,550
Metals (Exchange Traded and OTC Contracts) 358,500 0.50% 1,793,000 243,300
Softs 241,912 0.33% 1,131,034 108,730
Indices 1,200,586 1.66% 1,917,760 661,068
---------- ------
Total $9,806,953 13.56%
========== ======
25
As of December 31, 1999, the Partnership's total capitalization was $99,481,337.
December 31, 1999
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ------------------------------------------------------------------------------------------------------
Currencies
- -OTC Contracts $ 3,695,744 3.71% $ 5,321,107 $ 3,672,846
Energy 2,155,000 2.17% 2,343,500 1,805,500
Grains 339,750 0.34% 517,950 218,950
Interest Rate U.S. 1,577,400 1.59% 1,886,400 858,060
Interest Rate Non-U.S 4,635,305 4.66% 8,168,517 3,688,195
Livestock 19,000 0.02% 22,425 16,400
Metals (Exchange Traded and OTC Contracts) 1,793,000 1.80% 2,107,700 488,500
Softs 1,157,191 1.16% 1,157,297 557,295
Indices 1,890,114 1.90% 3,410,904 942,856
----------- -----------
Total $17,262,504 17.35%
=========== ===========
26
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable maintenance margin requirement (margin
requirements generally range between 2% and 15% of contract face value) as well
as many times the capitalization of the Partnership. The magnitude of the
Partnership's open positions creates a "risk of ruin" not typically found in
most other investment vehicles. Because of the size of its positions, certain
market conditions -- unusual, but historically recurring from time to time --
could cause the Partnership to incur severe losses over a short period of time.
The foregoing Value at Risk table -- as well as the past performance of the
Partnership -- give no indication of this "risk of ruin." Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, these balances (as well as any market
risk they represent) are immaterial.
Materiality as used in this section, "Qualitative and
Quantitative Disclosures About Market Risk," is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, optionality and multiplier features
of the Partnership's market sensitive instruments.
27
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership's primary market risk exposures as well as the
strategies used and to be used by the General Partner and the Advisors for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Partnership.
There can be no assurance that the Partnership's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long- term.
Investors must be prepared to lose all or substantially all of their investment
in the Partnership.
28
The following were the primary trading risk exposures of the
Partnership as of December 31, 2000, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of
the Partnership. Interest rate movements directly affect the price of the
futures positions held by the Partnership and indirectly the value of its stock
index and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The General Partner does not anticipate that the
risk profile of the Partnership's currency sector will change significantly in
the future. The currency trading Value at Risk figure includes foreign margin
amounts converted into U.S. dollars with an incremental adjustment to reflect
29
the exchange rate risk inherent to the dollar-based Partnership in expressing
Value at Risk in a functional currency other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based indices. As of
December 31, 2000, the Partnership's primary exposures were in the Financial
Times (England) and Nikkei (Japan) stock indices. The General Partner
anticipates little, if any, trading in non-G-7 stock indices. The Partnership is
primarily exposed to the risk of adverse price trends or static markets in the
major U.S., European and Japanese indices. (Static markets would not cause major
market changes but would make it difficult for the Partnership to avoid being
"whipsawed" into numerous small losses.)
Metals. The Partnership's primary metal market exposure is to
fluctuations in the price of gold and silver. Although certain of the Advisors
will from time to time trade base metals such as aluminum and copper, the
principal market exposures of the Partnership have consistently been in the
precious metals, gold and silver. The General Partner anticipates that gold and
silver will remain the primary metals market exposure for the Partnership.
Softs. The Partnership's primary commodities exposure is to
agricultural price movements which are often directly affected by severe or
unexpected weather conditions. Cocoa, cotton and sugar accounted for the
substantial bulk of the Partnership's commodity exposure as of December 31,
2000.
Energy. The Partnership's primary energy market exposure is to gas
30
and oil price movements, often resulting from political developments in the
Middle East. Oil prices can be volatile and substantial profits and losses have
been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 2000.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, Euro dollar and Swiss francs. The Advisor
regularly converts foreign currency balances to dollars in an attempt to control
the Partnership's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
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.
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisor concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require the Advisor to close out individual
positions as well as enter certain positions traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partner primarily relies on the Advisor's own risk control policies
31
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
The Advisor applies its own risk management policies to its trading.
The Advisor often follows diversification guidelines, margin limits and stop
loss points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
32
Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY WESTPORT FUTURES FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page
Number
Oath or Affirmation F-2
Report of Independent Accountants. F-3
Financial Statements: Statement of
Financial Condition at December 31,
2000 and 1999 F-4
Statement of Income and Expenses for
the years ended December 31, 2000, 1999
and 1998. F-5
Statement of Partners' Capital for
the years ended December 31, 2000, 1999
and 1998. F-6
Notes to Financial Statements. F-7 - F-11
F-1
To The Limited Partners of
Smith Barney Westport Futures Fund L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel A. Dantuono, Chief Financial Officer
Smith Barney Futures Management LLC
General Partner, Smith Barney Westport
Futures Fund L.P.
Smith Barney Futures Management LLC
388 Greenwich Street
7th Floor
New York, N.Y. 10013
212-723-5424
F-2
Report of Independent Accountants
To the Partners of
Smith Barney Westport Futures Fund L.P.:
In our opinion, the accompanying statement of financial condition and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Smith Barney
Westport Futures Fund L.P. at December 31, 2000 and 1999, and the results of its
operations for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. 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 of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which 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, assessing
the accounting principles used and significant estimates made by the management
of the General Partner, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 22, 2001
F-3
Smith Barney Westport
Futures Fund L.P.
Statement of Financial Condition
December 31, 2000 and 1999
2000 1999
Assets:
Equity in commodity futures trading account:
Cash (Note 3c) $62,073,585 $99,850,043
Net unrealized appreciation on open positions 12,276,429 3,389,059
-------------- --------------
74,350,014 103,239,102
Interest receivable 266,061 346,896
-------------- --------------
$74,616,075 $103,585,998
------------- --------------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $347,597 $561,091
Management fees 123,688 343,281
Professional fees 46,400 39,282
Other 9,111 1,191
Redemptions Payable (Note 5) 1,769,207 3,159,816
-------------- --------------
2,296,003 4,104,661
-------------- --------------
Partners' capital (Notes 1, 5 and 6):
General Partner, 1,212.9836 Unit equivalents
outstanding in 2000 and 1999 1,360,191 1,169,801
Limited Partners, 63,279.9565 and 101,940.4938 Units of Limited
Partnership Interest outstanding in 2000 and 1999, respectively 70,959,881 98,311,536
-------------- --------------
72,320,072 99,481,337
------------- --------------
$74,616,075 $103,585,998
------------- --------------
See notes to financial statements.
F-4
Smith Barney Westport
Futures Fund L.P.
Statement of Income and Expenses
for the years ended
December 31, 2000, 1999 and 1998
2000 1999 1998
Income:
Net gains (losses) on trading of commodity interests:
Realized gains on closed positions $3,534,366 $6,241,090 $13,584,489
Change in unrealized gains (losses) on open positions 8,887,370 (10,617,567) 5,930,729
------------- ------------- -------------
12,421,736 (4,376,477) 19,515,218
Less, Brokerage commissions including clearing fees of
$106,719, $140,646 and $121,580, respectively (Note 3c) (4,767,560) (8,105,686) (8,058,297)
------------- ------------- -------------
Net realized and unrealized gains (losses) 7,654,176 (12,482,163) 11,456,921
Interest income (Note 3c) 3,451,534 4,092,286 4,191,852
------------- ------------- -------------
11,105,710 (8,389,877) 15,648,773
------------- ------------- -------------
Expenses:
Management fees (Note 3b) 2,791,114 4,698,422 4,397,499
Incentive fees (Note 3b) -- 896,039 1,372,182
Professional fees 116,373 102,470 292,094
Other expenses 43,476 36,130 28,042
------------- ------------- -------------
2,950,963 5,733,061 6,089,817
------------- ------------- -------------
Net income (loss) $8,154,747 $(14,122,938) $9,558,956
------------ ------------- -------------
Net income (loss) per Unit of Limited Partnership Interest
and General Partner Unit equivalent (Notes 1 and 6) $156.96 $(130.10) $83.01
------------ ------------- -------------
See notes to financial statements.
F-5
Smith Barney Westport
Futures Fund L.P.
Statement of Partners' Capital
for the years ended
December 31, 2000, 1999 and 1998
Limited General
Partners Partner Total
Partners' capital at December 31, 1997 $100,241,103 $1,014,504 $101,255,607
Net income 9,454,849 104,107 9,558,956
Sale of 20,887.2038 Units of Limited Partnership
Interest and General Partner's contribution
representing 210.0035 Unit equivalents 20,788,000 209,000 20,997,000
Redemption of 8,330.0357 Units of Limited Partnership
Interest (8,272,603) -- (8,272,603)
------------- ----------- -------------
Partners' capital at December 31, 1998 122,211,349 1,327,611 123,538,960
Net loss (13,965,128) (157,810) (14,122,938)
Redemption of 9,719.2218 Units of Limited Partnership
Interest (9,934,685) -- (9,934,685)
------------- ----------- -------------
Partners' capital at December 31, 1999 98,311,536 1,169,801 99,481,337
Net income 7,964,357 190,390 8,154,747
Sale of 87.4301 Units of Limited Partnership Interest 74,000 -- 74,000
Redemption of 38,747.9674 Units of Limited Partnership
Interest (35,390,012) -- (35,390,012)
------------- ----------- -------------
Partners' capital at December 31, 2000 $70,959,881 $1,360,191 $72,320,072
------------- ---------- -------------
See notes to financial statements.
F-6
Smith Barney Westport
Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Smith Barney Westport Futures Fund L.P. (the "Partnership") is a limited
partnership which was organized on March 21, 1997 under the partnership
laws of the State of New York to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell 120,000 Units during the initial
offering period of the Partnership. The Partnership continues to offer
Units.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker
is Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General
Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly
owned subsidiary of Citigroup Inc.
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, 2017; the net asset value of a Unit decreases to
less than $400 as of a close of any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at fair value on the
last business day of the year, which represents market value for those
commodity interests for which market quotations are readily available.
Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing on the
last business day of the year. Realized gains (losses) and changes in
unrealized values on commodity interests and foreign currencies are
recognized in the period in which the contract is closed or the changes
occur and are included in net gains (losses) on trading of commodity
interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
c. The 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.
F-7
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 Agreement:
The General Partner, on behalf of the Partnership, has entered into a
Management Agreement with John W. Henry & Company, Inc. ("JWH") (the
"Advisor"), a registered commodity trading advisor. The Advisor is not
affiliated with the General Partner or SSB and is not responsible for
the organization or operation of the Partnership. For the period January
1, 2000 through February 29, 2000, the Partnership was obligated to pay
the Advisor a monthly management fee equal to 1/3 of 1% (4% per year) of
month-end Net Assets allocated to the Advisor and an incentive fee
payable quarterly equal to 19% of the New Trading Profits, as defined in
the Management Agreement. Effective March 1, 2000 through September 30,
2000, the Partnership was obligated to pay the Advisor a monthly
management fee equal to 1/3 of 1% (4% per year) of month-end Net Assets
allocated to the Advisor and an incentive fee payable quarterly equal to
15% of the New Trading Profits, as defined in the Management Agreement.
Effective October 1, 2000 the Partnership pays the Advisor a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets
allocated to the Advisor and an incentive fee payable quarterly equal to
20% of the New Trading Profits, as defined in the Management Agreement,
earned by the Advisor for the Partnership.
c. Customer Agreement:
For the period January 1, 2000 through February 29, 2000, the
Partnership had entered into a Customer Agreement which provided that
the Partnership pay SSB a monthly brokerage fee equal to 13/24 of 1%
(6.5% per year) of month-end Net Assets, in lieu of brokerage
commissions on a per trade basis. Effective March 1, 2000, the
Partnership has entered into a Customer Agreement which provides that
the Partnership will pay SSB a monthly brokerage fee equal to 11/24 of
1% (5.5% per year) of month-end Net Assets, as defined, in lieu of
brokerage commissions on a per trade basis. The Partnership will pay for
National Futures Association ("NFA") fees, exchange, clearing, user,
give-up and floor brokerage fees. SSB will pay a portion of brokerage
fees to its financial consultants who have sold Units in this
Partnership. All of the Partnership's assets are deposited in the
Partnership's account at SSB. The Partnership's cash is deposited by SSB
in segregated bank accounts to the extent required by Commodity Futures
Trading Commission regulations. At December 31, 2000 and 1999, the
amount of cash held for margin requirements was $10,889,825 and
$19,354,304, respectively. SSB has agreed to 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 SSB 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
SSB gives the Partnership the legal right to net unrealized gains and
losses. The Customer Agreement may be terminated upon notice by either
party.
F-8
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 interests. 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 average fair value during the years ended December
31, 2000 and 1999, based on a monthly calculation, was $3,441,292 and
$7,309,451, respectively. The fair value of these commodity interests,
including options thereon, if applicable, at December 31, 2000 and 1999 was
$12,276,429 and $3,389,059, respectively, as detailed below.
Fair Value
December 31, December 31,
2000 1999
Currencies:
-Exchange Traded Contracts $ 346,363 $ --
-OTC 4,232,727 (264,723)
Energy 2,025,066 1,332,054
Grains 217,502 177,246
Interest Rates U.S. 2,606,063 1,590,118
Interest Rates Non-U.S 2,133,383 231,025
Livestock 14,560 (2,050)
Metals (Exchange Traded and OTC Contracts) (114,370) (488,435)
Softs (220,566) 521,818
Indices 1,035,701 292,006
------------ ------------
Total $ 12,276,429 $ 3,389,059
------------ ------------
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner and at such times as the General Partner may decide. A
limited partner may require the Partnership to redeem his Units at their
Net Asset Value as of the last day of each month on 10 days' notice to the
General Partner. No fee will be charged for redemptions.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
Net realized and unrealized gains (losses) $ 149.85 $ (115.26) $ 99.60
Interest income 41.36 37.15 36.00
Expenses (34.25) (51.99) (52.59)
--------- --------- ---------
Increase (decrease) for year 156.96 (130.10) 83.01
Net asset value per Unit, beginning of year 964.40 1,094.50 1,011.49
--------- --------- ---------
Net asset value per Unit, end of year $ 1,121.36 $ 964.40 $ 1,094.50
--------- --------- ---------
F-9
7. Financial Instrument Risks:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments may include forwards, futures and options, whose 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 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.
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 (see table in Note 4). 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
credit risk and concentration risk because the sole counterparty or broker
with respect to the Partnership's assets is SSB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the
Partnership is subject. These monitoring systems allow the General Partner
to statistically analyze actual trading results with risk adjusted
performance indicators and correlation statistics. In addition, on-line
monitoring systems provide account analysis of futures, forwards and
options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The notional or contractual amounts of these instruments, while
appropriately not recorded in the financial statements, reflect the extent
of the Partnership's involvement in these instruments. The majority of
these instruments mature within one year of December 31, 2000. However, due
to the nature of the Partnership's business, these instruments may not be
held to maturity.
F-10
8. Subsequent Event:
On January 1, 2001 there were additional sales representing 44.5887 Units
of Limited Partnership Interest totaling $50,000 and on January 31, 2001
additional redemptions representing 960.0305 Units of Limited Partnership
Interest totaling $1,066,200.
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 LLC. Investment
decisions are made by John W. Henry & Company, Inc.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed
by Smith Barney Futures Management LLC, its General Partner. SSB, 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 $4,767,560 were earned for the year
ended December 31, 2000. Management fees of $2,791,114 were earned by the
Advisor for the year ended December 31, 2000. There were no incentive fees
earned for the year ended December 31, 2000.
33
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. As of
March 1, 2001, the Partnership knows of no person who beneficially owns more
than 5% of the Units outstanding.
(b). Security ownership of management. Under the terms of the
Limited Partnership Agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns Units of general partnership interest
equivalent to 1,212.9836 Units (1.9%) of Limited Partnership Interest as of
December 31, 2000.
(c). Changes in control. None.
Item 13. Certain Relationship and Related Transactions.
Salomon Smith Barney Inc. and Smith Barney Futures Management
LLC 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, if
any, from the Partnership are set forth under "Item 1. Business" and "Item 11.
Executive Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 2000 and 1999.
Statement of Income and Expenses for the years ended December
31, 2000, 1999 and 1998.
34
Statement of Partners' Capital for the years ended December
31, 2000, 1999 and 1998.
(2)Financial Statement Schedules: Financial Data Schedule for the
period ended December 31, 2000.
(3)Exhibits:
3.1-Limited Partnership Agreement (filed as Exhibit 3.1 to the
Registration Statement on Form S-1 (File No. 333-24923) 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 the State
of New York (filed as Exhibit 3.2 to the Registration
Statement on Form S-1 (Filed No. 333-24923) and incorporated
herein by reference).
10.1-Customer Agreement between the Partnership and Smith Barney
(filed as Exhibit 10.1 to the Registration Statement on Form
S-1 (File No.333-24923) and incorporated herein by reference).
10.2-Subscription Agreement (filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (File No. 333-24923) 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. 333-24923) and incorporated herein by
reference).
10.4-Management Agreement among the Partnership, the General Partner
and John W. Henry & Company Inc. (filed as Exhibit 10.4 to the
Registration Statement on Form S-1 (File No. 333-24923) and
incorporated herein by reference).
35
10.5-Letter extending the Management Agreement between the
General Partner and John W. Henry & Company, Inc. for 1999
(previously filed).
10.6-Letter extending the Management Agreement between the
General Partner and John W. Henry & Company, Inc. for 2000
(filed herein). (b) Reports on 8-K: None Filed.
36
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
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-K 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 30th day of March 2001.
SMITH BARNEY WESTPORT FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this annual report on Form 10-K 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 R. Schaefer /s/ Daniel A. Dantuono
Michael R. 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