FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2002
------------------
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ----
SMITH BARNEY WESTPORT FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
September 30, 2002 and December 31,
2001 (unaudited). 3
Condensed Schedules of Investments at
September 30, 2002 and December 31,
2001 (unaudited). 4 - 5
Statements of Income and Expenses
and Partners' Capital for
the three and nine months ended
September 30, 2002
and 2001 (unaudited). 6
Notes to Financial Statements
(unaudited). 7 - 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 12 - 14
Item 3. Quantitative and Qualitative
Disclosures of Market Risk. 15 - 16
Item 4. Controls and Procedures. 17
PART II - Other Information 18
2
PART I
Item 1. Financial Statements
Smith Barney Westport Futures Fund L.P.
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
September 30, December 31,
2002 2001
----------- -----------
ASSETS:
Equity in commodity futures trading account:
Cash $86,460,650 $63,559,232
Net unrealized appreciation
on open positions 7,196,352 3,772,859
----------- -----------
93,657,002 67,332,091
Interest receivable 94,824 77,116
----------- -----------
$93,751,826 $67,409,207
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 423,810 $ 314,884
Management fees 155,429 111,671
Incentive fees 3,140,540 --
Other 70,429 91,741
Redemptions payable 847,281 972,605
----------- -----------
4,637,489 1,490,901
----------- -----------
Partners' Capital:
General Partner 643.5318 and 1,212.9836 Unit equivalents
outstanding in 2002 and 2001, respectively 990,215 1,330,275
Limited Partners, 57,270.9932 and 58,893.2695
Units of Limited Partnership Interest outstanding
in 2002 and 2001, respectively 88,124,122 64,588,031
----------- -----------
89,114,337 65,918,306
----------- -----------
$93,751,826 $67,409,207
=========== ===========
See Notes to Unaudited Financial Statements.
3
Smith Barney Westport Futures Fund L.P.
Condensed Schedule of Investments
September 30, 2002
(Unaudited)
Sector Contract Fair Value
- -------------------------- -------------------------------- --------------
Currencies
Over the counter contracts purchased - 0.29% $ 254,117
Over the counter contracts sold - (1.23)% (1,091,370)
-----------
Total Currencies - (0.94)% (837,253)
-----------
Total Energy - 0.48% Futures contracts purchased - 0.48% 430,448
-----------
Total Grains - 0.36% Futures contracts purchased - 0.36% 322,585
-----------
Total Interest Rates U.S. - 3.18% Futures contracts purchased - 3.18% 2,837,435
-----------
Total Interest Rates Non-U.S. - 3.44% Futures contracts purchased - 3.44% 3,065,238
----------
Total Livestoock - (0.00)% * Futures contracts purchased - (0.00)% * (680)
----------
Metals
Futures contracts purchased - (0.43)% (380,300)
Futures contracts sold - 0.60% 535,066
----------
Total Metals - 0.17% 154,766
----------
Softs
Futures contracts purchased - 0.09% 77,520
Futures contracts sold - 0.02% 16,550
----------
Total Softs - 0.11% 94,070
----------
Total Indices - 1.27% Futures contracts sold - 1.27% 1,129,743
----------
Total Fair Value - 8.07% $7,196,352
==========
% of Investments at
Country Composition Investments at Fair Value Fair Value
- ---------------------- -------------------------------- -----------------------
Australia $342,451 4.76%
Canada 47,203 0.65%
Germany 2,655,259 36.90%
Japan (122,305) (1.70)%
United Kingdom 1,789,766 24.87%
United States 2,483,978 34.52%
------------------- ----------------
$7,196,352 100.00%
=================== ================
Percentages are based on Partners' capital unless otherwise indicated
* Due to rounding
See Notes to Unaudited Financial Statements
4
Smith Barney Westport
Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2001
Number of
Sector Contracts Contract Fair Value
- -------------------------- ---------------------- ------------------------ -----------
Total Energy - (0.37)% Futures contracts sold - (0.37)% $(242,843)
-----------
Total Grains - 0.28% Futures contracts sold - 0.29% 193,543
-----------
Total Interest Rates U.S. - (0.03)% Futures contracts sold - (0.03)% (20,832)
-----------
Interest Rates Non-U.S.
Futures contracts sold 1.03% 681,997
Futures contracts purchased - (0.20)% (134,404)
-----------
Total Interest Rates Non-U.S.-0.83% 547,593
-----------
Total Livestock - (0.01)% Futures contracts sold - (0.01)% (12,550)
-----------
Metals
Futures contracts sold - (0.76)% (504,426)
Futures contracts purchased - (0.37)% (246,518)
-----------
Total Metals -(1.13)% (750,944)
-----------
Currencies
Over the counter contracts sold - 5.9%
JPY(11,920,547,800) JPY/USD - 6.0%, March 20, 2002 3,953,503
Other - (0.10)% (61,329)
Over the counter contracts purchased - 0.11% 72,598
-----------
Total Currencies - 6.01% 3,964,772
-----------
Total Softs - 0.02% Futures contracts purchased - 0.02% 15,674
-----------
Total Indices - 0.11% Futures contracts purchased - 0.11% 78,446
-----------
Total Fair Value - 5.71% $3,772,859
============
Investments % of Investments
Country Composition at Fair Value at Fair Value
- ---------------------------------- ------------------ ----------------
Australia $106,784 2.83%
Canada 36,090 0.96%
Germany 774,461 20.53%
Japan (252,100) (6.68)%
United Kingdom (513,892) (13.62)%
United States 3,621,516 95.98%
----------------- ----------------
$3,772,859 100.00%
================ ================
Percentages are based on Partners' capital unless otherwise indicated
See Notes to Unaudited Financial Statements.
5
SMITH BARNEY WESTPORT FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------- ---------- ----------- -----------
2002 2001 2002 2001
----------- ----------- ----------- ------------
Income:
Net gains (losses) on trading of commodity
interest:
Realized gains on closed positions $ 23,550,415 $ 1,690,023 $ 30,398,758 $ 13,182,275
Change in unrealized gains (losses) on open
positions (5,780,560) 2,489,279 3,423,493 (8,650,541)
------------ ------------ ------------ ------------
17,769,855 4,179,302 33,822,251 4,531,734
Interest income 264,718 448,816 665,557 1,625,171
------------ ------------ ------------ ------------
18,034,573 4,628,118 34,487,808 6,156,905
------------ ------------ ------------ ------------
Expenses:
Brokerage commissions including clearing fees
of $16,504, $20,841 and $59,157, $61,873, respectively 1,260,438 987,489 * 3,136,855 3,048,142 *
Management fees 439,718 336,190 1,090,161 1,053,740
Other expenses 31,892 45,686 96,368 131,960
Incentive fees 3,207,561 -- 4,036,135 376,932
------------ ------------ ------------ ------------
4,939,609 1,369,365 8,359,519 4,610,774
------------ ------------ ------------ ------------
Net income 13,094,964 3,258,753 26,128,289 1,546,131
Additions 3,634,000 566,000 7,867,000 1,366,000
Redemptions-Limited Partners (3,826,085) (1,536,149) (9,999,258) (6,360,050)
-General Partner (800,000) -- (800,000) --
------------ ------------ ------------ ------------
Net increase (decrease) in Partners' capital 12,102,879 2,288,604 23,196,031 (3,447,919)
Partners' capital, beginning of period 77,011,458 66,583,549 65,918,306 72,320,072
------------ ------------ ------------ ------------
Partners' capital, end of period $ 89,114,337 $ 68,872,153 $ 89,114,337 $ 68,872,153
============ ============ ============ ============
Net asset value per Unit
(57,914.5250 and 60,077.9544 Units outstanding
at September 30, 2002 and 2001, respectively) $ 1,538.72 $ 1,146.38 $ 1,538.72 $ 1,146.38
============ ============ ============ ============
Net income per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 223.79 $ 53.71 $ 442.02 $ 25.02
============ ============ ============ ============
* Amounts reclassified for comparative purposes
See Notes to Unaudited Financial Statements
6
Smith Barney Westport Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
1. General:
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.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner.
The General Partner is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. As of September 30, 2002, all trading decisions for the
Partnership are made by John W. Henry & Company, Inc. (the "Advisor").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 2002 and December 31, 2001 and the results of its
operations for the three and nine months ended September 30, 2002 and 2001.
These financial statements present the results of interim periods and do not
include all disclosures normally provided in annual financial statements. You
should read these financial statements together with the financial statements
and notes included in the Partnership's annual report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 2001.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
7
Smith Barney Westport Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2002 and 2001 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------- --------- -------- -------
2002 2001 2002 2001
--------- --------- -------- ---------
Net realized and unrealized
gains * $ 282.14 $ 52.62 $ 519.40 $ 24.00
Interest income 4.52 7.35 11.22 25.98
Expenses ** (62.87) (6.26) (88.60) (24.96)
--------- --------- --------- ---------
Increase for the period 223.79 53.71 442.02 25.02
Net Asset Value per Unit,
beginning of period 1,314.93 1,092.67 1,096.70 1,121.36
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $ 1,538.72 $ 1,146.38 $ 1,538.72 $ 1,146.38
========= ========= ========= =========
* Net realized and unrealized gains is net of commission expense.
** Expenses exclude commission expense.
8
Smith Barney Westport Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(Continued)
Financial Highlights continued:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- --------------
2002 2001 2002 2001
------ ----- ----- ----
Ratio to average net assets: ***
Net income before incentive fees 78.5% 19.4% 57.5% 3.7%
Incentive fees (15.4)% (0.0)% (7.7)% (0.7)%
---- ---- ---- ---
Net income after incentive fees 63.1% 19.4% 49.8% 3.0%
==== ==== ==== ===
Operating expenses 8.3% 8.2% 8.2% 8.1%
Incentive fees 15.4% 0.0% 7.7% 0.7%
---- ---- ---- ---
Total expenses and incentive fees 23.7% 8.2% 15.9% 8.8%
==== ==== ==== ===
Total return:
Total return before incentive fees 21.2% 4.9% 46.7% 2.8%
Incentive fees (4.2)% (0.0)% (6.4)% (0.6)%
---- ---- ---- ---
Total return after incentive fees 17.0% 4.9% 40.3% 2.2%
==== ==== ==== ===
*** Annualized
9
Smith Barney Westport Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(continued)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statements of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair values during the nine and twelve months
ended September 30, 2002 and December 31, 2001, based on a monthly calculation,
were $9,173,649 and $4,144,787, respectively. The fair value of these commodity
interests, including options thereon, if applicable, at September 30, 2002 and
December 31, 2001, was $7,196,352 and $3,772,859, respectively. Fair values for
exchange traded commodity futures and options are based on quoted market prices
for those futures and options. Fair values for all other financial instruments
for which market quotations are not readily available are based on calculations
approved by the General Partner.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options (but not currently) 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
10
Smith Barney Westport Futures Fund L.P.
Notes to Financial Statements
September 30, 2002
(Unaudited)
(Continued)
those related to the underlying financial instruments including market and
credit risk. In general, the risks associated with OTC contracts are greater
than those associated with exchange traded instruments because of the greater
risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized as unrealized appreciation in the statement of
financial condition and not represented by the contract or notional amounts of
the instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SSB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and accordingly believes that it has effective procedures for evaluating
and limiting the credit and market risks to which the Partnership is subject.
These monitoring systems allow the General Partner to statistically analyze
actual trading results with risk adjusted performance indicators and correlation
statistics. In addition, on-line monitoring systems provide account analysis of
futures, forward and option positions by sector, margin requirements, gain and
loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. The majority of these instruments mature
within one year of September 30, 2002. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash, net unrealized appreciation (depreciation) on open futures and forward
contracts, commodity options and interest receivable. Because of the low margin
deposits normally required in commodity futures trading, relatively small price
movements may result in substantial losses to the Partnership. While substantial
losses could lead to a substantial decrease in liquidity, no such losses
occurred in the Partnership's third quarter of 2002.
The Partnership's capital consists of capital contributions, as increased
or decreased by realized and/or unrealized gains or losses on commodity futures
trading and expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 2002, Partnership capital increased
35.2% from $65,918,306 to $89,114,337. This increase was attributable to net
income from operations of $26,128,289, coupled with the additional sales of
6,566.2123 Units of Limited Partnership Interest totaling $7,867,000, which was
partially offset by the redemption of 8,188.4886 Units of Limited Partnership
Interest totaling $9,999,258 and 569.4518 General Partner Unit equivalents
totaling $800,000. Future redemptions can impact the amount of funds available
for investments in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statement of financial condition at fair value on the last business day of the
period, which represents market value for those commodity interests for which
market quotations are readily available. Investments in commodity interests
denominated in foreign currencies are translated into U.S. dollars at the
12
exchange rates prevailing on the last business day of the period. 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.
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 dates of entry into the contracts and the forward rates at the
reporting date, is included in the statement of financial condition. Realized
gains (losses) and changes in unrealized values on foreign currency contracts
are recognized in the period in which the contract is closed or the changes
occur and are included in the statement of income and expenses and partners'
capital.
Results of Operations
During the Partnership's third quarter of 2002, the net asset value per
Unit increased 17.0% from $1,314.93 to $1,538.72 as compared to an increase of
4.9% in the third quarter of 2001. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the third quarter of 2002
of $17,769,855. Gains were primarily attributable to the trading of commodity
futures in energy, grains, U.S. and non-U.S interest rates, livestock and
indices and were partially offset by losses in currencies, softs and metals. The
Partnership experienced a net trading gain before brokerage commissions and
related fees in the third quarter of 2001 of $4,179,302. Gains were primarily
attributable to the trading of commodity futures in U.S. interest rates,
livestock, metals, softs and indices and were partially offset by losses in
currencies, energy, grains and non - U.S. interest rates.
Commodity futures markets are highly volatile. The potential for broad and
rapid price fluctuations increases the risks involved in commodity trading, but
also increases the possibility of profit. The profitability of the Partnership
depends on the existence of major price trends and the ability of the Advisor to
correctly identify those price trends. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
13
the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's daily average equity maintained
in cash was earned at a 30-day U.S. Treasury bill rate determined weekly by SSB
based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days. SSB 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. SSB will
retain 20% of any interest earned on Treasury bills. Interest income for the
three and nine months ended September 30, 2002 decreased by $184,098 and
$959,614, respectively, as compared to the corresponding periods in 2001. The
decrease in interest income is primarily due to a decrease in interest rates
during the three and nine months ended September 30, 2002 as compared to 2001.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and, therefore, vary according to trading performance and
redemptions. Accordingly, they must be analyzed in relation to the fluctuations
in the monthly net asset values. Commissions and fees for the three and nine
months ended September 30, 2002 increased by $272,949 and $88,713, respectively,
as compared to the corresponding periods in 2001. The increase in brokerage
commissions and fees is due to higher average net assets during the three and
nine months ended September 30, 2002 as compared to 2001.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance
and redemptions. Management fees for the three and nine months ended September
30, 2002 increased by $103,528 and $36,421, respectively, as compared to the
corresponding periods in 2001. The increase in management fees is due to higher
average net assets during the three and nine months ended September 30, 2002 as
compared to 2001.
Incentive fees are based on the new trading profits generated by the
Advisor at the end of the quarter, as defined in the advisory agreements between
the Partnership, the General Partner and the Advisor. Trading performance for
the three and nine months ended September 30, 2002 resulted in incentive fees of
$3,207,561 and $4,036,135, respectively. Trading performance for the three and
nine months ended September 30, 2001 resulted in incentive fees of $0 and
$376,932, respectively.
14
Item. 3 Quantitative and Qualitative Disclosures of Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair 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
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification in this
section should not be considered to constitute any assurance or representation
that the Partnership's losses in any market sector will be limited to Value at
Risk or by the Partnership's attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Partnership
as the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component, which is not relevant to Value at Risk.
15
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of September 30, 2002. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of September 30, 2002, the
Partnership's total capitalization was $89,114,337. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 2001.
September 30, 2002
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------------------
Currencies:
- - OTC Contracts $1,847,625 2.07% $5,257,018 $1,120,894
Energy 1,801,000 2.02% 1,850,600 399,400
Grains 171,100 0.19% 406,000 63,800
Interest Rates U.S. 964,600 1.08% 964,600 128,200
Interest Rates Non-U.S 2,469,822 2.77% 2,806,928 732,069
Livestock 13,800 0.02% 18,750 10,200
Metals:
- Exchange Traded Contracts 256,500 0.29% 342,000 73,500
- OTC Contracts 462,250 0.52% 462,250 34,000
Softs 442,468 0.50% 517,759 83,911
Indices 1,321,072 1.48% 1,494,990 599,996
---------- ---------
Total $9,750,237 10.94%
========== =========
16
Item 4. Control and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of a date within 90 days of the filing of this report, the Chief
Executive Officer and Chief Financial Officer have concluded that such controls
and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls subsequent to the
date of their evaluation.
17
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
Enron Corp.
In April 2002, Citigroup Inc. ("Citigroup") and, in one case, SSB,
were named as defendants along with, among others, commercial and/or
investment banks, certain current and former Enron officers and directors,
lawyers and accountants in two putative consolidated class action
complaints that were filed in the United States District Court for the
Southern District of Texas seeking unspecified damages. One action, brought
on behalf of individuals who purchased Enron securities (Newby, et al. v.
Enron Corp., et al.), alleges violations of Sections 11 and 15 of the
Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and the other action, brought
on behalf of current and former Enron employees (Tittle, et al. v. Enron
Corp., et al.), alleges violations of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), as well as claims for negligence
and civil conspiracy. On May 8, 2002, Citigroup and SSB filed motions to
dismiss the complaints, which are pending.
In July 2002, Citigroup, SSB, a number of their affiliates and certain
of their officers and other employees were named as defendants, along with,
among others, commercial and/or investment banks, certain current and
former Enron officers and directors, lawyers and accountants in a putative
class action filed in the United States District Court for the Southern
District of New York on behalf of purchasers of the Yosemite Notes and
Enron Credit-Linked Notes, among other securities (Hudson Soft Co., Ltd. v.
Credit Suisse First Boston Corporation, et al.). The amended complaint
alleges violations of RICO and of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and seeks unspecified damages.
Additional actions have been filed against Citigroup and certain of
its affiliates, along with other parties, including (i) two actions brought
in different state courts by state pension plans alleging violations of
state securities law and claims for common law fraud and unjust enrichment;
(ii) an action by banks that participated in two Enron revolving credit
facilities, alleging fraud, gross negligence, and breach of implied duties
in connection with defendants' administration of a credit facility with
Enron; (iii) an action brought by several funds in connection with
secondary market purchases of Enron Corp. debt securities alleging
violations of federal securities laws, including Section 11 of the
Securities Act of 1933, as amended, and claims for fraud and
misrepresentation; (iv) a series of putative class actions by purchasers of
NewPower Holdings common stock alleging violations of the federal
securities law, including Section 11 of the Securities Act of 1933, as
amended, and Section 10(b) of the Securities Exchange Act of 1934, as
amended; (v) an action brought by two investment funds in connection with
purchases of Enron-related securities for alleged violations of state
securities and unfair competition statutes; (vi) an action brought by
18
several investment funds and fund owners in connection with purchases of
notes of the Osprey I and Osprey II Trusts for alleged violation of state
and federal securities laws and claims for common law fraud,
misrepresentation and conspiracy; (vii) an action brought by several
investment funds and fund owners in connection with purchases of notes of
the Osprey I and Osprey II Trusts for alleged violation of state and
federal securities laws and state unfair competition laws and claims for
common law fraud and misrepresentation; and (viii) an action brought by the
Attorney General of Connecticut in connection with various commercial and
investment banking services provided to Enron. Several of these cases have
been consolidated with the Newby action and stayed pending the Court's
decision on the pending motions to dismiss Newby.
Additionally, Citigroup and certain of its affiliates have received
inquiries and requests for information from various regulatory and
governmental agencies and Congressional committees, as well as from the
Special Examiner in the Enron bankruptcy, regarding certain transactions
and business relationships with Enron and its affiliates. Citigroup is
cooperating fully with all such requests.
Research
Since May 2002, SSB and Jack Grubman have been named as defendants in
approximately 62 putative class action complaints by purchasers of various
securities alleging they violated federal securities law, including
Sections 10 and 20 of the Securities Exchange Act of 1934, as amended, for
allegedly issuing research reports without a reasonable basis in fact and
for allegedly failing to disclose conflicts of interest with companies in
connection with published investment research, including Global Crossing,
WorldCom, Inc., AT&T, Winstar, Rhythm Net Connections, Level 3
Communications, MetroMedia Fiber Network, XO Communications and Williams
Communications Group Inc. Similar claims with respect to research have also
been included in approximately 100 cases pending against SSB and other
broker dealers in the IPO Allocation Securities Litigation and the IPO
Allocation Antitrust Litigation, disclosed below under the caption "Other."
Nearly all of these actions are pending in the United States District Court
for the Southern District of New York.
Since April 2002, SSB and several other broker dealers have received
subpoenas and/or requests for information from various governmental and
self-regulatory agencies and Congressional committees, including the
National Association of Securities Dealers (the "NASD"), which has raised
issues about SSB's internal e-mail retention practices and research on
Winstar Communications, Inc. With respect to Winstar, SSB and the NASD have
entered into a settlement agreement. SSB agreed to pay a penalty in the
amount of $5 million and did not admit to any wrongdoing. With respect to
other such matters, these agencies have been engaged in discussions with a
number of broker dealers, including SSB, about resolving potential
enforcement proceedings relating to research. SSB is cooperating fully with
all such requests.
19
WorldCom, Inc.
Citigroup and SSB are involved in a number of lawsuits arising out of
the underwriting of debt securities of WorldCom, Inc. These lawsuits
include putative class actions filed in July 2002 by alleged purchasers of
WorldCom debt securities in the United States District Court for the
Southern District of New York (Above Paradise Investments Ltd. v. WorldCom,
Inc., et al.; Municipal Police Employees Retirement System of Louisiana v.
WorldCom, Inc., et al.), and in the United States District Court for the
Southern District of Mississippi (Longacre Master Fund v. WorldCom, Inc.,
et al.). These putative class action complaints assert violations of
federal securities law, including Sections 11 and 12 of the Securities Act
of 1933, as amended, and seek unspecified damages from the underwriters.
On October 11, 2002, the Above Paradise and Municipal Police Employees
lawsuits filed in the United States District Court for the Southern
District of New York were superseded by the filing of a consolidated
putative class action complaint in the United States District Court for the
Southern District of New York (In re WorldCom, Inc. Securities Litigation).
In the consolidated complaint, in addition to the claims of violations by
the underwriters of federal securities laws, including Sections 11 and 12
of the Securities Act of 1933, as amended, the plaintiffs allege violations
of Section 10(b) of the Securities Exchange Act of 1934, as amended, and
Rule 10b-5 promulgated thereunder, by SSB, arising out of alleged conflicts
of interest of SSB and Jack Grubman. The plaintiffs continue to seek
unspecified compensatory damages. In addition to the consolidated class
action complaint, the Southern District of Mississippi class action has
been transferred by the Judicial Panel on MultiDistrict Litigation to the
Southern District of New York for centralized pre-trial proceedings with
other WorldCom-related actions.
In addition to the putative class actions that have commenced, certain
individual actions have been filed in various federal and state courts
against Citigroup and SSB, along with other parties, concerning WorldCom
debt securities, including individual state court actions brought by
various pension funds in connection with the underwriting of debt
securities of WorldCom alleging violations of Section 11 of the Securities
Act of 1933, as amended, and, in one case, violations of various state
securities laws and common law fraud. Most of these actions have been
removed to federal court and an application has been made to have them
transferred to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions.
A putative class action on behalf of participants in WorldCom's 401(k)
salary savings plan and those WorldCom benefit plans covered by ERISA
alleging violations of ERISA and common law fraud (Emanuele v. WorldCom,
Inc., et al.), which was commenced in the United States District Court for
the District of Columbia, also has been transferred by the Judicial Panel
on MultiDistrict Litigation to the Southern District of New York for
centralized pre-trial proceedings with other WorldCom-related actions.
Additional lawsuits containing similar claims to those described above
may be filed in the future.
20
Other
In April 2002, consolidated amended complaints were filed against
Salomon Smith Barney Holdings Inc. and other investment banks named in
numerous putative class actions filed in the United States District Court
for the Southern District of New York alleging violations of certain
federal securities laws (including Section 11 of the Securities Act of
1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934,
as amended) with respect to the allocation of shares for certain initial
public offerings and related aftermarket transactions and damage to
investors caused by allegedly biased research analyst reports. The
defendants in these actions have moved to dismiss the consolidated amended
complaints but the Court has not yet rendered a decision on those motions.
Also pending in the Southern District of New York against Salomon Smith
Barney Holdings Inc. and other investment banks are several putative class
actions which have been consolidated into a single class action alleging
violations of certain federal and state antitrust laws in connection with
the allocation of shares in initial public offerings when acting as
underwriters. The defendants in this action have moved to dismiss the
consolidated amended complaint but the Court has not yet rendered a
decision on those motions.
For information concerning a suit filed by a hedge fund and its
investment advisor against SSB, see the description that appears in the
eleventh paragraph under the caption "Legal Proceedings" of the Annual
Report on Form 10-K of the Partnership for the year ended December 31,
2001, which is incorporated by reference herein. In August 2002, SSB filed
a motion for summary judgment.
Item 2. Changes in Securities and Use of Proceeds - For the nine
months ended September 30, 2002, there were additional sales of
6,566.2123 Units totaling $7,867,000. For the nine months ended
September 30, 2001, there were additional sales of 1,226.7809
Units totaling $1,366,000.
Proceeds from the sale of additional units are used in the
trading of commodity interests including futures contracts,
options and forwards contracts.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibit - 99.1 Certificate of Chief Executive Officer.
Exhibit - 99.2 Certificate of Chief Financial Officer.
(b) Reports on Form 8-K - On July 17, 2002 the Partnership filed
a notice on Form 8-K to report a change in accountants from
PricewaterhouseCoopers LLP to KPMG LLP.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY WESTPORT FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/02
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/02
-------------
By: /s/ Daniel R. McAuliffe, Jr.
----------------------------------
Daniel R. McAuliffe
Chief Financial Officer and
Director
Date: 11/14/02
-------------
22
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10Q of Smith Barney Westport
Futures Fund L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
23
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ David J. Vogel
-----------------------
David J. Vogel
Chief Executive Officer
24
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10Q of Smith Barney Westport
Futures Fund L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
25
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Daniel R. McAuliffe, Jr
-----------------------
Daniel R. McAuliffe, Jr
Chief Financial Officer
26