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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 333-61961
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-4015586
(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
$58,230,029 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Salomon Smith Barney Global
Diversified Futures Fund L.P. (the "Partnership") is a limited partnership
organized under the partnership laws of the State of New York, on June 15, 1998
to engage in speculative trading of a diversified portfolio of commodity
interests, including futures contracts, options and forwards. The commodity
interests that are traded by the Partnership are volatile and involve a high
degree of market risk.
A Registration Statement on Form S-1 relating to the public
offering became effective on November 25, 1998. Between November 25, 1998
(commencement of offering period) and February 1, 1999, 33,379 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 $337,000 to
the Partnership's trading account on February 2, 1999 when the Partnership
commenced trading. Sales of additional Units and additional general partner
contributions of Units for the periods ended December 31, 2000 and 1999, and
redemptions of Units for the periods ended December 31, 2000 and 1999 are
reported in the Statement of Partners' Capital on page F-6 under "Item 8.
Financial Statement and Supplementary Data". The public offering terminated on
April 1, 2000.
The General Partner has agreed to make capital contributions, if
necessary, so that its general partnership interest will be equal to the greater
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of (i) 1% of the partners' contributions to the Partnership or (ii) $25,000. The
Partnership will be liquidated upon the first of the following to occur:
December 31, 2018; 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 on United States of America and foreign
commodity exchanges. It engages in such trading through a commodity brokerage
account maintained with SSB.
As of December 31, 2000, all commodity trading decisions are made for the
Partnership by Campbell & Company,Inc. ("Campbell"), Eagle Trading Systems, Inc.
("Eagle"), Eckhardt Trading Company ("Eckhardt") and Rabar Market Research, Inc.
("Rabar") (collectively, the "Advisors"). None of the Advisors is affiliated
with one another, the General Partner or SSB. The Advisors are not responsible
for the organization or operation of the Partnership.
Pursuant to the terms of the Management Agreements (the "Management
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Agreements"), the Partnership is obligated to pay each Advisor: (i) a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets (except
that Eagle's management fee will be reduced by Eagle's pro rata share of
customary and routine administrative expenses of the Partnership) allocated to
each Advisor as of the end of each month and (ii) an incentive fee payable
annually equal to 20% of the New Trading Profits, as defined in the Management
Agreements, except Eagle, which is paid an incentive fee of 23% of New Trading
Profits, earned by each Advisor for the Partnership.
The Partnership has entered into a Customer Agreement with SSB (the
"Customer Agreement") which provides that the Partnership will pay SSB (i) a
monthly brokerage fee equal to 9/20 of 1% of month-end Net Assets allocated to
the Advisors (5.4% per year) in lieu of brokerage commissions on a per trade
basis. For the period from February 2, 1999 (commencement of trading operations)
to July 31, 1999, the Partnership paid SSB brokerage commissions at $54 per
round turn for transactions entered into by Campbell. SSB pays a portion of its
brokerage fees to its financial consultants who have sold Units and who are
registered as associated persons with the Commodity Futures Trading Commission
(the "CFTC"). The Partnership 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. Brokerage fees
4
will be paid for the life of the Partnership, although the rate at which such
fees are paid may be changed.
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. The Partnership does not engage in sales of goods or services. The
Partnership's net income (loss) from operations for the year ended December 31,
2000 and for the period from February 2, 1999 (commencement of trading
operations) to December 31, 1999 is set forth under "Item 6. Select Financial
Data". Partnership's capital as of December 31, 2000, was $60,030,519.
(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.
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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:
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
6
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.
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
7
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
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
8
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
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.
9
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 established public market for the Units of Limited Partnership
Interest.
(b) Holders. The number of holders of Units of Limited Partnership
Interest as of December 31, 2000 was 2,147.
10
(c) Distribution. The Partnership did not declare a distribution
in 2000 and 1999.
(d) Use of Proceeds. For the period ended December 31, 2000,
there were additional sales of 6,266.1056 Units totaling
$5,931,000 and contributions by the General Partner
representing 125.4784 Unit equivalents totaling $120,000.
For the period ended December 31, 1999, there were
additional sales of 60,121.0615 Units totaling
$59,480,000 and contributions by the General Partner
representing 603.9704 Unit equivalents totaling $598,000.
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
February 2, 1999. Realized and unrealized trading gains (losses), interest
income, net income (loss) and increase (decrease) in net asset value per Unit
for the year ended December 31, 2000 and for the period from February 2, 1999
(commencement of trading operations) to December 31, 1999 and total assets at
December 31, 2000 and 1999 were as follows:
2000 1999
------------- ------------
Realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $4,029,150 and
$3,196,873, respectively $ 568,937 $ (3,647,829)
Interest income 3,075,979 2,047,606
------------ ------------
$ 3,644,916 $ (1,600,223)
============ ============
Net income (loss) $ 1,661,004 $ (3,252,858)
============ ============
Increase (decrease) in net asset
value per Unit $ 59.57 $ (49.05)
============ ============
Total assets $ 61,705,880 $ 89,065,209
============ ============
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 interest receivable. 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
12
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 Advisors, ease
of taking and liquidating positions.
(2) The Partnership diversifies its positions among various
commodities.
(3) 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.
(4) The Partnership may occasionally accept delivery of a commodity.
Unless such delivery is disposed of promptly by retendering the warehouse
receipt representing the delivery to the appropriate clearing house, the
physical commodity position will be fully hedged.
(5) 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.
(6) The Partnership will not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(7) The Advisor may, from time to time, employ trading strategies such
as spreads or straddles on behalf of the Partnership. The term "spread" or
straddle" describes a commodity futures trading strategy involving the
13
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.
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
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
14
liquidity increasing or decreasing in any material way. The Limited Partnership
Agreement provides the Partnership will cease trading operations and liquidate
all open positions upon the first to occur of the following: (i) December 31,
2018; (ii) the vote to 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.
(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
15
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 cause all or some of his Units to be redeemed by
the Partnership at the Redemption value per Unit thereof as of the last day of
any month ending at least three months after such Units have been issued, on ten
days' notice to the General Partner. No fee is charged for redemptions. For the
year ended December 31, 2000, 38,567.0884 Units were redeemed totaling
$34,769,993. For the year ended December 31, 1999, 2,862.0307 Units were
redeemed totaling $2,754,634. Redemption/subscription value per Unit differs
from net asset value per Unit calculated for financial reporting purposes in
that the accrued liability for reimbursement of offering and organization
expenses for the Initial Offering Period will not be included in the calculation
of redemption/subscription value per Unit.
Offering and organization expenses of approximately $700,000, relating
to the issuance and marketing of the Partnership's Units offered were initially
paid by SSB. These costs are being reimbursed to SSB by the Partnership in 24
equal monthly installments (together with interest at the prime rate quoted by
J. P. Morgan Chase & Co.).
16
For the periods ended December 31, 2000 and 1999, $362,024 and $297,315,
respectively, of these costs have been reimbursed to SSB, by the Partnership.
In addition, the Partnership has recorded interest expense of $19,111
and $40,947, respectively, for the year ended December 31, 2000 and for the
period ended December 31, 1999, which is included in other expenses.
The remaining liability for these costs due to SSB of $40,661
(exclusive of interest charges) will not reduce redemption/subscription value
per Unit for any purpose (other than financial reporting), including calculation
of advisory and brokerage fees.
The Partnership's public offering terminated on April 1, 2000. For the year
ended December 31, 2000, there were additional sales of 6,266.1056 Units
totaling $5,931,000 and contributions by the General Partner representing
125.4784 Units equivalents totaling $120,000. For the year ended December 31,
1999, there were additional sales of 60,121.0615 Units totaling $59,480,000 and
contributions by the General Partner representing 603.9704 Unit equivalents
totaling $598,000.
(c) Results of Operations.
For the year ended December 31, 2000, the Net Asset Value per
Unit increased 6.3% from $950.95 to $1,010.52. For the period from February 2,
1999 (commencement of trading operations) to December 31, 1999, the Net Asset
17
Value per Unit decreased 4.9% from $1,000 to $950.95. There were no operations
for the year ended December 31, 1998.
The Partnership experienced net trading gains of $4,598,087
before commissions and expenses for the year ended December 31, 2000. Gains were
primarily attributable to the trading of currencies, energy products, U.S. and
non- U.S. interest rates and livestock and were partially offset by losses
recognized in grains, indices, metals and softs.
The Partnership experienced net trading losses of $450,956
before commissions and expenses for the year ended December 31, 1999. These
losses were primarily attributable to the trading of currencies, metals,
livestock, softs and non-U.S. interest rates and were partially offset by gains
recognized in the trading of indices, grains, U.S. interest rates and energy
products.
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, with
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
19
errors that result in 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.
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
21
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 and 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
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.
22
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
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
23
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 $60,030,519.
December 31, 2000
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk
- ---------------------------------------------------------------------------------------------------
Currencies
- - Exchange Traded Contracts $ 285,253 0.47% $1,124,041 $ 150,110
- - OTC Contracts 502,070 0.84% 1,664,379 502,070
Energy 739,200 1.23% 1,456,600 240,000
Grains 219,530 0.37% 386,550 22,100
Interest rates U.S. 677,900 1.13% 1,400,289 152,800
Interest rates Non-U.S 2,498,304 4.16% 3,502,840 861,314
Metals (Exchange Traded and OTC Contracts) 228,175 0.38% 946,825 143,475
Softs 22,600 0.04% 259,150 22,600
Livestock 15,120 0.02% 35,700 700
Indices 671,389 1.12% 2,341,542 448,309
---------- ----------
Total $5,859,541 9.76%
========== ==========
25
As of December 31, 1999, the Partnership's total capitalization was $87,088,508.
December 31, 1999
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ------------------------------------------------------------------------------------------------------
Currencies
- - Exchange Traded Contracts $ 822,857 0.94% $1,021,552 $ 334,359
- - OTC Contracts 558,527 0.64% 1,002,296 558,527
Energy 573,400 0.66% 1,312,030 142,600
Grains 185,580 0.21% 245,800 104,800
Interest rates U.S. 596,952 0.69% 1,006,783 163,525
Interest rates Non-U.S 1,576,125 1.81% 2,040,413 555,670
Metals (Exchange Traded and OTC Contracts) 747,900 0.86% 1,004,400 409,300
Softs 149,600 0.18% 185,450 38,100
Livestock 12,000 0.01% 32,800 1,600
Indices 1,787,970 2.05% 2,717,417 718,894
---------- ----------
Total $7,010,911 8.05%
========== ==========
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.
The following were the primary trading risk exposures of the
Partnership as of December 31, 2000, by market sector.
28
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 Partnership's major exposures have typically
been in the dollar/yen, dollar/Swiss franc and dollar/pound positions. 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
29
with an incremental adjustment to reflect 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 LIFFE (England), Nikkei (Japan),
EUREX (German) and SFE (Australian) 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 the Advisor will from time to time
trade base metals such as aluminum, copper and tin, 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.
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, British pounds and Australian dollar.
The Advisor regularly converts foreign currency balances to dollars in an
attempt to control the Partnership's non-trading risk.
30
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
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
31
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.
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED 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 year ended
December 31, 2000 and for the period from February
2,1999 (commencement of trading operations)
to December 31, 1999 F-5
Statement of Partners' Capital for the year ended
December 31, 2000 and for the period from June 15, 1998
(date Partnership was organized) to
December 31, 1999 F-6
Notes to Financial Statements F-7 -F-11
F-1
To The Limited Partners of
Salomon Smith Barney Global Diversified 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, Salomon Smith Barney
Global Diversified 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
Salomon Smith Barney Global Diversified 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 Salomon Smith Barney
Global Diversified Futures Fund L.P. at December 31, 2000 and 1999 and the
results of its operations for the year ended December 31, 2000 and the period
from June 15, 1998 (date Partnership was organized) to December 31, 1999, 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
March 9, 2001
F-3
Salomon Smith Barney
Global Diversified 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) $57,456,373 $85,369,042
Net unrealized appreciation on open positions 4,014,095 3,293,682
Commodity options owned, at market value (cost $0 and
$242,328 in 2000 and 1999, respectively) -- 105,484
------------- -------------
61,470,468 88,768,208
Interest receivable 235,412 297,001
------------- -------------
$61,705,880 $89,065,209
------------- ------------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $282,116 $411,280
Management fees 104,534 147,997
Incentive fees 596,159 213,409
Professional fees 55,635 173,740
Other 4,134 30,222
Due SSB (Note 6) 65,004 434,877
Redemptions payable (Note 5) 567,779 565,176
------------- -------------
1,675,361 1,976,701
------------- -------------
Partners' capital (Notes 1, 5 and 7):
General Partner, 1,067.4488 and 941.9704 Unit equivalents
outstanding in 2000 and 1999, respectively 1,078,678 895,767
Limited Partners, 58,338.0480 and 90,639.0308 Units of Limited
Partnership Interest outstanding in 2000 and 1999, respectively 58,951,841 86,192,741
------------- -------------
60,030,519 87,088,508
$61,705,880 $89,065,209
------------- ------------
See notes to financial statements.
F-4
Salomon Smith Barney
Global Diversified Futures Fund L.P.
Statement of Income and Expenses
for the year ended December 31, 2000
and for the period from February 2, 1999
(commencement of trading operations)
to December 31, 1999
2000 1999
Income:
Net gain (loss) on trading of commodity interests:
Realized gains (losses) on closed positions $ 3,740,830 $(3,607,794)
Change in unrealized gains on open positions 857,257 3,156,838
----------- -----------
4,598,087 (450,956)
Less, Brokerage commissions including clearing fees
of $101,456 and $87,226 in 2000 and 1999,
respectively (Note 3c) (4,029,150) (3,196,873)
----------- -----------
Net realized and unrealized gains (losses) 568,937 (3,647,829)
Interest income (Notes 3c) 3,075,979 2,047,606
----------- -----------
3,644,916 (1,600,223)
----------- -----------
Expenses:
Management fees (Note 3b) 1,380,183 1,119,609
Incentive fees (Note 3b) 534,071 213,409
Professional fees 52,350 235,716
Other expenses 17,308 83,901
----------- -----------
1,983,912 1,652,635
----------- -----------
Net gain (loss) $ 1,661,004 $(3,252,858)
----------- -----------
Net gain (loss) per Unit of Limited Partnership Interest
and General Partner Unit equivalent (Notes 1 and 7) $ 54.65 $ (39.44)
----------- -----------
See notes to financial statements.
F-5
Salomon Smith Barney
Global Diversified Futures Fund L.P.
Statement of Partners' Capital
for the year ended December 31, 2000
and for the period from June 15, 1998
(date Partnership was organized)
to December 31, 1999
Limited General
Partners Partner Total
Initial capital contributions $1,000 $1,000 $2,000
Proceeds from offering of 33,379 Units of
Limited Partnership Interest and
General Partner's contribution representing
337 Unit equivalents (Note 1) 33,379,000 337,000 33,716,000
Offering and organization costs (Note 6) (693,000) (7,000) (700,000)
------------- ------------- -------------
Opening Partnership capital for operations 32,687,000 331,000 33,018,000
Net loss (3,219,625) (33,233) (3,252,858)
Sale of 60,121.0615 Units of Limited
Partnership Interest and General Partner's
contribution representing 603.9704 Unit
equivalents 59,480,000 598,000 60,078,000
Redemption of 2,862.0307 Units of Limited
Partnership Interest (2,754,634) -- (2,754,634)
------------- ------------- -------------
Partners' capital at December 31, 1999 86,192,741 895,767 87,088,508
Net income 1,598,093 62,911 1,661,004
Sale of 6,266.1056 Units of Limited
Partnership Interest and General Partner's
contribution representing 125.4784 Unit
equivalents 5,931,000 120,000 6,051,000
Redemption of 38,567.0884 Units of Limited
Partnership Interest (34,769,993) -- (34,769,993)
------------- ------------- -------------
Partners' capital at December 31, 2000 $58,951,841 $1,078,678 $60,030,519
------------- ------------ ------------
See notes to financial statements.
F-6
Salomon Smith Barney
Global Diversified Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Salomon Smith Barney Global Diversified Futures Fund L.P. (the "Partnership") is
a limited partnership organized under the laws of the State of New York, on June
15, 1998 to engage in speculative trading of a diversified portfolio of
commodity interests, including futures contracts, options and forwards. The
commodity interests that are traded by the Partnership are volatile and involve
a high degree of market risk.
Between November 25, 1998 (commencement of the offering period) and February 1,
1999, 33,379 Units of Limited Partnership Interest ("Units") were sold at $1,000
per Unit. The proceeds of the initial offering were held in an escrow account
until February 2, 1999, at which time they were turned over to the Partnership
for trading. The Partnership was authorized to sell 100,000 Units of Limited
Partnership Interest ("Units") during its offering period which ended November
25, 2000.
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, 2018; 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. The partnership may purchase and write (sell) options. An option is a
contract allowing, but not requiring, its holder to buy (call) or sell
(put) a specific or standard commodity or financial instrument at a
specified price during a specified time period. The option premium is the
total price paid or received for the option contract. When the fund
writes an option, the premium received is recorded as a liability in the
statement of financial condition and marked to market daily. When the
fund purchases an option, the premium paid is recorded as an asset in the
statement of financial condition and marked to market daily.
c. 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.
F-7
d. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership.
b. Management Agreement:
The General Partner, on behalf of the Partnership, has entered into a
Management Agreement with Campbell & Company, Inc. ("Campbell"), Eagle
Trading Systems, Inc. ("Eagle"), Eckhardt Trading Company ("Eckhardt")
and Rabar Market Research, Inc. ("Rabar") (collectively, the "Advisors"),
registered commodity trading advisors. The Advisors are not affiliated
with one another, are not affiliated with the General Partner or SSB and
are not responsible for the organization or operation of the Partnership.
The Partnership will pay each Advisor a monthly management fee equal to
1/6 of 1% (2% a year) of month-end Net Assets allocated to the Advisor.
In addition, the Partnership is obligated to pay each Advisor an
incentive fee payable annually equal to 20% of the New Trading Profits,
as defined in the Management Agreements, earned by each Advisor for the
Partnership, except for Eagle, which will receive an incentive fee of 23%
of New Trading Profits.
c. Customer Agreement:
The Partnership has entered into a Customer Agreement which provides that
the Partnership will pay SSB a monthly brokerage fee equal to 9/20 of 1%
(5.4% per year) of month-end Net Assets, in lieu of brokerage commissions
on a per trade basis. For the period from February 2, 1999 (commencement
of trading operations) to July 31, 1999, the Partnership paid SSB
brokerage commissions at $54 per round turn for transactions entered into
by Campbell. SSB will pay a portion of brokerage fees to its financial
consultants who have sold Units in this Partnership. Brokerage fees will
be paid for the life of the Partnership, although the rate at which such
fees are paid may be changed. The Partnership will pay for National
Futures Association ("NFA") fees, exchange, clearing, user, give-up and
floor brokerage fees. 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 $6,632,240 and
$7,885,066, respectively. SSB will pay the Partnership interest on 80% of
the average daily equity maintained in cash in its account during each
month at a 30-day U.S. Treasury bill rate determined weekly by 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 $2,261,410 and
$1,447,941, respectively. The fair value of these commodity interests,
including options thereon, if applicable, at December 31, 2000 and 1999, was
$4,014,095 and $3,399,166, respectively as detailed below.
Fair Value
December 31, December 31,
2000 1999
Currencies:
-Exchange Traded Contracts $ 402,730 $ 286,131
-OTC Contracts (58,165) (383,900)
Energy 231,736 276,537
Grains 12,073 (14,942)
Interest Rates U.S. 1,818,863 803,746
Interest Rates Non-U.S 1,883,836 306,279
Livestock (13,400) (10,200)
Metals (Exchange Traded and OTC Contracts) (392,256) 594,978
Softs 24,344 1,657
Indices 104,334 1,538,880
----------- -----------
Total $ 4,014,095 $ 3,399,166
----------- -----------
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.
Beginning with the first full month ending at least three months after the
commencement of trading, a limited partner may require the Partnership to
redeem his Units at their Redemption value per unit 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
Redemption value per Unit. There is no fee charged to limited partners in
connection with redemptions.
6. Offering and Organization Costs:
Offering and organization expenses of approximately $700,000 relating to the
issuance and marketing of the Partnership's Units offered were initially
paid by SSB. These costs are being reimbursed to SSB by the Partnership in
24 equal monthly installments (together with interest at the prime rate
quoted by J.P. Morgan Chase & Co.).
F-9
For the periods ended December 31, 2000 and 1999, $362,024 and $297,315,
respectively, of these costs have been reimbursed to SSB, by the Partnership.
In addition, the Partnership has recorded interest expense of $19,111 and
$40,947, respectively, for the year ended December 31, 2000 and for the
period ended December 31, 1999 which is included in other expenses.
The remaining deferred liability for these costs due to SSB of $40,661
(exclusive of interest charges) will not reduce redemption/subscription
value per Unit for any purpose (other than financial reporting), including
calculation of advisory and brokerage fees.
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest for the
year ended December 31, 2000 and for the period from February 2, 1999
(commencement of trading operations) to December 31, 1999 were as follows:
2000 1999
Net realized and unrealized gains (losses) $ 40.86 $ (43.11)
Interest income 43.07 32.26
Expenses (29.28) (28.59)
--------- ---------
Increase (decrease) for period 54.65 (39.44)
Net asset value per Unit, beginning of period 950.95 1,000.00
Offering and organization cost adjustment -- (20.76)
Redemption/subscription value per Unit
versus net asset value per Unit 4.92 11.15
--------- ---------
Net asset value per Unit, end of period $ 1,010.52 $ 950.95
--------- ---------
Redemption/subscription value per Unit, end of period* $ 1,011.21 $ 956.34
--------- ---------
*For the purpose of a redemption/subscription, any remaining liability for
reimbursement of offering and organization expenses will not reduce
redemption/subscription value per unit.
8. 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.
F-10
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.
9. Subsequent Events:
On January 31, 2001 there were additional redemptions of 205.2005 Units
totaling $208,691.
Eagle Trading Systems, Inc. was terminated as an Advisor to the Partnership
on March 1, 2001.
F-11
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
During the last fiscal year 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 will be made by the Advisors
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 $4,029,150 were earned
by SSB for the year ended December 31, 2000. Management fees and incentive fees
of $1,380,183 and $534,071, respectively, were earned by the Advisors for the
year ended December 31, 2000.
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Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners.
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 1,067.4488 Units of Limited Partnership Interest (1.8%) 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 from the
Partnership are set forth under "Item 1. Business", "Item 8. Financial
Statements and Supplementary Data." 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 year ended
December 31, 2000 and the period from February 2, 1999
(commencement of trading operations) to December 31,
1999. Statement of Partners' Capital for the year ended
December 31, 2000 and for the period from June 15, 1998
(date Partnership was organized to December 31, 1999.
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(2) Financial Statement Schedules: Financial Data Schedule
for the year 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.
333-61961 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 on June 15, 1998 (filed as Exhibit
3.2 to the Registration Statement on Form S-1 (File No.
333-61961) and incorporated herein by reference).
10.1-Customer Agreement between the Partnership and Salomon
Smith Barney (filed as Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 333-61961) 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. 333-61961) and
incorporated herein by reference).
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10.5-Management Agreement among the Partnership, the
General Partner and Campbell & Company, Inc. (filed as
Exhibit 10.5 to the Registration Statement on Form S-1
(File No. 333-61961) and incorporated herein by
reference)
10.6-Management Agreement among the Partnership, the General
Partner and Eagle Trading Systems, Inc. (filed as
Exhibit 10.6 to the Registration Statement on Form S-1
(File No. 333-61961) and incorporated herein by
reference).
10.7-Management Agreement among the Partnership, the General
Partner and Eckhardt Trading Company (filed as Exhibit
10.7 to the Registration Statement on Form S-1 (File
No. 333-61961) and incorporated herein by reference)
10.8-Management Agreement among the Partnership, the
General Partner and Rabar Market Research (filed as
Exhibit 10.8 to the Registration Statement on Form S-1
(File No. 333-61961) and incorporated herein by
reference)
10.9-Letter extending Management Agreements with Campbell &
Company, Inc., Eagle Trading Systems, Inc., Eckhardt
Trading Company and Rabar Market Research for 1999
(previously filed).
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10.10- Letter extending Management Agreements with Campbell
& Company, Inc., Eagle Trading Systems, Inc.,
Eckhardt Trading Company and Rabar Market Research
for 2000 (filed herein).
(b) Reports on 8-K: None Filed.
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 GLOBAL DIVERSIFIED 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
38