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 June 30, 2004
Commission File Number 0-50736
SALOMON SMITH BARNEY FAIRFIELD FUTURES FUND L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 04-3621353
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Citigroup Managed Futures LLC
399 Park Avenue - 7th Fl.
New York, New York 10022
- --------------------------------------------------------------------------------
(Address and Zip Code of principal executive offices)
(212) 559-2011
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act).
Yes ____ No X
SALOMON SMITH BARNEY FAIRFIELD FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
June 30, 2004 and December 31, 2003
(unaudited). 3
Condensed Schedules of Investments at
June 30, 2004 and December 31, 2003
(unaudited). 4 - 5
Statements of Income and Expenses
and Partners' Capital for the three
and six months ended June 30,
2004 and 2003 (unaudited). 6
Statements of Cash Flows for the three
and six months ended June 30, 2004
and 2003 (unaudited). 7
Notes to Financial Statements
(unaudited). 8 - 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 13 - 15
Item 3. Quantitative and Qualitative
Disclosures about Market Risk. 16 - 17
Item 4. Controls and Procedures. 18
PART II - Other Information 19
2
PART I
Item 1. Financial Statements
Salomon Smith Barney Fairfield Futures Fund L.P.
Statements of Financial Condition
(Unaudited)
June 30, December 31,
2004 2003
------------- ------------
ASSETS:
Equity in commodity futures trading account:
Cash (restricted $11,820,453 in 2004 and $22,528,015 in 2003) $132,808,820 $147,097,742
Net unrealized appreciation on open futures positions -- 7,024,635
Unrealized appreciation on open forward contracts 784,336 9,431,409
-------------- ------------
133,593,156 163,553,786
Interest receivable 29,348 17,096
--------------- -------------
$133,622,504 $ 163,570,882
=============== =============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Net unrealized depreciation on open futures positions $ 3,115,056 $ --
Unrealized depreciation on open forward contracts 1,219,861 5,457,368
Accrued expenses:
Commissions 476,872 604,289
Management fees 211,026 267,456
Administrative fees 52,757 66,864
Incentive fees -- 2,810,786
Due to CGM 2,273 14,614
Other 82,301 53,488
Redemptions payable 1,337,104 985,637
------------ ------------
6,497,250 10,260,502
------------ ------------
Partners' Capital:
General Partner, 864.9335 Unit equivalents
outstanding in 2004 and 2003 1,378,378 1,546,626
Limited Partners, 78,906.2741 and 84,872.1963
Redeemable Units of Limited Partnership Interest outstanding
in 2004 and 2003, respectively 125,746,876 151,763,754
------------- ------------
127,125,254 153,310,380
------------- ------------
$133,622,504 $ 163,570,882
============ ============
See Accompanying Notes to Unaudited Financial Statements.
3
Salomon Smith Barney Fairfield Futures Fund L.P.
Condensed Schedule of Investments
June 30, 2004
(Unaudited)
Sector Contract Fair Value
- --------- --------- -----------
Currencies
Futures contracts purchased (0.17)% $ (215,144)
Futures contracts sold 0.04% 53,574
---------------
Total Currencies (0.13)% (161,570)
---------------
Energy Futures contracts purchased (0.09)% (116,340)
Futures contracts sold 0.00%* (886)
---------------
Total Energy (0.09)% (117,226)
---------------
Total Grains 0.05% Futures contracts sold 0.05% 68,538
---------------
Total Interest Rates U.S. (1.25)% Futures contracts sold (1.25)% (1,587,470)
---------------
Total Interest Rates Non-U.S. (1.16)% Futures contracts sold (1.16)% (1,476,660)
---------------
Metals
Unrealized appreciation on forward contracts 0.62% 784,336
Unrealized depreciation on forward contracts (0.96)% (1,219,861)
---------------
Total Metals (0.34)% (435,525)
---------------
Total Softs 0.17% Futures contracts sold 0.17% 214,149
---------------
Indices
Futures contracts purchased (0.00)%* (3,212)
Futures contracts sold (0.04)% (51,605)
---------------
Total Indices (0.04)% (54,817)
---------------
Total Fair Value (2.79)% $ (3,550,581)
===============
% of Investments at
Country Composition Investments at Fair Value Fair Value
- -------------------- --------------------------- ----------------
Australia $ (35,050) (0.99)%
Germany (701,035) (19.74)
Hong Kong (51,605) (1.45)
Japan (301,091) (8.48)
Spain (3,212) (0.09)
United Kingdom (873,284) (24.60)
United States (1,585,304) (44.65)
----------------- -------
$ (3,550,581) (100.00)%
================= ========
Percentages are based on Partners' capital unless otherwise indicated.
* Due to rounding
See Accompanying Notes to Unaudited Financial Statements.
4
Salomon Smith Barney Fairfield Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2003
(Unaudited)
Sector Contract Fair Value
- -------- ----------- ------------
Currencies Futures contracts purchased 2.19% $3,353,014
Unrealized appreciation on forward contracts 0.00%* 547
Unrealized depreciation on forward contracts (0.46)% (697,168)
-----------
Total forward contracts (0.46%) (696,621)
-----------
Total Currencies 1.73% 2,656,393
-----------
Total Energy (0.30)% Futures contracts purchased (0.30)% (467,020)
-----------
Total Grains (0.14)% Futures contracts purchased (0.14)% (212,455)
-----------
Total Interest Rates U.S. (0.07)% Futures contracts purchased (0.07)% (113,875)
-----------
Total Interest Rates Non-U.S. (0.03)% Futures contracts purchased (0.03)% (44,191)
-----------
Metals Total futures contracts purchased 0.21% 316,390
Unrealized appreciation on forward contracts 6.15% 9,430,862
Unrealized depreciation on forward contracts (3.11)% (4,760,200)
-----------
Total forward contracts 3.04% 4,670,662
-----------
Total Metals 3.25% 4,987,052
-----------
Total Indices 2.73% Futures contracts sold 2.73% 4,192,772
-----------
Total Fair Value 7.17% $10,998,676
===========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- -------------------- -------------- -------------
Germany $1,423,867 12.95%
France 114,273 1.04
Hong Kong 19,193 0.17
Japan (17,134) (0.16)
Spain 251,047 2.28
United Kingdom 4,871,097 44.29
United States 4,336,333 39.43
----------- ------
$10,998,676 100.00%
=========== ======
Percentages are based on Partners' capital unless otherwise indicated.
* Due to rounding
See Accompanying Notes to Unaudited Financial Statements.
5
Salomon Smith Barney Fairfield Futures Fund L.P.
Statements of Income and Expenses and Partners' Capital
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
2004 2003 2004 2003
------------------------------ --------------------------------
Income:
Net gains (losses) on trading
of commodity futures:
Realized gains (losses) on closed
positions $ (11,917,248) 8,423,800 $ 6,957,870 $ 21,314,507
Change in unrealized losses on open
positions (12,933,239) (4,638,633) (14,549,257) (8,861,995)
------------- ------------- ------------- --------------
(24,850,487) 3,785,167 (7,591,387) 12,452,512
Interest income 239,765 228,659 530,967 421,539
------------- ------------- ------------- --------------
(24,610,722) 4,013,826 (7,060,420) 12,874,051
------------- ------------- ------------- --------------
Expenses:
Brokerage commissions including
clearing fees of $29,484, $44,104,
$88,651 and $84,729, respectively 1,689,332 1,422,577 3,780,892 2,440,740
Management fees 679,370 568,339 1,479,249 971,967
Administrative fees 169,843 142,085 369,813 242,992
Other 25,425 14,044 51,991 46,770
Incentive fees -- 326,444 2,826,991 1,747,649
------------- ------------- ------------- --------------
2,563,970 2,473,489 8,508,936 5,450,118
------------- ------------- ------------- --------------
Net income (loss) (27,174,692) 1,540,337 (15,569,356) 7,423,933
Additions -- 23,235,000 -- 49,394,000
Redemptions (4,485,118) (6,535,923) (10,615,770) (7,739,513)
------------- ------------- ------------- --------------
Net increase (decrease) in
Partners' capital (31,659,810) 18,239,414 (26,185,126) 49,078,420
Partners' capital, beginning of period 158,785,064 89,207,275 153,310,380 58,368,269
------------- ------------- ------------- --------------
Partners' capital, end of period $ 127,125,254 $ 107,446,689 $ 127,125,254 $ 107,446,689
------------ ------------- ------------- --------------
Net asset value per Redeemable Unit
(79,771.2076 and 64,800.8769
Redeemable Units outstanding at
June 30, 2004 and 2003, respectively) $ 1,593.62 $ 1,658.11 $ 1,593.62 $ 1,658.11
------------- ------------- ------------- --------------
Net income (loss) per Redeemable Unit
of Limited Partnership Interest and
General Partner Unit equivalent $ (332.06) $ 25.91 $ (194.52) $ 179.04
------------- ------------- ------------- --------------
See Accompanying Notes to Unaudited Financial Statements.
6
Salomon Smith Barney Fairfield Futures Fund L.P.
Statements of Cash Flows
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------------- -----------------------------
2004 2003 2004 2003
---------------------------- -----------------------------
Cash flows from operating activities:
Net Income (loss) $ (27,174,692) $ 1,540,337 $ (15,569,356) $ 7,423,933
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Changes in operating assets and liabilities:
Net unrealized appreciation on
open futures positions 10,887,490 5,845,109 10,139,691 8,899,921
Unrealized appreciation (depreciation) on open
forward contracts 3,109,701 686,322 8,647,073 (206,178)
(Increase) decrease in interest receivable 3,827 5,365 (12,252) 26,076
Unrealized depreciation on open forward contracts (1,063,952) (1,892,798) (4,237,507) 168,252
Accrued expenses:
Increase (decrease) in commissions (147,137) 69,194 (127,417) 194,853
Increase (decrease) in management fees (65,119) 30,641 (56,430) 86,221
Increase (decrease) in administrative fees (16,279) 7,660 (14,107) 21,555
Increase (decrease) in incentive fees (2,826,991) (1,094,761) (2,810,786) 234,711
Decrease in due to CGM (6,192) (5,868) (12,341) (11,739)
Increase in other 2,369 13,694 28,813 46,003
Increase in redemptions payable 286,044 4,512,635 351,467 5,001,149
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities (17,010,931) 9,717,530 (3,673,152) 21,884,757
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from additions Limited Partners -- 23,235,000 -- 49,394,000
Payments for redemptions (4,485,118) (6,535,923) (10,615,770) (7,739,513)
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities (4,485,118) 16,699,077 (10,615,770) 41,654,487
------------- ------------- ------------- -------------
Net change in cash (21,496,049) 26,416,607 (14,288,922) 63,539,244
Cash, at beginning of period 154,304,869 92,489,251 147,097,742 55,366,614
------------- ------------- ------------- -------------
Cash, at end of period $ 132,808,820 $ 118,905,858 $ 132,808,820 $ 118,905,858
============= ============= ============= =============
See Accompanying Notes to Unaudited Financial Statements.
7
Salomon Smith Barney Fairfield Futures Fund L.P.
Notes to Financial Statements
June 30, 2004
(Unaudited)
1. General:
Salomon Smith Barney Fairfield Futures Fund L.P. (the "Partnership") is a
limited partnership which was organized on March 25, 2002 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. During the
initial offering period (April 15, 2002 through June 4, 2002), the Partnership
sold 12,424 redeemable units of Limited Partnership Interest ("Redeemable
Units") and 126 Units of General Partnership Interest. The Partnership commenced
trading on June 5, 2002.
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the general partner (the "General Partner") of the Partnership. The
Partnership's commodity broker is Citigroup Global Markets Inc. ("CGM"),
formerly Salomon Smith Barney Inc. CGM is an affiliate of the General Partner.
The General Partner is wholly owned by Citigroup Global Markets Holdings Inc.
("CGMHI"), formerly Salomon Smith Barney Holdings Inc., which is the sole owner
of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc. As of June 30,
2004, all trading decisions for the Partnership are made by Graham Capital
Management, L.P. (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 June 30, 2004 and December 31, 2003 and the results of its
operations and cash flows for the three and six months ended June 30, 2004 and
2003. 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 Registration Statement on
Form 10-12 G/A filed with the Securities and Exchange Commission on June 1,
2004.
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.
8
Salomon Smith Barney Fairfield Futures Fund L.P.
Notes to Financial Statements
June 30, 2004
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in Net Asset Value per Redeemable Unit of Limited Partnership
Interest for the three and six months ended June 30, 2004 and 2003 were as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
2004 2003 2004 2003
----------------------- ----------------------
Net realized and unrealized gains (losses)* $ (324.28) $ 38.93 $ (144.52) $ 236.44
Interest income 2.94 3.45 6.40 7.43
Expenses ** (10.72) (16.47) (56.40) (64.83)
-------- --------- --------- ---------
Increase (decrease) for the period (332.06) 25.91 (194.52) 179.04
Net Asset Value per Redeemable
Unit, beginning of period 1,925.68 1,632.20 1,788.14 1,479.07
-------- --------- --------- ---------
Net Asset Value per Redeemable
Unit, end of period $ 1,593.62 $ 1,658.11 $ 1,593.62 $ 1,658.11
======== ========= ========= =========
Redemption/subscription value
per Redeemable Unit versus net
Asset value per Redeemable Unit -- 0.38 -- 0.38
-------- --------- --------- ---------
Redemption/subscription value
per Redeemable Unit, end of
period*** $ 1,593.62 $ 1,658.49 $ 1,593.62 $ 1,658.49
======== ========= ========= =========
* Includes brokerage commissions.
** Excludes brokerage commissions.
*** For the purpose of a redemption/subscription, any remaining accrued
liability for reimbursement of offering costs will not reduce
redemption/subscription Net Asset Value per Redeemable Unit.
9
Salomon Smith Barney Fairfield Futures Fund L.P.
Notes to Financial Statements
June 30, 2004
(Unaudited)
(Continued)
Three Months Ended Six Months Ended
June 30, June 30,
------------- --------------
2004 2003 2004 2003
------------- --------------
Ratio to average net assets: ***
Net investment loss before
incentive fees **** (6.6)% (7.3)% (7.1)% (7.4)%
==== === ==== ====
Operating expenses 7.3% 8.2% 7.8% 8.3%
Incentive fees 0.0% 0.3% 1.9% 1.9%
---- --- ---- ----
Total expenses 7.3% 8.5% 9.7% 10.2%
==== === ==== ====
Total return:
Total return before incentive fees (17.2)% 1.9% (8.9)% 13.9%
Incentive fees 0.0% (0.3)% (2.0)% (1.8)%
---- --- ---- ----
Total return after incentive fees (17.2)% 1.6% (10.9)% 12.1%
==== === ==== ====
*** Annualized (other than incentive fees)
**** Interest income less total expenses (exclusive of incentive fees)
The above ratios may vary for individual investors based on the timing of
capital transactions during the period. Additionally, these ratios are
calculated for the Limited Partner class using the Limited Partners' share of
income, expenses and average net assets.
10
Salomon Smith Barney Fairfield Futures Fund L.P.
Notes to Financial Statements
June 30, 2004
(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
activities are shown in the Statements of Income and Expenses and Partners'
Capital and are discussed in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The Customer Agreement between the Partnership and CGM gives the
Partnership the legal right to net unrealized gains and losses on open futures
positions.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair values of these interests during the six and
twelve months ended June 30, 2004 and December 31, 2003, based on a monthly
calculation, were $3,537,575 and $4,723,567, respectively. The fair values of
these commodity interests, including options thereon, if applicable, at June 30,
2004 and December 31, 2003, were $(3,550,581) and $10,998,676, 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 Risks:
In the normal course of its business the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments
may include forwards, futures and options, whose values are based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, to purchase or sell other
financial instruments at specific terms at specified future dates, or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards and certain options.
11
Salomon Smith Barney Fairfield Futures Fund L.P.
Notes to Financial Statements
June 30, 2004
(Unaudited)
(Continued)
Each of these instruments is subject to various risks similar to those
related to the underlying financial instruments including market and credit
risk. In general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized as unrealized appreciation in the statements
of financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has credit risk and concentration risk
because the sole counterparty or broker with respect to the Partnership's assets
is CGM.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk-adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forward and option positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The majority of these instruments mature within one year of June 30, 2004.
However, due to the nature of the Partnership's business, these instruments may
not be held to maturity.
12
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 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 second quarter of 2004.
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 Redeemable Units and
distributions of profits, if any.
For the six months ended June 30, 2004, Partnership capital decreased 17.1%
from $153,310,380 to $127,125,254. This decrease was attributable to a net loss
from operations of $15,569,356, coupled with the redemption of 5,965.9222
Redeemable Units of Limited Partnership Interest totaling $10,615,770. Future
redemptions can impact the amount of funds available for investment in commodity
contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statements 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 or other measures of fair value deemed
appropriate by management of the General Partner for those commodity interests
and foreign currencies for which market quotations are not readily available.
Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the period. Realized gains (losses) and changes in unrealized
values on open positions 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
13
rates at the dates of entry into the contracts and the forward rates at the
reporting date, is included in the statements 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 statements of income and expenses and partners'
capital.
Results of Operations
During the Partnership's second quarter of 2004, the Net Asset Value per
Redeemable Unit decreased 17.2% from $1,925.68 to $1,593.62 as compared to an
increase of 1.6% in the second quarter of 2003. The Partnership experienced a
net trading loss before brokerage commissions and related fees in the second
quarter of 2004 of $24,850,487. Losses were primarily attributable to the
trading of commodity futures in currencies, grains, U.S. and non-U.S. interest
rates, metals and indices and were partially offset by gains in energy and
softs. The Partnership experienced a net trading gain before brokerage
commissions and related fees in the second quarter of 2003 of $3,785,167. Gains
were primarily attributable to the trading of commodity futures in currencies,
U.S. and non-U.S. interest rates and softs and were partially offset by losses
in energy, grains, metals, and indices.
During the Partnership's six months ended June 30, 2004, the Net Asset
Value per Redeemable Unit decreased 10.9% from $1,788.14 to $1,593.62 as
compared to an increase of 12.1% for the six months ended June 30, 2003. The
Partnership experienced a net trading loss before brokerage commissions and
related fees during the six months ended June 30, 2004 of $7,591,387. Losses
were primarily attributable to the trading of commodity futures in currencies,
energy, U.S. interest rates, softs and indices and were partially offset by
gains in energy, grains non-U.S. interest rates and metals. The Partnership
experienced a net trading gain before brokerage commissions and related fees
during the six months ended June 30, 2003 of $12,452,512. Gains were primarily
attributable to the trading of commodity futures in currencies, energy, U.S. and
non-U.S. interest rates and softs and were partially offset by losses in grains,
livestock, metals, and indices.
The lack of persistent trends resulted in a difficult environment for the
Advisor, which began precisely as the second quarter got underway. Trends in
both financial and commodity futures markets had been clear for the previous
three quarters. In the second quarter, however, substantially opposing
fundamental considerations along with benign short-term volatility greatly
reduced the opportunities for Advisor resulting in a particularly difficult
trading environment.
The directionless behavior of so many markets can be explained in terms of
a perception that a significant change may be underway in the global economic
cycle. Some of the primary drivers of these conditions have been: softer than
expected U.S. economic data creating confusion with regard to forecasting the
pace of Federal Reserve tightening; U.S. and international bonds, equity and
currency markets coping with indications of rising inflation, but at the same
time, an apparent pause in growth; and a fragile Eurozone recovery keeping
European Central Bank monetary intervention on hold.
Trading in all market sectors was unprofitable for the Partnership except
in the energy sector and softs markets. The interest rate, stock index,
14
currency and precious metals were the primary contributors to the losses while
trading in crude oil, cotton and cocoa provided some profits for the Partnership
to mitigate the other losses.
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,
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 CGM
based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days. CGM may continue to maintain the Partnership's assets in
cash and/or place all of the Partnership's assets in 90-day Treasury bills and
pay the Partnership 80% of the interest earned on the Treasury bills purchased.
CGM will retain 20% of any interest earned on Treasury bills. Interest income
for the three and six months ended June 30, 2004 increased by $11,106 and
$109,428, respectively, as compared to the corresponding period in 2003. The
increase in interest income is primarily due to an increase in average net
assets during the three and six months ended June 30, 2004 as compared to the
corresponding periods in 2003.
Brokerage commissions are calculated as a percentage of the Partnership's
adjusted net asset value on the last day of each month and are affected by
trading performance, additions 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 six months ended June 30, 2004 increased
by $266,755 and $1,340,152, respectively, as compared to the corresponding
period in 2003. The increase in brokerage commissions and fees is due to higher
average net assets during the three and six months ended June 30, 2004 as
compared to the corresponding periods in 2003.
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,
additions and redemptions. Management fees for the three and six months ended
June 30, 2004 increased by $111,031 and $507,282, respectively, as compared to
the corresponding period in 2003. The increase in management fees is due to
lower average net assets during the three months ended June 30, 2004 as compared
to the corresponding periods in 2003.
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 six months ended June 30, 2004, resulted in incentive fees of $0
and $2,826,991, respectively. Trading performance for the three and six months
ended June 30, 2003, resulted in incentive fees of $326,444 and $1,747,649,
respectively.
15
Item. 3 Quantitative and Qualitative Disclosures about 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
interval. 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.
16
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of June 30, 2004 and the
highest, lowest and average value during the three months ended June 30, 2004.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of June 30, 2004, the
Partnership's total capitalization was $127,125,254. There has been no material
change in the trading Value at Risk information previously disclosed in the
Partnership's Registration Statement on Form 10-12 G/A filed on June 1, 2004.
June 30, 2004
(Unaudited)
Three Months Ended June 30, 2004
-------------------------------------------
% of Total High Low Average
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Value at Risk
- ---------------------------- ----------------- ---------------- ------------------ --------------- -----------------
Currencies $ 1,599,394 1.26% $1,813,156 $153,600 $984,869
- Exchange Traded
Contracts
- OTC Contracts - - 6,684 - 3,713
Energy 442,100 0.35% 2,113,500 442,100 1,174,533
Grains 292,250 0.23% 292,250 51,625 135,583
Interest Rates U.S. 2,888,500 2.27% 3,708,750 426,975 2,644,067
Interest Rates Non-U.S. 4,077,182 3.21% 4,798,826 1,046,046 2,558,029
Metals:
- OTC Contracts 109,000 0.09% 285,600 80,000 136,400
Softs 143,884 0.11% 171,241 31,800 91,909
Indices 373,216 0.29% 5,270,083 241,414 1,909,691
------- -----
Total $9,925,526 7.81%
========== =====
17
Item 4. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of June 30, 2004, the Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are effective.
During the Partnership's last fiscal quarter, no changes occurred in the
Partnership's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Partnership's
internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth
under Item 8 "Legal Proceedings" in the Partnership's Registration Statement on
Form 10-12G/A filed on June 1, 2004.
WorldCom, Inc.
On May 10, 2004, Citigroup announced that it had agreed to pay $2.65
billion to settle the WorldCom class action suits.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The Partnership no longer offers Redeemable Units at the net asset value
per Redeemable Units at the end of each month. For the three months ended
June 30, 2003 there were additional sales of 14,059.6464 Redeemable Units
totaling $23,235,000. Proceeds from the sale of additional Redeemable Units
are used in the trading of commodity interests including futures contracts,
options and forwards contracts.
The following chart sets forth the purchases of Redeemable Units by the
Partnership.
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
Period (a) Total Number of (b) Average Price (c) Total Number of (d) Maximum Number
Shares (or Units) Paid per Share (or Shares (or Units) (or Approximate
Purchased* Unit)** Purchased as Part of Dollar Value) of
Publicly Announced Shares (or Units)
Plans or Programs that May Yet Be
Purchased Under the
Plans or Programs
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
April 1, 2004 - April 30, 2004 771.0963 $1,731.36 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
May 1, 2004 - May 31, 2004 1,075.1548 $1,686.24 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
June 1, 2004 - June 30, 2004 839.0355 $1,593.62 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
Total 2,685.2866 $1,670.41 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
* Generally, Limited Partners are permitted to redeem their Redeemable Units as
of the end of each month on 10 days' notice to the General Partner. Under
certain circumstances, the General Partner can compel redemption but to date the
General Partner has not exercised this right. Purchases of Redeemable Units by
the Partnership reflected in the chart above were made in the ordinary course of
the Partnership's business in connection with effecting redemptions for Limited
Partners.
** Redemptions of Redeemable Units are effected as of the last day of each month
at the Net Asset Value per Redeemable Unit as of that day.
19
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. Exhibits and reports on Form 8-K
(a) The exhibits required to be filed by Item 601 of Regulation S-K are
incorporated herein by reference to the exhibit index of the
Partnership's Registration Statement on Form 10-12G/A filed June 1,
2004.
Exhibit - 31.1 - Rule 13a-14(a)/15d-14(a) Certification (Certification
of President and Director)
Exhibit - 31.2 - Rule 13a-14(a)/15d-14(a) Certification (Certification
of Chief Financial Officer and Director)
Exhibit - 32.1 - Section 1350 Certification (Certification of
President and Director).
Exhibit - 32.2 - Section 1350 Certification (Certification of Chief
Financial Officer and Director).
(b) Reports on Form 8-K - None
20
SIGNATURES
Pursuant to the requirements 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.
SALOMON SMITH BARNEY FAIRFIELD FUTURES FUND L.P.
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
-------------------------------------
David J. Vogel,
President and Director
Date: 8/12/04
- -----------------------
By: /s/ Daniel R. McAuliffe, Jr.
-------------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Date: 8/12/04
- -----------------------
21
Exhibit 31.1
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Salomon Smith Barney
Fairfield Futures Fund L.P. (the "registrant");
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 12, 2004
- --------------------
/s/ David J. Vogel
-----------------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
22
Exhibit 31.2
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Salomon Smith Barney
Fairfield Futures Fund L.P. (the "registrant");
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 12, 2004
- ---------------------
/s/ Daniel R. McAuliffe, Jr.
----------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
23
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Salomon Smith Barney Fairfield
Futures Fund L.P. (the "Partnership") on Form 10-Q for the period ending June
30, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
Date: August 12, 2004
- ----------------------
/s/ David J. Vogel
- ----------------------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
24
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Salomon Smith Barney Fairfield
Futures Fund L.P. (the "Partnership") on Form 10-Q for the period ending June
30, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and
Director of Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
Date: August 12, 2004
- -----------------------
/s/ Daniel R. McAuliffe, Jr.
- ----------------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
25