10-Q 1 sbplus.txt SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended March 31, 2001 -------------- Commission File Number 0-28350 ------- SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 13-3823300 ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Smith Barney Futures Management LLC 388 Greenwich St. - 7th Fl. New York, New York 10013 ------------------------------------------------------------------------------- (Address and Zip Code of principal executive offices) (212) 723-5424 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. FORM 10-Q INDEX Page Number PART I - Financial Information: Item 1. Financial Statements: Statement of Financial Condition at March 31, 2001 and December 31, 2000 (unaudited). 3 Statement of Income and Expenses and Partners' Capital for the three months ended March 31, 2001 and 2000 (unaudited). 4 Notes to Financial Statements (unaudited). 5 - 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 - 11 Item 3. Quantitative and Qualitative Disclosures of Market Risk 12 - 13 PART II - Other Information 14 2 PART I Item 1. Financial Statements Smith Barney Principal PLUS Futures Fund L.P. Statement of Financial Condition (Unaudited)

See Notes to Financial Statements. 3 SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL (UNAUDITED)

See Notes to Financial Statements 4 Smith Barney Principal PLUS Futures Fund L.P. Notes to Financial Statements March 31, 2001 (Unaudited) 1. General: Smith Barney Principal PLUS Futures Fund L.P. (the "Partnership") is a limited partnership which was initially organized on January 25, 1993 under the partnership laws of the State of New York and was capitalized on April 12, 1995. No activity occurred between January 25, 1993 and April 12, 1995. The Partnership engages in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options and forward contracts. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk. The Partnership will maintain a portion of its assets in principal amounts stripped from U.S. Treasury Bonds under the Treasury's STRIPS program which payments are due approximately seven years from the date trading commenced ("Zero Coupons"). Smith Barney Futures Management LLC acts as the general partner (the "General Partner") of the Partnership. The Partnership's commodity broker is Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner. The General Partner is wholly owned by Salomon Smith Barney Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of Citigroup Inc. As of March 31, 2001, all trading decisions are made by Tucson Asset Management ("the Advisor"). Effective March 1, 2001, Fort Orange Capital Management and Rabar Market Research Inc. were terminated as Advisors to the Partnership. Tucson Asset Management was added as an Advisor on that date. The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership's financial condition at March 31, 2001 and December 31, 2000 and the results of its operations for the three months ended March 31, 2001 and 2000. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000. 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. 5 Smith Barney Principal PLUS Futures Fund L.P. Notes to Financial Statements March 31, 2001 (Unaudited) (Continued) 2. Financial Highlights: Changes in net asset value per Unit for the three months ended March 31, 2001 and 2000 were as follows: THREE-MONTHS ENDED MARCH 31, ------------------------ 2001 2000 ----------- --------- Net realized and unrealized losses $ (6.27) $ (36.29) Realized and unrealized gains on Zero Coupons 11.62 1.24 Interest income 15.70 16.01 Expenses (4.98) (4.47) --------- --------- Increase (decrease) for period 16.07 (23.51) Net Asset Value per Unit, beginning of period 1,188.28 1,198.96 --------- --------- Net Asset Value per Unit, end of period $ 1,204.35 $1,175.45 ========= ========= Total return 1.4% ----- Ratio of expenses, including brokerage commissions, to average net assets* 0.7% ---- Ratio of net income to average net assets* 1.0% ---- * Annualized 6 Smith Barney Principal PLUS Futures Fund L.P. Notes to Financial Statements March 31, 2001 (Unaudited) (Continued) 3. Trading Activities: The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership's trading activity are shown in the statements of income and expenses. The Customer Agreement between the Partnership and SSB gives the Partnership the legal right to net unrealized gains and losses. All of the commodity interests owned by the Partnership are held for trading purposes. The average fair value during the three and twelve months ended March 31, 2001 and December 31, 2000, respectively, based on a monthly calculation, was $210,005 and $269,193, respectively. The fair value of these commodity interests, including options thereon, if applicable, at March 31, 2001 and December 31, 2000, was $290,044 and $478,851, respectively, as detailed below. Fair Value ------------------------- March 31, December 31, 2001 2000 --------- --------- Currency: - Exchange Traded Contracts $ 233,788 $ 65,505 - OTC Contracts -- (5,049) Energy 2,764 3,487 Grains 1,300 31,857 Interest Rates U.S. 49,125 176,358 Interest Rates Non-U.S 3,539 169,076 Livestock -- 7,940 Metals: - Exchange Traded Contracts -- (2,290) - OTC Contracts (13,788) (6,203) Softs -- 10,194 Indices 13,316 28,350 Lumber -- (374) --------- --------- Total $290,044 $478,851 ========= ========= 7 Smith Barney Principal PLUS Futures Fund L.P. Notes to Financial Statements March 31, 2001 (Unaudited) 4. Financial Instrument Risk: The Partnership is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments, in the normal course of its business. These financial instruments may include forwards, futures and options, whose value is based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash flows, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. 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 (depreciation) in the statement of financial condition and not represented by the contract or notional amounts of the instruments. The Partnership has concentration risk because the sole counterparty or broker with respect to the Partnership's assets is SSB. 8 Smith Barney Principal PLUS Futures Fund L.P. Notes to Financial Statements March 31, 2001 (Unaudited) 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 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 March 31, 2001. However, due to the nature of the Partnership's business, these instruments may not be held to maturity. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The Partnership does not engage in the sale of goods or services. Its only assets are its equity in its commodity futures trading account, consisting of cash and cash equivalents, Zero Coupons, net unrealized appreciation (depreciation) on open futures and forward contracts, commodity options and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a substantial decrease in liquidity, no such losses occurred in the Partnership's first quarter of 2001. The Partnership's capital consists of capital contributions, as increased or decreased by gains or losses on commodity futures trading and Zero Coupons, expenses, interest income, redemptions of Units and distributions of profits, if any. For the three months ended March 31, 2001, Partnership capital decreased 1.4% from $13,145,927 to $12,963,642. This decrease was attributable to the redemption of 299 Units resulting in an outflow of $360,101 which was partially offset by the net income from operations of $177,816 for the three months ended March 31, 2001. Future redemptions can impact the amount of funds available for investments in commodity contract positions in subsequent periods. Results of Operations During the Partnership's first quarter of 2001, the net asset value per unit increased 1.4% from $1,188.28 to $1,204.35 as compared to a decrease of 2.0% in the first quarter 2000. The Partnership experienced a net trading gain before brokerage commissions and related fees in the first quarter of 2001 of $622. Gains were primarily attributable to the trading of commodity contracts in currencies, U.S. and non-U.S. interest rates and metals and were partially offset by losses in indices, softs, energy, grains and livestock. The Partnership experienced a net trading loss before brokerage commissions and related fees in the first quarter of 2000 of $591,301. Losses were primarily attributable to the trading of commodity futures in currencies, grains, U.S. and non-U.S. interest rates, metals, softs and indices and were partially offset by gains in livestock and energy. Commodity futures 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 10 on the existence of major price trends and the ability of the Advisors to identify correctly those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Partnership expects to increase capital through operations. 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. Also included in interest income is the amortization of original issue discount on the Zero Coupons based on the interest method. Interest income for the three months ended March 31, 2001 decreased by $189,447, as compared to the corresponding period in 2000. The decrease in interest income is primarily due to a decrease in interest rates and the effect of redemptions on the Partnership's equity maintained in cash during the three months ended March 31, 2001 as compared to 2000. Brokerage commissions are calculated on the adjusted net asset value on the last day of each month and, therefore, vary according to trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Commissions and fees for the three months ended March 31, 2001 decreased by $161,772, as compared to the corresponding period in 2000. Management fees are calculated as a percentage of the Partnership's net asset value as of the end of each month and are affected by trading performance and redemptions. Management fees for the three months ended March 31, 2001 decreased by $67,015, as compared to the corresponding period in 2000. Incentive fees are based on the new trading profits generated by each Advisor as defined in the advisory agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three months ended March 31, 2001 resulted in an incentive fee accrual of $26,062. There were no incentive fees earned for the three months ended March 31, 2000. 11 Item. 3 Quantitative and Qualitative Disclosures of Market Risk The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership's main line of business. Market movements result in frequent changes in the fair market value of the Partnership's open positions and, consequently, in its earnings and cash flow. The Partnership's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership's open positions and the liquidity of the markets in which it trades. The Partnership rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnership's past performance is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership's speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership's experience to date (i.e., "risk of ruin"). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification 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. Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day intervals. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk. 12 The following table indicates the trading Value at Risk associated with the Partnership's open positions by market category as of March 31, 2001. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of March 31, 2001, the Partnership's total capitalization was approximately $12,963,642. There has been no material change in the trading Value at Risk information previously disclosed in the Form 10-K for the year ended December 31, 2000.

13 PART II OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. (a) Exhibits - None (b) Reports on Form 8-K - None 14 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. By: Smith Barney Futures Management LLC (General Partner) By: /s/ David J. Vogel, President -------------------------- David J. Vogel, President Date: 5/11/01 -------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: Smith Barney Futures Management LLC (General Partner) By: /s/ David J. Vogel, President ------------------------- David J. Vogel, President Date: 5/11/01 -------- By: /s/ Daniel R. McAuliffe, Jr. ---------------------------------- Daniel R. McAuliffe, Jr. Chief Financial Officer and Director Date: 5/11/01 -------- 15

SMITH BARNEY PRINCIPAL PLUS FUTURES FUND LP 10-Q