FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2001
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Commission File Number 000-30455
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SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
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(Exact name of registrant as specified in its charter)
New York 13-4015586
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(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
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(Address and Zip Code of principal executive offices)
(212) 723-5424
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(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
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SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
September 30, 2001 and December 31,
2000 (unaudited). 3
Statement of Income and Expenses and Partners'
Capital for the three and nine months ended
September 30, 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
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------- -----------
ASSETS:
Equity in commodity futures trading account:
Cash $52,997,507 $57,456,373
Net unrealized appreciation
on open positions 2,671,426 4,014,095
----------- -----------
55,668,933 61,470,468
Interest receivable 106,464 235,412
----------- -----------
$55,775,397 $61,705,880
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 247,551 $ 282,116
Management fees 91,172 104,534
Incentive fees 346,983 596,159
Other 64,690 59,769
Due to SSB -- 65,004
Redemptions payable 390,576 567,779
----------- -----------
1,140,972 1,675,361
----------- -----------
Partners' Capital:
General Partner, 1,067.4488 Unit
equivalents outstanding in 2001 and 2000 1,125,358 1,078,678
Limited Partners, 50,755.4998 and 58,338.0480
Units of Limited Partnership Interest outstanding
in 2001 and 2000, respectively 53,509,067 58,951,841
----------- -----------
54,634,425 60,030,519
----------- -----------
$55,775,397 $61,705,880
=========== ===========
See Notes to Financial Statements.
3
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------- ------------
2001 2000 2001 2000
------------ ----------- ----------- ------------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains (losses) on closed positions $ 2,984,034 $ 1,058,031 $ 6,000,252 $ (479,827)
Change in unrealized gains (losses) on open
positions 1,740,941 (1,391,459) (1,342,669) (3,977,789)
------------ ------------ ------------ ------------
4,724,975 (333,428) 4,657,583 (4,457,616)
Less, brokerage commissions including clearing fees
of $31,929, $19,630, $76,344 and $79,585, respectively (814,607) (850,347) (2,474,909) (3,170,776)
------------ ------------ ------------ ------------
Net realized and unrealized gains (losses) 3,910,368 (1,183,775) 2,182,674 (7,628,392)
Interest income 352,998 700,581 1,360,509 2,387,645
------------ ------------ ------------ ------------
4,263,366 (483,194) 3,543,183 (5,240,747)
------------ ------------ ------------ ------------
Expenses:
Management fees 274,456 292,098 854,202 1,083,298
Other expenses 23,932 13,948 57,110 76,110
Incentive fees 346,983 -- 346,983 (62,088)
------------ ------------ ------------ ------------
645,371 306,046 1,258,295 1,097,320
------------ ------------ ------------ ------------
Net income (loss) 3,617,995 (789,240) 2,284,888 (6,338,067)
Additions - Limited Partners -- -- -- 5,931,000
- General Partner -- -- -- 120,000
Redemptions - Limited Partners (1,862,273) (5,327,275) (7,680,982) (32,123,356)
------------ ------------ ------------ ------------
Net increase (decrease) in Partners' capital 1,755,722 (6,116,515) (5,396,094) (32,410,423)
Partners' capital, beginning of period 52,878,703 60,794,600 60,030,519 87,088,508
------------ ------------ ------------ ------------
Partners' capital, end of period $ 54,634,425 $ 54,678,085 $ 54,634,425 $ 54,678,085
------------ ------------ ------------ ------------
Net asset value per Unit
(51,822.9486 and 62,165.0097 Units outstanding
at September 30, 2001 and 2000, respectively) $ 1,054.25 $ 879.56 $ 1,054.25 $ 879.56
------------ ------------ ------------ ------------
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 68.59 $ (12.31) $ 43.73 $ (78.76)
------------ ------------ ------------ ------------
Redemption net asset value per Unit $ 1,054.25 $ 881.63 $ 1,054.25 $ 881.63
------------ ------------ ------------ ------------
See Notes to Financial Statements
4
Salomon Smith Barney Global Diversified Futures Fund L.P.
Notes to Financial Statements
September 30, 2001
(Unaudited)
1. General:
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 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 commenced
trading operations on February 2, 1999.
Between November 25, 1998 (commencement of the offering period) and
February 1, 1999, 33,379 Units of limited partnership interest and 337 Unit
equivalents representing the general partner's contribution were sold at $1,000
per unit. The proceeds of the offering were held in an escrow account until
February 2, 1999, at which time they were turned over to the Partnership for
trading. The public offering of Units terminated on 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. As of September 30, 2001, all trading decisions are made for the
Partnership by Aspect Capital Management Ltd. ("Aspect"), Campbell & Company,
Inc., ("Campbell"), Eckhardt Trading Company ("Eckhardt") and Rabar Market
Research, Inc. ("Rabar") (collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at September 30, 2001 and December 31, 2000 and the results of its
operations for the three and nine months ended September 30, 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
Salomon Smith Barney Global Diversified Futures Fund L.P.
Notes to Financial Statements
September 30, 2001
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2001 and 2000 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
2001 2000 2001 2000
--------- ---------- --------- --------
Net realized and unrealized
gains(losses) $ 74.17 $ (18.50) $ 42.51 $ (95.95)
Interest income 6.66 11.04 24.09 31.65
Expenses (12.24) (4.85) (22.87) (14.46)
--------- --------- --------- -------
Increase(decrease) for period 68.59 (12.31) 43.73 (78.76)
Net Asset Value per Unit,
beginning of period 985.66 891.87 1,010.52 950.95
Redemption/subscription value
per Unit versus net asset
per Unit -- -- -- 7.37
--------- --------- --------- -------
Net Asset Value per Unit,
end of period $ 1,054.25 $ 879.56 $ 1,054.25 $ 879.56
========= ========= ========= =======
Redemption/subscription net asset
value per Unit * $ 1,054.25 $ 881.63 $ 1,054.25 $ 881.63
========= ========= ========= =======
Total Return 7.0% 4.3%
Ratio of expenses, including
brokerage commissions, to average
net assets ** 10.8% 8.8%
Ratio of net income to average
net assets ** 26.9% 5.4%
For the purpose of a redemption/subscription, any remaining deferred liability
for reimbursement of offering and organization expenses will not reduce
redemption/subscription net asset value per unit. (see note 3)
** Annualized
6
Salomon Smith Barney Global Diversified Futures Fund L.P.
Notes to Financial Statements
September 30, 2001
(Unaudited)
(Continued)
3. 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 have been recorded as due to SSB in the statement of
financial condition. 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.).
For the nine months ended September 30, 2001, $40,661 of these costs have
been reimbursed to SSB, by the Partnership.
In addition, the Partnership has recorded interest expense of $161, for the
nine months ended September 30, 2001 which is included in other expenses.
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 instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
7
Salomon Smith Barney Global Diversified Futures Fund L.P.
Notes to Financial Statements
September 30, 2001
(Unaudited)
(Continued)
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the nine and twelve months ended
September 30, 2001 and December 31, 2000, respectively, based on a monthly
calculation, were $2,127,538 and $2,261,410, respectively. The fair value of
these commodity interests, including options thereon, if applicable, at
September 30, 2001 and December 31, 2000, was $2,671,426 and $4,014,095,
respectively, as detailed below.
Fair Value
---------------------------
September 30, December 31,
2001 2000
---------- ------------
Currency:
- Exchange Traded Contracts $ 126,510 $ 402,730
- OTC Contracts 894,832 (58,165)
Energy 60,235 231,736
Grains 39,629 12,073
Interest Rates U.S. 598,318 1,818,863
Interest Rates Non-U.S 679,362 1,883,836
Livestock 31,093 (13,400)
Metals:
- Exchange Traded Contracts 128,960 (2,645)
- OTC Contracts 107,020 (389,611)
Softs 126,800 24,344
Indices (121,333) 104,334
----------- -----------
Total $ 2,671,426 $ 4,014,095
=========== ===========
5. 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
8
Salomon Smith Barney Global Diversified Futures Fund L.P.
Notes to Financial Statements
September 30, 2001
(Unaudited)
(Continued)
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.
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 September 30, 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, net unrealized appreciation (depreciation) on open futures and forward
contracts, commodity options, if applicable, 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 decrease in liquidity, no
such losses occurred during the third quarter of 2001.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, additions and redemptions of Units and
distributions of profits, if any.
For the nine months ended September 30, 2001, Partnership capital decreased
9.0% from $60,030,519 to $54,634,425. This decrease was attributable to the
redemption of 7,582.5482 Units resulting in an outflow of $7,680,982 which was
partially offset by the net income from operations of $2,284,888 for the nine
months ended September 30, 2001. Future redemptions can impact the amount of
funds available for investment in commodity contract positions in subsequent
months.
Results of Operations
During the Partnership's third quarter of 2001, the net asset value per
unit increased 7.0% from $985.66 to $1,054.25 as compared to a decrease of 1.4%
in the third quarter of 2000. The Partnership experienced a net trading gain
before brokerage commissions and related fees in the period ended September 30,
2001 of $4,724,975. Gains were primarily attributable to the trading of
commodity futures in U.S. and non-U.S. interest rates, metals and indices and
were partially offset by losses in currencies, energy, grains, softs and
livestock. The Partnership experienced a net trading loss before commissions and
related fees in the third quarter of 2000 of $333,428. Losses were primarily
attributable to the trading of commodity futures in grains, non-U.S. interest
rates, metals, softs and indices and were partially offset by gains in
currencies, U.S. interest rates, energy and livestock.
10
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
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 equity maintained in cash
was earned on the monthly average 30-day U.S. Treasury bill yield. Interest
income for the three and nine months ended September 30, 2001 decreased by
$347,583 and $1,027,136, respectively, as compared to the corresponding periods
in 2000. The decrease in interest income is primarily due to the effect of
redemptions on the Partnership's equity maintained in cash and a decrease in
interest rates during the three month period ended September 30, 2001.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and, therefore, vary according to trading performance and
redemptions. Accordingly, they must be compared in relation to the fluctuations
in the monthly net asset values. Commissions and fees for the three and nine
months ended September 30, 2001 decreased by $35,740 and $695,867, respectively,
as compared to the corresponding periods 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,
subscriptions and redemptions. Management fees for the three and nine months
ended September 30, 2001 decreased by $17,642 and $229,096 respectively, as
compared to the corresponding periods in 2000.
Incentive fees paid annually by the Partnership are based on the net
trading profits of the Partnership as defined in the Limited Partnership
Agreement. Trading performance for the three and nine months ended September 30,
2001 resulted in an incentive fee accrual of $346,983. Trading performance for
the nine months ended September 30, 2000 resulted in a reversal of the incentive
fee accrued of $62,088.
11
Item 3. Quantitative and Qualitative Disclosures of 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 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 value of financial instruments and contracts, the
diversification effects of 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 September 30, 2001. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of September 30, 2001, the
Partnership's total capitalization was approximately $54,634,425. 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.
September 30, 2001
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- ---------------------------------------------------------------------------------------
Currencies:
- Exchange Traded Contracts $ 183,272 0.34% $ 704,245 $ 113,783
- OTC Contracts 1,328,384 2.43% 4,656,072 537,456
Energy 210,500 0.39% 950,800 64,940
Grains 82,675 0.15% 274,215 13,000
Interest Rates U.S. 349,000 0.64% 1,278,438 145,808
Interest Rates Non-U.S 931,236 1.70% 2,545,790 698,093
Livestock 22,630 0.04% 50,440 2,320
Metals:
- -- Exchange Traded Contracts 107,800 0.20% 248,000 66,000
- -- OTC Contracts 245,025 0.45% 328,375 68,100
Softs 129,950 0.24% 177,000 22,600
Indices 482,806 0.88% 1,065,066 273,095
---------- ----------
Total $4,073,278 7.46%
========== ==========
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.
SALOMON SMITH BARNEY GLOBAL DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
-------------------------------
David J. Vogel, President
Date: 11/8/01
---------
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: 11/8/01
---------
By: /s/ Daniel R. McAuliffe, Jr.
-------------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
Date: 11/8/01
15