-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JORSUEO0msJDb40YmZeTk4+Ris5tEE1efG4DeMaqg2Axs3cElRD/rLcWdkd1Vuig erctpCxi+R5/n2kOeUPKvQ== 0001013167-97-000001.txt : 19970328 0001013167-97-000001.hdr.sgml : 19970328 ACCESSION NUMBER: 0001013167-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH BARNEY MID WEST FUTURES FUND LP II CENTRAL INDEX KEY: 0001013167 STANDARD INDUSTRIAL CLASSIFICATION: [6221] IRS NUMBER: 133772374 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28336 FILM NUMBER: 97565423 BUSINESS ADDRESS: STREET 1: 390 GREENWICH ST STREET 2: FIRST FL CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2127235424 MAIL ADDRESS: STREET 1: 390 GREENWICH ST STREET 2: FIRST FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 10-K 1 SB MID-WEST FUTURES FUND L.P. II UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission File Number 0-28336 SMITH BARNEY MID-WEST FUTURES FUND L.P. II (Exact name of registrant as specified in its charter) New York 13-3772374 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o Smith Barney Futures Management Inc. 390 Greenwich St. - 1st Fl. New York, New York 10013 (Address and Zip Code of principal executive offices) (212) 723-5424 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None ---- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K [ ] PART i Item 1. Business. (a) General development of business. Smith Barney Mid-West Futures Fund L.P. II, (the "Partnership") is a limited partnership organized on June 3, 1994 under the partnership laws of the State of New York. The Partnership commenced trading operations on September 1, 1994. The Partnership engages in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options and forward contracts. Between July 7, 1994 and August 31, 1994, 9,421 Units of limited partnership interest ("Units") were sold at $1,000 per Unit. The proceeds of the initial offering were held in an escrow account until September 1, 1994, at which time they were turned over to the Partnership for trading. Sales and redemptions of Units and general partner contributions and redemptions for the years ending December 31, 1996, 1995 and for the period from June 3, 1994 to December 31, 1994 are reported in the Statements of Partners' Capital on page F-5 under "Item 8. Financial Statements and Supplementary Data." The Partnership will be liquidated upon the first to occur of the following: December 31, 2014; if the Net Asset Value per Unit falls below $350 as of the end of business on any business day or upon the earlier occurrence of certain other circumstances set forth in the Limited Partnership Agreement of the Partnership (the "Limited Partnership Agreement"). Partnership Units are currently being offered during the continuous offering period. The 2 Partnership is authorized to sell 75,000 Units. The Partnership's trading of futures contracts on commodities is done primarily on United States commodity exchanges and may, to a lesser extent, be done on foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with its commodity broker, Smith Barney Inc. ("SB"). Smith Barney Futures Management Inc. acts as the general partner (the "General Partner") of the Partnership. SB is an affiliate of the General Partner. Under the Limited Partnership Agreement, the General Partner has sole responsibility for the administration of the business and affairs of the Partnership, but may delegate trading discretion to one or more trading advisors. The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The Partnership pays the General Partner a monthly administrative fee in return for its services to the Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets of the Partnership. This fee may be increased or decreased at the discretion of the General Partner. The General Partner has entered into a management agreement (the "Management Agreement") with John W. Henry & Company Inc. (the "Advisor") who will make all commodity trading decisions for the Partnership. The Advisor is not affiliated with the General Partner or SB. The Advisor is not responsible for the organization or operation of the Partnership. 3 Pursuant to the terms of the Management Agreement, the Partnership is obligated to pay the Advisor a monthly management fee equal to 1/3 of 1% (4% per year) of Net Assets allocated to the Advisor as of the end of the month and an incentive fee payable quarterly of 15% of New Trading Profits of the Partnership. The Customer Agreement between the Partnership and SB (the "Customer Agreement") provides that the Partnership pays SB a monthly brokerage fee equal to 1/2 of 1% of month-end Net Assets (6% per year) in lieu of brokerage commissions on a per trade basis. SB pays a portion of its brokerage fees to its financial consultants who have sold Units. The Partnership pays for National Futures Association ("NFA") fees, exchange and clearing fees, give-up and user fees and floor brokerage fees. The Customer Agreement between the Partnership and SB gives the Partnership the legal right to net unrealized gains and losses. Brokerage fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. In addition, SB pays the Partnership interest on 80% of the average daily equity maintained in cash in its account during each month at a 30 day Treasury bill rate determined weekly by SB based on the non-competitive yield on 3 month U.S. Treasury bills maturing in 30 days from the date in which such weekly rate is determined. The Customer Agreement may be terminated by either party. 4 (b) Financial information about industry segments. The Partnership's business consists of only one segment, speculative trading of commodity interests. The Partnership does not engage in sales of goods or services. The Partnership's net income (loss) from operations for the years ended December 31, 1996, 1995 and for the period from September 1, 1994 (commencement of trading operations) to December 31, 1994 is set forth under "Item 6. Select Financial Data." The Partnership capital as of December 31, 1996 was $68,451,469. (c) Narrative description of business. See Paragraphs (a) and (b) above. (i) through (x) - Not applicable. (xi) through (xii) - Not applicable. (xiii) - The Partnership has no employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales. The Partnership does not engage in sales of goods or services, and therefore this item is not applicable. Item 2. Properties. The Partnership does not own or lease any properties. The General Partner operates out of facilities provided by its affiliate, SB. Item 3. Legal Proceedings. There are no pending legal proceedings to which the Partnership is a party or to which any of its assets is subject. No material legal proceedings affecting the Partnership were 5 terminated during the fiscal year. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to the security holders for a vote during the last fiscal year covered by this report. PART II Item 5. Market for Registrant's Common Equity and Related Security Holder Matters. (a) Market Information. The Partnership has issued no stock. There is no public market for the Units of Limited Partnership Interest. (b) Holders. The number of holders of Units of Partnership Interest as of December 31, 1996 was 835. (c) Distribution. The Partnership did not declare a distribution in 1996. 6 Item 6. Select Financial Data. The Partnership commenced trading operations on September 1, 1994. Realized and unrealized trading gains (losses), interest income, net income (loss) and increase (decrease) in net asset value per Unit for the years ended December 31, 1996 and 1995 and for the period from September 1, 1994 to December 31, 1994 and total assets at December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 ----------- ------------ ---------- Realized and unrealized trading gains (losses) net of brokerage commissions and clearing fees of $3,306,404, $1,842,402 and $283,703, respectively $16,597,447 $ 8,020,122 $(1,112,429) Interest income 1,920,850 1,234,647 170,516 ----------- ------------ ----------- $18,518,297 $ 9,254,769 $ (941,913) ============ ============ ============ Net Income (loss) $13,746,736 $ 6,875,816 $(1,325,660) ============ ============ ============ Increase (decrease) in net asset value per unit $ 319.87 $ 293.49 $ (75.43) ============ ============ ============ Total assets $71,647,148 $39,439,974 $18,543,431 ============ ============ ===========
7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (a) Liquidity. The Partnership does not engage in sales of goods or services. Its only assets are its commodity futures trading account, consisting of cash and cash equivalents, net unrealized appreciation (depreciation) on open futures 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. Such substantial losses could lead to a material decrease in liquidity. To minimize this risk, the Partnership follows certain policies including: (1) Partnership funds are invested only in futures contracts which are traded in sufficient volume to permit, in the opinion of the Advisor, ease of taking and liquidating positions. (2) The Partnership diversifies its positions among various commodities. The Advisor does not initiate additional positions in any commodity for the Partnership if such additional positions would result in aggregate positions for all commodities requiring a margin of more than 66-2/3% of net assets of the Partnership managed by the Advisor. (3) The Partnership may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearing house, the physical commodity position is fully hedged. (4) The Partnership does not employ the trading technique 8 commonly known as "pyramiding", in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. (5) The Partnership does not utilize borrowings except short-term borrowings if the Partnership takes delivery of any cash commodities. (6) The Advisor may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership. The term "spread" or "straddle" describes a commodity futures trading strategy involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets and in which the trader expects to earn a profit from a widening or narrowing of the difference between the prices of the contracts. Other than the risks inherent in commodity futures trading, the Partnership knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Partnership's liquidity increasing or decreasing in any material way. The Limited Partnership Agreement provides that the General Partner may, at its discretion, cause the Partnership to cease trading operations and liquidate all open positions under certain circumstances including a decrease in Net Asset Value per Unit to less than $350 as of the close of business on any business day. (b) Capital resources. (i) The Partnership has made no material commitments for capital expenditures. 9 (ii) The Partnership's capital consists of the capital contributions of the partners as increased or decreased by gains or losses on commodity futures trading and by expenses, interest income, redemptions of Units and distributions of profits, if any. Gains or losses on commodity futures trading cannot be predicted. Market moves in commodities are dependent upon fundamental and technical factors which the Partnership may or may not be able to identify. Partnership expenses will consist of, among other things, commissions, and incentive fees. The level of these expenses is dependent upon the level of trading and the ability of the Advisor to identify and take advantage of price movements in the commodity markets, in addition to the level of Net Assets maintained. In addition, the amount of interest income payable by SB is dependent upon interest rates over which the Partnership has no control. As of December 31, 1996, the Partnership had offered 55,456.9955 Units of limited partnership interest resulting in aggregate proceeds to the Partnership of $62,834,869. As of December 31, 1996, the General Partner contributed $499,000 to the Partnership representing 452.8553 Unit equivalents. No forecast can be made as to the level of redemptions in any given period. As of December 31, 1996, 11,399.9290 Units of limited partnership interest were redeemed totaling $14,179,292. The Partnership continues to offer Units at the Net Asset Value per Unit as of the end of each month. Units of Limited Partnership Interest were sold to persons and entities who are accredited investors as that term is defined 10 in rule 501(a) of Regulation D as well as to those persons who are not accredited investors but who have either a net worth (exclusive of home, furnishings and automobile) either individually or jointly with the investor's spouse of at least three times his investment in the Partnership (the minimum investment for which is $25,000) or gross income for the two previous years and projected gross income for the current fiscal year of not less than three times his investment in the Partnership for each year. (c) Results of Operations. For the year ended December 31, 1996 the Net Asset Value Per Unit increased 26.3% from $1,218.06 to $1,537.93. For the year ended December 31, 1995 the Net Asset Value Per Unit increased 31.7% from $924.57 to $1,218.06. For the period from September 1, 1994 (commencement of trading operations) to December 31, 1994, the Net Asset Value per Unit decreased 7.5% from $1,000.00 to $924.57. The Partnership experienced net trading gains of $19,903,851 before commissions and expenses for the year ended December 31, 1996. These gains were recognized in the trading of currency, precious metals and interest rate futures contracts. These gains were partially offset in losses incurred in the trading of trading indices. The Partnership experienced net trading gains of $9,862,524 before commissions and expenses for the period ended December 31, 1995. Realized trading gains of $9,561,353 were recognized in the trading of currency, stock index and interest rate futures contracts. These gains were partially offset by losses incurred while trading precious metals. 11 The Partnership experienced net trading losses of $828,726 before commissions and expenses for the period ended December 31, 1994. Realized trading losses of $1,982,613 were attributable to losses incurred in the trading of precious metals and stock index commodity futures. These losses were partially offset by gains experienced in the trading of financial commodity futures. 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 Advisor to identify those price trends correctly. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Partnership expects to increase capital through operations. 12 Item 8. Financial Statements and Supplementary Data. SMITH BARNEY MID-WEST FUTURES FUND L.P. II INDEX TO FINANCIAL STATEMENTS Page Number Report of Independent Accountants. F-2 Financial Statements: Statement of Financial Condition at December 31, 1996 and 1995. F-3 Statement of Income and Expenses for the years ended December 31, 1996 and 1995 and for the period from September 1, 1994 (commencement of trading operations) to December 31, 1994). F-4 Statement of Partners' Capital for the years ended December 31, 1996 and 1995 and for the period from June 3, 1994 (date Partnership was organized) to December 31, 1995. F-5 Notes to Financial Statements. F-6 - F-11 F-1 Continued Report of Independent Accountants To the Partners of Smith Barney Mid-West Futures Fund L.P. II: We have audited the accompanying statement of financial condition of SMITH BARNEY MID-WEST FUTURES FUND L.P. II (a New York Limited Partnership) as of December 31, 1996 and 1995, and the related statements of income and expenses for the years ended December 31, 1996 and 1995, and for the period from September 1, 1994 (commencement of trading operations) to December 31, 1994, and of partners' capital for the years ended December 31, 1996 and 1995 and for the period from June 3, 1994 (date Partnership was organized) to December 31, 1994. These financial statements are the responsibility of the management of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management of the General Partner, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smith Barney Mid-West Futures Fund L.P. II as of December 31, 1996 and 1995, and the results of its operations for the years ended December 31, 1996 and 1995 and for the period from June 3, 1994 to December 31, 1994, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York February 28, 1997 F-2 Smith Barney Mid-West Futures Fund L.P. II Statement of Financial Condition December 31, 1996 and 1995 1996 1995 Assets: Equity in commodity futures trading account: Cash and cash equivalents (Note 3c) $70,073,574 $37,848,599 Net unrealized appreciation on open futures contracts 1,353,865 1,455,058 ----------- ----------- 71,427,439 39,303,657 Interest receivable 219,709 136,317 ----------- ----------- $71,647,148 $39,439,974 =========== =========== Liabilities and Partners' Capital: Liabilities: Accrued expenses: Commissions $ 358,236 $ 197,200 Management fees 237,630 130,809 Administrative fees 59,407 32,702 Incentive fees 1,988,611 Other 62,120 41,916 Redemptions payable (Note 5) 489,675 161,340 ----------- ----------- 3,195,679 563,967 ----------- ----------- Partners' capital (Notes 1, 5, and 7): General Partner, 452.8553 and 322.7075 Unit equivalents outstanding in 1996 and 1995, respectively 696,460 393,077 Limited Partners, 44,056.0665 and 31,593.7100 Units of Limited Partnership Interest outstanding in 1996 and 1995, respectively 67,755,009 38,482,930 ----------- ----------- 68,451,469 38,876,007 ----------- ----------- $71,647,148 $39,439,974 =========== =========== See notes to financial statements. F-3 Smith Barney Mid-West Futures Fund L.P. II Statement of Income and Expenses for the years ended December 31, 1996 and 1995 and for the period from September 1, 1994 (commencement of trading operations) to December 31, 1994 1996 1995 1994 Income: Net gains (losses) on trading of commodity interests: Realized gains (losses) on closed positions $ 20,005,044 $ 9,561,353 $ (1,982,613) Change in unrealized gains/ losses on open positions (101,193) 301,171 1,153,887 ------------ ------------ ------------ 19,903,851 9,862,524 (828,726) Less, Brokerage commissions and clearing fees ($49,253, $24,886 and $4,576) (Note 3c) (3,306,404) (1,842,402) (283,703) ------------ ------------ ------------ Net realized and unrealized gains (losses) 16,597,447 8,020,122 (1,112,429) Interest income (Note 3c and 6) 1,920,850 1,234,647 170,516 ------------ ------------ ------------ 18,518,297 9,254,769 (941,913) ------------ ------------ ------------ Expenses: Management fees (Note 3b) 2,112,274 1,178,635 180,155 Administrative fees (Note 3a) 528,068 294,658 45,040 Incentive fees (Note 3b) 1,988,611 829,781 Organization expense (Note 6) 128,173 Other expenses 142,608 75,879 30,379 ------------ ------------ ------------ 4,771,561 2,378,953 383,747 ------------ ------------ ------------ Net income (loss) $ 13,746,736 $ 6,875,816 $ (1,325,660) ============ ============ ============ Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent (Notes 1 and 7) $ 319.87 $ 293.49 $ (75.43) ============ ============ ============ See notes to financial statements. F-4 Smith Barney Mid-West Futures Fund L.P. II Statement of Partners' Capital for the years ended December 31, 1996 and 1995 and for the period from June 3, 1994 (date Partnership was organized) to December 31, 1994 Limited General Partners Partner Total Initial capital contributions $ 1,000 $ 1,000 $ 2,000 Proceeds from offering of 9,421 Units of Limited Partnership Interest and General Partner's contribution representing 96 Unit equivalents (Note 1) 9,421,000 96,000 9,517,000 ------------ ------------ ------------ Opening Partnership capital for operations 9,422,000 97,000 9,519,000 Net loss (1,312,729) (12,931) (1,325,660) Sale of 10,194.9915 Units of Limited Partnership Interest and General Partner's contribution representing 105.3304 Unit equivalents 10,028,000 103,000 10,131,000 Redemption of 286 Units of Limited Partnership Interest (264,427) (264,427) ------------ ------------ ------------ Partners' capital at December 31, 1994 17,872,844 187,069 18,059,913 Net Income 6,804,808 71,008 6,875,816 Sale of 18,408.1696 Units of Limited Partnership Interest and General Partner's contribution representing 120.3771 Unit equivalents 21,242,100 135,000 21,377,100 Redemption of 6,145.4511 Units of Limited Partnership Interest (7,436,822) (7,436,822) ------------ ------------ ------------ Partners' capital at December 31, 1995 38,482,930 393,077 38,876,007 Net Income 13,607,353 139,383 13,746,736 Sale of 17,430.8344 Units of Limited Partnership Interest and General Partner's contribution representing 130.1478 Unit equivalents 22,142,769 164,000 22,306,769 Redemption of 4,968.4779 Units of Limited Partnership Interest (6,478,043) (6,478,043) ------------ ------------ ------------ Partners' capital at December 31, 1996 $ 67,755,009 $ 696,460 $ 68,451,469 ============ ============ ============ See notes to financial statements. F-5 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements 1. Partnership Organization: Smith Barney Mid-West Futures Fund L.P. II (the "Partnership") is a limited partnership which was organized on June 3, 1994 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. Between July 7, 1994 and August 31, 1994, 9,421 Units of Limited Partnership Interest ("Units") were sold at $1,000 per Unit. The proceeds of the initial offering were held in an escrow account until September 1, 1994, at which time they were turned over to the Partnership for trading. Partnership Units are being continuously offered monthly during the continuous offering period. The Partnership is authorized to sell 75,000 Units. Smith Barney Futures Management Inc. is the general partner (the "General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of the General Partner, acts as commodity broker for the Partnership (see Note 3c). The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of his initial capital contribution and profits, if any, net of distributions. The Partnership will be liquidated upon the first to occur of the following: December 31, 2014; when the net asset value of a Unit decreases to less than $350 as of the close of business on any business day; or under certain other circumstances as defined in the Limited Partnership Agreement. 2. Accounting Policies: a.All commodity interests (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statement of financial condition at market value for those commodity interests for which market quotations are readily available or at fair value on the last business day of the year. Investments in commodity interests denominated in foreign currency are translated into U.S. dollars at the exchange rates prevailing on the last business day of the year. Realized gain (loss) and changes in unrealized values on commodity interests 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. F-6 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements b.Income taxes have not been provided as each partner is individually liable for the taxes, if any, on his share of the Partnership's income and expenses. c.The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. 3. Agreements: a.Limited Partnership Agreement: The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The Partnership will pay the General Partner a monthly administrative fee in return for its services to the Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets of the Partnership. This fee may be increased or decreased at the discretion of the General Partner. b.Management Agreement: The Management Agreement that the General Partner, on behalf of the Partnership, entered into with the advisor (John W. Henry & Company, Inc.) (the "Advisor"), provides that the Advisor has sole discretion in determining the investment of the assets of the Partnership allocated to the Advisor by the General Partner. As compensation for services, the Partnership is obligated to pay the Advisor a monthly management fee of 1/3 of 1% (4% per year) of month-end Net Assets managed by the Advisor and an incentive fee, payable quarterly, equal to 15% of the New Trading Profits of the Partnership. F-7 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements c.Customer Agreement The Partnership has entered into a Customer Agreement with SB whereby SB provides services which include, among other things, the execution of transactions for the Partnership's account in accordance with orders placed by the Advisor. The Partnership is obligated to pay a monthly brokerage fee to SB equal to 1/2 of 1 % of month-end Net Assets (6% per year) in lieu of brokerage commissions on a per trade basis. A portion of this fee is paid to employees of SB who have sold Units of the Partnership. This fee does not include exchange, clearing, floor brokerage, user, give-up and NFA fees which will be borne by the Partnership. All of the Partnership's assets are deposited in the Partnership's account at SB. The Partnership's cash is deposited by SB in segregated bank accounts as required by Commodity Futures Trading Commission regulations. At December 31, 1996 and 1995, the amount of cash held for margin requirements was $6,067,838 and $4,934,929, respectively. SB will pay the Partnership interest on 80% of the average daily equity maintained in cash in its account during each month at a 30-day Treasury bill rate determined weekly by SB based on the noncompetitive yield on 3-month U.S. Treasury bills maturing in 30 days from the date on which such weekly rate is determined. The Customer Agreement between the Partnership and SB gives the Partnership the legal right to net unrealized gains and losses. The Customer Agreement may be terminated by either party. 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. All of the commodity interests owned by the Partnership are held for trading purposes. The fair value of these commodity interests, including options thereon, at December 31, 1996 and 1995 was $1,353,865 and $1,455,058, respectively. The average fair value during the years then ended, based on monthly calculation, was $5,549,462 and $1,903,653, respectively. 5. Distributions and Redemptions: Distributions of profits, if any, will be made at the sole discretion of the General Partner; however, a limited partner may redeem all or some of his Units (minimum ten Units) at the Net Asset Value thereof as of the last day of any month beginning with the first full month ending at least three months after trading commences on fifteen days written notice to the General Partner, provided that no redemption may result in the limited partner holding fewer than ten Units after such redemption is effected. F-8 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements 6. Organization and Offering Costs: Offering and organization expenses of $128,173 relating to the issuance and marketing of units offered during the initial offering period were initially paid by SB. The Partnership has reimbursed SB for all such expenses from interest paid to the Partnership and has recorded such reimbursement amounts as an expense. 7. Net Asset Value Per Unit: Changes in the net asset value per Unit for the years ended December 31, 1996, 1995 and for the period ended December 31, 1994 were as follows: 1996 1995 1994 Net realized and unrealized gains (losses) $ 387.25 $ 342.80 $ (58.56) Interest income 48.07 49.02 12.17 Expenses (115.45) (98.33) (29.04) ---------- --------- --------- Increase (decrease) for period 319.87 293.49 (75.43) Net asset value per Unit, beginning of period 1,218.06 924.57 1,000.00 ---------- --------- --------- Net asset value per Unit, end of period $ 1,537.93 $1,218.06 $ 924.57 ========== ========= ========= 8. 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 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 or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. F-9 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements 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 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 SB. 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. F-10 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements 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. At December 31, 1996, the notional or contractual amounts of the Partnership's commitment to purchase and sell these instruments was $360,386,861 and $221,512,495, respectively, as detailed below. All of these instruments mature within one year of December 31, 1996. However, due to the nature of the Partnership's business, these instruments may not be held to maturity. At December 31, 1996, the fair value of the Partnership's derivatives, including options thereon, was $1,353,865, as detailed below. Notional or Contractual Amount of Commitments To Purchase To Sell Fair Value Currencies -OTC Contracts $101,932,924 $ 75,955,004 $ 434,513 Interest Rate U.S. 13,918,500 0 (178,250) Interest Rate Non-U.S 244,535,437 97,808,063 (164,031) Metals 0 40,898,465 917,595 Indices 0 6,850,963 344,038 ------------ ------------ ------------ $360,386,861 $221,512,495 $ 1,353,865 ============ ============ ============ F-11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. During the last two fiscal years and any subsequent interim period, no independent accountant who was engaged as the principal accountant to audit the Partnership's financial statements has resigned or was dismissed. PART III Item 10. Directors and Executive Officers of the Registrant. The Partnership has no officers or directors and its affairs are managed by its General Partner, Smith Barney Futures Management Inc. Investment decisions are made by John W. Henry & Company, Inc. (the "Advisor"). Item 11. Executive Compensation. The Partnership has no directors or officers. Its affairs are managed by Smith Barney Futures Management Inc., its General Partner, which receives compensation for its services, as set forth under "Item 1. Business." SB, an affiliate of the General Partner, is the commodity broker for the Partnership and receives brokerage commissions for such services, as described under "Item 1. Business." During the year ended December 31, 1996, SB earned $3,306,404 in brokerage commissions and clearing fees. The Advisor earned $2,112,274 in management fees and $1,988,611 in incentive fees during 1996. During the year ended December 31, 1996 the General Partner earned $528,068 in administrative fees. 13 Item 12. Security Ownership of Certain Beneficial Owners and Management. (a). Security ownership of certain beneficial owners. The Partnership knows of no person who beneficially owns more than 5% of the Units outstanding. (b). Security ownership of management. Under the terms of the Limited Partnership Agreement, the Partnership's affairs are managed by the General Partner. The General Partner owns Units of general partnership interest equivalent to 452.8553 (1.0%) Units of partnership interest as of December 31, 1996. (c). Changes in control. None. Item 13. Certain Relationships and Related Transactions. Smith Barney Inc. and Smith Barney Futures Management Inc. would be considered promoters for purposes of item 404(d) of Regulation S-K. The nature and the amounts of compensation each promoter will receive from the Partnership are set forth under "Item 1. Business." and "Item 11. Executive Compensation." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) Financial Statements: Statement of Financial Condition at December 31, 1996 and 1995. 14 Statement of Income and Expenses for the years ended December 31, 1996, 1995 and for the period from September 1, 1994 (commencement of trading operations) to December 31, 1994. Statement of Partners' Capital for the years ended December 31,1996, 1995 and for the period from June 3, 1994 (date Partnership was organized) to December 31, 1994. (2) Financial Statement Schedules: None (3) Exhibits: 3.1 - Certificate of Limited Partnership (previously filed). 3.2 - Limited Partnership Agreement (previously filed). 10.1 - Management Agreement among the Partnership, the General Partner and John W. Henry & Company, Inc. (previously filed). 10.2 - Customer Agreement between Registrant and Smith Barney Shearson Inc. (previously filed). 10.3 - Form of Subscription Agreement (previously filed). 10.4 - Letter dated February 16, 1995 from General Partner to John W. Henry & Co., Inc. extending Management Agreement (previously filed). 15 10.5 - Letter dated January 25, 1996 from General Partner to John W. Henry & Co., Inc. Extending Management Agreement to June 30, 1996 (previously filed). (b) Report on Form 8-K: None Filed 16 Supplemental Information To Be Furnished With Reports Filed Pursuant To Section 15(d) Of The Act by Registrants Which Have Not Registered Securities Pursuant To Section 12 Of the Act. Annual Report to Limited Partners 17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 24th day of March 1997. SMITH BARNEY MID-WEST FUTURES FUND L.P. II By: Smith Barney Futures Management Inc. (General Partner) By /s/ David J. Vogel David J. Vogel, President & Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. /s/ David J. Vogel /s/ Jack H. Lehman III David J. Vogel, Jack H. Lehman III Director, Principal Executive Chairman and Director Officer and President /s/ Michael Schaefer /s/ Daniel A. Dantuono Michael Schaefer Daniel A. Dantuono Director Treasurer, Chief Financial Officer and Director /s/ Philip M. Waterman, Jr. /s/ Daniel R. McAuliffe, Jr. Philip M. Waterman, Jr. Daniel R. McAuliffe, Jr. Director and Vice-Chairman Director /s/ Steve J. Keltz /s/ Shelley Ullman Steve J. Keltz Shelley Ullman Secretary and Director Director 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 0001013167 Smith Barney Mid-West Futures Fund L.P. II 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 70,073,574 1,353,865 219,709 0 0 71,647,148 0 0 71,647,148 3,195,679 0 0 0 0 68,451,469 71,647,148 0 18,518,297 0 0 4,771,561 0 0 13,746,736 0 0 0 0 0 13,746,736 319.87 0
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