-----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, UyozpSOgYUU3jS3PCsEdPldz/XktOiXjxfCmFXUY5uY35U+1uLuJyIINIKkF4jns W/Y07P4Bfu+zuoG2vdImew== 0001013167-98-000002.txt : 19980518 0001013167-98-000002.hdr.sgml : 19980518 ACCESSION NUMBER: 0001013167-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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-Q SEC ACT: SEC FILE NUMBER: 000-28336 FILM NUMBER: 98622736 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-Q 1 SMITH BARNEY MID-WEST FUTURES FUND L.P. II 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, 1998 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) 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 MID-WEST FUTURES FUND L.P. II FORM 10-Q INDEX Page Number PART I - Financial Information: Item 1. Financial Statements: Statement of Financial Condition at March 31, 1998 and December 31, 1997. 3 Statement of Income and Expenses and Partners' Capital for the Three Months ended March 31, 1998 and 1997. 4 Notes to Financial Statements 5 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 10 PART II - Other Information 11 - 12 2 PART I Item 1. Financial Statements SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENT OF FINANCIAL CONDITION March 31, December 31, 1998 1997 Assets: ------------- ------------ (Unaudited) Equity in commodity futures trading account: Cash and cash equivalents $ 90,099,835 $ 98,812,037 Net unrealized appreciation on open futures contracts 953,339 4,837,350 ------------ ------------ 91,053,174 103,649,387 Interest receivable 328,259 349,777 ------------ ------------ $ 91,381,433 $103,999,164 ============ ============ LIABILITIES AND PARTNERS' CAPITAL: Liabilities: Accrued expenses: Commissions $ 456,907 $ 519,996 Management fees 302,923 344,931 Administrative fees 75,731 86,233 Incentive fees 0 1,062,363 Other 47,752 47,822 Redemptions payable 377,383 620,745 ------------ ------------ 1,260,696 2,682,090 ------------ ------------ Partners' Capital: General Partner, 608.9156 Unit equivalents outstanding in 1998 and 1997 951,376 1,055,939 Limited Partners, 57,071.8642 and 57,816.3107 Units of Limited Partnership Interest outstanding in 1998 and 1997, respectively 89,169,361 100,261,135 ------------ ------------ 90,120,737 101,317,074 ------------ ------------ $ 91,381,433 $103,999,164 ============ ============ See Notes to Financial Statements. 3 SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL (UNAUDITED) THREE MONTHS ENDED MARCH 31, -------------------------------- 1998 1997 ------------- --------------- Income: Net gains (losses) on trading of commodity futures: Realized gains (losses) on closed positions $ (4,389,284) $ 2,486,253 Change in unrealized gains/losses on open positions (3,884,011) (857,727) _____________ _____________ (8,273,295) 1,628,526 Less, brokerage commissions and clearing fees ($24,866 and $12,545, respectively) (1,521,296) (1,207,245) _____________ _____________ Net realized and unrealized gains (losses) (9,794,591) 421,281 Interest income 983,323 755,273 _____________ _____________ (8,811,268) 1,176,554 _____________ _____________ Expenses: Management fees 939,049 782,578 Administrative fees 234,762 195,400 Other 21,055 26,507 _____________ _____________ 1,194,866 1,004,485 _____________ _____________ Net income (loss) (10,006,134) 172,069 Additions - 13,286,400 Redemptions (1,190,203) (1,325,833) _____________ _____________ Net increase (decrease) in Partners' capital (11,196,337) 12,132,636 Partners' capital, beginning of period 101,317,074 68,451,469 _____________ _____________ Partners' capital, end of period $ 90,120,737 $ 80,584,105 ------------- ------------- Net asset value per Unit (57,680.7798 and 52,121.6361 Units outstanding at March 31, 1997 and 1996, respectively) $ 1,562.41 $ 1,546.08 ------------- ------------- Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent $ (171.72) $ 8.15 ------------- ------------- 4 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 1998 (Unaudited) 1. General: 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. The Partnership commenced trading operations on September 1, 1994. Smith Barney Futures Management Inc. acts as 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. All trading decisions for the Partnership are being made by John W. Henry & Company, Inc. (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 March 31, 1998 and the results of its operations for the three months ended March 31, 1998 and 1997. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction 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, 1997. 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 Mid-West Futures Fund L.P. II Notes to Financial Statements (Continued) 2. Net Asset Value Per Unit: Changes in net asset value per Unit for the three months ended March 31, 1998 and 1997 were as follows: THREE-MONTHS ENDED March 31, 1998 1997 Net realized and unrealized gains (losses) $ (168.09) $ 13.92 Interest income 16.90 15.29 Expenses (20.53) (21.06) ---------- ---------- Increase (decrease) for period (171.72) 8.15 Net Asset Value per Unit, beginning of period 1,734.13 1,537.93 ---------- ---------- Net Asset Value per Unit, end of period $1,562.41 $1,546.08 ========== ========== 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 statement of income and expenses. The Customer Agreement between the Partnership and SB 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 fair value of these commodity interests, including options thereon, at March 31, 1998 and 1997 was $953,339 and $496,138, respectively, and the average fair value during the three months then ended, based on monthly calculation, was $1,519,920 and $2,806,591, respectively. 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 include forwards, futures 6 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. 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. 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 March 7 31, 1998, the notional or contractual amounts of the Partnership's commitment to purchase and sell these instruments was $695,804,170 and $687,790,250, respectively, as detailed below. All of these instruments mature within one year of March 31, 1998. However, due to the nature of the Partnership's business, these instruments may not be held to maturity. At March 31, 1998, the fair value of the Partnership's derivatives, including options thereon, was $953,339 as detailed below. MARCH 31, 1998 NOTIONAL OR CONTRACTUAL AMOUNT OF COMMITMENTS TO PURCHASE TO SELL FAIR VALUE Currencies * $ 65,102,622 $133,235,231 $1,502,203 Interest Rates Non-U.S. 630,701,548 287,766,025 (17,057) Interest Rates U.S. - 266,788,994 (531,807) ------------ ------------ ----------- Total $695,804,170 $687,790,250 $ 953,339 ============ ============ ========== At March 31, 1997, the notional or contractual amounts of the Partnership's commitment to purchase and sell these instruments was $96,513,954 and $560,474,569, respectively, and the fair value of the Partnership's derivatives, including options thereon, was $496,138, as detailed below. MARCH 31, 1997 NOTIONAL OR CONTRACTUAL AMOUNT OF COMMITMENTS TO PURCHASE TO SELL FAIR VALUE Currencies * $46,817,746 $ 90,524,442 $ (574,467) Interest Rates Non-U.S. 41,641,633 353,288,872 203,136 Interest Rates U.S. - 116,661,255 1,019,669 Metals 8,054,575 - (152,200) ----------- ------------ ----------- Total $96,513,954 $560,474,569 $ 496,138 =========== ============ ========= * The notional or contractual commitment amounts and the net unrealized gain amount listed for the currency sector represent OTC contracts. All other sectors listed represent exchange traded contracts. 8 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, 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 decrease in liquidity, no such losses occurred in the first quarter of 1998. 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, redemptions of Units and distributions of profits, if any. For the three months ended March 31, 1998, Partnership capital decreased 11.1% from $101,317,074 to $90,120,737. This decrease was primarily attributable to net loss from operations of $10,006,134 coupled with the redemption of 744.4465 Units resulting in an outflow of $1,190,203 for the three months ended March 31, 1998. Future additions and 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 1998, the net asset value per Unit decreased 9.9% from $1,734.13 to $1,562.41 as compared to the first quarter of 1997 in which the net asset value per Unit increased 0.5%. The Partnership experienced a net trading loss before commission and expenses in the first quarter of 1998 of $8,273,295. Losses were recognized in the trading of commodity futures in currencies, U.S. interest rates, metals and indices and was offset by gains recognized in the trading of non-U.S. interest rates. The Partnership experienced a net trading gain before commissions and expenses in the first quarter of 1997 of $1,628,526. Gains were recognized in the trading of commodity futures in currencies, metals and indices which were partially offset by losses recognized in the trading of interest rate products. 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 9 price trends and the ability of the Advisor 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 Advisor is able to identify them, the Partnership expects to increase capital through operations. Interest income on 80% of the Partnership's average daily equity was earned at the monthly average 30 day U.S. Treasury bill rate. Interest income for the three months ended March 31, 1998 increased by $228,050 as compared to the corresponding period in 1997. The increase in interest income is primarily the result of the effect of net additions on the Partnership's equity maintained in cash during 1997. Brokerage commissions are calculated on the adjusted net asset value on the last day of each month and, therefore, vary according to trading performance, additions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Commissions and clearing fees for the three months ended March 31, 1998 increased by $314,051 as compared to the corresponding period in 1997. All trading decisions for the Partnership are currently being made by the Advisor. 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 months ended March 31, 1998 increased by $156,471 as compared to the corresponding period in 1997. Administrative fees are paid to the General Partner for administering the business and affairs of the Partnership. These 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. Administrative fees for the three months ended March 31, 1998 increased by $39,362 as compared to the corresponding period in 1997. Incentive fees are based on the new trading profits generated by the Advisor as defined in the advisory agreement between the Partnership, the General Partner and the Advisor. There were no incentive fees earned for the three months ended March 31, 1998 or 1997. 10 PART II OTHER INFORMATION Item 1. Legal Proceedings Between May 1994 and the present, Salomon Brothers Inc. ("SBI"), SB and The Robinson Humphrey Company, Inc. ("R- H"), all currently subsidiaries of Salomon Smith Barney Holdings Inc. ("SSBHI"), along with a number of other broker-dealers, were named as defendants in approximately 25 federal court lawsuits and two state court lawsuits, principally alleging that companies that make markets in securities traded on NASDAQ violated the federal antitrust laws by conspiring to maintain a minimum spread of $.25 between the bid and asked price for certain securities. The federal lawsuits and one state court case were consolidated for pre-trial purposes in the Southern District of New York in the fall of 1994 under the caption In re NASDAQ Market-Makers Antitrust Litigation, United States District Court, Southern District of New York No. 94-CIV-3996 (RWS); M.D.L. No. 1023. The other state court suit, Lawrence A. Abel v. Merrill Lynch & Co., Inc. et al.; Superior Court of San Diego, Case No. 677313, has been dismissed without prejudice in conjunction with a tolling agreement. In consolidated action, the plaintiffs purport to represent a class of persons who bought one or more of what they currently estimate to be approximately 1,650 securities on NASDAQ between May 1, 1989 and May 27, 1994. They seek unspecified monetary damages, which would be trebled under the antitrust laws. The plaintiffs also seek injunctive relief, as well as attorney's fees and the costs of the action. (The state cases seek similar relief.) Plaintiffs in the consolidated action filed an amended consolidated complaint that defendants answered in December 1995. On November 26, 1996, the Court certified a class composed of retail purchasers. A motion to include institutional investors in the class and to add class representatives was granted. In December 1997, SBI, SB and R-H, along with several other broker-dealer defendants, executed a settlement agreement with the plaintiffs. This agreement has been preliminarily approved by the U.S. District Court for the Southern District of New York but is subject to final approval. On July 17, 1996, the Antitrust Division of the Department of Justice filed a complaint against a number of firms that act as market makers in NASDAQ stocks. The complaint basically alleged that a common understanding arose among NASDAQ market makers which worked to keep quote spreads in 11 NASDAQ stocks artificially wide. Contemporaneous with the filing of the complaint, SBI, SB and other defendants entered into a stipulated settlement agreement, pursuant to which the defendants would agree not to engage in certain practices relating to the quoting of NASDAQ securities and would further agree to implement a program to ensure compliance with federal antitrust laws and with the terms of the settlement. In entering into the stipulated settlement, SBI and SB did not admit any liability. There are no fines, penalties, or other payments of monies in connection with the settlement. In April 1997, the U.S. District Court for the Southern District of New York approved the settlement. In May 1997, plaintiffs in the related civil action (who were permitted to intervene for limited purposes) appealed the district court's approval of the settlement. The appeal is pending. The Securities and Exchange Commission ("SEC") is also conducting a review of the NASDAQ marketplace, during which it has subpoenaed documents and taken the testimony of various individuals including SBI and SB personnel. In July 1996, the SEC reached a settlement with the National Association of Securities Dealers and issued a report detailing certain conclusions with respect to the NASD and the NASDAQ market. In December 1996, a complaint seeking unspecified monetary damages was filed by Orange County, California against numerous brokerage firms, including SB, in the U.S. Bankruptcy Court for the Central District of California. Plaintiff alleged, among other things, that the defendants recommended and sold to plaintiff unsuitable securities. The case (County of Orange et al. v. Bear Sterns & Co. Inc. et al.) Has been stayed by agreement of the parties. 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 12 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 MID-WEST FUTURES FUND L.P. II By: Smith Barney Futures Management Inc. (General Partner) By: /s/ David J. Vogel, President David J. Vogel, President Date: 5/15/98 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 Inc. (General Partner) By: /s/ David J. Vogel, President David J. Vogel, President Date: 5/15/98 By: /s/ Daniel A. Dantuono Daniel A. Dantuono Chief Financial Officer and Director Date: 5/15/98 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 0001013167 SMITH BARNEY MID-WEST FUTURES FUND L.P.II 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 90,099,835 953,339 328,259 0 0 91,381,433 0 0 91,381,433 1,260,696 0 0 0 0 90,120,737 91,381,433 0 (8,811,268) 0 0 1,194,866 0 0 (10,006,134) 0 0 0 0 0 (10,006,134) (171.72) 0
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