10-Q 1 midwest2.txt 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, 2002 -------------- 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 LLC 388 Greenwich St. - 7th Fl. New York, New York 10013 -------------------------------------------------------------------------------- (Address and Zip Code of principal executive offices) (212) 723-5424 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- SMITH BARNEY 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, 2002 and December 31, 2001 (unaudited). 3 Statement of Income and Expenses and Partners' Capital for the three months ended March 31, 2002 and 2001 (unaudited). 4 Notes to Financial Statements including the Financial Statements of JWH Strategic Allocation Master Fund LLC (unaudited). 5 - 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15 - 17 Item 3. Quantitative and Qualitative Disclosures of Market Risk 18 - 19 PART II - Other Information 20 2 PART I Item 1. Financial Statements SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENT OF FINANCIAL CONDITION (Unaudited)
March 31, December 31, 2002 2001 ----------- ----------- Assets: Investment in Master , at fair value $30,773,573 $37,231,806 Cash, in commodity futures trading account 29,268 42,242 ----------- ----------- 30,802,841 37,274,048 Interest receivable 36,470 42,247 ----------- ----------- $30,839,311 $37,316,295 =========== =========== LIABILITIES AND PARTNERS' CAPITAL: Liabilities: Accrued expenses: Commissions $ 154,197 $ 186,581 Management fees 51,088 61,844 Administrative fees 25,544 30,922 Other 32,121 23,557 Redemptions payable 625,412 1,234,421 ----------- ----------- 888,362 1,537,325 ----------- ----------- Partners' Capital: General Partner, 608.9156 Unit equivalents outstanding in 2002 and 2001 740,941 829,173 Limited Partners, 24,005.1327 and 25,665.9357 Units of Limited Partnership Interest outstanding in 2002 and 2001, respectively 29,210,008 34,949,797 ----------- ----------- 29,950,949 35,778,970 ----------- ----------- $30,839,311 $37,316,295 =========== ===========
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, ---------------------------- 2002 2001 ----------- ----------- Income: Realized gains (losses) on closed positions from Master $ (1,347,036) $ 6,126,063 Change in unrealized gains (losses) on open positions from Master (1,670,399) 5,334,033 Net gains (losses) on trading of commodity interests (See Note 1): Realized gains on closed positions - 1,517,732 Change in unrealized losses on open positions - (7,601,505) ------------ ------------ (3,017,435) 5,376,323 Interest income 110,628 416,641 ------------ ------------ (2,906,807) 5,792,964 ------------ ------------ Expenses: Brokerage commissions including clearing fees of $10,582 and $11,664, respectively (Allocated from the Master) 523,651 702,160* Management fees 165,723 223,686 Administrative fees 82,861 111,842 Other expenses 12,822 16,838 ------------ ------------ 785,057 1,054,526 ------------ ------------ Net income (loss) (3,691,864) 4,738,438 Redemptions (2,136,157) (2,901,914) ------------ ------------ Net increase (decrease) in Partners' capital (5,828,021) 1,836,524 Partners' capital, beginning of period 35,778,970 43,781,224 ------------ ------------ Partners' capital, end of period $ 29,950,949 $ 45,617,748 ============ ========== Net asset value per Unit (24,614.0483 and 29,239.2554 Units outstanding at March 31, 2002 and 2001, respectively) $ 1,216.82 $ 1,560.15 ========= ========= Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent $ (144.90) $ 154.66 ========= ========
* Amount reclassified for comparative purposes See Notes to Financial Statements 4 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (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 directly or indirectly in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options and forward contracts. The Partnership commenced trading operations on September 1, 1994. From September 1, 1994 through January 25, 2001, the Partnership engaged directly in the trading of commodity interests. Effective January 26, 2001, the Partnership transferred substantially all of its assets as a tax-free transfer to the JWH Strategic Allocation Master Fund LLC, a New York limited liability company (the "Master"), as a non-managing member for 42,510.5077 Units of the Master and a fair value of $42,510,508. The Master was formed in order to permit commodity pools managed now or in the future by John W. Henry & Company, Inc. (the "Advisor") using the Strategic Allocation Program, the Advisor's proprietary trading program, to invest together in one trading vehicle. Smith Barney Futures Management LLC (the "General Partner") is the general partner of the Partnership and the managing member of the Master. Expenses to investors as a result of investment in the Master are approximately the same and redemption rights are not affected. As of March 31, 2002, the Partnership owns approximately 37.4% of the Master. It is the Partnership's intention to continue to invest substantially all of its assets in the Master. The performance of the Partnership is directly affected by the performance of the Master. The Master's Statement of Financial Condition and the Statement of Income and Expenses and Members' Capital, Condensed Schedule of Investments and Financial Highlights are included herein. The Partnership's commodity broker is Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of the General Partner. The General Partner is wholly owned by Salomon Smith Barney Holdings Inc. ("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of Citigroup Inc. As of March 31, 2002, all trading decisions for the Partnership are made by 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, 2002 and December 31, 2001 and the results of its operations for the three months ended March 31, 2002 and 2001. These financial 5 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (Unaudited) (Continued) 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, 2001. 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. 6 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (Unaudited) (Continued) The Master's Statement of Financial Condition at March 31, 2002 and December 31, 2001, Condensed Schedule of Investments at March 31, 2002 and December 31, 2001, and its Statement of Income and Expenses and Members' Capital for the three months ended March 31, 2002 and the period from January 26, 2001 (commencement of trading operations) to March 31, 2001 were: JWH Strategic Allocation Master Fund LLC Statement of Financial Condition (Unaudited)
March 31, December 31, 2002 2001 ------------ ------------- ASSETS: Equity in commodity futures trading account: Cash $81,569,225 $88,330,292 Net unrealized appreciation on open futures positions 876,457 5,392,646 ----------- ----------- $82,445,682 $93,722,938 =========== =========== LIABILITIES AND MEMBERS' CAPITAL: Liabilities: Accrued expenses: Professional fees $ 56,250 $ 45,000 ----------- ----------- 56,250 45,000 ----------- ----------- Members' Capital: Members' capital 86,458.2689 and 89,573.7730 Units outstanding in 2002 and 2001, respectively 82,389,432 93,677,938 ----------- ----------- $82,445,682 $93,722,938 =========== ===========
See Notes to Financial Statements 7 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments March 31, 2002 (Unaudited)
Sector Contract Fair Value -------------------------------------- ------------------------------------------- ------------------- Currencies Over the counter contracts sold - 0.66% $ 546,741 Over the counter contracts purchased - (3.09)% (2,547,104) ------------------- Total Currencies - (2.43)% (2,000,363) ------------------- Total Energy - 1.11 % Futures contracts purchased - 1.11% 916,827 ------------------- Grains Futures contracts sold - 0.19% 156,788 Futures contracts purchased - 0.04% 33,849 ------------------- Total Grains - 0.23% 190,637 ------------------- Total Interest Rates U.S. - 0.16% Futures contracts sold - 0.16% 129,046 ------------------- Interest Rates Non-U.S. Futures contracts sold - 1.30% 1,069,811 Futures contracts purchased - 0.01% 9,875 ------------------- Total Interest Rates Non-U.S. - 1.31% 1,079,686 ------------------- Total Livestock - 0.04% Futures contracts sold - 0.04% 33,440 ------------------- Metals Futures contracts sold - (0.11)% (91,706) Futures contracts purchased - 0.32% 265,674 ------------------- Total Metals - 0.21% 173,968 ------------------- Softs Futures contracts sold - (0.06)% (47,334) Futures contracts purchased - 0.32% 261,677 ------------------- Total Softs - 0.26% 214,343 ------------------- Indices Futures contracts sold - 0.21% 171,135 Futures contracts purchased - (0.04)% (32,262) ------------------- Total Indices - 0.17% 138,873 ------------------- Total Fair Value - 1.06% $ 876,457 =================== Investments % of Investments Country Composition at Fair Value at Fair Value -------------------------------------- ------------------------------------------- ------------------- Australia $ (117,289) (13.38)% Canada (653) (0.07)% Germany 1,121,292 127.92% Japan (82,319) (9.39)% United Kingdom 383,770 43.79% United States (428,345) (48.87)% ------------------------------------------- ------------------- $ 876,457 100.00% =========================================== ===================
Percentages are based on Members' capital unless otherwise indicated See Notes to Financial Statements 8 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments December 31, 2001 (Unaudited)
Notional Sector Amount Contract Fair Value ---------------------------------------------------- ------------------------------------------- ---------------------- Currencies Over the counter contracts sold - 5.89% JPY (16,890,265,200) JPY/USD - 5.98%, March 20, 2002 $ 5,601,926 Other - (0.09)% (84,884) Over the counter contracts purchased - 0.11% 105,908 ---------------------- Total Currencies - 6.00% 5,622,950 ---------------------- Total Energy - (0.35)% Futures contracts purchased - (0.35)% (327,598) ---------------------- Total Grains - 0.29% Futures contracts sold - 0.29% 274,911 ---------------------- Total Interest Rates U.S. - (0.01)% Futures contracts sold - (0.01)% (14,360) ---------------------- Interest Rates Non-U.S. Futures contracts sold 1.04% 970,405 Futures contracts purchased - (0.20)% (188,580) ---------------------- Total Interest Rates Non-U.S.- 0.84% 781,825 ---------------------- Total Livestock - (0.02)% Futures contracts sold - (0.02)% (17,180) ---------------------- Metals Futures contracts sold - (0.74)% (696,167) Futures contracts purchased - (0.37)% (348,785) ---------------------- Total Metals - (1.11)% (1,044,952) ---------------------- Total Softs - 0.01% Futures contracts purchased - 0.01% 11,267 ---------------------- Total Indices - 0.11% Futures contracts purchased - 0.11% 105,783 ---------------------- Total Fair Value - 5.76% $5,392,646 ====================== Investments % of Investments Country Composition at Fair Value at Fair Value ----------------------------------------------------------------- ---------------------- Australia $151,788 2.82% Canada 49,705 0.92% Germany 1,084,146 20.10% Japan (355,642) (6.59)% Switzerland (2,304) (0.04)% United Kingdom 176,518 3.27% United States 4,288,435 79.52% ------------------------------------------- ---------------------- $5,392,646 100.00% =========================================== ======================
Percentages are based on Members' capital unless otherwise indicated See Notes to Financial Statements. 9 Smith Barney Mid-West Futures Fund L.P. II NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JWH STRATEGIC ALLOCATION MASTER FUND LLC STATEMENT OF INCOME AND EXPENSES AND MEMBERS' CAPITAL (UNAUDITED)
FOR THE FOR THE THREE PERIOD FROM MONTHS ENDED JANUARY 26, 2001 TO MARCH 31, MARCH 31, ------------- --------------- 2002 2001 ------------- -------------- Income: Net gains (losses) on trading of commodity interests: Realized gains (losses) on closed positions $ (3,507,955) $ 13,840,447 Change in unrealized gains (losses) on open positions (4,516,189) 631,164 ------------- ------------- (8,024,144) 14,471,611 Less, clearing fees (61,245) (38,828) ------------- ------------- Net realized and unrealized gains (losses) (8,085,389) 14,432,783 ------------- ------------- Expenses: Other expenses 11,250 - ------------- ------------- 11,250 - ------------- ------------- Net income (loss) (8,096,639) 14,432,783 Additions 1,537,008 20,750,000 Redemptions (4,728,875) (1,563,540) ------------- ------------- Net increase (decrease) in Members' capital (11,288,506) 33,619,243 Members' capital, beginning of period 93,677,938 74,020,393 ------------- ------------- Members' capital, end of period $ 82,389,432 $ 107,639,636 ============= ===========
See Notes To Financial Statements 10 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (Unaudited) (Continued) 2. Financial Highlights: Changes in the Partnership's net asset value per Unit for the three months ended March 31, 2002 and 2001 were as follows:
THREE-MONTHS ENDED MARCH 31, -------------------------- 2002 2001 --------- --------- Net realized and unrealized gains (losses) $ (139.04) $ 152.58 Interest income 4.30 13.46 Expenses (10.16) (11.38) --------- --------- Increase(decrease) for period (144.90) 154.66 Net Asset Value per Unit, beginning of period 1,361.72 1,405.49 --------- ---------- Net Asset Value per Unit, end of period $ 1,216.82 $ 1,560.15 ========= ========= Total Return (10.64)% 11.00% Ratio of expenses, including brokerage commissions, to average net assets* 9.59% 9.79% Ratio of net income (loss) to average net assets* (45.09)% 43.99% ------------------------------------------------------------------------------- Financial Highlights of the Master: Total Return (8.88)% 18.09% ** Ratio of expenses, including clearing fees, to average net assets * 0.33% 0.18% ** Ratio of net income (loss) to average net assets * (36.76)% 63.02% **
* Annualized ** For the period from January 26, 2001 (commencement of trading operations) to March 31, 2001 11 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (Unaudited) (Continued) 3. Trading Activities: The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests the majority of its assets through a "master fund/feeder fund" structure. The results of the Partnership's investment in the Master are shown in the statement of income and expenses and partners' capital are discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, herein. The respective Customer Agreements between the Partnership and SSB and the Master and SSB give the Partnership and the Master, respectively, the legal right to net unrealized gains and losses. All of the commodity interests owned by the Master are held for trading purposes. The average fair value during the three months ended March 31, 2002 and for the period from January 26, 2001 to March 31, 2001, based on a monthly calculation, was $5,018,442 and $5,146,554, respectively. The fair value of these commodity interests, including options thereon, if applicable, at March 31, 2002 and 2001, was $876,457 and $5,392,646, respectively. 4. Financial Instrument Risk: The Partnership and through the Partnership's investment in the Master, 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. The Master 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 12 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2002 (Unaudited) (Continued) currencies or cash flows, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. Market risk is the potential for changes in the value of the financial instruments traded by the Master 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 Master'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 amount of the instruments. The Master has concentration risk because the sole counterparty or broker with respect to the Master's assets is SSB. The General Partner monitors and controls the Master'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 Master is subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. 13 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 Master's involvement in these instruments. The majority of these instruments mature within one year of March 31, 2002. However, due to the nature of the Master's business, these instruments may not be held to maturity. 14 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 investment in the Master and interest receivable. The Master does not engage in the sale of goods or services. Its only assets are its investment in the Master 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 2002. The Partnership's capital consists of the capital contributions of the partners as increased or decreased by its investment in the Master, expenses, interest income, redemptions of Units and distributions of profits, if any. For the three months ended March 31, 2002, Partnership capital decreased 16.3% from $35,778,970 to $29,950,949. This decrease was attributable to the redemption of 1,660.8030 Units resulting in an outflow of $2,136,157, coupled with a net loss from operations of $3,691,864, for the three months ended March 31, 2002. Future redemptions can impact the amount of funds available for investment in the Master in subsequent periods. The Master's capital consists of the capital contributions of the members 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, 2002 the Master's capital decreased 12.1% from $93,677,938 to $82,389,432. This decrease was attributable to a net loss from operations of $8,096,639 coupled with redemptions of 4,585.1735 Units resulting in an outflow of $4,728,875, which was partially offset by additional sales of 1,469.6693 Units totaling $1,537,008, for the three months ended March 31, 2002. Future redemptions can impact the amount of funds available for investments in commodity contract positions in subsequent periods. Results of Operations During the first quarter of 2002, the Partnership's net asset value per unit decreased 10.6% from $1,361.72 to $1,216.82 as compared to an increase of 11.0% in the first quarter of 2001. The Partnership experienced a net trading loss before brokerage commissions and related fees in the first quarter of 2002 of $3,017,435. Losses were primarily attributable to the Master's trading of commodity futures in currencies, grains, U.S. interest rates, indices and softs and were partially offset by gains in energy, non-U.S. interest rates, livestock 15 and metals. The Partnership experienced a net trading gain before commissions and related fees in the first quarter of 2001 of $5,376,323. Gains were primarily attributable to the Master's trading of commodity futures in currencies, livestock, U.S. and non-U.S. interest rates, grains, softs, metals and indices and were partially offset by losses in energy. Commodity futures markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility of profit. The profitability of the Partnership (and Master) depends on the existence of major 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 (and Master) expects to increase capital through operations. Interest income on 80% of the Partnership's average daily equity, allocated to it by the Master, was earned at the monthly average 30 day U.S. Treasury bill rate. Interest income for the three months ended March 31, 2002 decreased by $306,013 as compared to the corresponding period in 2001. The decrease in interest income is primarily due to a decrease in interest rates during the period ended March 31, 2002 as compared to 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, additions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Commissions and fees for the three months ended March 31, 2002 decreased by $178,509 as compared to the corresponding period in 2001. The decrease in brokerage commissions is due to a decrease in assets during the three months ended March 31, 2002. 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, 2002 decreased by $57,963 as compared to the corresponding period in 2001 primarily due to a decrease in the management fee rate during the first quarter of 2001. The decrease in management fees is due to a decrease in assets during the three months ended March 31, 2002. 16 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, 2002 decreased by $28,981 as compared to the corresponding period in 2001. The decrease in administrative fees is due to a decrease in assets during the three months ended March 31, 2002. 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, 2002 or 2001. 17 Item 3. Quantitative and Qualitative Disclosures of Market Risk All of the Partnership's assets are subject to the risk of trading loss through its investment in the Master. The Master 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 Master'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 Master's main line of business. Market movements result in frequent changes in the fair value of the Master's open positions and, consequently, in its earnings and cash flow. The Master'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 Master's open positions and the liquidity of the markets in which it trades. The Master 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 Master's past performance is not necessarily indicative of its future results. Value at Risk is a measure of the maximum amount which the Master could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Master's speculative trading and the recurrence in the markets traded by the Master of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Master'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 Master's losses in any market sector will be limited to Value at Risk or by the Master's attempts to manage its market risk. Exchange maintenance margin requirements have been used by the Master 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. 18 The following table indicates the trading Value at Risk associated with the Master's open positions by market category as of March 31, 2002. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of March 31, 2002, the Master's total capitalization was $82,389,432. March 31, 2002 (Unaudited)
Year to Date % of Total High Low Market Sector Value at Risk Capitalization Value at Risk Value at Risk ----------------------------------------------------------------------------------------- Currencies: - OTC Contracts $ 2,371,060 2.88% $5,751,991 $1,570,104 Energy 2,170,800 2.64% 2,197,900 557,000 Grains 242,300 0.29% 304,500 153,200 Interest Rates U.S. 1,269,600 1.54% 1,302,100 180,800 Interest Rates Non-U.S. 3,235,607 3.93% 3,271,172 1,804,320 Livestock 21,000 0.02% 21,000 14,400 Metals: - Exchange Traded Contracts 464,000 0.56% 464,000 271,000 - OTC Contracts 98,625 0.12% 349,250 48,000 Softs 666,459 0.81% 683,208 119,740 Indices 1,303,592 1.58% 1,874,684 869,172 ----------- ------ Total $11,843,043 14.37% =========== ======
19 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 20 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 LLC (General Partner) By: /s/ David J. Vogel, President David J. Vogel, President Date: 5/13/02 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: Smith Barney Futures Management LLC (General Partner) By: /s/ David J. Vogel, President ------------------------------- David J. Vogel, President Date: 5/13/02 By: /s/ Daniel R. McAuliffe, Jr. ----------------------------------- Daniel R. McAuliffe, Jr. Chief Financial Officer and Director Date: 5/13/02 21