-----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, AlUzlSZb6WjG+q3xiCZzX3uGUsD33RSRrfq4lno808HnSxT88IdCYgnmtc8SZJSX PsF7VygLKq33+RzQLRDR8Q== 0001013167-02-000004.txt : 20020814 0001013167-02-000004.hdr.sgml : 20020814 20020814112423 ACCESSION NUMBER: 0001013167-02-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 1934 Act SEC FILE NUMBER: 000-28336 FILM NUMBER: 02732582 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 midwest2.txt SB 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 June 30, 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 June 30, 2002 and December 31, 2001 (unaudited). 3 Statement of Income and Expenses and Partners' Capital for the three and six months ended June 30, 2002 and 2001 (unaudited). 4 Notes to Financial Statements including the Financial Statements of JWH Strategic Allocation Master Fund LLC (unaudited). 5 - 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 - 19 Item 3. Quantitative and Qualitative Disclosures of Market Risk 20 - 21 PART II - Other Information 22 2 PART I Item 1. Financial Statements SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENT OF FINANCIAL CONDITION (Unaudited)
June 30, December 31, 2002 2001 ------------ ----------- Assets: Investment in Master , at fair value $34,791,300 $37,231,806 Cash, in commodity futures trading account 29,900 42,242 ----------- ----------- 34,821,200 37,274,048 Interest receivable 29,871 42,247 ----------- ----------- $34,851,071 $37,316,295 =========== =========== LIABILITIES AND PARTNERS' CAPITAL: Liabilities: Accrued expenses: Commissions $ 174,255 $ 186,581 Management fees 57,740 61,844 Administrative fees 28,870 30,922 Other 32,765 23,557 Redemptions payable 3,802,801 1,234,421 ----------- ----------- 4,096,431 1,537,325 ----------- ----------- Partners' Capital: General Partner, 608.9156 Unit equivalents outstanding in 2002 and 2001 997,130 829,173 Limited Partners, 18,171.9091 and 25,665.9357 Units of Limited Partnership Interest outstanding in 2002 and 2001, respectively 29,757,510 34,949,797 ----------- ----------- 30,754,640 35,778,970 ----------- ----------- $34,851,071 $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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ----------------------------- 2002 2001 2002 2001 --------------- ------------ ------------- --------------- Income: Realized gains (losses) on closed positions from Master $ 4,237,324 $ (1,802,168) $ 2,890,288 $ 4,323,895 Change in unrealized gains (losses) on open positions from Master 5,425,319 (3,138,413) 3,754,920 2,195,620 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) ------------ ------------ ------------ ------------ 9,662,643 (4,940,581) 6,645,208 435,742 Interest income 92,995 297,617 203,623 714,258 ------------ ------------ ------------ ------------ 9,755,638 (4,642,964) 6,848,831 1,150,000 ------------ ------------ ------------ ------------ Expenses: Brokerage commissions including clearing fees of $11,041, $13,105, $21,623 and $24,769, respectively (Allocated from the Master) 497,766 648,642 * 1,021,417 1,350,802 * Management fees 157,212 204,866 322,935 428,552 Administrative fees 78,606 102,433 161,467 214,275 Other expenses 12,446 16,669 25,268 33,507 ------------ ------------ ------------ ------------ 746,030 972,610 1,531,087 2,027,136 ------------ ------------ ------------ ------------ Net income (loss) 9,009,608 (5,615,574) 5,317,744 (877,136) Redemptions (8,205,917) (825,390) (10,342,074) (3,727,304) ------------ ------------ ------------ ------------ Net increase (decrease) in Partners' capital 803,691 (6,440,964) (5,024,330) (4,604,440) Partners' capital, beginning of period 29,950,949 45,617,748 35,778,970 43,781,224 ------------ ------------ ------------ ------------ Partners' capital, end of period $ 30,754,640 $ 39,176,784 $ 30,754,640 $ 39,176,784 ------------ ------------ ------------ ------------ Net asset value per Unit (18,780.8247 and 28,653.3345 Units outstanding at June 30, 2002 and 2001, respectively) $ 1,637.55 $ 1,367.27 $ 1,637.55 $ 1,367.27 ------------ ------------ ------------ ------------ Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent $ 420.73 $ (192.88) $ 275.83 $ (38.22) ------------ ------------ ------------ ------------
* Amount reclassified for comparative purposes See Notes to Financial Statements. 4 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 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"), in exchange 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. The commodity interests that are traded by the Master are volatile and involve a high degree of market risk. Smith Barney Futures Management LLC (the "General Partner") is the general partner of the Partnership and the managing member of the Master. The Partnership is a non-managing member of the Master. Expenses to investors as a result of the investment in the Master are approximately the same and redemption rights are not affected. As of June 30, 2002, the Partnership owns approximately 34% 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, Statement of Income and Expenses and Members' Capital, Condensed Schedule of Investments and Financial Highlights are included herein. The Partnership's and the Master'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 June 30, 2002, all trading decisions for the Partnership are made by the Advisor. 5 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 2002 (Unaudited) (Continued) 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 June 30, 2002 and December 31, 2001 and the results of its operations for the three and six months ended June 30, 2002 and 2001. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 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 June 30, 2002 (Unaudited) (Continued) The Master's Statement of Financial Condition at June 30, 2002 and December 31, 2001, Condensed Schedule of Investments at June 30, 2002 and December 31, 2001, and its Statement of Income and Expenses and Members' Capital for the three and six months ended June 30, 2002, the three months ended June 30, 2001 and the period from January 26, 2001 (commencement of trading operations) to June 30, 2001 were: JWH Strategic Allocation Master Fund LLC Statement of Financial Condition (unaudited)
June 30, December 31, 2002 2001 ------------ ------------- ASSETS: Equity in commodity futures trading account: Cash $ 86,248,799 $ 88,330,292 Net unrealized appreciation on open futures positions 16,411,630 5,392,646 ------------ ------------ $102,660,429 $ 93,722,938 ============ ============ LIABILITIES AND MEMBERS' CAPITAL: Liabilities: Accrued expenses: Professional fees $ 67,500 $ 45,000 ------------ ------------ 67,500 45,000 ------------ ------------ Members' Capital: Members' capital 78,425.1126 and 89,573.7730 Units outstanding in 2002 and 2001, respectively 102,592,929 93,677,938 ------------ ------------ $102,660,429 $ 93,722,938 ============ ============
See Notes to Financial Statements 7 JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments June 30, 2002 (Unaudited)
Number of Sector Contracts Contract Fair Value - ----------------------------------------------------------------------------------------------- ------------------- Currencies Over the counter contracts purchased - 15.50% JPY 10,230,700,000 JPY/USD - 3.12%, September 2002 $ 3,205,462 GBP 52,400,000 GBP/USD - 2.96%, September 2002 3,034,772 EUR 67,125,000 EUR/USD - 4.64%, September 2002 4,760,708 CHF 78,450,000 CHF/USD - 2.47%, September 2002 2,535,469 Other - 2.31% 2,368,230 ------------------- 15,904,641 Over the counter contracts sold - (3.23)% (3,311,084) ------------------- Total Currencies - 12.27% 12,593,557 ------------------- Energy Futures contracts purchased - 0.01% 15,299 Futures contracts sold - (0.21)% (220,151) ------------------- Total Energy - (0.20)% (204,852) ------------------- Total Grains - 0.25% Futures contracts purchased - 0.25% 260,836 ------------------- Total Interest Rates U.S. - 1.41% Futures contracts purchased - 1.41% 1,448,135 ------------------- Total Interest Rates Non-U.S. - 2.56% Futures contracts purchased - 2.56% 2,623,637 ------------------- Total Livestock - 0.00%* Futures contracts purchased - 0.00%* (3,670) ------------------- Metals Futures contracts purchased - (0.33)% (343,586) Futures contracts sold - (0.31)% (322,120) ------------------- Total Metals - (0.64)% (665,706) ------------------- Softs Futures contracts purchased - 0.46% 471,320 Futures contracts sold - (0.03)% (28,707) ------------------- Total Softs - 0.43% 442,613 ------------------- Total Indices - (0.08)% Futures contracts sold - (0.08)% (82,920) ------------------- Total Fair Value - 16.00% $ 16,411,630 =================== Country Composition % of Investments Investments at Fair Value at Fair Value - ----------------------------------- --------------------------------------- ------------------- Australia $ (51,319) (0.31)% Canada 24,997 0.15% Germany 1,143,516 6.97% Japan 870,067 5.30% United Kingdom (163,581) (1.00)% United States 14,587,950 88.89% --------------------------------------- ------------------- $ 16,411,630 100.00% ======================================= ===================
Percentages are based on Masters' capital unless otherwise indicated *Due to rounding See Notes to Financial Statements 8 JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments December 31, 2001
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 STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL (UNAUDITED) (CONTINUED) JWH STRATEGIC ALLOCATION MASTER FUND LLC STATEMENT OF INCOME AND EXPENSES AND MEMBERS' CAPITAL (UNAUDITED)
FOR THE PERIOD FROM THREE MONTHS ENDED SIX MONTHS ENDED JANUARY 26, 2001 TO JUNE 30, JUNE 30, JUNE 30, ---------------------------------- ------------- ------------- 2002 2001 2002 2001 ----------------- -------------- ------------- ------------- Income: Net gains (losses) on trading of commodity interests: Realized gains (losses) on closed positions $ 12,697,083 $ (4,113,157) $ 9,189,128 $ 9,727,290 Change in unrealized gains (losses) on open positions 15,535,173 (7,183,566) 11,018,984 (6,552,402) ------------- ------------- ------------- ------------- Net realized and unrealized gains (losses) 28,232,256 (11,296,723) 20,208,112 3,174,888 ------------- ------------- ------------- ------------- Expenses: Clearing fees 66,160 69,035 127,405 107,863 Other expenses 11,250 - 22,500 - ------------- ------------- ------------- ------------- 77,410 69,035 149,905 107,863 ------------- ------------- ------------- ------------- Net income (loss) 28,154,846 (11,365,758) 20,058,207 3,067,025 Additions 100,000 100,000 1,637,008 20,850,000 Redemptions (8,051,349) (5,391,528) (12,780,224) (6,955,068) ------------- ------------- ------------- ------------- Net increase (decrease) in Members' capital 20,203,497 (16,657,286) 8,914,991 16,961,957 Members' capital, beginning of period 82,389,432 107,639,636 93,677,938 74,020,393 ------------- ------------- ------------- ------------- Members' capital, end of period $ 102,592,929 $ 90,982,350 $ 102,592,929 $ 90,982,350 ------------- ------------- ------------- -------------
See Notes to Financial Statements 10 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 2002 (Unaudited) (Continued) 2. Financial Highlights: Changes in net asset value per Unit for the three and six months ended June 30, 2002 and 2001 were as follows:
THREE-MONTHS ENDED SIX-MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ------------------------- 2002 2001 2002 2001 ---------- --------- --------- ---------- Net realized and unrealized gains(losses) * $ 427.68 $ (191.97) $ 288.64 $ (39.39) Interest income 4.13 10.23 8.43 23.69 Expenses** (11.08) (11.14) (21.24) (22.52) ---------- ---------- ---------- ---------- Increase(decrease) for period 420.73 (192.88) 275.83 (38.22) Net Asset Value per Unit, beginning of period 1,216.82 1,560.15 1,361.72 1,405.49 ---------- ---------- ---------- ----------- Net Asset Value per Unit end of period $1,637.55 $1,367.27 $1,637.55 $1,367.27 ========== ========== ========== ==========
* Net realized and unrealized gains (losses) is net of commission expense. ** Expenses exclude commission expense. 11 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 2002 (Unaudited) (Continued) Financial Highlights continued:
THREE-MONTHS ENDED SIX-MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2002 2001 2002 2001 -------- ------- ------- -------- Total return 34.58% (12.36)% 20.26% (2.72)% Ratio of expense, including brokerage commissions, to average net assets: *** 10.33% 9.30% 9.88% 9.65% Ratio of net income(loss) to Average net assets 124.79% (53.80)% 34.32% (4.20)% Financial Highlights of the Master: Total return 37.28% (10.60)% 25.08% 2.90% **** Ratio of expense, including brokerage commissions, to average net assets *** 0.35% 0.30% 0.34% 0.20% **** Ratio of net income(loss) to Average net assets *** 128.06% (46.80)% 45.11% 4.90% ****
*** Annualized **** For the period from January 26, 2001 (commencement of trading operations) to June 30, 2001. 12 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 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 Members' Capital and are discussed here in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 values during the six months ended June 30, 2002 and for the period from January 26, 2001 to December 31, 2001, based on a monthly calculation, were $8,082,493 and $5,146,554, respectively. The fair value of these commodity interests, including options thereon, if applicable, at June 30, 2002 and December 31, 2001, was $16,411,630 and $5,392,646, respectively. Fair values for exchange traded commodity futures and options are based on quoted market prices for those futures and options. Fair values for all other financial instruments for which market quotations are not readily available are based on calculations approved by the General Partner. 4. Financial Instrument Risk: The Partnership, 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 (but not currently), whose values are based upon an underlying asset, index, or reference rate, and generally represent future 13 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements June 30, 2002 (Unaudited) (Continued) commitments to exchange currencies or cash flows, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter ("OTC"). Exchange traded instruments are standardized and include futures and certain option contracts. OTC contracts are negotiated between contracting parties and include forwards and certain options. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange traded instruments because of the greater risk of default by the counterparty to an OTC contract. Market risk is the potential for changes in the value of the financial instruments traded by the 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 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 14 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 Master's involvement in these instruments. The majority of these instruments mature within one year of June 30, 2002. However, due to the nature of the Master's business, these instruments may not be held to maturity. 15 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, cash and interest receivable. The Master does not engage in the sale of goods or services. Its only assets are its investments in commodity futures and cash. 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 second 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 six months ended June 30, 2002, Partnership capital decreased 14.0% from $35,778,970 to $30,754,640. This decrease was attributable to the redemption of 7,494.0266 Units resulting in an outflow of $10,342,074, which was partially offset by the net income from operations of $5,317,744. 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 six months ended June 30, 2002 the Master's capital increased 9.5% from $93,677,938 to $102,592,929. This increase was attributable to net income from operations of $20,058,207 coupled with additional sales of 1,564.0475 Units totaling $1,637,008, which was partially offset by the redemptions of 12,712.7080 Units resulting in an outflow of $12,780,224. Future redemptions can impact the amount of funds available for investments in commodity contract positions in subsequent periods. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. 16 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 fair value on the last business day of the period, which represents market value for those commodity interests for which market quotations are readily available. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the period. Realized gains (losses) and changes in unrealized values on commodity interests and foreign currencies 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. Foreign currency contracts are those contracts where the Partnership agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Partnership's net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the date of entry into the contracts and the forward rates at the reporting dates, is included in the statement of financial condition. Realized gains(losses) and changes in unrealized values on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur and are included in the statement of income and expenses and partners' capital. Results of Operations During the second quarter of 2002, the Partnership's net asset value per unit increased 34.6% from $1,216.82 to $1,637.55 as compared to a decrease of 12.4% in the second quarter of 2001. The Partnership experienced a net trading gain before brokerage commissions and related fees in the second quarter of 2002 of $9,662,643. Gains were primarily attributable to the Master's trading of commodity futures in currencies, grains, non-U.S. interest rates, indices and livestock and were partially offset by losses in energy, U.S. interest rates, softs and metals. The Partnership experienced a net trading loss before commissions and related fees in the second quarter of 2001 of $4,940,581. Losses were primarily attributable to the Master's trading of commodity futures in currencies, livestock, U.S. and non-U.S. interest rates, energy, softs, metals and indices and were partially offset by gains in grains. 17 Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases 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 correctly identify 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) expect 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. Salomon Smith Barney may continue to maintain the Partnership assets in cash and/or to place all of the Fund assets in 90-day Treasury bills and pay the Partnership 80% of the interest earned on the Treasury bills purchased. Salomon Smith Barney will retain 20% of any interest earned on Treasury bills. Interest income for the three and six months ended June 30, 2002 decreased by $204,622 and $510,635, respectively, as compared to the corresponding periods in 2001. The decrease in interest income is primarily due to a decrease in interest rates during the period ended June 30, 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 and six months ended June 30, 2002 decreased by $150,876 and $329,385, respectively, as compared to the corresponding periods in 2001. The decrease in brokerage commissions is due to a decrease in assets during the three and six months ended June 30, 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 and six months ended June 30, 2002 decreased by $47,654 and $105,617, respectively, as compared to the corresponding periods in 2001. The decrease in management fees is due to a decrease in net assets during the three and six months ended June 30, 2002 as compared to 2001. 18 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 and six months ended June 30, 2002 decreased by $23,827 and $52,808, respectively, as compared to the corresponding periods in 2001. The decrease in administrative fees is due to a decrease in net assets during the three and six months ended June 30, 2002 as compared to 2001. 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 and six months ended June 30, 2002 or 2001. 19 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 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. 20 The following table indicates the trading Value at Risk associated with the Master's open positions by market category as of June 30, 2002. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of June 30, 2002, the Master's total capitalization was $102,592,929. There has been no material change in the trading Value at Risk information previously disclosed in the Form 10-K for the year ended December 31, 2001,
June 30, 2002 (Unaudited) Year to Date % of Total High Low Market Sector Value at Risk Capitalization Value at Risk Value at Risk - --------------------------------------------------------------------------------------------- Currencies: - - OTC Contracts $ 5,858,186 5.71% $7,032,293 $1,570,104 Energy 907,800 0.89% 2,197,900 557,000 Grains 353,550 0.35% 369,400 86,150 Interest Rates U.S. 1,138,500 1.11% 1,302,100 180,800 Interest Rates Non-U.S. 3,164,020 3.08% 3,337,584 979,315 Livestock 18,600 0.01% 24,750 14,400 Metals: - Exchange Traded Contracts 418,000 0.41% 464,000 271,000 - OTC Contracts 430,625 0.42% 484,875 48,000 Softs 445,410 0.43% 693,603 119,740 Indices 1,829,551 1.78% 1,931,347 869,172 ----------- ------ Total $14,564,242 14.19% =========== ======
21 PART II OTHER INFORMATION Item 1. Legal Proceedings - In April 2002, consolidated amended complaints were filed against Salomon Smith Barney Inc and other investment banks named in numerous putative class actions filed in the United States District Court for the Southern District of New York alleging violations of certain federal securities laws (including Section 11 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934, as amended) with respect to the allocation of shares for certain initial public offerings and related aftermarket transactions and damage to investors caused by allegedly biased research analyst reports. Also pending in the Southern District of New York against Salomon Smith Barney Inc and other investment banks are several putative class actions which have been consolidated into a single class action alleging violations of certain federal and state antitrust laws in connection with the allocation of shares in initial public offerings when acting as underwriters. 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) Exhibit - 99.1 Certificate of Chief Executive Officer. Exhibit - 99.2 Certificate of Chief Financial Officer. (b) Reports on Form 8-K - None with respect to the second quarter of 2002. On July 17, 2002 the Partnership filed a notice on Form 8-K to report a change in accountants from PricewaterhouseCoopers LLP to KPMG LLP. 22 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: 8/14/02 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: 8/14/02 By: /s/ Daniel R. McAuliffe, Jr. ----------------------------------- Daniel R. McAuliffe, Jr. Chief Financial Officer and Director Date: 8/14/02 23 EX-99 3 exhibit1.txt CERTIFICATION OF CEO Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Smith Barney Mid-West Futures Fund L.P. II (the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David J. Vogel, President of Smith Barney Futures Management LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ David J.Vogel David J. Vogel Smith Barney Futures Management LLC Chief Executive Officer August 14, 2002 EX-99 4 exhibit2.txt CERTIFICATION OF CFO Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Smith Barney Mid-West Futures Fund L.P. II (the "Partnership") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and Director of Smith Barney Futures Management LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Daniel R. McAuliffe, Jr. Daniel R. McAuliffe, Jr. Smith Barney Futures Management LLC Chief Financial Officer and Director August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----