-----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, CHnhdBGVxaiQ5FUJ/9NVs5ri7gkeYHPMxGG9OOnnrDW8d9fSxSqonsTzChK3SVnf mLBPHCIQxncdB+qz2w0WnQ== 0001013167-03-000003.txt : 20030514 0001013167-03-000003.hdr.sgml : 20030514 20030514114834 ACCESSION NUMBER: 0001013167-03-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 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: 03697526 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 midwestii.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, 2003 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 Citigroup Managed Futures 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes No X SMITH BARNEY MID-WEST FUTURES FUND L.P. II FORM 10-Q INDEX Page Number PART I - Financial Information: Item 1. Financial Statements: Statements of Financial Condition at March 31, 2003 and December 31, 2002 (unaudited). 3 Statements of Income and Expenses and Partners' Capital for the three months ended March 31, 2003 and 2002 (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 Item 4. Controls and Procedures 22 PART II - Other Information 23 2 PART I Item 1. Financial Statements SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
March 31, December 31, 2003 2002 ----------------------- ASSETS: Investment in Master, at fair value $31,816,139 $28,212,288 Cash 32,040 19,882 ----------- ----------- 31,848,179 28,232,170 Interest receivable 25,133 21,819 ----------- ----------- $31,873,312 $28,253,989 =========== =========== LIABILITIES AND PARTNERS' CAPITAL: Liabilities: Accrued expenses: Commissions $ 159,367 $ 141,270 Management fees 52,798 46,812 Administrative fees 26,399 23,406 Incentive fees 178,139 -- Other 35,311 25,498 Redemptions payable 1,012,385 195,333 ----------- ----------- 1,464,399 432,319 ----------- ----------- Partners' Capital: General Partner, 401.3070 and 451.3070 Unit equivalents outstanding in 2003 and 2002 825,256 809,275 Limited Partners, 14,436.0349 and 15,063.9866 Units of Limited Partnership Interest outstanding in 2003 and 2002, respectively 29,583,657 27,012,395 ----------- ----------- 30,408,913 27,821,670 ----------- ----------- $31,873,312 $28,253,989 =========== ===========
See Accompanying Notes to Unaudited Financial Statements. 3 SMITH BARNEY MID-WEST FUTURES FUND L.P. II STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------- 2003 2002 ---------------------- Income: Realized gains (losses) on closed positions and $ 8,909,117 $ (1,347,036) foreign currencies from Master Change in unrealized losses on open positions from Master (3,906,731) (1,670,399) Expenses allocated from Master (14,285) (27,422) ------------ ------------ 4,988,101 (3,044,857) Interest income 68,578 110,628 ------------ ------------ 5,056,679 (2,934,229) ------------ ------------ Expenses: Brokerage commissions 507,461 500,487 Management fees 164,996 165,723 Administrative fees 82,498 82,861 Incentive fees 178,139 -- Other expenses 9,812 8,564 ------------ ------------ 942,906 757,635 ------------ ------------ Net income (loss) 4,113,773 (3,691,864) Redemptions (1,526,530) (2,136,157) ------------ ------------ Net increase (decrease) in Partners' capital 2,587,243 (5,828,021) Partners' capital, beginning of period 27,821,670 35,778,970 ------------ ------------ Partners' capital, end of period $ 30,408,913 $ 29,950,949 ------------ ------------ Net asset value per Unit (14,837.3419 and 24,614.0483 Units outstanding at March 31, 2003 and 2002, respectively) $ 2,056.42 $ 1,216.82 ------------ ------------ Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent $ 263.24 $ (144.90) ------------ ------------
See Accompanying Notes to Unaudited Financial Statements 4 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (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, 2002, the Partnership engaged directly in the trading of commodity interests. Effective January 26, 2002, 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. The commodity interests that are traded by the Master are volatile and involve a high degree of market risk. Citigroup Managed Futures LLC, formerly 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 March 31, 2003, the Partnership owns approximately 30% 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 Statements of Financial Condition, Statements of Income and Expenses and Members' Capital and Condensed Schedules of Investments are included herein. The Partnership's and the Master's commodity broker is Citigroup Managed Futures LLC. On April 7, 2003, Smith Barney Futures Management LLC changed its name to Citigroup Managed Futures LLC. Citigroup Managed Futures LLC acts as the general partner (the "General Partner") of the Partnership. The Partnership's commodity broker is Citigroup Global Markets Inc. ("CGM"), formerly Salomon Smith Barney Inc. CGM is an affiliate of the General Partner. The General Partner is wholly owned by Citigroup Global Markets Holdings Inc. ("CGMHI"), 5 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) (Continued) formerly Salomon Smith Barney Holdings Inc., which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc. As of March 31, 2003, 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, 2003 and December 31, 2002 and the results of its operations for the three months ended March 31, 2003 and 2002. 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, 2002. 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, 2003 (Unaudited) The Master's Statement of Financial Condition at March 31, 2003 and December 31, 2002, Condensed Schedule of Investments at March 31, 2003 and December 31, 2002, and its Statement of Income and Expenses and Members' Capital for the three months ended March 31, 2003 and 2002 were: JWH Strategic Allocation Master Fund LLC Statements of Financial Condition (unaudited)
March 31, December 31, 2003 2002 ASSETS: Equity in commodity futures trading account: Cash (restricted $9,942,044 and $15,044,312 in 2003 and 2002, respectively) $ 109,176,581 $ 81,112,283 Net unrealized (depreciation) appreciation on open positions * (3,779,589) 9,394,955 --------------- ------------- $ 105,396,992 $ 90,507,238 =============== =============== LIABILITIES AND MEMBERS' CAPITAL: Liabilities: Accrued expenses: Professional fees $ 62,823 $ 47,823 --------------- ------------- 62,823 47,823 --------------- ------------- Members' Capital: Members' capital 60,007.7063 and 60,664.1530 Units outstanding in 2003 and 2002, respectively 105,334,169 90,459,415 --------------- ------------- $ 105,396,992 $ 90,507,238 =============== ===============
* Forward contracts included in this balance are presented gross in the accompanying Condensed Schedule of Investments. 7 SMITH BARNEY MID-WEST FUTURES FUND L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments March 31, 2003 (Unaudited)
Sector Contract Fair Value - ---------------------------------------- ------------------------------ ------------ Currencies Unrealized depreciation on forward contracts (4.30)% $ (4,538,865) Unrealized appreciation on forward contracts 1.71% 1,809,321 ---------- Total Currencies - (2.59)% (2,729,544) ---------- Energy Futures contracts sold (0.17)% (180,840) Futures contracts purchased (0.66)% (695,498) ---------- Total Energy - (0.83)% (876,338) ---------- Grains Futures contracts sold (0.02)% (19,607) Futures contracts purchased (0.06)% (59,712) --------- Total Grains - (0.08)% (79,319) -------- Interest Rates Non-U.S. Futures contracts sold 0.23% 240,187 Futures contracts purchased (0.62)% (651,697) --------- Total Interest Rates Non - U.S. - (0.39)% (411,510) ---------- Total Interest Rates - 0.15% Futures contracts purchased 0.15% 158,640 --------- Total Livestock - (0.00)%* Futures contracts purchased (0.00)%* (2,720) -------- Metals Futures contracts sold 0.12% 125,735 Unrealized depreciation on forward contracts (1.41)% (1,483,343) Unrealized appreciation on forward contracts 1.11% 1,169,270 --------- Total forward contracts (0.30)% (314,073) --------- Total Metals - (0.18)% (188,338) --------- Softs Futures contracts sold 0.03% 36,841 Futures contracts purchased (0.04)% (41,277) --------- Total Softs - (0.01)% (4,436) -------- Indices Futures contracts sold (0.05)% (58,960) Futures contracts purchased 0.39% 412,936 --------- Total Indices - 0.34% 353,976 --------- Total Fair Value - (3.59)% $ (3,779,589) ============= Country Composition Investments at % of Investments at Fair Value Fair Value - ---------------------------------------- ------------------------------ --------------------------- Australia $ (224,036) (5.93)% Canada (14,246) (0.38) Germany (430,884) (11.40) Japan 699,560 18.51 United Kingdom (468,301) (12.39) United States (3,341,682) (88.41) ------------------------------ ------------------ $ (3,779,589) (100.00)% ============================== ==================
Percentages are based on Masters' capital unless otherwise indicated *Due to rounding 8 SMITH BARNEY MID-WEST FUTURES FUND L.P. II NOTES TO FINANCIAL STATEMENTS MARCH 31, 2003 (UNAUDITED) JWH Strategic Allocation Master Fund LLC Condensed Schedule of Investments December 31, 2002
Notional Sector Amount Contract Fair Value Currencies Unrealized appreciation on forward contracts 8.23% EUR (116,850,000) EUR/USD 3.52%, March 19, 2003 $3,188,260 CHF (60,550,000) CHF/USD 1.82%, March 19, 2003 1,644,000 JPY (9,565,600,000) JPY/USD 1.51%, March 19, 2003 1,364,829 Other 1.38% 1,251,826 Unrealized depreciation on forward contracts (2.61)%(2,364,747) ---------- Total Currencies 5.62% Total forward contracts 5.62% 5,084,168 --------- Total Energy 1.22% Futures contracts purchased 1.22% 1,104,121 --------- Grains Futures contracts purchased (0.01)% (10,640) Futures contracts sold 0.36% 329,388 --------- Total Grains 0.35% 318,748 --------- Interest Rates U.S. Futures contracts purchased 0.55% 497,228 Futures contracts sold (0.96)% (872,094) --------- Total Interest Rates U.S. (0.41)% (374,866) --------- Total Interest Rates Non-U.S.2.78% Futures contracts purchased 2.78% 2,515,874 --------- Total Livestock 0.03% Futures contracts purchased 0.03% 23,980 --------- Metals Futures contracts purchased 1.01% 916,440 Unrealized appreciation on forward contracts 0.09% 79,435 Unrealized depreciation on forward contracts (0.35)% (313,193) --------- Total forward contracts (0.26)% (233,758) --------- Total Metals 0.75% 682,682 --------- Softs Futures contracts purchased 0.27% 246,814 Futures contracts sold (0.00)%* (2,844) --------- Total Softs 0.27% 243,970 --------- Indices Futures contracts purchased (0.24)% (222,005) Futures contracts sold 0.02% 18,283 --------- Total Indices (0.22)% (203,722) --------- Total Fair Value 10.39% $9,394,955 ========== Investments % of Investments Country Composition at Fair Value at Fair Value Australia $220,191 2.34% Canada 51,439 0.55 Germany 879,354 9.36 Japan 771,920 8.22 United Kingdom 195,396 2.08 United States 7,276,655 77.45 -------------------------- ------------------------ $9,394,955 100.00% ========================== ========================
Percentages are based on Members' capital unless otherwise indicated. * Due to rounding. 9 SMITH BARNEY MID-WEST FUTURES FUND L.P. II NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JWH STRATEGIC ALLOCATION MASTER FUND LLC STATEMENTS OF INCOME AND EXPENSES AND MEMBERS' CAPITAL (UNAUDITED)
FOR THE FOR THE THREE THREE MONTHS ENDED MONTHS ENDED MARCH 31, MARCH 31, ----------------------------------- 2003 2002 ----------------------------------- Income: Net gains (losses) on trading of commodity interests: Realized gains (losses) on closed positions and foreign currencies $ 29,338,717 $ (3,507,955) Change in unrealized losses on open positions (13,174,544) (4,516,189) ------------- ------------- 16,164,173 (8,024,144) ------------- ------------- Expenses: Clearing fees 63,149 61,245 Other expenses 15,000 11,250 ------------- ------------- 78,149 72,495 ------------- ------------- Net income (loss) 16,086,024 (8,096,639) Additions 1,700,000 1,537,008 Redemptions (2,911,270) (4,728,875) ------------- ------------- Net increase (decrease) in Members' capital 14,874,754 (11,288,506) Members' capital, beginning of period 90,459,415 93,677,938 ------------- ------------- Members' capital, end of period $ 105,334,169 $ 82,389,432 ------------- -------------
10 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) 2. Financial Highlights: Changes in the Partnership's net asset value per Unit for the three months ended March 31, 2003 and 2002 were as follows: THREE-MONTHS ENDED MARCH 31, 2003 2002
Net realized and unrealized gains(losses) * $ 286.76 $ (139.04) Interest income 4.44 4.30 Expenses ** (27.96) (10.16) ---------- --------- Increase(decrease) for period 263.24 (144.90) Net Asset Value per Unit, beginning of period 1,793.18 1,361.72 ---------- --------- Net Asset Value per Unit, end of period $ 2,056.42 $ 1,216.82 ========== ========== * Includes brokerage commissions ** Excludes brokerage commissions Ratios to average net assets: *** Net investment loss before incentive fees **** (9.3)% (8.2)% ========== ========== Operating expenses 10.2% 9.6% Incentive fees 2.3% 0.0% ---------- --------- Total expenses 12.5% 9.6% ========== ========== Total return: Total return before incentive fees 15.3% (10.6)% Incentive fees (0.6)% 0.0% ---------- --------- Total return after incentive fees 14.7% (10.6)% ========== ==========
*** Annualized **** Interest income less total expenses (exclusive of incentive fees) The above ratios may vary for individual investors based on the timing of capital transactions during the period. 11 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) Financial Highlights of the Master:
THREE-MONTHS ENDED MARCH 31, 2003 2002 Ratio to average net assets: Net investment loss (0.3)% (0.3)% Operating expenses* 0.3% 0.3% Total return 17.7% (8.9)%
*Excludes clearing fees The above ratios may vary for individual investors based on the timing of capital transactions during the year. 12 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (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 in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. The respective Customer Agreements between the Partnership and CGM and the Master and CGM 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 three months ended March 31, 2003 and December 31, 2002, based on a monthly calculation, were $13,091,372 and $9,163,093, respectively. The fair value of these commodity interests, including options thereon, if applicable, at March 31, 2003 and December 31, 2002, was $(3,779,589) and $9,394,955, respectively. 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. 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. 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 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 13 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) (Continued) 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 credit risk and concentration risk because the sole counterparty or broker with respect to the Master's assets is CGM. 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. 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. 14 Smith Barney Mid-West Futures Fund L.P. II Notes to Financial Statements March 31, 2003 (Unaudited) (Continued) The majority of these instruments mature within one year of March 31, 2003. 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 first quarter of 2003. 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, 2003, Partnership capital increased 9.3% from $27,821,670 to $30,408,913. This increase was attributable to net income from operations of $4,113,773 which was partially offset by the redemption of 627.9517 Units of Limited Partnership Interest resulting in an outflow of $1,423,709 and 50.0000 General Partner Unit equivalents totaling $102,821. 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 realized and/or unrealized 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, 2003 the Master's capital increased 16.4% from $90,459,415 to $105,334,169. This increase was attributable to net income from operations of $16,086,024, coupled with additional sales of 1,000.7090 Units totaling $1,700,000, which was partially offset by the redemption of 1,657.1559 Units resulting in an outflow of $2,911,270. 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 of America 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 open positions 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 Partnership's first quarter of 2003, the net asset value per unit increased 14.7% from $1,793.18 to $2,056.42 as compared to a decrease of 10.6% in the first quarter of 2002. The Partnership experienced a net trading gain before brokerage commissions and related fees in the first quarter of 2003 of $5,002,386. Gains were primarily attributable to the Master's trading of commodity futures in currencies, energy, U.S. and non-U.S. interest rates, indices and softs and were partially offset by losses in grains, livestock and metals. 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 and metals. 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. CGM may continue to maintain the Master's assets in cash and/or place all of the Master's assets in 90-day Treasury bills and pay the Partnership 80% of the interest earned on the Treasury bills purchased. CGM will retain 20% of any interest earned on Treasury bills. Interest income for the three months ended March 31, 2003 decreased by $42,050 as compared to the corresponding period in 2002. The decrease in interest income is primarily due to a decrease in interest rates during the three months ended March 31, 2003 as compared to 2002. Brokerage commissions are calculated on the Partnership's adjusted net asset value on the last day of each month and are affected by 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, 2003 decreased by $6,481 as compared to the corresponding period in 2002. The decrease in brokerage commissions is due to average lower net assets during the three months ended March 31, 2003 as compared to 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, 2003 decreased by $727 as compared to the corresponding period in 2002. The decrease in management fees is due to average lower net assets during the three months ended March 31, 2003 as compared to 2002. 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 months ended March 31, 2003 decreased by $363 as compared to the corresponding period in 2002. The decrease in administrative fees is due to average lower net assets during the three months ended March 31, 2003 as compared to 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. Trading performance for the three months ended March 31, 2003 and 2002 resulted in incentive fees of $178,139 and $0, respectively. 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 March 31, 2003 and the highest and lowest value at any point during the three months ended March 31, 2003. All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of March 31, 2003, the Master's total capitalization was $105,334,169. 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, 2002, March 31, 2003 (Unaudited)
Year to Date % of Total High Low Market Sector Value at Risk Capitalization Value at Risk Value at Risk - ----------------------------------------------------------------------------------------------- Currencies: - - OTC Contracts $2,217,018 2.10% $6,539,137 $1,910,405 Energy 2,271,200 2.16% 5,657,200 1,837,000 Grains 229,400 0.22% 400,525 152,175 Interest Rates U.S. 435,300 0.41% 1,513,250 432,150 Interest Rates Non-U.S. 1,772,809 1.68% 4,106,508 1,228,573 Livestock 10,200 0.01% 18,700 9,350 Metals: - Exchange Traded Contracts 330,000 0.31% 696,500 261,500 - OTC Contracts 311,475 0.30% 559,875 176,400 Softs 304,746 0.29% 711,078 295,046 Indices 1,032,346 0.98% 1,807,039 804,240 ---------- --------- Total $8,914,494 8.46% ========== ==========
21 Item 4. Controls and Procedures Based on their evaluation of the Partnership's disclosure controls and procedures as of a date within 90 days of the filing of this report, the Chief Executive Officer and Chief Financial Officer have concluded that such controls and procedures are effective. There were no significant changes in the Partnership's internal controls or in other factors that could significantly affect such controls subsequent to the date of their evaluation. 22 PART II OTHER INFORMATION Item 1. Legal Proceedings - The following information supplements and amends our discussion set forth under Part I, Item 3 "Legal Proceedings" in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Settlement Of Certain Regulatory Matters: On April 28, 2003, Salomon Smith Barney Inc. (SSB), now named Citigroup Global Markets Inc., announced final agreements with the Securities and Exchange Commission, the National Association of Securities Dealers, the New York Stock Exchange and the New York Attorney General (as lead state among the 50 states, the District of Columbia and Puerto Rico) to resolve on a civil basis all of their outstanding investigations into its research and IPO allocation and distribution practices. As part of the settlements, SSB has consented to the entry of (1) an injunction under the federal securities laws to be entered in the United States District Court for the Southern District of New York, barring SSB from violating provisions of the federal securities laws and related NASD and NYSE rules relating to research, certain IPO allocation practices, the safeguarding of material nonpublic information and the maintenance of required books and records, and requiring SSB to adopt and enforce new restrictions on the operation of research; (2) an NASD Acceptance Waiver and Consent requiring SSB to cease and desist from violations of corresponding NASD rules and requiring SSB to adopt and enforce the same new restrictions; (3) an NYSE Stipulation and Consent requiring SSB to cease and desist from violations of corresponding NYSE rules and requiring SSB to adopt and enforce the same new restrictions; and (4) an Assurance of Discontinuance with the New York Attorney General containing substantially the same or similar restrictions. As required by the settlements, SSB expects to enter into related settlements with each of the other states, the District of Columbia and Puerto Rico. Consistent with the settlement-in-principle announced in December 2002, these settlements require SSB to pay $300 million for retrospective relief, plus $25 million for investor education, and commit to spend $75 million to provide independent third-party research to its clients at no charge. SSB reached these final settlement agreements without admitting or denying any wrongdoing or liability. The settlements do not establish wrongdoing or liability for purposes of any other proceeding. The $300 million was accrued during the fourth quarter of 2002. 23 Enron: New Power Holdings Actions On April 17, 2003, the motion to dismiss the complaints in the putative class actions relating to the New Power Holdings common stock was denied. Additional Actions On March 5, 2003, an action was brought on behalf of the purchasers of the Yosemite Notes and Enron Credit Linked Notes, alleging violations of federal securities laws. On April 9, 2003, an action was brought by a group of related mutual funds that purchased certain Yosemite Notes, alleging violations of state securities law and common law claims. Research: In Re At&T Corporation Securities Litigation By order dated March 27, 2003, the court denied plaintiffs' leave to amend their complaint to add as defendants Citigroup, SSB, and certain of their executive officers and current and former employees. 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. The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference to the exhibit index of the Partnership's Report on Form 10-K for the period ended December 31, 2002. (a) Exhibit - 99.1 Certificate of President and Director. Exhibit - 99.2 Certificate of Chief Financial Officer and Director. (b) Reports on Form 8-K - None 24 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: Citigroup Managed Futures LLC (General Partner) By: /s/ David J. Vogel David J. Vogel President and Director Date: 5/14/03 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: Citigroup Managed Futures LLC (General Partner) By: /s/ David J. Vogel David J. Vogel President and Director Date: 5/14/03 By: /s/ Daniel R. McAuliffe, Jr. Daniel R. McAuliffe, Jr. Chief Financial Officer and Director Date: 5/14/03 25 CERTIFICATION I, David J. Vogel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smith Barney Mid-West Futures Fund L.P. II; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ David J. Vogel - -------------------- David J. Vogel President and Director 26 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 March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David J. Vogel, President and Director of Citigroup Managed Futures 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. Date: May 14 , 2003 /s/ David J. Vogel - -------------------- David J. Vogel Citigroup Managed Futures LLC President and Director 27 CERTIFICATION I, Daniel R. McAuliffe, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smith Barney Mid-West Futures Fund L.P. II; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Daniel R. McAuliffe Jr. - -------------------- Daniel R. McAuliffe, Jr. Chief Financial Officer and Director 28 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 March 31, 2003 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 Citigroup Managed Futures 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. Date: May 14, 2003 /s/ Daniel R. McAuliffe Jr. - -------------------- Daniel R. McAuliffe, Jr. Citigroup Managed Futures LLC Chief Financial Officer and Director 29 -----END PRIVACY-ENHANCED MESSAGE-----