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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number 0-24280
SHEARSON MID-WEST FUTURES FUND
(Exact name of registrant as specified in its charter)
New York 13-3634370
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units
of Limited
Partnership
Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]
As of February 29, 2000 Limited Partnership Units with an aggregate value of
$37,389,375 were outstanding and held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Shearson Mid-West Futures Fund (the
"Partnership") is a limited partnership organized on August 21, 1991 under the
partnership laws of the State of New York. The Partnership commenced trading
operations on December 2, 1991. The Partnership engages in speculative trading
of a diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by the
Partnership are volatile and involve a high degree of market risk. Between
September 26, 1991 and December 2, 1991, 2,000 Units of Limited Partnership
Interest (AUnits@) were sold at $1,000 per Unit. The proceeds of the offering
were held in an escrow account until December 2, 1991, at which time they were
turned over to the Partnership for trading. Sales and redemptions of Units and
general partner contributions and redemptions for the years ended December 31,
1999, 1998 and 1997 are reported in the Statement of Partners' Capital on page
F-6 under "Item 8. Financial Statements and Supplementary Data."
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2011; if the Net Asset Value per Unit falls below $350
as of the end of business on any business day or upon the earlier occurrence of
certain other circumstances set forth in the Limited Partnership Agreement of
the Partnership (the "Limited Partnership Agreement").
2
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The General Partner changed its form of
organization from a corporation to a limited liability company on October 1,
1999. 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.
The Partnership's trading of futures contracts on commodities is done
on United States and foreign commodity exchanges. It engages in such trading
through a commodity brokerage account maintained with SSB.
Under the Limited Partnership Agreement, the General Partner has sole
responsibility for the administration of the business and affairs of the
Partnership, but may delegate trading discretion to one or more trading
advisors. The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading decisions
for the Partnership. The Partnership will pay the General Partner a monthly
administrative fee in return for its services to the Partnership equal to 1/12
of 1% (1% per year) of month-end Net Assets of the Partnership. This fee may be
increased or decreased at the discretion of the General Partner.
The General Partner has entered into a management agreement (the
"Management Agreement") with John W. Henry & Company, Inc. (the "Advisor") who
3
will make all commodity trading decisions for the Partnership. The Advisor is
not affiliated with the General Partner or SSB. The Advisor is not responsible
for the organization or operation of the Partnership.
Pursuant to the terms of the Management Agreement, the Partnership is
obligated to pay the Advisor a monthly management fee equal to 1/3 of 1% (4% per
year) of Net Assets allocated to the Advisor as of the end of the month and an
incentive fee payable quarterly of 15% of New Trading Profits (as defined in the
Management Agreement) of the Partnership.
The Customer Agreement between the Partnership and SSB (the "Customer
Agreement") provides that the Partnership pays SSB a monthly brokerage fee equal
to 1/2 of 1% of month-end Net Assets (6% per year), in lieu of brokerage
commissions on a per trade basis. SSB pays a portion of its brokerage fees to
its financial consultants who have sold Units. The Partnership pays for National
Futures Association ("NFA") fees, exchange and clearing fees, give-up and user
fees and floor brokerage fees. Brokerage fees will be paid for the life of the
Partnership, although the rate at which such fees are paid may be changed. The
Customer Agreement between the Partnership and SSB gives the partnership the
legal right to net unrealized gains and losses. The Customer Agreement may be
terminated by either party.
In addition, SSB pays the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at the rate
equal to the average noncompetitive yield of 13-week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month.
4
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income (loss) from operations for the years ended December 31,
1999, 1998, 1997, 1996 and 1995 is set forth under "Item 6. Selected Financial
Data." The Partnership capital as of December 31, 1999 was $43,965,446.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership does
not engage in sales of goods or services or own any long lived assets, and
therefore this item is not applicable.
Item 2. Properties.
The Partnership does not own or lease any properties. The General
Partner operates out of facilities provided by its affiliate, SSB.
Item 3. Legal Proceedings.
There have been no material administrative, civil or criminal actions
within the past five years against SSB or any of its individual principals and
no such actions are currently pending, except as follows.
5
In September 1992, Harris Trust and Savings Bank (as trustee for
Ameritech Pension Trust), Ameritech Corporation, and an officer of Ameritech
sued Salomon Brothers Inc ("SBI") and Salomon Brothers Realty Corporation
("SBRC") in the U.S. District Court for the Northern District of Illinois
(Harris Trust Savings Bank, not individually but solely as trustee for the
Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v. Salomon
Brothers Inc and Salomon Brothers Realty Corp.). The complaint alleged that
purchases by Ameritech Pension Trust from the Salomon entities of approximately
$20.9 million in participations in a portfolio of motels owned by Motels of
America, Inc. and Best Inns, Inc. violated the Employee Retirement Income
Security Act ("ERISA"), the Racketeer Influenced and Corrupt Organization Act
("RICO") and state law. SBI had acquired the participations issued by Motels of
America and Best Inns to finance purchases of motel portfolios and sold 95% of
three such issues and 100% of one such issue to Ameritech Pension Trust.
Ameritech Pension Trust's complaint sought (1) approximately $20.9 million on
the ERISA claim, and (2) in excess of $70 million on the RICO and state law
claims as well as other relief. In various decisions between August 1993 and
July 1999, the courts hearing the case have dismissed all of the allegations in
the complaint against the Salomon entities. In October 1999, Ameritech appealed
to the U.S. Supreme Court and in January 2000, the Supreme Court agreed to hear
the case and oral argument will be heard April 17, 2000. The appeal seeks review
of the decision of the U.S. Court of Appeals for the Seventh Circuit that
dismissed the sole remaining ERISA claim against the Salomon entities
6
Both the Department of Labor and the Internal Revenue Service ("IRS")
have advised SBI that they were or are reviewing the transactions in which
Ameritech Pension Trust acquired such participations. With respect to the IRS
review, SSBHI, SBI and SBRC have consented to extensions of time for the
assessment of excise taxes that may be claimed to be due with respect to the
transactions for the years 1987, 1988 and 1989. As of the date of this report,
the IRS has not issued such 30-day letters to SSBHI, SBI or SBRC.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
SSB, in the U.S. Bankruptcy Court for the Central District of California.
(County of Orange et al. v. Bear Stearns & Co. Inc. et al.) The complaint
alleged, among other things, that the brokerage firms recommended and sold
unsuitable securities to Orange County. SSB and the remaining brokerage firms
settled with Orange County in mid 1999.
In June 1998, complaints were filed in the U.S. District Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City Debt
of the City of New Orleans v. Smith Barney Inc. et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
determination that Smith Barney Inc. and another underwriter will be responsible
for any damages that the City may incur in the event the IRS denies tax exempt
7
status to the City's General Obligation Refunding Bonds Series 1991. The
complaints were subsequently amended. SSB has asked the court to dismiss the
amended complaints. In May 1999, the Court denied SSB's motion to dismiss, but
stayed the litigation because the matter was not ripe. In March 2000, the city
filed a notice of discontinuance dismissing the complaint.
In November 1998, a class action complaint was filed in the United
States District Court for the Middle District of Florida (Dwight Brock as Clerk
for Collier County v. Merrill Lynch, et al.). The complaint alleged that,
pursuant to a nationwide conspiracy, 17 broker-dealer defendants, including SSB,
charged excessive mark-ups in connection with advanced refunding transactions.
Among other relief, plaintiffs sought compensatory and punitive damages,
restitution and/or rescission of the transactions and disgorgement of alleged
excessive profits. In October 1999, the plaintiff filed a second amended
complaint. SSB has asked the court to dismiss the amended complaint.
In connection with the Louisiana and Florida matters, the IRS and SEC
have been conducting an industry-wide investigation into the pricing of Treasury
securities in advanced refunding transactions.
In December 1998, SSB was one of twenty-eight market making firms that
reached a settlement with the SEC in the matter titled In the Matter of Certain
Market Making Activities on NASDAQ. As part of the settlement of that matter,
SSB, without admitting or denying the factual allegations, agreed to an order
that required that it: (i) cease and desist from committing or causing any
violations of Sections 15(c)(1) and (2) of the Securities Exchange Act of 1934
8
and Rules 15c1-2, 15c2-7 and 17a-3 thereunder, (ii) pay penalties totaling
approximately $760,000, and (iii) submit certain policies and procedures to an
independent consultant for review.
In March 1999, a complaint seeking in excess of $250 million was filed
by a hedge fund and its investment advisor against SSB in the Supreme Court of
the State of New York, County of New York (MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc.). The complaint included allegations that, while
acting as prime broker for the hedge fund, SSB breached its contracts with
plaintiffs, misused their monies, and engaged in tortious (wrongful) conduct,
including breaching its fiduciary duties. SSB asked the court to dismiss the
complaint in full. In October 1999, the court dismissed the tort claims,
including the breach of fiduciary duty claims. The court allowed the breach of
contract and misuse of money claims to stand. In December 1999, SSB filed an
answer and asserted counterclaims against the investment advisor. In response to
plaintiff's motion to strike the counterclaims, in January 2000, SSB amended its
counterclaims against the investment advisor to seek indemnification and
contribution. Plaintiffs moved to strike SSB's amended counterclaims in February
2000. SSB will continue to contest this lawsuit vigorously.
In the course of its business, SSB, as a major futures commission
merchant and broker-dealer is a party to various claims and routine regulatory
investigations and proceedings that the general partner believes do not have a
material effect on the business of SSB.
9
Item 4. Submission of Matters to a Vote
of Security Holders.
There were no matters submitted to the security holders for a vote
during the last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There is
no established public trading market for the Units of Limited
Partnership Interest.
(b) Holders. The number of holders of Units of Partnership
Interest as of December 31, 1999 was 578.
(c) Distribution. The Partnership did not declare a distribution in
1999 or 1998.
(d) Use of Proceeds. There were no additional sales in the years ended
December 31, 1999, 1998 and 1997.
10
Item 6. Selected Financial Data. Realized and unrealized trading gains (losses),
interest income, net income (loss) and increase (decrease) in net asset value
per Unit for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 and
total assets at December 31, 1999, 1998, 1997, 1996 and 1995 were as follows:
1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- -----------
Realized and unrealized trading gains
(losses) net of brokerage commissions
and clearing fees of $3,470,260, $3,757,246,
$3,894,823, $3,740,843 and
$3,830,022, respectively $(11,456,894) $ 3,311,940 $ 9,213,687 $ 17,066,887 $ 20,679,606
Interest income 2,011,188 2,218,879 2,495,221 2,245,474 2,649,301
------------ ------------ ------------ ------------ ------------
$ (9,445,706) $ 5,530,819 $ 11,708,908 $ 19,312,361 $ 23,328,907
============ ============ ============ ============ ============
Net income (loss) $(12,246,876) $ 1,967,059 $ 7,618,700 $ 14,323,795 $ 19,082,887
============ ============ ============ ============ ============
Increase (decrease) in net
asset value per unit $ (570.57) $ 92.64 $ 299.35 $ 487.33 $ 484.87
============ ============ ============ ============ ============
Total assets $ 44,833,263 $ 63,965,039 $ 65,733,567 $ 69,175,823 $ 58,773,443
============ ============ ============ ============ ============
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods
or services. Its only assets are its commodity futures trading account,
consisting of cash, net unrealized appreciation (depreciation) on open futures
contracts, commodity options, if applicable, and interest receivable. Because of
the low margin deposits normally required in commodity futures trading,
relatively small price movements may result in substantial losses to the
Partnership. Such substantial losses could lead to a material decrease in
liquidity. To minimize this risk, the Partnership follows certain policies
including:
(1) Partnership funds are invested only in commodity contracts
which are traded in sufficient volume to permit, in the opinion of the Advisor,
ease of taking and liquidating positions.
(2) The Partnership diversifies its positions among various
commodities. The Advisor does not initiate additional positions in any commodity
for the Partnership if such additional positions would result in aggregate
positions for all commodities requiring a margin of more than 66-2/3% of net
assets of the Partnership managed by the Advisor.
(3) The Partnership may occasionally accept delivery of a
commodity. Unless such delivery is disposed of promptly by retendering the
warehouse receipt representing the delivery to the appropriate clearing house,
the physical commodity position is fully hedged.
12
(4) The Partnership does not employ the trading technique
commonly known as "pyramiding," in which the speculator uses unrealized profits
on existing positions as margin for the purchases or sale of additional
positions in the same or related commodities.
(5) The Partnership does not utilize borrowings except
short-term borrowings if the Partnership takes delivery of any cash commodities.
(6) The Advisor may, from time to time, employ trading
strategies such as spreads or straddles on behalf of the Partnership. The term
"spread" or "straddle" describes a commodity futures trading strategy involving
the simultaneous buying and selling of futures contracts on the same commodity
but involving different delivery dates or markets and in which the trader
expects to earn a profit from a widening or narrowing of the difference between
the prices of the contracts. The Partnership is party to financial instruments
with off-balance sheet risk, including derivative financial instruments and
derivative commodity instruments, in the normal course of its business. These
financial instruments 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 currencies or cash flows, or to
purchase or sell other financial instruments at specified terms at specified
future dates. Each of these instruments is subject to various risks similar to
13
those relating to the underlying financial instruments including market and
credit risk. The General Partner monitors and controls the Partnership risk
exposure on a daily basis through financial, credit and risk management
monitoring systems and, accordingly believes that it has effective procedures
for evaluating and limiting the credit and market risks to which the Partnership
is subject. (See also Item 8. Financial Statements and Supplementary Data, for
further information on financial instrument risk included in the notes to
financial statements). Other than the risks inherent in commodity futures
trading, the Partnership knows of no trends, demands, commitments, events or
uncertainties which will result in or which are reasonably likely to result in
the Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the Partnership will cease trading
operations and liquidate all open positions under certain circumstances
including a decrease in net asset value per Unit to less than $350 as of the
close of business on any business day.
(b) Capital resources. (i) The Partnership has made no material
commitments for capital expenditures.
(ii) The Partnership' capital consists of the capital contributions
of the partners as increased or decreased by gains or losses on commodity
futures trading and by expenses, interest income, redemptions of Units and
14
distributions of profits, if any. Gains or losses on commodity futures trading
cannot be predicted. Market moves in commodities are dependent upon fundamental
and technical factors which the Partnership may or may not be able to identify.
Partnership expenses will consist of, among other things, commissions,
management, administrative, and incentive fees. The level of these expenses is
dependent upon the level of trading gains or losses and the ability of the
Advisor to identify and take advantage of price movements in the commodity
markets, in addition to the level of Net Assets maintained. In addition, the
amount of interest income payable by SSB is dependent upon interest rates over
which the Partnership has no control.
For the year ended December 31, 1999, 2,608.2147 Units were redeemed
totaling $6,570,181. For the year ended December 31, 1998, 1,404.7117 Units were
redeemed totaling $3,479,591. For the year ended December 31, 1997, 2,232.5764
Units were redeemed totaling $5,398,970.
Units of Limited Partnership Interest were sold to persons and entities who
are accredited investors as that term is defined in rule 501(a) of Regulation D
as well as to those persons who are not accredited investors but who have either
a net worth (exclusive of home, furnishings and automobile) either individually
or jointly with the investor=s spouse of at least three times his investment in
the Partnership (the minimum investment for which is $50,000) or gross income
for the two previous years and projected gross income for the current fiscal
year of not less than three times his investment in the Partnership for each
year.
15
(c) Results of Operations. For the year ended December 31, 1999, the Net
Asset Value Per Unit decreased 21.1% from $2,701.83 to $2,131.26. For the year
ended December 31, 1998, the Net Asset Value per Unit increased 3.6% from
$2,609.19 to $2,701.83. For the year ended December 31, 1997, the Net Asset
Value per Unit increased 13.0% from $2,309.84 to $2,609.19.
The Partnership experienced net trading losses of $7,986,634 before
commissions and expenses for the year ended December 31, 1999. Losses were
attributable to the trading of indices, metals, U.S. and non-U.S. interest rates
futures contracts and were partially offset by gains incurred in the trading of
commodity futures in currencies.
The Partnership experienced net trading gains of $7,069,186 before
commissions and expenses for the year ended December 31, 1998. Gains were
attributable to the trading of U.S. and non-U.S. interest rate futures contracts
and were partially offset by losses incurred in the trading of commodity futures
in currencies, metals and indices.
The Partnership experienced net trading gains of $13,108,510 before
commissions and expenses for the year ended December 31, 1997. Gains were
attributable to the trading of commodity futures in metals, currencies, indices
and U.S. and non-U.S. interest rates products.
16
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisor to
identify those price trends correctly. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
(d) Operational Risk
The Partnership is directly exposed to market risk and credit risk, which arise
in the normal course of its business activities. Slightly less direct, but of
critical importance, are risks pertaining to operational and back office
support. This is particularly the case in a rapidly changing and increasingly
global environment with increasing transaction volumes and an expansion in the
number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership is subject
17
to increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.
Technological Risk - the risk of loss
attributable to technological limitations or hardware failure that constrain the
Partnership's ability to gather, process, and communicate information
efficiently and securely, without interruption, with customers, among units
within the Partnership, and in the markets where the Partnership participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
unitholder, creditors, and regulators, is free of material errors.
18
Risk of Computer System Failure (Year 2000 Issue)
SSBHI's computer systems and business processes successfully handled the
date change from December 31, 1999 to January 1, 2000. SSBHI is not aware of any
significant year 2000 problems encountered internally or with the third parties
with which it interfaces, including customers and counterparties, the global
financial market infrastructure, and the utility infrastructure on which all
corporations rely.
Based on operations since January 1, 2000, SSBHI does not expect any
significant impact to its ongoing business as a result of the year 2000 issue.
However, it is possible that the full impact of year 2000 issues has not been
fully recognized and no assurances can be given that year 2000 problems will not
emerge
The pretax costs associated with required system modifications and
conversions totaled approximately $130 million. These costs were funded through
operating cash flow and expensed in the period in which they were incurred.
The expenditures and the General Partner's resources dedicated to the
preparation for Year 2000 do not and will not have a material impact on the
operation or results of the Partnership.
The most likely and most significant risk to the Partnership associated
with the lack of Year 2000 readiness is the failure of outside organizations,
including the commodities exchanges, clearing organizations, or regulators with
which the Partnership interacts to resolve their Year 2000
19
issues in a timely manner. This risk could involve the inability to determine
the value of the Partnership at some point in time and would make effecting
purchases or redemptions of Units in the Partnership infeasible until such
valuation was determinable.
(e) New Accounting Pronouncements
The Partnership adopted Statement on Financial Accounting Standards No. 133
("SFAS 133"), Accounting For Derivative Financial Instruments and Hedging
Activities, on January 1, 1999. SFAS 133 requires that an entity recognize all
derivative instruments in the statement of financial condition and measure those
financial instruments at fair value. SFAS 133 has no impact on the Partners'
Capital and operating results as all derivative instruments are recorded at fair
value, with changes therein reported in the statement of income and expenses.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Partnership 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 Partnership'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 Partnership's main line of business.
Market movements result in frequent changes in the fair market value of
20
the Partnership's open positions and, consequently, in its earnings and cash
flow. The Partnership'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 market value of financial instruments and contracts, the
diversification results among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership 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 Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership'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 Partnership's losses in any market sector will be
21
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's
market risk exposures contain "forward-looking statements" within the meaning of
the safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor except for statements of historical
fact (such as the terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by
the Advisor is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized or unrealized).
Exchange maintenance margin requirements have been
used by the Partnership 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. The maintenance margin levels are established
22
by dealers and exchanges using historical price studies as well as an assessment
of current market volatility (including the implied volatility of the options on
a given futures contract) and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
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.
In the case of market sensitive instruments which are not exchange
traded (almost exclusively currencies in the case of the Partnership), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
In quantifying the Partnership's Value at Risk, 100% positive
correlation in the different positions held in each market risk category has
been assumed. Consequently, the margin requirements applicable to the open
contracts have simply been added to determine each trading category's aggregate
Value at Risk. The diversification effects resulting from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have not
been reflected.
23
The Partnership's Trading Value at Risk in Different Market Sectors.
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of December 31, 1999. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 1999, the
Partnership's total capitalization was $43,965,446.
December 31, 1999
Year to Date
of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------
Currencies
- - OTC Contract $1,999,228 4.54% $2,671,542 $1,524,655
Interest Rates U.S. 677,000 1.54% 1,122,400 626,785
Interest Rates Non-U.S 820,326 1.87% 4,435,416 1,416,457
Metals 886,000 2.01% 1,491,200 768,000
Indices 693,031 1.58% 1,802,808 1,788,500
---------- -----
Total $5,075,585 11.54%
========== =====
24
As of December 31, 1998, the Partnership's total capitalization was $62,782,503.
December 31, 1998
% of Total
Market Sector Value at Risk Capitalization
Currencies
- - OTC Contract $ 716,040 1.14%
Interest Rate U.S. 922,600 1.47%
Interest Rate Non-U.S 3,909,049 6.23%
Metals 137,600 0.22%
---------- ----
Total $5,685,289 9.06%
========== ====
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable maintenance margin requirement (margin
requirements generally range between 2% and 15% of contract face value) as well
as, many times, the capitalization of the Partnership. The magnitude of the
Partnership's open positions creates a "risk of ruin" not typically found in
most other investment vehicles. Because of the size of its positions, certain
market conditions -- unusual, but historically recurring from time to time --
could cause the Partnership to incur severe losses over a short period of time.
The foregoing Value at Risk table -- as well as the past performance of the
Partnership -- give no indication of this "risk of ruin."
25
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, these balances (as well as any market
risk they represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership's primary market risk exposures as well as the
strategies used and to be used by the General Partner and the Advisors for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
26
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Partnership.
There can be no assurance that the Partnership's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long-term. Investors must
be prepared to lose all or substantially all of their investment in the
Partnership.
The following were the primary trading risk exposures of the Partnership as
of December 31, 1999, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of the
Partnership. Interest rate movements directly affect the price of the futures
positions held by the Partnership and indirectly the value of its stock index
and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future.
27
The changes in interest rates which have the most effect on the Partnership are
changes in long-term, as opposed to short-term, rates. Consequently, even a
material change in short-term rates would have little effect on the Partnership
were the medium- to long-term rates to remain steady.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership's major exposures have typically
been in the dollar/yen, dollar/mark and dollar/pound positions. The General
Partner does not anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future. The currency trading Value at
Risk figure includes foreign margin amounts converted into U.S. dollars with an
incremental adjustment to reflect the exchange rate risk inherent to the
dollar-based Partnership in expressing Value at Risk in a functional currency
other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity
price risk in the G-7 countries. The stock index futures traded by the
Partnership are by law limited to futures on broadly based indices. Although the
Partnership does trade stock indices such as the Financial Times (England) and
Nikkei (Japan), at December 31, 1999. The Partnership held no open positions in
these instruments. The General Partner anticipates little, if any, trading in
28
non-G-7 stock indices. The Partnership is primarily exposed to the risk of
adverse price trends or static markets in the major U.S., European and Japanese
indices. (Static markets would not cause major market changes but would make it
difficult for the Partnership to avoid being "whipsawed" into numerous small
losses.)
Metals. The Partnership's primary metal market exposure is to
fluctuations in the price of gold. Although the Advisor will from time to time
trade base metals such as aluminum, copper and tin, the principal market
exposures of the Partnership have consistently been in the precious metals, gold
and silver. The Advisor's gold trading has been increasingly limited due to the
long-lasting and mainly non-volatile decline in the price of gold over the last
10-15 years. However, silver prices have remained volatile over this period, and
the Advisor has from time to time taken substantial positions as they have
perceived market opportunities to develop.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the
Partnership as of December 31, 1999.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds and French francs.
The Advisor regularly converts foreign currency balances to dollars in an
attempt to control the Partnership's non-trading risk.
29
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Partnership's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject.
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisor concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require the Advisor to close out individual
positions as well as enter certain positions traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partner primarily relies on the Advisor's own risk control policies
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
The Advisor applies its own risk management policies to its trading.
The Advisor often follows diversification guidelines, margin limits and stop
loss points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
30
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
31
Item 8. Financial Statements and Supplementary Data.
SHEARSON MID-WEST FUTURES FUND
INDEX TO FINANCIAL STATEMENTS
Page
Number
Oath or Affirmation F-2
Report of Independent Accountants. F-3
Financial Statements:
Statement of Financial Condition at
December 31, 1999 and 1998. F-4
Statement of Income and Expenses for
the years ended December 31, 1999,
1998 and 1997. F-5
Statement of Partners' Capital for the
years ended December 31, 1999, 1998,
and 1997. F-6
Notes to Financial Statements. F-7 - F-10
F-1
Continued
To The Limited Partners of
Shearson Mid-West Futures Fund
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel A. Dantuono, Chief Financial Officer
Smith Barney Futures Management LLC.
General Partner, Shearson Mid-West
Futures Fund
Smith Barney Futures Management LLC
390 Greenwich Street
1st Floor
New York, N.Y. 10013
212-723-5424
F-2
Report of Independent Accountants
To the Partners of
Shearson Mid-West Futures Fund:
In our opinion, the accompanying statement of financial condition and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Shearson Mid-West
Futures Fund at December 31, 1999 and 1998, and the results of its operations
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the management of the General
Partner; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the management of
the General Partner, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 25, 2000
F-3
Shearson Mid-West Futures Fund
Statement of Financial Condition
December 31, 1999 and 1998
1999 1998
Assets:
Equity in commodity futures trading account:
Cash (Note 3c) $ 44,743,618 $ 57,448,807
Net unrealized appreciation (depreciation)
on open futures contracts (68,584) 6,340,737
------------ ------------
44,675,034 63,789,544
Interest receivable 158,229 175,495
------------ ------------
$ 44,833,263 $ 63,965,039
------------ ------------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 224,166 $ 319,825
Management fees 148,501 212,009
Administrative fees 37,125 53,002
Professional fees 56,758 31,909
Other 2,075 10,571
Redemptions payable (Note 5) 399,192 555,220
------------ ------------
867,817 1,182,536
------------ ------------
Partners' capital (Notes 1, 5, and 6):
General Partner, 322.1307 Unit equivalents
outstanding in 1999 and 1998 686,544 870,342
Limited Partners, 20,306.6804 and
22,914.8951 Units of Limited
Partnership Interest outstanding
in 1999 and 1998, respectively 43,278,902 61,912,161
------------ ------------
43,965,446 62,782,503
----------- ------------
$ 44,833,263 $ 63,965,039
------------- -------------
See notes to financial statements.
F-4
Shearson Mid-West Futures Fund
Statement of Income and Expenses
for the years ended
December 31, 1999, 1998 and 1997
1999 1998 1997
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses) on closed
positions $ (1,577,313) $ 3,782,053 $ 11,287,479
Change in unrealized gains
(losses) on open positions (6,409,321) 3,287,133 1,821,031
------------ ------------ ------------
(7,986,634) 7,069,186 13,108,510
Less, brokerage commissions including
clearing fees of $49,605, $47,294 and
$48,998, respectively (Note 3c) (3,470,260) (3,757,246) (3,894,823)
------------ ------------ ------------
Net realized and unrealized gains (losses) (11,456,894) 3,311,940 9,213,687
Interest income (Note 3c) 2,011,188 2,218,879 2,495,221
------------ ------------ ------------
(9,445,706) 5,530,819 11,708,908
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 2,186,172 2,342,517 2,494,842
Incentive fees (Note 3b) -- 573,485 913,533
Administrative fees (Note 3a) 546,541 585,630 623,709
Professional fees 63,670 48,346 51,282
Other expenses 4,787 13,782 6,842
------------ ------------ ------------
2,801,170 3,563,760 4,090,208
------------ ------------ ------------
Net income (loss) $(12,246,876) $ 1,967,059 $ 7,618,700
------------ ------------ ------------
Net income (loss) per Unit of Limited
Partnership Interest and General Partner
Unit equivalent (Notes 1 and 6) $ (570.57) $ 92.64 $ 299.35
------------ ------------ ------------
See notes to financial statements.
F-5
Shearson Mid-West Futures Fund
Statement of Partners' Capital
for the years ended
December 31, 1999, 1998, and 1997
Limited General
Partners Partner Total
Partners' capital at December 31, 1996 $ 61,331,235 $ 744,070 $ 62,075,305
Net income 7,522,270 96,430 7,618,700
Redemption of 2,232.5764 Units of
Limited Partnership Interest (5,398,970) -- (5,398,970)
------------ ------------ ------------
Partners' capital at December 31, 1997 63,454,535 840,500 64,295,035
Net income 1,937,217 29,842 1,967,059
Redemption of 1,404.7117 Units of
Limited Partnership Interest (3,479,591) -- (3,479,591)
------------ ------------ ------------
Partners' capital at December 31, 1998 61,912,161 870,342 62,782,503
Net loss (12,063,078) (183,798) (12,246,876)
Redemption of 2,608.2147 Units of
Limited Partnership Interest (6,570,181) -- (6,570,181)
------------ ------------ ------------
Partners' capital at December 31, 1999 $ 43,278,902 $ 686,544 $ 43,965,446
------------ ------------ ------------
See notes to financial statements.
F-6
Shearson Mid-West Futures Fund
Notes to Financial Statements
1. Partnership Organization:
Shearson Mid-West Futures Fund (the "Partnership") is a limited partnership
which was organized on August 21, 1991 under the partnership laws of the
State of New York to engage in the speculative trading of a diversified
portfolio of commodity interests including futures contracts, options and
forward contracts. The commodity interests that are traded by the
Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell up to 40,000 Units of Limited Partnership
Interest ("Units") during the offering period.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The General Partner changed its form
of organization from a corporation to a limited liability company on October
1, 1999. 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.
The General Partner and each limited partner share in the profits and losses
of the Partnership in proportion to the amount of partnership interest owned
by each except that no limited partner shall be liable for obligations of
the Partnership in excess of his initial capital contribution and profits,
if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the following:
December 31, 2011; when the net asset value of a Unit decreases to less than
$350 as of the close of business on any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at fair value on the
last business day of the year, 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 year. Realized gains (losses) and changes in
unrealized values on commodity interests are recognized in the period in
which the contract is closed or the changes occur and are included in net
gains (losses) on trading of commodity interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
F-7
Shearson Mid-West Futures Fund
Notes to Financial Statements
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership. The Partnership will pay the General
Partner a monthly administrative fee in return for its services to the
Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets of
the Partnership. This fee may be increased or decreased at the discretion
of the General Partner.
b. Management Agreement:
The Management Agreement that the General Partner, on behalf of the
Partnership, entered into with the Advisor (John W. Henry & Company,
Inc.), provides that the Advisor has sole discretion in determining the
investment of the assets of the Partnership allocated to the Advisor by
the General Partner. As compensation for services, the Partnership is
obligated to pay the Advisor a monthly management fee of 1/3 of 1% (4%
per year) of month-end Net Assets managed by the Advisor and an incentive
fee, payable quarterly, equal to 15% of the New Trading Profits, as
defined in the Management Agreement, of the Partnership.
c. Customer Agreement:
The Partnership has entered into a Customer Agreement which was assigned
to SSB (from a predecessor company) whereby SSB provides services which
include, among other things, the execution of transactions for the
Partnership's account in accordance with orders placed by the Advisor.
The Partnership is obligated to pay a monthly brokerage fee to SSB equal
to 1/2 of 1% of month-end Net Assets (6% per year), in lieu of brokerage
commissions on a per trade basis. A portion of this fee is paid to
employees of SSB who have sold Units of the Partnership. This fee does
not include exchange, clearing, user, give-up, floor brokerage and NFA
fees which will be borne by the Partnership. All of the Partnership's
assets are deposited in the Partnership's account at SSB. The
Partnership's cash is deposited by SSB in segregated bank accounts, to
the extent required by Commodity Futures Trading Commission regulations.
At December 31, 1999 and 1998, the amount of cash held for margin
requirements was $5,622,614 and $6,056,359, respectively. SSB will pay
the Partnership interest on 80% of the average daily equity maintained in
cash in its account during each month at the rate of the average
non-competitive yield of 13-week U.S. Treasury Bills as determined at the
weekly auctions thereof during the month. The Customer Agreement between
the Partnership and SSB gives the Partnership the legal right to net
unrealized gains and losses. The Customer Agreement may be terminated by
either party.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety
of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
F-8
Shearson Mid-West Futures Fund
Notes to Financial Statements
All of the commodity interests owned by the Partnership are held for trading
purposes. The average fair value during the years ended December 31, 1999
and 1998, based on a monthly calculation, was $2,304,096 and $3,792,199,
respectively. The fair value of these commodity interests, including options
thereon, if applicable, at December 31, 1999 and 1998, was $(68,584) and
$6,340,737, respectively, as detailed below.
Fair Value
December 31, December 31,
1999 1998
Currencies:
-OTC Contracts $ (668,860) $ 332,575
Interest Rates U.S. 529,988 (462,275)
Interest Rates Non-U.S 189,104 6,473,917
Metals (250,490) (3,480)
Indices 131,674 --
----------- -----------
Total $ (68,584) $ 6,340,737
----------- -----------
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, a limited partner may redeem all or some of his
Units (minimum 20 Units) at the Net Asset Value as of the last day of any
month ending at least one month after trading commences on fifteen days
written notice to the General Partner, provided that no redemption may
result in the limited partner holding fewer than twenty Units after such
redemption is effected.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997
Net realized and unrealized gains (losses) $ (534.56) $ 148.70 $ 361.46
Interest income 92.51 91.81 95.57
Expenses (128.52) (147.87) (157.68)
--------- --------- ---------
Increase (decrease) for year (570.57) 92.64 299.35
Net asset value per Unit, beginning of year 2,701.83 2,609.19 2,309.84
--------- --------- ---------
Net asset value per Unit, end of year $ 2,131.26 $ 2,701.83 $ 2,609.19
--------- --------- ---------
7. Financial Instrument Risks:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments 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 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
F-9
Shearson Mid-West Futures Fund
Notes to Financial Statements
of these instruments is subject to various risks similar to those related to
the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the transactions
(see table in Note 4). The Partnership's risk of loss in the event of
counterparty default is typically limited to the amounts recognized in the
statement of financial condition and not represented by the contract or
notional amounts of the instruments. The Partnership has concentration risk
because the sole counterparty or broker with respect to the Partnership's
assets is SSB.
The General Partner monitors and controls the Partnership's risk exposure on
a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership
is subject. These monitoring systems allow the General Partner to
statistically analyze actual trading results with risk-adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.
The notional or contractual amounts of these instruments, while
appropriately not recorded in the financial statements, reflect the extent
of the Partnership's involvement in these instruments. The majority of these
instruments mature within one year of December 31, 1999. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity.
8. Subsequent Event:
There were additional redemptions as of January 31, 2000 representing
436.9123 Units of Limited Partnership Interest totaling $897,885.
9. New Accounting Pronouncements:
The Partnership adopted Statement on Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Financial Instruments and Hedging
Activities, on January 1, 1999. SFAS 133 requires that an entity recognize
all derivative instruments in the statement of financial condition and
measure those financial instruments at fair value. SFAS 133 has no impact on
Partners' Capital and operating results as all derivative instruments are
recorded at fair value, with changes therein reported in the statement of
income and expenses.
F-10
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the last two fiscal years and any subsequent interim period, no
independent accountant who was engaged as the principal accountant to audit
the Partnership's financial statements has resigned or was dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are
managed by its General Partner, Smith Barney Futures Management LLC. Investment
decisions are made by John W. Henry & Company, Inc. (the "Advisor").
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed
by Smith Barney Futures Management LLC, its General Partner, which receives
compensation for its services, as set forth under "Item 1. Business." SSB, an
affiliate of the General Partner, is the commodity broker for the Partnership
and receives brokerage commissions for such services, as described under "Item
1. Business." During the year ended December 31, 1999, SSB earned $3,470,260
in brokerage commissions and clearing fees. The Advisor earned $2,186,172
in management fees during 1999. The General Partner earned $546,541 in
administrative fees during 1999.
32
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. The Partnership
knows of no person who beneficially owns more than 5% of the Units outstanding.
(b). Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the General
Partner. The General Partner owns Units of general partnership interest
equivalent to 322.1307 (1.6%) Units of limited partnership interest as of
December 31, 1999.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Salomon Smith Barney Inc. and Smith Barney Futures Management LLC
would be considered promoters for purposes of item 404(d) of Regulation S-K. The
nature and the amounts of compensation each promoter will receive from the
Partnership are set forth under "Item 1. Business.", "Item 8. Financial
Statements and Supplementary Data." and "Item 11. Executive Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 1999
and 1998.
Statement of Income and Expenses for the years ended
December 31, 1999, 1998 and 1997.
33
Statement of Partners' Capital for the years ended December
31, 1999, 1998 and 1997.
(2) Financial Statement Schedules: Financial Data Schedule
for the year ended December 31, 1999.
(3) Exhibits:
3.1 - Certificate of Limited Partnership (previously
filed). 3.2 - Limited Partnership Agreement (previously
filed).
10.1 - Management Agreement among the Partnership, the General
Partner and John W. Henry & Company, Inc. (previously
filed).
10.2 - Customer Agreement between Partnership and Smith Barney
Shearson Inc. (previously filed).
10.3 - Form of Subscription Agreement (previously filed).
10.4 - Letter dated February 16, 1995 from General Partner to
John W. Henry & Company, Inc. extending Management
Agreement (previously filed).
10.5 - Letters extending Management Agreement with John W.
Henry & Company, Inc. for 1997 (filed as Exhibit 10.5
to Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference).
34
10.6.- Letter extending Management Agreement with John W.
Henry & Company, Inc. for 1998 (previously filed).
10.7.- Letter extending Management Agreement with John W.
Henry and Company, Inc. for 1999 (filed herein).
(b) Report on Form 8-K: None Filed
35
Supplemental Information To Be Furnished With Reports Filed Pursuant To Section
15(d) Of The Act by Registrants Which Have Not Registered Securities Pursuant To
Section 12 Of the Act.
Annual Report to Limited Partners
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York and State of New York on the 30th day of March 2000.
SHEARSON MID-WEST FUTURES FUND L.P.
By: Smith Barney Futures Management LLC
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this annual report on Form 10-K has been signed below by the following persons
in the capacities and on the date indicated.
/s/ David J. Vogel /s/ Jack H. Lehman III
David J. Vogel Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President
/s/ Michael R.Schaefer /s/ Daniel A. Dantuono
Michael R Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
37