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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, 2000
Commission File Number 0-24280
SHEARSON MID-WEST FUTURES FUND
(Exact name of registrant as specified in its charter)
New York 13-3634370
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management LLC
388 Greenwich St. - 7th Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
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 28, 2001, Limited Partnership Units with an aggregate value of
$30,799,322 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 ("Units") 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. Redemptions of Units for the years
ended December 31, 2000, 1999 and 1998 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 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, forwards and options contracts,
if applicable, on commodities is done on United States of America 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
will make all commodity trading decisions for the Partnership. The Advisor is
3
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, for the period
January 1, 2000 through September 30, 2000, the Partnership was 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. Effective October 1, 2000, the Partnership is
obligated to pay the Advisor a monthly management fee 1/6 of 1% (2% per year) of
month-end Net Assets managed by the Advisor and an incentive fee, payable
quarterly, equal to 20% of the New Trading Profits.
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.
4
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.
(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,
2000, 1999, 1998, 1997 and 1996 is set forth under "Item 6. Selected Financial
Data." The Partnership capital as of December 31, 2000 was $32,383,889.
(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.
5
Item 3. Legal Proceedings.
Salomon Smith Barney Inc, ("SSB") is a New York corporation with its
principal place of business at 388 Greenwich St., New York, New York 10013. SSB
is registered as a broker-dealer and futures commission merchant ("FCM"), and
provides futures brokerage and clearing services for institutional and retail
participants in the futures markets. SSB and its affiliates also provide
investment banking and other financial services for clients worldwide.
There have been no administrative, civil or criminal actions pending,
on appeal or concluded against SSB or any of its individual principals within
the past five years that management believes may have a material impact on
SSB's ability to act as an FCM. In the ordinary course of its business, SSB is
a party to various claims and regulatory inquiries. Proceedings deemed to be
material for purposes of CFTC disclosure requirements are:
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 and Salomon Brothers Realty Corporation 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"),
6
the Racketeer Influenced and Corrupt Organization Act ('RICO") and state law.
Salomon Brothers Inc 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. An argument was heard on 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. In June
the Supreme Court reversed the Seventh Circuit and the matter has been remanded
to the Trial Courts.
Both the Department of Labor and the Internal Revenue Service have
advised Salomon Brothers Inc that they were or are reviewing the transactions
in which Ameritech Pension Trust acquired such participations. With respect to
the Internal Revenue Service review, Salomon Smith Barney Holdings, Salomon
Brothers Inc and Salomon Brothers Realty 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.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
7
Salomon Smith Barney, 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. Salomon Smith Barney 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 Internal Revenue
Service denies tax exempt status to the City's General Obligation Refunding
Bonds Series 1991. The complaints were subsequently amended. Salomon Smith
Barney has asked the court to dismiss the amended complaints. The Court denied
the motion but stayed the case. Subsequently, the city withdrew its lawsuit.
It 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
Salomon Smith Barney, charged excessive mark-ups in connection with advanced
refunding transactions. Among other relief, plaintiffs sought compensatory and
8
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. Salomon Smith Barney 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 April 2000 SSB and
several other broker-dealers entered into a settlement with the IRS and the
SEC.
In December 1998, Salomon Smith Barney 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, Salomon Smith Barney, 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 and Rules l5cl -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 Salomon Smith Barney 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, Salomon Smith Barney
9
breached its contracts with plaintiffs, misused their monies, and engaged in
tortious (wrongful) conduct, including breaching its fiduciary duties. Salomon
Smith Barney 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, Salomon Smith Barney will continue to contest this lawsuit vigorously.
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, 2000 was 418.
(c) Distribution. The Partnership did not declare a
distribution in 2000 or 1999.
(d) Use of Proceeds. There were no additional sales in the
years ended December 31, 2000, 1999 and 1998.
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, 2000, 1999, 1998, 1997 and 1996 and
total assets at December 31, 2000, 1999, 1998, 1997 and 1996 were as follows:
2000 1999 1998 1997 1996
----------- -------- ------------ ----------- -----------
Realized and unrealized
trading gains (losses)
net of brokerage commissions
and clearing fees of $2,050,642,
$3,470,260, $3,757,246, $3,894,823
and $3,740,843, respectively $ (2,016,503) $(11,456,894) $ 3,311,940 $ 9,213,687 $ 17,066,887
Interest income 1,516,605 2,011,188 2,218,879 2,495,221 2,245,474
------------ ------------ ------------ ------------ ------------
$ (499,898) $ (9,445,706) $ 5,530,819 $ 11,708,908 $ 19,312,361
============ ============ ============ ============ ============
Net income (loss) $ (2,033,102) $(12,246,876) $ 1,967,059 $ 7,618,700 $ 14,323,795
============ ============ ============ ============ ============
Increase (decrease) in net
asset value per unit $2.10 * $ (570.57) $ 92.64 $ 299.35 $ 487.33
============ ============ ============ ============ ============
Total assets $ 33,093,324 $ 44,833,263 $ 63,965,039 $ 65,733,567 $ 69,175,823
============ ============ ============ ============ ============
The amount shown per Unit in 2000 does not correspond with the net loss as
shown on the Statement of Income and Expenses for the year ended December 31,
2000 because of the timing of redemptions of the Partnership's Units in relation
to the fluctuating values of the Partnership's commodity interests.
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 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 interests
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 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's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity trading and
by expenses, interest income, redemptions of Units and distributions of profits,
if any. Gains or losses on commodity 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
14
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.
No forecast can be made as to the level of redemptions in any given period.
A limited partner may redeem all or some of his Units at the net asset value as
of the last day of any month on fifteen days written notice to the General
Partner. For the year ended December 31, 2000, 5,449.0614 Units were redeemed
totaling $9,548,455. 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.
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, 2000, the Net
Asset per Unit increased 0.1% from $2,131.26 to $2,133.36. 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.
The Partnership experienced net trading gains of $34,139 before commissions
and expenses in 2000. Gains were attributable to the trading of currencies,
energy products, grains, livestock and U.S. interest rates and were partially
offset by losses incurred in the trading of softs, non-U.S. interest rates,
metals and indices.
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 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 rates futures
contracts and were partially offset by losses incurred in the trading of
currencies, metals and indices.
Commodity markets are highly volatile. Broad price fluctuations and rapid
inflation increase the risks involved in commodity trading, but also increase
16
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
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.
17
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
unit holder, creditors, and regulators, is free of material errors
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
18
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
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
19
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
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
20
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 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.
The fair value of the Partnership's futures and forward positions does
not have any optionality component. However, certain of the Advisors trade
commodity options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option. Where this instrument is a futures contract, the futures
margin, and where this instrument is a physical commodity, the
futures-equivalent maintenance margin has been used. This calculation is
21
conservative in that it assumes that the fair value of an option will decline by
the same amount as the fair value of the underlying instrument, whereas, in
fact, the fair values of the options traded by the Partnership in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
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.
22
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, 2000. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 2000, the
Partnership's total capitalization was $32,383,889.
December 31, 2000
Year to Date
of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------------------
Currencies
- - Exchange Traded Contracts $ 70,308 0.22% $1,534,166 $ 32,852
- - OTC Contract 942,671 2.91% 2,563,782 315,355
Energy 678,400 2.09% 1,117,000 342,600
Grains 231,100 0.71% 680,450 53,050
Interest Rates U.S. 375,250 1.16% 898,500 145,640
Interest Rates Non-U.S 1,475,458 4.56% 3,179,004 451,562
Livestock 2,100 0.01% 42,200 2,100
Metals (Exchange Traded and
OTC Contracts) 160,750 0.50% 1,025,500 33,000
Softs 107,119 0.33% 249,145 44,467
Indices 542,048 1.67% 1,042,723 273,099
---------- ---------
Total $4,585,204 14.16%
========== =========
23
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 $1,107,108
Interest Rates U.S. 677,000 1.54% 1,122,400 444,000
Interest Rates Non-U.S 820,326 1.87% 4,435,416 72,652
Metals (Exchange Traded and
OTC Contracts) 886,000 2.01% 1,491,200 585,600
Indices 693,031 1.58% 1,802,808 278,359
---------- ----------
Total $5,075,585 11.54%
========== ==========
24
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."
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
25
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
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, 2000, by market sector.
26
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.
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 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.
27
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. As of
December 31, 2000, the Partnership's primary exposures were in the Financial
Times (England) and Nikkei (Japan) stock indices. The General Partner
anticipates little, if any, trading in 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 and silver. Although certain of the Advisors
will from time to time trade base metals such as aluminum and copper, the
principal market exposures of the Partnership have consistently been in the
precious metals, gold and silver. The General Partner anticipates that gold and
silver will remain the primary metals market exposure for the Partnership.
Softs. The Partnership's primary commodities exposure is to
agricultural price movements which are often directly affected by severe or
unexpected weather conditions. Cocoa, cotton and sugar accounted for the
substantial bulk of the Partnership's commodity exposure as of December 31,
2000.
Energy. The Partnership's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
28
Oil prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership
as of December 31, 2000.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, Euro dollar and Swiss francs. The Advisor
regularly converts foreign currency balances to dollars in an attempt to control
the Partnership's non-trading risk.
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.
29
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
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.
30
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, 2000 and 1999 F-4
Statement of Income and Expenses for
the years ended December 31, 2000,
1999 and 1998 F-5
Statement of Partners' Capital for the
years ended December 31, 2000, 1999
and 1998 F-6
Notes to Financial Statements F-7 - F-11
F-1
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
388 Greenwich Street
7th 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, 2000 and 1999, and the results of its operations
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
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 of America, 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 our
opinion.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2001
F - 3
Shearson Mid-West Futures Fund
Statement of Financial Condition
December 31, 2000 and 1999
2000 1999
Assets:
Equity in commodity futures trading account:
Cash (Note 3c) $ 27,457,873 $ 44,743,618
Net unrealized appreciation
(depreciation) on open positions 5,516,316 (68,584)
------------ ------------
32,974,189 44,675,034
Interest receivable 119,135 158,229
------------ ------------
$ 33,093,324 $ 44,833,263
------------ ------------
------------ ------------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 165,467 $ 224,166
Management fees 54,800 148,501
Administrative fees 27,400 37,125
Professional fees 45,154 56,758
Other 2,703 2,075
Redemptions payable (Note 5) 413,911 399,192
------------ ------------
709,435 867,817
------------ ------------
Partners' capital (Notes 1, 5 and 6):
General Partner, 322.1307 Unit equivalents
outstanding in 2000 and 1999 687,221 686,544
Limited Partners, 14,857.6190 and
20,306.6804 Units of Limited Partnership
Interest outstanding in 2000
and 1999, respectively 31,696,668 43,278,902
------------ ------------
32,383,889 43,965,446
------------ ------------
$ 33,093,324 $ 44,833,263
------------ ------------
------------ ------------
See notes to financial statements.
F - 4
Shearson Mid-West Futures Fund
Statement of Income and Expenses
for the years ended
December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses) on
closedpositions $ (5,550,761) $ (1,577,313) $ 3,782,053
Change in unrealized gains
(losses) on open positions 5,584,900 (6,409,321) 3,287,133
------------ ------------ ------------
34,139 (7,986,634) 7,069,186
Less, brokerage commissions
including clearing fees
of $34,920, $49,605 and
$47,294, respectively (Note 3c) (2,050,642) (3,470,260) (3,757,246)
------------ ------------ ------------
Net realized and unrealized
gains (losses) (2,016,503) (11,456,894) 3,311,940
Interest income (Note 3c) 1,516,605 2,011,188 2,218,879
------------ ------------ ------------
(499,898) (9,445,706) 5,530,819
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 1,156,751 2,186,172 2,342,517
Incentive fees (Note 3b) -- -- 573,485
Administrative fees (Note 3a) 325,552 546,541 585,630
Professional fees 40,789 63,670 48,346
Other expenses 10,112 4,787 13,782
------------ ------------ ------------
1,533,204 2,801,170 3,563,760
------------ ------------ ------------
Net income (loss) $ (2,033,102) $(12,246,876) $1,967,059
------------ ------------ ------------
------------ ------------ ------------
Net income (loss) per Unit of Limited
Partnership Interest and General
Partner Unit equivalent (Notes 1 and 6) $ 2.10* $ (570.57) $ 92.64
------------ ------------ ------------
------------ ------------ ------------
* The amount shown per Unit in 2000 does not correspond with the net loss as
shown on the Statement of Income and Expenses for the year ended December 31,
2000 because of the timing of redemptions of the Partnership's Units in relation
to the fluctuating values of the Partnership's commodity interests.
See notes to financial statements.
F - 5
Shearson Mid-West Futures Fund
Statement of Partners' Capital
for the years ended
December 31, 2000, 1999, and 1998
Limited General
Partners Partner Total
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
Net income (loss) (Note 6) (2,033,779) 677* (2,033,102)
Redemption of 5,449.0614 Units
of Limited Partnership Interest (9,548,455) -- (9,548,455)
------------ ------------ ------------
Partners' capital at December 31, 2000 $ 31,696,668 $ 687,221 $ 32,383,889
------------ ------------ ------------
------------ ------------ ------------
* The limited partners and General Partner allocation of net income (loss) does
not correspond due to the timing of the realization of income/loss and the
redemptions of limited partner Units during the year.
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 its initial offering period.
Smith Barney Futures Management LLC acts as the general partner (the "General
Partner") of the Partnership. 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 and foreign currencies are recognized in the period in
which the contract is closed or the changes occur and are included in net
gains (losses) on trading of commodity interests.
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
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 John W. Henry & Company, Inc. (the
"Advisor"), 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. For the period January 1, 2000 through September 30,
2000, the Partnership was obligated to pay the Advisor a monthly management
fee equal to 1/3 of 1% (4% per year) of month end Net Assets allocated to
the Advisor and an incentive fee payable quarterly equal to 15% of the New
Trading Profits, as defined in the Management Agreement. Effective October
1, 2000, the Partnership is obligated to pay the Advisor a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets
managed by the Advisor and an incentive fee, payable quarterly, equal to
20% 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, 2000 and
1999, the amount of cash held for margin requirements was $5,122,407 and
$5,622,614, 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.
F - 8
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.
All of the commodity interests owned by the Partnership are held for trading
purposes. The average fair value during the years ended December 31, 2000 and
1999, based on a monthly calculation, was $1,056,652 and $2,304,096,
respectively. The fair value of these commodity interests, including options
thereon, if applicable, at December 31, 2000 and 1999, was $5,516,316 and
$(68,584), respectively, as detailed below.
Fair Value
December 31, December 31,
2000 1999
----------- -----------
Currencies:
-Exchange Traded Contracts $148,250 $ --
-OTC 1,916,561 (668,860)
Energy 870,480 --
Grains 98,115 --
Interest Rates U.S. 1,184,843 529,988
Interest Rates Non-U.S. 967,964 189,104
Livestock 6,720 --
Metals (Exchange Traded and OTC Contracts) (51,941) (250,490)
Softs (97,168) --
Indices 472,492 131,674
---------- --------
Total $5,516,316 $(68,584)
---------- ---------
---------- ---------
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 at the Net Asset Value as of the last day of any month ending at least
one month after trading commenced on fifteen days written notice to the
General Partner.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit of Partnership interest for the years
ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
--------- --------- ---------
Net realized and unrealized
gains (losses) $1.58 $(534.56) $148.70
Interest income 84.05 92.51 91.81
Expenses (83.53) (128.52) (147.87)
--------- --------- ---------
Increase (decrease) for year 2.10* (570.57) 92.64
Net asset value per Unit,
beginning of year 2,131.26 2,701.83 2,609.19
--------- --------- ---------
Net asset value per Unit,
endof year $2,133.36 $2,131.26 $2,701.83
--------- --------- ---------
--------- --------- ---------
*The amount shown per Unit in 2000 does not correspond with the net loss as
shown on the Statement of Income and Expenses for the year ended December
31, 2000 because of the timing of redemptions of the Partnership's Units in
relation to the fluctuating values of the Partnership's commodity interests.
F - 9
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 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 credit risk and
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, 2000. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity.
F - 10
8. Subsequent Event:
There were additional redemptions as of January 31, 2001 representing 54.5630
Units of Limited Partnership Interest totaling $115,281.
Effective January 26, 2001, the Partnership transferred all of its assets to
the JWH Strategic Allocation Master Fund LLC, a New York limited liability
company (the "Master"), as a Non-Managing member. The Master was formed in
order to permit commodity pools managed now or in the future by the Advisor
using the Strategic Allocation Program to invest together in one trading
vehicle. The General Partner is the Managing Member of the Master. There will
be no material increase in expenses to investors as a result of investment in
the Master and redemption rights are not affected.
F - 11
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, 2000, SSB earned $2,050,642 in
brokerage commissions and clearing fees. The Advisor earned $1,156,751 in
management fees during 2000. The General Partner earned $325,552 in
administrative fees during 2000. The Advisor did not earn an incentive fee in
the year ended December 31, 2000.
31
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 (2.1%) Units of limited partnership interest as of
December 31, 2000.
(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, 2000 and 1999.
Statement of Income and Expenses for the years ended December
31, 2000, 1999 and 1998.
32
Statement of Partners' Capital for the years ended December 31,
2000, 1999 and 1998.
(2) Financial Statement Schedules: Financial Data Schedule for the
year ended December 31, 2000.
(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).
33
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 (previously filed).
10.8 - Letter extending Management Agreement with John W.
Henry & compay, Inc. for 2000 (filed herein).
(b) Report on Form 8-K: None Filed
34
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
35
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 2001.
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
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