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, 2001
Commission File Number 0-24280
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SHEARSON MID-WEST FUTURES FUND
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(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
388 Greenwich St. - 7th Fl.
New York, New York 10013
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(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
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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
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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, 2002, Limited Partnership Units with an aggregate value of
$25,271,788 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. From December 2, 1991 to January 25, 2001, the
Partnership engaged 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. 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, 2001, 2000 and
1999 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
Effective January 26, 2001, the Partnership transferred substantially all
of its assets in exchange for 31,509.8853 Units of the Master and a fair value
of $31,509,885 as a tax-free transfer to JWH Strategic Allocation Master Fund
LLC, a New York limited liability company (the "Master"). The Master was formed
in order to permit commodity pools managed now or in the future by John W. Henry
& Company, Inc. (the "Advisor") using the Strategic Allocation Program, the
Advisor's proprietary trading program, to invest together in one trading
vehicle. Smith Barney Futures Management LLC (the "General Partner") is the
general partner of the Partnership and the managing member of the Master.
Expenses to investors as a result of investment in the Master are approximately
the same and redemption rights are not affected.
At December 31, 2001, the Partnership owns 30.12% of the Master. It is the
Partnership's intention to continue to invest substantially all of its assets in
the Master. The performance of the Partnership is directly affected by the
performance of the Master.
Prior to January 26, 2001, the Partnership's commodity broker was 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. ("SSBH"),
which is the sole owner of SSB. SSBH is a wholly owned subsidiary of Citigroup
Inc.
The Master'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.
3
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 the Advisor, John W. Henry & Company, Inc., who
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, 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. For the period October 1, 2000 to January 25, 2001, the
Partnership was obligated to pay the Advisor a monthly management fee 1/6 of 1%
4
(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. Effective
January 26, 2001, the Partnership is obligated to pay the Advisor a monthly
management fee equal to 1/16 of 1% (2% per year) of month-end Net Assets
allocated pro-rata by the Master and an Incentive fee payable quarterly, equal
to 20% of the New Trading Profits allocated pro-rata by the Master, as defined
in the Management Agreement.
Prior to January 26, 2001, the Customer Agreement between the Partnership
and SSB (the "Customer Agreement") provided that the Partnership pay 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 ( the "brokerage"). SSB
pays a portion of its brokerage fees to its financial consultants who have sold
Units. This fee did not include National Futures Association ("NFA") fees,
exchange and clearing fees, give-up and user fees and floor brokerage fees which
were borne by the Partnership. Effective January 26, 2001, the Partnership is
obligated to pay the Brokerage Fee based on month-end Net Assets allocated
pro-rata from the Master. All exchange, clearing user, give-up, floor brokerage
and NFA fees will be borne by the Master and allocated pro-rata to the
Partnership through its investment in the Master. 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
5
Partnership the legal right to net unrealized gains and losses. The Customer
Agreement may be terminated upon notice 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. Effective January 26, 2001, SSB
will pay the Partnership interest on 80% of the average daily equity allocated
pro-rata to the Partnership by the Master during each month at the rate of the
average non-competitive yield of 13-week T-Bills as determined at the weekly
auctions thereof during the month.
(b) Financial information about 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, 2001, 2000, 1999,
1998 and 1997 is set forth under "Item 6. Selected Financial Data." The
Partnership's capital as of December 31, 2001 was $27,777,558.
(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 and
through the Partnership's investment in the Master does not engage in
6
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.
This section describes the major pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which Salomon Smith
Barney Holdings Inc. ("SSBH") or its subsidiaries is a party or to which any of
their property is subject. There are no material legal proceedings pending
against the Partnership or the General Partner.
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
7
to various claims and regulatory inquiries. Proceedings deemed to be material
for purposes of Commodity Futures Trading Commission ("CFTC") disclosure
requirements are:
In September 1992, Harris Trust and Savings Bank (as trustee for Ameritech
Pension Trust ("APT"), Ameritech Corporation, and an officer of Ameritech filed
suit against 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 second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest in a portfolio of motels owned by Best Inns,
Inc. ("Best"), violated the Employee Retirement Income Security Act ("ERISA"),
and that APT's purchase of the participation interests in the third MOA
portfolio and in the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and the Illinois Consumer Fraud and Deceptive
Practices Act ("Consumer Fraud Act"), and constituted fraud, negligent
misrepresentation, breach of contract and unjust enrichment. SBI had acquired
the participation interests when it purchased principal mortgage notes issued by
MOA and Best to finance purchases of motel portfolios; 95% of three of those
8
interests and 100% of the fourth were sold to APT for a total of approximately
$20.9 million. Plaintiffs' second amended complaint seeks judgment (a) on the
ERISA claims for the approximately $20.9 million purchase price, for rescission
and for disgorgement of profits, as well as other relief, and (b) on the RICO
and state law claims in the amount of $12.3 million, with damages trebled to $37
million on the RICO claims and punitive damages in excess of $37 million on
certain of the state law claims as well as other relief. Following motions by
defendants, the court dismissed the RICO, Consumer Fraud Act, fraud, negligent
misrepresentation, breach of contract, and unjust enrichment claims. The court
also found that defendants were not ERISA fiduciaries and dismissed two of the
three claims based on that allegation. Defendants moved for summary judgment on
plaintiffs' only remaining claim, which alleged an ERISA violation. The motion
was denied, and defendants appealed to the U.S. Court of Appeals for the Seventh
Circuit. In July 1999, the U. S. Court of Appeals for the Seventh Circuit
reversed the denial of defendants' motion for summary judgment and dismissed the
sole remaining ERISA claim against the Company. Plaintiffs filed a petition for
certiorari with the U. S. Supreme Court seeking review of the decision of the
Court of Appeals, which was granted in January 2000. After hearing oral
argument, on June 12, 2000, the U.S. Supreme Court reversed the U.S. Court of
Appeals for the Seventh Circuit's judgment, which had overturned the denial of
defendants' motion for summary judgment and dismissed the sole remaining ERISA
claim against the Company, and remanded the matter to the circuit court for
9
further proceedings. Subsequently, the circuit court remanded the matter to the
U.S. District Court for the Northern District of Illinois for further
proceedings.
Both the Department of Labor and the Internal Revenue Service ("IRS") have
advised SBI that they were or are reviewing the underlying transactions. With
respect to the IRS, SSBH, SBI and SBRC have consented to extensions of time for
the assessment of excise taxes that may be claimed with respect to the
transactions for the years 1987, 1988 and 1989. In August 1996, the IRS sent
SSBH, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters, which would actually commence the
assessment process. In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue such 30-day letters. Since
that time, the IRS has not issued such 30-day letters to SSBH, 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 Count. 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
10
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
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. The Court denied the motion but stayed the case.
Subsequently, the city withdrew the lawsuit.
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 November 1999, SSB
moved to dismiss the amended complaint. In May 2001, the parties reached, and
the court preliminarily approved, a tentative settlement. In September 2001, the
court approved the settlement.
In connection with the Louisiana and Florida matters, the IRS and SEC have
11
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, 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 allegation, 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 15cl -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.). Plaintiffs allege that while acting as their prime broker
SSB breached its contracts with plaintiffs, converted plaintiffs' monies and
engaged in tortious conduct, including breaching its fiduciary duties. In
October 1999, the court dismissed plaintiffs' tort claims, including the breach
of fiduciary duty claims, but allowed the breach of contract and conversion
claims to stand. In December 1999, SSB filed an answer and asserted
12
counterclaims against the investment advisor. In response to plaintiffs' 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. In
September 2000, the court denied plaintiffs' motion to dismiss SSB's
counterclaims based on indemnification and contribution. Discovery is ongoing.
SSBH and various subsidiaries have also been named as defendants in various
matters incident to and typical of the businesses in which they are engaged.
These include numerous civil actions, arbitration proceedings and other matters
in which SSBH's broker-dealer subsidiaries have been named, arising in the
normal course of business out of activities as a broker and dealer in
securities, as an underwriter of securities, as an investment banker or
otherwise. In the opinion of SSBH's management, none of these actions is
expected to have a material adverse effect on the results of operations,
consolidated financial condition or liquidity of SSBH and its subsidiaries.
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
public trading market for the Units of Limited Partnership Interest.
13
(b) Holders. The number of holders of Units of Partnership Interest as of
December 31, 2001 was 371.
(c) Distribution. The Partnership did not declare a distribution in 2001
or 2000.
(d) Use of Proceeds. There were no additional sales in the years ended
December 31, 2001, 2000 and 1999.
14
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, 2001, 2000, 1999, 1998 and 1997 and
total assets at December 31, 2001, 2000, 1999, 1998 and 1997 were as follows:
2001 2000 1999 1998 1997
----------- ------------ ------------ ----------- -----------
Realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $1,898,611, $2,050,642,
$3,470,260, $3,757,246 and
$3,894,823, respectively $ (737,462) (2,016,503) $(11,456,894) $ 3,311,940 $ 9,213,687
Interest income 844,912 1,516,605 2,011,188 2,218,879 2,495,221
------------ ------------ ------------ ------------ ------------
$ 107,450 $ (499,898) $ (9,445,706) $ 5,530,819 $ 11,708,908
============ ============ ============ ============ ============
Net income (loss) $ (845,590) $ (2,033,102) $(12,246,876) $ 1,967,059 $ 7,618,700
============ ============ ============ ============ ============
Increase (decrease) in Net
Asset Value per unit $ (64.74) $2.10* $ (570.57) $ 92.64 $ 299.35
============ ============ ============ ============ ============
Total assets $ 28,284,925 $ 33,093,324 $ 44,833,263 $ 63,965,039 $ 65,733,567
============ ============ ============ ============ ============
* 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,
2001 because of the timing of redemptions of the Partnership's Units in relation
to the fluctuating values of the Partnership's commodity interests.
15
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 investment in the Master, 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 and through its investment in the Master. Such substantial
losses could lead to a material decrease in liquidity. To minimize this risk,
the Master follows certain policies including:
(1) The Master 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 Master diversifies its positions among various commodities.
The Advisor does not initiate additional positions in any commodity for the
Master 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 Master
managed by the Advisor.
(3) The Master 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 clearinghouse, the physical
commodity position is fully hedged.
(4) The Master does not employ the trading technique commonly known as
"pyramiding," in which the speculator uses unrealized profits on existing
16
positions as margin for the purchases or sale of additional positions in the
same or related commodities.
(5) The Master does not utilize borrowings except short-term borrowings if
the Master 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 Master. 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, through its investment in the Master.
The Master is party to financial instruments with off-balance sheet risk,
including derivative financial instruments and derivative commodity instruments
in the normal course of its business. These financial instruments may include
forwards, futures and options, whose value is based upon an underlying asset,
index, or reference rate, and generally represent future commitments to exchange
currencies or cash flows, or to purchase or sell other financial instruments at
specified terms at specified future dates.
17
Each of these instruments is subject to various risks similar to those relating
to the underlying financial instruments including market and credit risk. The
General Partner monitors and controls the Partnership's and the Master's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems and, accordingly believes that it has effective procedures
for evaluating and limiting the credit and market risks to which the Master is
subject. (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 and the Master 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
18
in commodities are dependent upon fundamental and technical factors which the
Partnership through the Partnership's investment in the Master 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.
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, 2001, 1,751.6591 Units were redeemed
totaling $3,760,741. 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.
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
under the Securities Act of 1933 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
19
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.
(c) Results of Operations. For the year ended December 31, 2001, the Net
Asset Value per Unit decreased 3.0% from $2,133.36 to $2,068.62. For the year
ended December 31, 2000, the Net Asset Value 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.
The Partnership through, its investment in the Master experienced net
trading gains of $1,161,149 before commissions and expenses for the period from
January 26, 2001 to December 31, 2001. 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.
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
20
rates futures contracts and were partially offset by gains incurred in the
trading of currencies.
Commodity markets are highly volatile. Broad price fluctuations and rapid
inflation increase the risks involved in commodity trading, but also increase
the possibility of profit. The profitability of the Partnership and Master
depends on the existence of major price trends and the ability of the Advisor to
identify 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 and Master expect to increase capital through operations.
(d) Operational Risk
The Partnership, through its investment in the Master, 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
21
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership through the
Partnership's investment in the Master 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.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Partnership's and the Master's ability to
gather, process, and communicate information efficiently and securely, without
interruption, with customers, among Units within the Partnership and the Master,
and in the markets where the Partnership and the Master 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
unitholders, creditors, and regulators, is free of material errors.
22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Introduction
The Master is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss through its investment in the Master. Unlike an operating company, the risk
of market sensitive instruments is integral, not incidental, to the
Partnership's and the Master's main line of business.
Market movements result in frequent changes in the fair market value of the
Master's open positions and, consequently, in its earnings and cash flow. The
Master's and 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 Master's open positions and the liquidity
of the markets in which it trades.
The Master rapidly acquires and liquidates both long and short positions in
a wide range of different markets. Consequently, it is not possible to predict
how a particular future market scenario will affect performance, and the
Master's past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Master could
reasonably be expected to lose in a given market sector. However, the inherent
23
uncertainty of the Master's speculative trading and the recurrence in the
markets traded by the Master of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Master's experience to date (i.e., "risk of ruin"). In
light of the foregoing as well as the risks and uncertainties intrinsic to all
future projections, the inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Master's losses in any market sector will be limited to Value at Risk or by the
Master's attempts to manage its market risk.
Quantifying the Master's Trading Value at Risk.
The following quantitative disclosures regarding the Master's and 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 Master's and the Partnership's risk exposure in the various market
sectors traded by the Advisor is quantified below in terms of Value at Risk.
24
Due to the Master's mark-to-market accounting, any loss in the fair value of the
Master's open positions is directly reflected in the Master's earnings (realized
or unrealized) and cash flow.
Exchange maintenance margin requirements have been used by the Master as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. 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 the Master), 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 Master's futures and forward positions does not have
any optionality component. However, the Advisor trades commodity options.
25
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 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 Master in almost all cases fluctuate to a lesser extent than those of the
underlying instruments.
In quantifying the Master'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 the Master's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
26
The Master's Trading Value at Risk in Different Market Sectors.
The following table indicates the trading Value at Risk associated with the
Master's open positions by market category as of December 31, 2001. All open
position trading risk exposures of the Master have been included in calculating
the figures set forth below. As of December 31, 2001, the Master's total
capitalization was $93,677,938.
December 31, 2001
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- --------------------------------------------------------------------------------------------
Currencies
- - OTC Contracts $ 5,033,147 5.37% $5,602,634 $ 27,500
Energy 1,883,100 2.01% 2,347,700 475,900
Grains 255,000 0.27% 426,150 135,000
Interest Rates U.S. 1,017,700 1.09% 1,505,450 406,740
Interest Rates Non-U.S. 2,418,605 2.58% 4,042,034 1,021,936
Livestock 14,400 0.02% 14,400 7,000
Metals
- - Exchange Traded Contracts 394,000 0.42% 479,000 122,000
- - OTC Contracts 78,000 0.08% 292,900 77,500
Softs 318,264 0.34% 469,764 137,945
Indices 1,077,669 1.15% 1,883,559 943,944
----------- -----
Total $12,489,885 13.33%
=========== =====
27
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%
========== ======
28
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Master 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 Master. The magnitude of the Master'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 Master to incur severe losses over a short period of time. The
foregoing Value at Risk table -- as well as the past performance of the Master
- -- give no indication of this "risk of ruin".
Non-Trading Risk
The Master 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 Master's market
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures.
The following qualitative disclosures regarding the Master's market risk
exposures - except for (i) those disclosures that are statements of historical
29
fact and (ii) the descriptions of how the Master manages its primary market risk
exposures - constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Master's primary market risk exposures as well as the strategies
used and to be used by the General Partner and the Advisor for managing such
exposures are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Master'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 Master. There
can be no assurance that the Master'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 Master as of
December 31, 2001, by market sector.
Interest Rates. Interest rate movements directly affect the price of the
futures positions held by the Master and indirectly the value of its stock index
30
and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's and the Master's profitability. The Master's primary interest rate
exposure is to interest rate fluctuations in the United States and the other G-7
countries. However, the Master 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 Master for the
foreseeable future.
Currencies. The Master'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 Master'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 Master in expressing Value
at Risk in a functional currency other than dollars.
Stock Indices. The Master's primary equity exposure is to equity price risk
in the G-7 countries. The stock index futures traded by the Master are by law
limited to futures on broadly based indices. As of December 31, 2001, the
31
Partnership's and the Master's primary exposures were in the Eurex (Germany) and
Chicago Mercantile Exchange (United States). The General Partner anticipates
little, if any, trading in non-G-7 stock indices. The Master 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 and through the Master
to avoid being "whipsawed" into numerous small losses.)
Metals. The Master's primary metal market exposure is to fluctuations in
the price of gold and silver. Although the Advisor will from time to time trade
base metals such as aluminum and copper, the principal market exposures of the
Master 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 Master.
Softs. The Master'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
Master's commodity exposure as of December 31, 2001.
Energy. The Master's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East. Oil
prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
32
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Master as of
December 31, 2001.
Foreign Currency Balances. The Master'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
Master's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Master's and 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
Master and the Partnership are subject.
The General Partner monitors the Master's performance and the concentration
of its open positions, and consults with the Advisor concerning the Master'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 Master. 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 Master'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
33
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.
34
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, 2001 and 2000. F-4
Statement of Income and Expenses for
the years ended December 31, 2001,
2000 and 1999. F-5
Statement of Partners' Capital for the
years ended December 31, 2001, 2000
and 1999. F-6
Notes to Financial Statements. F-7 - F-11
Financial Statements of the Master
Oath or Affirmation. F-12
Report of Independent Accountants. F-13
Statement of Financial Condition at
December 31, 2001. F-14
Condensed Schedule of Investments at
December 31, 2001 F-15
Statement of Income and Expenses for the
period January 26, 2001 (commencement of
trading operations) to December 31, 2001 F-16
Statement of Members' Capital for the
Period January 26, 2001 (commencement of
Trading operations) to December 31, 2001 F-17
Notes to Financial Statements. F-18 - F-21
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 R. McAuliffe, Jr.
Chief Financial Officer and Director
Smith Barney Futures Management LLC
General Partner, Shearson Midwest
Futures Fund L.P.
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, 2001 and 2000, and the results of its operations
for each of the three years in the period ended December 31, 2001, 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
February 28, 2002
F-3
Shearson Mid-West Futures Fund
Statement of Financial Condition
December 31, 2001 and 2000
2001 2000
Assets:
Investment in Master, at fair value $28,212,698 $ --
Cash, in commodity futures trading account 39,834 27,457,873
Net unrealized appreciation on open positions, in commodity
futures trading account -- 5,516,316
------------ ------------
28,252,532 32,974,189
Interest receivable 32,393 119,135
------------ ------------
$28,284,925 $33,093,324
========== ==========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $141,425 $165,467
Management fees 46,867 54,800
Administrative fees 23,433 27,400
Professional fees 19,681 45,154
Other 3,851 2,703
Redemptions payable (Note 5) 272,110 413,911
------------ ------------
507,367 709,435
------------ ------------
Partners' capital (Notes 1, 5 and 6):
General Partner, 322.1307 Unit equivalents
outstanding in 2001 and 2000 666,366 687,221
Limited Partners, 13,105.9599 and 14,857.6190 Units of Limited
Partnership Interest outstanding in 2001 and 2000, respectively 27,111,192 31,696,668
------------ ------------
27,777,558 32,383,889
------------ ------------
$28,284,925 $33,093,324
========== ==========
See notes to financial statements.
F-4
Shearson Mid-West Futures Fund
Statement of Income and Expenses
for the years ended
December 31, 2001, 2000 and 1999
2001 2000 1999
--------- --------- ---------
Income:
Realized gains on closed positions from
Master $2,926,313 $ -- $ --
Change in unrealized losses on open
positions from Master (835,302) -- --
Expenses allocated from Master (48,778) -- --
Net gains (losses) on trading of
commodity interests:
Realized losses on closed positions 1,167,649** (5,550,761) (1,577,313)
Change in unrealized gains (losses) on
open positions (2,048,733)** 5,584,900 (6,409,321)
------------ ------------ -------------
1,161,149 34,139 (7,986,634)
Less, brokerage commissions including
clearing fees of $34,920 and $49,605, in
2000 and 1999, respectively (Note 3c) (1,898,611) (2,050,642) (3,470,260)
------------ ------------ -------------
Net realized and unrealized losses (737,462) (2,016,503) (11,456,894)
Interest income (Note 3c) 844,912 1,516,605 2,011,188
------------ ------------ -------------
107,450 (499,898) (9,445,706)
------------ ------------ -------------
Expenses:
Management fees (Note 3b) 586,194 1,156,751 2,186,172
Administrative fees (Note 3a) 333,268 325,552 546,541
Professional fees 26,052 40,789 63,670
Other expenses 7,526 10,112 4,787
------------ ------------ -------------
953,040 1,533,204 2,801,170
------------ ------------ -------------
Net loss $(845,590) $(2,033,102) $(12,246,876)
========== ========= ==========
Net income (loss) per Unit of Limited
Partnership Interest and General Partner
Unit equivalent (Notes 1 and 6) $(64.74) $2.10* $(570.57)
========= ======= ======
* 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.
** For the period from January 1, 2001 to January 25, 2001 (Note 1).
See notes to financial statements.
F-5
Shearson Mid-West Futures Fund
Statement of Partners' Capital
for the years ended
December 31, 2001, 2000, and 1999
Limited General
Partners Partner Total
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
Net loss (824,735) (20,855) (845,590)
Redemption of 1,751.6591 Units of
Limited Partnership Interest (3,760,741) -- (3,760,741)
------------ ------------ ------------
Partners' capital at December 31, 2001 $27,111,192 $666,366 $27,777,558
========== =========== ==========
* 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 directly or indirectly in the speculative
trading of a diversified portfolio of commodity interests including futures
contracts, options and forward contracts. The Partnership commenced trading
on December 2, 1991. From December 2, 1991 to January 25, 2001, the
Partnership engaged directly in the speculative trading of a diversified
portfolio of commodity interests. 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.
Effective January 26, 2001, the Partnership transferred substantially all
of its assets as a tax-free transfer to the JWH Strategic Allocation Master
Fund LLC, a New York limited liability company (the "Master"), as a
non-managing member for 31,509.8853 Units of the Master and a fair value of
$31,509,885. The Master was formed in order to permit commodity pools
managed now or in the future by John W. Henry & Company, Inc. (the
"Advisor") using the Strategic Allocation Program, the Advisor's
proprietary trading program, to invest together in one trading vehicle.
Smith Barney Futures Management LLC (the "General Partner") is the general
partner of the Partnership and the managing member of the Master. Expenses
to investors as a result of investment in the Master are approximately the
same and redemption rights are not affected.
The financial statements of the Master, including the condensed schedule of
investments, are contained elsewhere in this report and should be read
together with the Partnership's financial statements.
At December 31, 2001, the Partnership owns 30.12% of the Master. It is the
Partnership's intention to continue to invest substantially all of its
assets in the Master. The performance of the Partnership is directly
effected by the performance of the Master.
Prior to January 26, 2001, the Partnership's commodity broker was 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. The value of the Partnership's investment in the Master reflects the
Partnership's proportional interest in the member's capital of the Master.
All of the income and expenses and unrealized and realized gains and losses
from the commodity transactions of the Master are allocated pro rata among
the investors at the time of such determination. All commodity interests
(including derivative financial instruments and derivative commodity
instruments) held by the Master and prior to January 26, 2001 by the
Partnership 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.
F-7
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 in the United States of America 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.
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, provides that the Advisor has
sole discretion in determining the allocation of the assets of the
Partnership 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. For the period October 1, 2000 to January 25, 2001 the
Partnership was 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.
Effective January 26, 2001, 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 allocated pro-rata by the Master and an Incentive fee, payable
quarterly, equal to 20% of the New Trading Profits allocated pro-rata by
the Master, as defined in the Management Agreement.
c. Customer Agreement:
Prior to January 26, 2001, the Partnership had a Customer Agreement which
was assigned to SSB (from a predecessor company) whereby SSB provided
services which included, among other things, the execution of transactions
for the Partnership's account in accordance with orders placed by the
Advisor. The Partnership was 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 (the "Brokerage Fee"). A portion
of this fee is paid to employees of SSB who have sold Units of the
Partnership. This fee did not include exchange, clearing, user, give-up,
floor brokerage and NFA fees which were borne by the Partnership. Effective
January 26, 2001, the Partnership is obligated to pay the Brokerage Fee
based on month-end Net Assets allocated pro-rata from the Master. All
exchange, clearing user, user, give-up, floor brokerage and NFA fees will
be borne by the Master and allocated pro-rata to the Partnership through
its investment in Master. At December 31, 2000, the amount of cash held by
the Partnership for margin requirements was $5,122,407. Effective January
26, 2001, cash margin requirements were maintained by the Master. For the
period from January 1, 2001 to January 25, 2001, SSB paid 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. Effective January 26, 2001, SSB will pay the Partnership
interest on 80% of the average daily equity allocated pro-rata to the
Partnership by the Master during each month at the rate of the average
non-competitive yield of 13-week T-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 upon notice by
either party.
F-8
4. Trading Activities:
The results of the Master's and prior to January 26, 2001, the Partnership's
trading activity are shown in the statement of income and expenses.
The average fair value of the Partnership's commodity interests during the
year ended December 31, 2000, based on a monthly calculation, was
$1,056,652. The fair value of these commodity interests, including options
thereon, if applicable, at December 31, 2000 was $5,516,316, as detailed
below.
Fair Value
December 31,
2000
Currencies:
-Exchange Traded Contracts $148,250
-OTC Contracts 1,916,561
Energy 870,480
Grains 98,115
Interest Rates U.S. 1,184,843
Interest Rates Non-U.S. 967,964
Livestock 6,720
Metals:
-Exchange Traded Contracts (6,190)
-OTC Contracts (45,751)
Softs (97,168)
Indices 472,492
------------
Total $5,516,316
===========
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.
F-9
6. Financial Highlights:
Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 2001, 2000 and 1999 were as follows:
2001 2000 1999
Net realized and unrealized gains (losses) $(55.73) $1.58 $(534.56)
Interest income 58.03 84.05 92.51
Expenses (67.04) (83.53) (128.52)
--------- -------- ---------
Increase (decrease) for year (64.74) 2.10* (570.57)
Net asset value per Unit, beginning of year 2,133.36 2,131.26 2,701.83
--------- -------- --------
Net asset value per Unit, end of year $2,068.62 $2,133.36 $2,131.26
======== ======== =======
Total return (3.0)%
Ratio of expenses, including brokerage
commissions, to average net assets 9.5%
Ratio of net loss to average net assets (2.8)%
* 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.
7. Financial Instrument Risks:
The Partnership and through the Partnership's investment in the Master, is
party to financial instruments with off-balance sheet risk, including
derivative financial instruments and derivative commodity instruments in
the normal course of its business. 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/Master due to market changes,
including interest and foreign exchange rate movements and fluctuations in
commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying
assets are traded.
F-10
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's/Master'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, through the
Partnership's investment in the Master, has concentration risk because the
sole counterparty or broker with respect to the Master's assets is SSB.
The General Partner monitors and controls the Partnership's/Master's risk
exposure on a daily basis through financial, credit and risk management
monitoring systems, and accordingly believes that it has effective
procedures for evaluating and limiting the credit and market risks to which
the Partnership/Master are 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/Master's involvement in these instruments. The
majority of these instruments mature within one year of December 31, 2001.
However, due to the nature of the Partnership's/ Master's business, these
instruments may not be held to maturity.
8. Subsequent Event:
Through February 28, 2002, there were additional redemptions representing
232.6804 Units of Limited Partnership Interest totaling $464,585.
F-11
To The Members of
JWH Strategic Allocation Master Fund LLC
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Smith Barney Futures Management LLC
Managing Member, JWH Strategic Allocation
Master Fund LLC
Smith Barney Futures Management LLC
388 Greenwich Street
7th Floor
New York, N.Y. 10013
212-723-5424
F-12
Report of Independent Accountants
To the Members of
JWH Strategic Allocation Master Fund LLC:
In our opinion, the accompanying statement of financial condition, including the
condensed schedule of investments, and the related statements of income and
expenses and of members' capital present fairly, in all material respects, the
financial position of JWH Strategic Allocation Master Fund LLC at December 31,
2001 and the results of its operations for the period from January 26, 2001
(commencement of trading operations) to December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the management of the Managing
Member; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit 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 Managing Member, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-13
JWH Strategic Allocation Master Fund LLC
Statement of Financial Condition
December 31, 2001
2001
Assets:
Equity in commodity futures trading account:
Cash $88,330,292
Net unrealized appreciation on open futures positions 5,392,646
----------
$93,722,938
=========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Professional fees $45,000
------
45,000
Members' capital:
Members' capital, 89,573.7730 Units outstanding in 2001 93,677,938
----------
$93,722,938
==========
See notes to financial statements.
F-14
JWH Strategic Allocation
Master Fund LLC
Condensed Schedule of Investments
December 31, 2001
Notional
Sector Amount Contract Fair Value
- ----------- ------------------ --------- ----------
Currencies
Over the counter contracts sold - 5.89%
JPY (16,890,265,200) JPY/USD - 5.98%, March 20, 2002 $5,601,926
Other - (0.09)% (84,884)
Over the counter contracts purchased - 0.11% 105,908
---------
Total Currencies - 6.00% 5,622,950
---------
Total Energy - (0.35)% Futures contracts purchased - (0.35)% (327,598)
---------
Total Grains - 0.29% Futures contracts sold - 0.29% 274,911
---------
Total Interest Rates U.S. - (0.01)% Futures contracts sold - (0.01)% (14,360)
---------
Interest Rates Non-U.S.
Futures contracts sold 1.04% 970,405
Futures contracts purchased - (0.20)% (188,580)
---------
Total Interest Rates Non-U.S.- 781,825
---------
0.84%
Total Livestock - (0.02)% Futures contracts sold - (0.02)% (17,180)
---------
Metals
Futures contracts sold - (0.74)% (696,167)
Futures contracts purchased - (0.37)% (348,785)
---------
Total Metals - (1.11)% (1,044,952)
----------
Total Softs - 0.01% Futures contracts purchased - 0.01% 11,267
---------
Total Indices - 0.11% Futures contracts purchased - 0.11% 105,783
---------
Total Fair Value - 5.76% $5,392,646
==========
Investments % of Investments
Country Composition at Fair Value at Fair Value
-------------------- ------------ --------------
Australia $151,788 2.82%
Canada 49,705 0.92%
Germany 1,084,146 20.10%
Japan (355,642) (6.59)%
Switzerland (2,304) (0.04)%
United Kingdom 176,518 3.27%
United States 4,288,435 79.52%
--------- ------
$5,392,646 100.00%
========= ======
Percentages are based on Members' capital unless otherwise indicated
See notes to financial statements.
F-15
JWH Strategic Allocation Master Fund LLC
Statement of Income and Expenses
for the period from January 26, 2001
(commencement of trading operations)
to December 31, 2001
2001
Income:
Net gains on trading of commodity interests:
Realized gains on closed positions $9,307,481
Change in unrealized losses
on open positions (2,710,941)
------------
6,596,540
Less, clearing fees (230,343)
------------
Net realized and unrealized gains 6,366,197
------------
Expenses:
Professional fees 45,000
------------
45,000
Net income $6,321,197
=========
Net income per Unit of Member Interest $45.82
=====
See notes to financial statements.
F-16
JWH Strategic Allocation Master Fund LLC
Statement of Members' Capital
for the period from January 26, 2001
(commencement of trading operations)
to December 31, 2001
Members'
Capital
----------
Initial capital contribution from the Members
representing 74,020.3930 Units $74,020,393
Net Income 6,321,197
Sale of 29,596.7052 Units of
Members' Interest 28,929,324
Redemption of 14,043.3252 Units of
Members' Interest (15,592,976)
-----------
Members' capital at December 31, 2001 $93,677,938
==========
See notes to financial statements.
F-17
JWH Strategic Allocation Master Fund LLC
Notes to Financial Statements
1. General:
JWH Strategic Allocation Master Fund LLC (the "Master") is a limited
liability company formed under the New York Limited Liability Company Law.
The Master's purpose is to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The Master is authorized to sell an
unlimited number of member interests.
On January 26, 2001 (date Master commenced trading), Shearson Mid-West
Futures Fund ("Mid-West") and Smith Barney Mid-West Futures Fund L.P. II
("Mid-West II") transferred substantially all of their assets as a tax-free
transfer to the Master as non-managing members for 74,020.3930 Units of the
Master at a fair value of $74,020,393. The Master was formed to permit
commodity pools managed now or in the future by John W. Henry & Company,
Inc. (the "Advisor") using the Strategic Allocation Program, the Advisor's
proprietary trading program, to invest together in one vehicle.
The Master operates under a "master/feeder fund" structure where its
investors consist of Mid-West, Mid-West II, The Aspetuck Fund L.P. and The
Saugatuck Fund L.P., (collectively the "Feeder Funds") with 30.12%, 39.74%,
3.56% and 26.58% investments in the Master, respectively.
Smith Barney Futures Management LLC is the managing member (the "Managing
Member") of the Master. The Master's commodity broker is Salomon Smith
Barney Inc. ("SSB"). SSB is an affiliate of the Managing Member. The
Managing Member is wholly owned by Salomon Smith Barney Holdings Inc.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned
subsidiary of Citigroup Inc. As of December 31, 2001, all trading decisions
for the Partnership are made by the Advisor.
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. All of the income and expenses and realized and unrealized gains and
losses on trading of commodity interests are determined on each valuation
day and are allocated pro rata among the Feeder Funds at the time of such
determination. Income taxes have not been provided as each member is
individually liable for the taxes, if any, on their share of the Master's
income and expenses.
F-18
c. The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America 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.
3.a. Managing Member Agreement:
The Managing Member administers the business affairs of the Master
including selecting one or more advisors to make trading decisions for the
Master.
b. Management Agreement:
The Managing Member, on behalf of the Master, has entered into a Management
Agreement with the Advisor, a registered commodity trading advisor. The
Advisor is not affiliated with the General Partner or SSB and is not
responsible for the organization or operation of the Partnership. The
Management Agreement provides that the Advisor has sole discretion in
determining the investment of the assets of the Master allocated to it by
the Managing Member. All management fees in connection with the Management
Agreement are borne by the Feeder Funds.
c. Customer Agreement:
The Master has entered into a Customer Agreement with SSB whereby SSB
provides services which include, among the other things, the execution of
transactions for the Master's account in accordance with orders placed by
the Advisor. All exchange, clearing, user, give-up, floor brokerage and NFA
fees are borne by the Master. All other fees including SSB's direct
brokerage commission shall be borne by the Feeder Funds. All of the
Master's assets are deposited in the Master's account at SSB. The Master's
cash is deposited by SSB in segregated bank accounts to the extent required
by Commodity Futures Trading Commission regulations. At December 31, 2001,
the amount of cash held by the Master for margin requirements was
$13,748,339. The Customer Agreement between the Master and SSB, gives the
Master the legal right to net unrealized gains and losses. The Customer
Agreement may be terminated upon notice by either party.
4. Trading Activities:
The Master 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 Master's trading
activity are shown in the statement of income and expenses.
All of the commodity interests owned by the Master are held for trading
purposes. The average fair value during the period from January 26, 2001
(commencement of trading operations) to December 31, 2001, based on a
monthly calculation, was $5,146,554. The fair value of these commodity
interests, including options thereon, if applicable, at December 31, 2001
was $5,392,646.
F-19
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the Managing Member and at such time as the Managing Member may decide. A
member may require the Master to redeem his Units at their Net Asset Value
as of the last day of each month. The Managing Member, in its sole
discretion, may permit redemptions more frequently than monthly.
6. Financial Highlights:
Changes in the net asset value per Unit of Member interest for the period
from January 26, 2001 (commencement of trading operations) to December 31,
2001 were as follows:
2001
---------
Net realized and unrealized gains (losses) $46.32
Expenses (0.50)
-----
Increase for period 45.82
Net asset value per Unit, beginning of period 1,000.00
--------
Net asset value per Unit, end of period $1,045.82
========
Total return 4.58%
Ratio of expenses to average net assets * 0.32%
Ratio of net income to average net assets * 7.41%
*Annualized
7. Financial Instrument Risks:
The Master is party to financial instruments with off-balance sheet risk,
including derivative financial instruments and derivative commodity
instruments in the normal course of its business. These financial
instruments may include forwards, futures and options, whose value is based
upon an underlying asset, index, or reference rate, and generally represent
future commitments to exchange currencies or cash flows, to purchase or
sell other financial instruments at specific terms at specified future
dates, or, in the case of derivative commodity instruments, to have a
reasonable possibility to be settled in cash, through physical delivery or
with another financial instrument. These instruments may be traded on an
exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC
contracts are negotiated between contracting parties and include forwards
and certain options. Each of these instruments is subject to various risks
similar to those related to the underlying financial instruments including
market and credit risk. In general, the risks associated with OTC contracts
are greater than those associated with exchange traded instruments because
of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Master due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or
security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
F-20
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Master's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Master has concentration risk because the sole
counterparty or broker with respect to the Master's assets is SSB.
The Managing Member monitors and controls the Master's risk exposure on a
daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Master is
subject. These monitoring systems allow the Managing Member 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 not
recorded in the financial statements, reflect the extent of the Master's
involvement in these instruments. The majority of these instruments mature
within one year of December 31, 2001. However, due to the nature of the
Master's business, these instruments may not be held to maturity.
8. Subsequent Event:
On January 1, 2002, there were additional sales representing 1,469.6693
Units of Member interest totaling $1,537,008 and on January 31, 2002, there
were additional redemptions representing 1,815.3637 Units of Member
Interest totaling $1,898,541.
F-21
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 and the Master'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, 2001, SSB earned $1,898,611 in
brokerage commissions and clearing fees. The Advisor earned $586,194 in
management fees during 2001. The General Partner earned $333,268 in
administrative fees during 2001. The Advisor did not earn an incentive fee in
the year ended December 31, 2001.
35
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 (2.4%) Units of limited partnership interest as of
December 31, 2001.
(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, 2001 and
2000.
Statement of Income and Expenses for the years ended
December 31, 2001, 2000 and 1999.
36
Statement of Partners' Capital for the years ended December
31, 2001, 2000 and 1999.
(2) Financial Statement Schedules: Financial Data Schedule for
the year ended December 31, 2001.
(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).
37
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 (previously filed).
10.9 - Letter extending Management Agreement with John W.
Henry & Company, Inc. for 2001 (filed herein).
(b) Report on Form 8-K: None Filed
38
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
39
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 29th day of March 2002.
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/ Shelley Ullman
- ------------------------------ -----------------------------
David J. Vogel Director
Director, Principal Executive
Officer and President
/s/ Maureen O'Toole /s/ Steve J. Keltz
- -------------------------- -----------------------------
Maureen O'Toole Secretary and Director
Director
/s/ Daniel R. McAuliffe, Jr.
- ------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
40