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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-24280
SHEARSON MID-WEST FUTURES FUND
(Exact name of registrant as specified in its charter)
New York 13-3634370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [ ]
PART I
Item 1. Business.
(a) General development of business. Shearson Mid-
West Futures Fund (the "Partnership") is a limited partnership organized on
August 21, 1991 under the partnership laws of the State of New York. The
Partnership commenced trading operations on December 2, 1991. The Partnership
engages in speculative trading of a diversified portfolio of commodity interests
including futures contracts, options and forward contracts. The commodity
interests that are traded by the Partnership are volatile and involve a high
degree of market risk. Between September 26, 1991 and December 2, 1991, 2,000
Units of Limited Partnership Interest ("Units") were sold at $1,000 per Unit.
The proceeds of the offering were held in an escrow account until December 2,
1991, at which time they were turned over to the Partnership for trading. Sales
and redemptions of Units and general partner contributions and redemptions for
the years ended December 31, 1997, 1996 and 1995 are reported in the Statement
of Partners' Capital on page F-5 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").
Smith Barney Futures Management Inc. acts as the general
2
partner (the "General Partner") of the Partnership and is a wholly owned
subsidiary of Smith Barney Inc. ("SB"). SB acts as commodity broker for the
Partnership. On November 28, 1997, Smith Barney Holdings Inc. was merged with
Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"), a wholly owned
subsidiary of Travelers Group Inc. SB is a wholly owne subsidiary of SSBH.
The Partnership's trading of futures contracts on commodities is done
on United States and foreign commodity exchanges. It engages in such trading
through a commodity brokerage account maintained with SB.
Under the Limited Partnership Agreement, the General Partner has sole
responsibility for the administration of the business and affairs of the
Partnership, but may delegate trading discretion to one or more trading
advisors. The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading decisions
for the Partnership. The Partnership will pay the General Partner a monthly
administrative fee in return for its services to the Partnership equal to 1/12
of 1% (1% per year) of month-end Net Assets of the Partnership. This fee may be
increased or decreased at the discretion of the General Partner.
The General Partner has entered into a management agreement (the "Management
Agreement") with John W. Henry & Company, Inc. (the "Advisor") who will make all
commodity trading decisions for the Partnership. The Advisor is not affiliated
with the General Partner or SB. The Advisor is not responsible for the
organization or operation of the Partnership.
3
Pursuant to the terms of the Management Agreement, the Partnership is
obligated to pay the Advisor a monthly management fee equal to 1/3 of 1% (4% per
year) of Net Assets allocated to the Advisor as of the end of the month and an
incentive fee payable quarterly of 15% of New Trading Profits (as defined in the
Management Agreement) of the Partnership.
The Customer Agreement between the Partnership and SB (the "Customer
Agreement") provides that the Partnership pays SB 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. SB pays a portion of its brokerage fees to its
financial consultants who have sold Units. The Partnership pays for National
Futures Association ("NFA") fees, exchange and clearing fees, give-up and user
fees and floor brokerage fees. Brokerage fees will be paid for the life of the
Partnership, although the rate at which such fees are paid may be changed. The
Customer Agreement between the Partnership and SB gives the partnership the
legal right to net unrealized gains and losses. The Customer Agreement may be
terminated by either party.
In addition, SB pays the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at the rate
equal to the average noncompetitive yield of 13- week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month.
4
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income (loss) from operations for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 is set forth under "Item 6. Select Financial
Data." The Partnership capital as of December 31, 1997 was $64,295,035
(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 Foreign and Domestic Operations and
Export Sales. The Partnership does not engage in sales of goods or services,
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, SB.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnership is a
party or to which any of its assets is subject. No material legal proceedings
affecting the Partnership were terminated during the fiscal year.
5
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote
during the last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters.
(a) Market Information. The Partnership has issued no
stock. There is no established public trading market
for the Units of Limited Partnership Interest.
(b) Holders. The number of holders of Units of Partnership
Interest as of December 31, 1997 was 685.
(c) Distribution. The Partnership did not declare a
distribution in 1997 or 1996.
6
Item 6. Select 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, 1997, 1996, 1995, 1994 and 1993 and
total assets at December 31, 1997, 1996, 1995, 1994 and 1993 were as follows:
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- ---------
Realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $3,894,823, $3,740,843,
$3,830,022,$3,955,870, and
$2,488,783, respectively $ 9,213,687 $ 17,066,887 $ 20,679,606 $ (3,231,417) $ 9,286,505
Interest income 2,495,221 2,245,474 2,649,301 2,157,483 953,307
------------ ------------ ------------ ------------ ------------
$ 11,708,908 $ 19,312,361 $ 23,328,907 $ (1,073,934) $ 10,239,812
============ ============ ============ ============ ============
Net Income (loss) $ 7,618,700 $ 14,323,795 $ 19,082,887 $ (5,208,500) $ 7,091,500
============ ============ ============ ============ ============
Increase (decrease) in net
asset value per unit $ 299.35 $ 487.33 $ 484.87 $ (126.73) $ 417.41
============ ============ ============ ============ ============
Total assets $ 65,733,567 $ 69,175,823 $ 58,773,443 $ 55,730,378 $ 67,360,836
============ ============ ============ ============ ============
7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Liquidity. The Partnership does not engage in sales of
goods or services. Its only assets are its commodity futures trading account,
consisting of cash and cash equivalents, net unrealized appreciation
(depreciation) on open futures contracts, commodity options, and interest
receivable. Because of the low margin deposits normally required in commodity
futures trading, relatively small price movements may result in substantial
losses to the Partnership. Such substantial losses could lead to a material
decrease in liquidity. To minimize this risk, the Partnership follows certain
policies including:
(1) Partnership funds are invested only in commodity contracts
which are traded in sufficient volume to permit, in the opinion of the Advisor,
ease of taking and liquidating positions.
(2) The Partnership diversifies its positions among various
commodities. The Advisor does not initiate additional positions in any commodity
for the Partnership if such additional positions would result in aggregate
positions for all commodities requiring a margin of more than 66-2/3% of net
assets of the Partnership managed by the Advisor.
(3) The Partnership may occasionally accept delivery of a
commodity. Unless such delivery is disposed of promptly by retendering the
warehouse receipt representing the delivery to the appropriate clearing house,
the physical commodity position is fully hedged.
8
(4) The Partnership does not employ the trading technique
commonly known as "pyramiding", in which the speculator uses unrealized profits
on existing positions as margin for the purchases or sale of additional
positions in the same or related commodities.
(5) The Partnership does not utilize borrowings except
short-term borrowings if the Partnership takes delivery of any cash commodities.
(6) The Advisor may, from time to time, employ trading
strategies such as spreads or straddles on behalf of the Partnership. The term
"spread" or "straddle" describes a commodity futures trading strategy involving
the simultaneous buying and selling of futures contracts on the same commodity
but involving different delivery dates or markets and in which the trader
expects to earn a profit from a widening or narrowing of the difference between
the prices of the contracts.
The Partnership is party to financial instruments with
off-balance sheet risk, including derivative financial instruments and
derivative commodity instruments, in the normal course of its business. These
financial instruments include forwards, futures and options, whose value is
based upon an underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash flows, or to
purchase or sell other financial instruments at specified terms at specified
future dates. Each of these instruments is subject to various risks similar to
those relating to the underlying financial instruments including
9
market and credit risk. The General Partner monitors and controls the
Partnership risk exposure on a daily basis through financial, credit and risk
management monitoring systems and, accordingly believes that it has effective
procedures for evaluating and limiting the credit and market risks to which the
Partnership is subject. (See also Item 8. Financial Statements and Supplementary
Data, for further information on financial instrument risk included in the notes
to financial statements). Other than the risks inherent in commodity futures
trading, the Partnership knows of no trends, demands, commitments, events or
uncertainties which will result in or which are reasonably likely to result in
the Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, at its
discretion, cause the Partnership to 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 futures trading and by expenses, interest income, redemptions of Units
and distributions of profits, if any. Gains or losses on commodity futures
trading cannot be predicted. Market moves in commodities are dependent upon
fundamental and technical factors which the Partnership may or may not be able
10
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 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 SB is dependent upon interest rates over which the
Partnership has no control.
For the year ended December 31, 1997, 2,232.5764 Units
were redeemed totaling $5,398,970. For the year ended December 31, 1996,
4,618.7813 Units were redeemed totaling $9,644,974. For the year ended December
31, 1995, 8,609.1486 Units were redeemed totaling $15,328,847 which includes the
General Partner redemption representing 149 Unit equivalents totaling $271,554.
Units of Limited Partnership Interest were sold to
persons and entities who are accredited investors as that term is defined in
rule 501(a) of Regulation D as well as to those persons who are not accredited
investors but who have either a net worth (exclusive of home, furnishings and
automobile) either individually or jointly with the investor's spouse of at
least three times his investment in the Partnership (the minimum investment for
which is $50,000) or gross income for the two previous years and projected gross
income for the current fiscal year of not less than three times his investment
in the Partnership for each year.
(c) Results of Operations. For the year ended December
31, 1997, the Net Asset Value per Unit increased 13.0% from
11
1997, the Net Asset Value per Unit increased 13.0% from $2,309.84 to $2,609.19.
For the year ended December 31, 1996, the Net Asset Value Per Unit increased
26.7% from $1,822.51 to $2,309.84. For the year ended December 31, 1995, the Net
Asset Value Per Unit increased 36.2% from $1,337.64 to $1,822.51.
The Partnership experienced net trading gains of
$13,108,510 before commissions and expenses for the year ended December 31,
1997. Gains were recognized in the trading of commodity futures in metals,
currencies, indices and interest rate products.
The Partnership experienced net trading gains of
$20,807,730 before commissions and expenses for the year ended December 31,
1996. These gains were recognized in the trading of currency, precious metals
and interest rate futures contracts. These gains were partially offset by losses
incurred in the trading of commodity futures in indices.
The Partnership experienced net trading gains of
$24,509,628 before commissions and expenses for the year ended December 31,
1995. Realized trading gains of $26,698,849 were recognized in the trading of
currency, stock index and interest rate futures contracts. These gains were
partially offset by losses incurred in the trading of commodity futures in
precious metals.
Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
12
on the existence of major price trends and the ability of the Advisor to
identify those price trends correctly. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
13
Item 8. Financial Statements and Supplementary Data.
SHEARSON MID-WEST FUTURES FUND
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants. F-2
Financial Statements:
Statement of Financial Condition at
December 31, 1997 and 1996. F-3
Statement of Income and Expenses for
the years ended December 31, 1997,
1996 and 1995. F-4
Statement of Partners' Capital for the
years ended December 31, 1997, 1996,
and 1995. F-5
Notes to Financial Statements. F-6 - F-11
F-1
Report of Independent Accountants
To the Partners of
Shearson Mid-West Futures Fund:
We have audited the accompanying statement of financial condition of SHEARSON
MID-WEST FUTURES FUND (a New York Limited Partnership) as of December 31, 1997
and 1996, and the related statements of income and expenses and partners'
capital for the years ended December 31, 1997, 1996 and 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by the
management of the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shearson Mid-West Futures Fund
as of December 31, 1997 and 1996, and the results of its operations for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 6, 1998
F-2
Shearson Mid-West Futures Fund
Statement of Financial Condition
December 31, 1997 and 1996
1997 1996
Assets:
Equity in commodity futures
trading account:
Cash and cash equivalents
(Note 3c) $62,456,814 $67,722,636
Net unrealized appreciation
on open futures contracts 3,053,604 1,232,573
----------- -----------
65,510,418 68,955,209
Interest receivable 223,149 220,614
----------- -----------
$65,733,567 $69,175,823
----------- -----------
Liabilities and Partners'Capital:
Liabilities:
Accrued expenses:
Commissions $ 328,668 $ 345,879
Management fees 218,016 229,433
Administrative fees 54,504 57,358
Incentive fees 658,743 1,923,668
Other 41,906 56,280
Redemptions payable (Note 5) 136,695 4,487,900
----------- -----------
1,438,532 7,100,518
----------- -----------
Partners' capital (Notes 1, 5, and 6):
General Partner, 322.1307 Unit
equivalents outstanding in
1997 and 1996 840,500 744,070
Limited Partners, 24,319.6068
and 26,552.1832 Units of
Limited Partnership
Interest outstanding in 1997
and 1996, respectively 63,454,535 61,331,235
----------- -----------
64,295,035 62,075,305
----------- -----------
$65,733,567 $69,175,823
----------- -----------
See notes to financial statements.
F-3
Shearson Mid-West Futures Fund
Statement of Income and Expenses
for the years ended
December 31, 1997, 1996 and 1995
1997 1996 1995
Income:
Net gains on trading of
commodity interests:
Realized gains on
closed positions $ 11,287,479 $ 21,703,191 $ 26,698,849
Change in
unrealized gains/
losses on open
positions 1,821,031 (895,461) (2,189,221)
------------ ------------ ------------
13,108,510 20,807,730 24,509,628
Less, brokerage
commissions and
clearing fees
($48,998, $56,807,
and $55,021,
respectively)
(Note 3c) (3,894,823) (3,740,843) (3,830,022)
------------ ------------ ------------
Net realized and
unrealized gains 9,213,687 17,066,887 20,679,606
Interest income
(Note 3c) 2,495,221 2,245,474 2,649,301
------------ ------------ ------------
11,708,908 19,312,361 23,328,907
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 2,494,842 2,387,610 2,443,591
Incentive fees (Note 3b) 913,533 1,923,668 1,123,640
Administrative fees (Note 3a) 623,709 596,902 610,897
Other expenses 58,124 80,386 67,892
------------ ------------ ------------
4,090,208 4,988,566 4,246,020
------------ ------------ ------------
Net income $ 7,618,700 $ 14,323,795 $ 19,082,887
------------ ------------ ------------
Net income per Unit of
Limited Partnership
Interest
and General Partner Unit
equivalent (Notes 1 and 6) $ 299.35 $ 487.33 $ 484.87
------------ ------------ ------------
See notes to financial statements.
F-4
Shearson Mid-West Futures Fund
Statement of Partners' Capital
for the years ended
December 31, 1997, 1996, and 1995
Limited General
Partners Partner Total
Partners' capital at
December 31, 1994 $ 53,012,241 $ 630,203 $ 53,642,444
Net Income 18,854,450 228,437 19,082,887
Redemption of
8,460.1486 Units of
Limited Partnership
Interest and
General Partner
redemption representing
149 Unit equivalents (15,057,293) (271,554) (15,328,847)
------------ --------- ------------
Partners' capital at
December 31, 1995 56,809,398 587,086 57,396,484
Net Income 14,166,811 156,984 14,323,795
Redemption of
4,618.7813 Units of
Limited Partnership Interest (9,644,974) -- (9,644,974)
------------ --------- ------------
Partners' capital at
December 31, 1996 61,331,235 744,070 62,075,305
Net Income 7,522,270 96,430 7,618,700
Redemption of
2,232.5764 Units of
Limited Partnership
Interest (5,398,970) -- (5,398,970)
------------ --------- ------------
Partners' capital at
December 31, 1997 $ 63,454,535 $ 840,500 $ 64,295,035
------------ --------- ------------
See notes to financial statements.
F-5
Shearson Mid-West Futures Fund
Notes to Financial Statements
1. Partnership Organization:
Shearson Mid-West Futures Fund (the "Partnership") is a limited partnership
which was organized on August 21, 1991 under the partnership laws of the
State of New York to engage in the speculative trading of a diversified
portfolio of commodity interests including futures contracts, options and
forward contracts. The commodity interests that are traded by the
Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell up to 40,000 Units of Limited Partnership
Interest ("Units") during the offering period.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of
Smith Barney Inc. ("SB"). SB acts as commodity broker for the Partnership
(see Note 3c). On November 28, 1997, Smith Barney Holdings Inc. was merged
with Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"), a
wholly owned subsidiary of Travelers Group Inc. SB is a wholly owned
subsidiary of SSBH.
The General Partner and each limited partner share in the profits and losses
of the Partnership in proportion to the amount of partnership interest owned
by each except that no limited partner shall be liable for obligations of
the Partnership in excess of his initial capital contribution and profits,
if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the following:
December 31, 2011; when the net asset value of a Unit decreases to less than
$350 as of the close of business on any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at market value for
those commodity interests for which market quotations are readily
available or at fair value on the last business day of the year.
Investments in commodity interests denominated in foreign currency are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gain (loss) and changes in unrealized
values on commodity interests are recognized in the period in which the
contract is closed or the changes occur and are included in net gains
(losses) on trading of commodity interests.
F-6
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership. The Partnership will pay the General
Partner a monthly administrative fee in return for its services to the
Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets of
the Partnership. This fee may be increased or decreased at the discretion
of the General Partner.
b. Management Agreement:
The Management Agreement that the General Partner, on behalf of the
Partnership, entered into with the Advisor (John W. Henry & Company,
Inc.), provides that the Advisor has sole discretion in determining the
investment of the assets of the Partnership allocated to the Advisor by
the General Partner. As compensation for services, the Partnership is
obligated to pay the Advisor a monthly management fee of 1/3 of 1% (4%
per year) of month-end Net Assets managed by the Advisor and an incentive
fee, payable quarterly, equal to 15% of the New Trading Profits of the
Partnership.
F-7
c. Customer Agreement:
The Partnership has entered into a Customer Agreement which was assigned
to SB whereby SB provides services which include, among other things, the
execution of transactions for the Partnership's account in accordance
with orders placed by the Advisor. The Partnership is obligated to pay a
monthly brokerage fee to SB equal to 1/2 of 1% of month-end Net Assets
(6% per year), in lieu of brokerage commissions on a per trade basis. A
portion of this fee is paid to employees of SB who have sold Units of the
Partnership. This fee does not include exchange, clearing, user, give-up,
floor brokerage and NFA fees which will be borne by the Partnership. All
of the Partnership's assets are deposited in the Partnership's account at
SB. The Partnership's cash is deposited by SB in segregated bank
accounts, as required by Commodity Futures Trading Commission
regulations. At December 31, 1997 and 1996, the amount of cash held for
margin requirements was $7,529,226 and $5,420,012, respectively. SB will
pay the Partnership interest on 80% of the average daily equity
maintained in cash in its account during each month at the rate of the
average non-competitive yield of 13-week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month. The Customer
Agreement between the Partnership and SB gives the Partnership the legal
right to net unrealized gains and losses. The Customer Agreement may be
terminated by either party.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety
of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
All of the commodity interests owned by the Partnership are held for trading
purposes. The fair value of these commodity interests, including options
thereon, at December 31, 1997 and 1996, was $3,053,604 and $1,232,573,
respectively, and the average fair value during the years then ended, based
on monthly calculation, was $3,584,774 and $6,115,369, respectively.
F-8
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, a limited partner may redeem all or some of his
Units (minimum 20 Units) at the Net Asset Value as of the last day of any
month ending at least one month after trading commences on fifteen days
written notice to the General Partner, provided that no redemption may
result in the limited partner holding fewer than twenty Units after such
redemption is effected.
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31,
1997, 1996 and 1995 were as follows:
1997 1996 1995
Net realized and
unrealized gains $361.46 $580.24 $ $526.56
Interest income 95.57 74.28 75.44
Expenses (157.68) (167.19) (117.13)
-------- -------- --------
Increase for year 299.35 487.33 484.87
Net asset value per
Unit, beginning of
year $2,309.84 1,822.51 1,337.64
-------- -------- --------
Net asset value per
Unit, end of year $2,609.19 $2,309.84 $1,822.51
-------- -------- --------
7. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments 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 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
F-9
financial instruments including market and credit risk. In general, the
risks associated with OTC contracts are greater than those associated with
exchange traded instruments because of the greater risk of default by the
counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure on
a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership
is subject. These monitoring systems allow the General Partner to
statistically analyze actual trading results with risk-adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.
The notional or contractual amounts of these instruments, while not recorded
in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At December 31, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell
these instruments was $280,212,217 and $428,797,179, respectively, as
detailed below. All of these instruments mature within one year of December
31, 1997. However, due to the nature of the Partnership's business, these
F-10
instruments may not be held to maturity. At December 31, 1997, the fair
value of the Partnership's derivatives, including options thereon, was
$3,053,604 as detailed below.
December 31, 1997
---------------------------------------
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-OTC Contracts $ 72,139,633 $137,350,403 $ (315,816)
Interest Rate
Non-U.S 141,407,722 260,654,913 161,757
Interest Rate 59,122,937 -- 470,500
U.S
Metals 7,541,925 25,355,150 2,293,635
Indices -- 5,436,713 443,528
------------ ------------ -----------
$280,212,217 $428,797,179 $ 3,053,604
------------ ------------ -----------
At December 31, 1996, the notional or contractual amounts of the Partnership's
commitment to purchase and sell these instruments was $330,829,321 and
$206,505,668, respectively, and the fair value of the Partnership's derivatives,
including options thereon, was $1,232,573 as detailed below.
December 31, 1996
--------------------------------------
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-OTC Contracts $ 99,141,055 $ 75,992,123 $ 404,909
Interest Rate
Non-U.S 219,258,860 87,845,793 (145,247)
Interest Rate
U.S 12,429,406 -- (153,281)
Metals -- 36,526,210 824,200
Indices -- 6,141,542 301,992
------------ ------------ -----------
$330,829,321 $206,505,668 $ 1,232,573
------------ ------------ -----------
F-11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
During the last two fiscal years and any subsequent
interim period, no independent accountant who was engaged as the principal
accountant to audit the Partnership's financial statements has resigned or was
dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its
affairs are managed by its General Partner, Smith Barney Futures
Management Inc. 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 Inc., its General Partner, which
receives compensation for its services, as set forth under "Item 1. Business."
SB, 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, 1997, SB earned
$3,894,823 in brokerage commissions and clearing fees. The Advisor earned
$2,494,842 in management fees and $913,533 in incentive fees during 1997. The
General Partner earned $623,709 in administrative fees during 1997.
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Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a). Security ownership of certain beneficial owners.
The Partnership knows of no person who beneficially owns more than 5% of the
Units outstanding.
(b). Security ownership of management. Under the terms of the
Limited Partnership Agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns Units of general partnership interest
equivalent to 322.1307 (1.3%) Units of limited partnership interest as of
December 31, 1997.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Smith Barney Inc. and Smith Barney Futures Management Inc.
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." 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, 1997
and 1996.
Statement of Income and Expenses for the years
ended December 31, 1997, 1996 and 1995.
15
Statement of Partners' Capital for the years ended
December 31, 1997, 1996 and 1995.
(2) Financial Statement Schedules: Financial Data Schedule
for the year ended December 31, 1997.
(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 1996 and
1997 (filed herein).
(b) Report on Form 8-K: None Filed
16
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
17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement 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 24th day of March 1998.
SHEARSON MID-WEST FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Jack H. Lehman III
David J. Vogel, Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President
/s/ Michael Schaefer /s/ Daniel A. Dantuono
Michael Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
18