Back to GetFilings.com
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, 1996
Commission File Number 0-28336
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)
New York 13-3772374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o 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. Smith Barney Mid-West Futures Fund
L.P. II, (the "Partnership") is a limited partnership organized on June 3, 1994
under the partnership laws of the State of New York. The Partnership commenced
trading operations on September 1, 1994. The Partnership engages in the
speculative trading of a diversified portfolio of commodity interests including
futures contracts, options and forward contracts. Between July 7, 1994 and
August 31, 1994, 9,421 Units of limited partnership interest ("Units") were sold
at $1,000 per Unit. The proceeds of the initial offering were held in an escrow
account until September 1, 1994, 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 ending December 31, 1996, 1995 and
for the period from June 3, 1994 to December 31, 1994 are reported in the
Statements 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, 2014; 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"). Partnership Units are
currently being offered during the continuous offering period. The
2
Partnership is authorized to sell 75,000 Units.
The Partnership's trading of futures contracts on commodities is done
primarily on United States commodity exchanges and may, to a lesser extent, be
done on foreign commodity exchanges. It engages in such trading through a
commodity brokerage account maintained with its commodity broker, Smith Barney
Inc. ("SB").
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. SB is an affiliate of the General
Partner.
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 pays 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 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. The Customer Agreement between the Partnership
and SB gives the Partnership the legal right to net unrealized gains and losses.
Brokerage fees will be paid for the life of the Partnership, although the rate
at which such fees are paid may be changed.
In addition, SB pays the Partnership interest on 80% of the average daily
equity maintained in cash in its account during each month at a 30 day Treasury
bill rate determined weekly by SB based on the non-competitive yield on 3 month
U.S. Treasury bills maturing in 30 days from the date in which such weekly rate
is determined. The Customer Agreement may be terminated by either party.
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,
1996, 1995 and for the period from September 1, 1994 (commencement of trading
operations) to December 31, 1994 is set forth under "Item 6. Select Financial
Data." The Partnership capital as of December 31, 1996 was $68,451,469.
(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
5
terminated during the fiscal year.
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 market for the Units of
Limited Partnership Interest.
(b) Holders. The number of holders of Units of Partnership
Interest as of December 31, 1996 was 835.
(c) Distribution. The Partnership did not declare a
distribution in 1996.
6
Item 6. Select Financial Data. The Partnership commenced trading operations on
September 1, 1994. 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, 1996 and 1995 and for the period from September
1, 1994 to December 31, 1994 and total assets at December 31, 1996, 1995 and
1994 were as follows:
1996 1995 1994
----------- ------------ ----------
Realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
of $3,306,404, $1,842,402
and $283,703, respectively $16,597,447 $ 8,020,122 $(1,112,429)
Interest income 1,920,850 1,234,647 170,516
----------- ------------ -----------
$18,518,297 $ 9,254,769 $ (941,913)
============ ============ ============
Net Income (loss) $13,746,736 $ 6,875,816 $(1,325,660)
============ ============ ============
Increase (decrease) in
net asset value per unit $ 319.87 $ 293.49 $ (75.43)
============ ============ ============
Total assets $71,647,148 $39,439,974 $18,543,431
============ ============ ===========
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 futures 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.
(4) The Partnership does not employ the trading technique
8
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.
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.
9
(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 to identify.
Partnership expenses will consist of, among other things, commissions, 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.
As of December 31, 1996, the Partnership had offered 55,456.9955
Units of limited partnership interest resulting in aggregate proceeds to the
Partnership of $62,834,869. As of December 31, 1996, the General Partner
contributed $499,000 to the Partnership representing 452.8553 Unit equivalents.
No forecast can be made as to the level of redemptions in any given period. As
of December 31, 1996, 11,399.9290 Units of limited partnership interest were
redeemed totaling $14,179,292. The Partnership continues to offer Units at the
Net Asset Value per Unit as of the end of each month.
Units of Limited Partnership Interest were sold to persons and
entities who are accredited investors as that term is defined
10
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 $25,000) 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, 1996 the
Net Asset Value Per Unit increased 26.3% from $1,218.06 to $1,537.93. For the
year ended December 31, 1995 the Net Asset Value Per Unit increased 31.7% from
$924.57 to $1,218.06. For the period from September 1, 1994 (commencement of
trading operations) to December 31, 1994, the Net Asset Value per Unit decreased
7.5% from $1,000.00 to $924.57.
The Partnership experienced net trading gains of $19,903,851
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 in losses incurred in
the trading of trading indices.
The Partnership experienced net trading gains of $9,862,524
before commissions and expenses for the period ended December 31, 1995. Realized
trading gains of $9,561,353 were recognized in the trading of currency, stock
index and interest rate futures contracts. These gains were partially offset by
losses incurred while trading precious metals.
11
The Partnership experienced net trading losses of $828,726
before commissions and expenses for the period ended December 31, 1994. Realized
trading losses of $1,982,613 were attributable to losses incurred in the trading
of precious metals and stock index commodity futures. These losses were
partially offset by gains experienced in the trading of financial commodity
futures.
Commodity futures markets are highly volatile. Broad price
fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
Partnership depends on the existence of major price trends and the ability of
the Advisor to identify those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisor is able to
identify them, the Partnership expects to increase capital through operations.
12
Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants. F-2
Financial Statements:
Statement of Financial Condition at
December 31, 1996 and 1995. F-3
Statement of Income and Expenses
for the years ended December
31, 1996 and 1995 and for the
period from September 1, 1994
(commencement of trading operations)
to December 31, 1994). F-4
Statement of Partners' Capital
for the years ended December 31,
1996 and 1995 and for the period
from June 3, 1994 (date
Partnership was organized) to
December 31, 1995. F-5
Notes to Financial Statements. F-6 - F-11
F-1
Continued
Report of Independent Accountants
To the Partners of
Smith Barney Mid-West Futures Fund L.P. II:
We have audited the accompanying statement of financial condition of SMITH
BARNEY MID-WEST FUTURES FUND L.P. II (a New York Limited Partnership) as of
December 31, 1996 and 1995, and the related statements of income and expenses
for the years ended December 31, 1996 and 1995, and for the period from
September 1, 1994 (commencement of trading operations) to December 31, 1994, and
of partners' capital for the years ended December 31, 1996 and 1995 and for the
period from June 3, 1994 (date Partnership was organized) to December 31, 1994.
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 Smith Barney Mid-West Futures
Fund L.P. II as of December 31, 1996 and 1995, and the results of its operations
for the years ended December 31, 1996 and 1995 and for the period from June 3,
1994 to December 31, 1994, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
New York, New York
February 28, 1997
F-2
Smith Barney Mid-West Futures Fund L.P. II
Statement of Financial Condition
December 31, 1996 and 1995
1996 1995
Assets:
Equity in commodity futures
trading account:
Cash and cash equivalents (Note 3c) $70,073,574 $37,848,599
Net unrealized appreciation
on open futures contracts 1,353,865 1,455,058
----------- -----------
71,427,439 39,303,657
Interest receivable 219,709 136,317
----------- -----------
$71,647,148 $39,439,974
=========== ===========
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 358,236 $ 197,200
Management fees 237,630 130,809
Administrative fees 59,407 32,702
Incentive fees 1,988,611
Other 62,120 41,916
Redemptions payable (Note 5) 489,675 161,340
----------- -----------
3,195,679 563,967
----------- -----------
Partners' capital (Notes 1, 5, and 7):
General Partner, 452.8553 and
322.7075 Unit equivalents
outstanding in 1996 and 1995, respectively 696,460 393,077
Limited Partners, 44,056.0665 and
31,593.7100 Units of Limited
Partnership Interest outstanding
in 1996 and 1995, respectively 67,755,009 38,482,930
----------- -----------
68,451,469 38,876,007
----------- -----------
$71,647,148 $39,439,974
=========== ===========
See notes to financial statements.
F-3
Smith Barney Mid-West Futures Fund L.P. II
Statement of Income and Expenses
for the years ended December 31, 1996 and 1995
and for the period from September 1, 1994
(commencement of trading operations)
to December 31, 1994
1996 1995 1994
Income:
Net gains (losses) on trading of
commodity interests:
Realized gains (losses)
on closed positions $ 20,005,044 $ 9,561,353 $ (1,982,613)
Change in unrealized
gains/ losses on open positions (101,193) 301,171 1,153,887
------------ ------------ ------------
19,903,851 9,862,524 (828,726)
Less, Brokerage
commissions and clearing
fees ($49,253, $24,886
and $4,576) (Note 3c) (3,306,404) (1,842,402) (283,703)
------------ ------------ ------------
Net realized and
unrealized gains (losses) 16,597,447 8,020,122 (1,112,429)
Interest income (Note 3c and 6) 1,920,850 1,234,647 170,516
------------ ------------ ------------
18,518,297 9,254,769 (941,913)
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 2,112,274 1,178,635 180,155
Administrative fees (Note 3a) 528,068 294,658 45,040
Incentive fees (Note 3b) 1,988,611 829,781
Organization expense (Note 6) 128,173
Other expenses 142,608 75,879 30,379
------------ ------------ ------------
4,771,561 2,378,953 383,747
------------ ------------ ------------
Net income (loss) $ 13,746,736 $ 6,875,816 $ (1,325,660)
============ ============ ============
Net income (loss) per Unit
of Limited Partnership
Interest and General Partner Unit
equivalent (Notes 1 and 7) $ 319.87 $ 293.49 $ (75.43)
============ ============ ============
See notes to financial statements.
F-4
Smith Barney Mid-West Futures Fund L.P. II
Statement of Partners' Capital
for the years ended December 31, 1996 and 1995
and for the period from June 3, 1994
(date Partnership was organized)
to December 31, 1994
Limited General
Partners Partner Total
Initial capital contributions $ 1,000 $ 1,000 $ 2,000
Proceeds from offering of 9,421
Units of Limited Partnership
Interest and General Partner's
contribution representing
96 Unit equivalents (Note 1) 9,421,000 96,000 9,517,000
------------ ------------ ------------
Opening Partnership capital
for operations 9,422,000 97,000 9,519,000
Net loss (1,312,729) (12,931) (1,325,660)
Sale of 10,194.9915 Units
of Limited Partnership
Interest and General
Partner's contribution
representing 105.3304
Unit equivalents 10,028,000 103,000 10,131,000
Redemption of 286 Units of
Limited Partnership Interest (264,427) (264,427)
------------ ------------ ------------
Partners' capital at
December 31, 1994 17,872,844 187,069 18,059,913
Net Income 6,804,808 71,008 6,875,816
Sale of 18,408.1696 Units of
Limited Partnership Interest
and General Partner's
contribution representing
120.3771 Unit equivalents 21,242,100 135,000 21,377,100
Redemption of 6,145.4511 Units
of Limited Partnership Interest (7,436,822) (7,436,822)
------------ ------------ ------------
Partners' capital at
December 31, 1995 38,482,930 393,077 38,876,007
Net Income 13,607,353 139,383 13,746,736
Sale of 17,430.8344 Units of
Limited Partnership Interest
and General Partner's
contribution representing
130.1478 Unit equivalents 22,142,769 164,000 22,306,769
Redemption of 4,968.4779 Units
of Limited Partnership Interest (6,478,043) (6,478,043)
------------ ------------ ------------
Partners' capital at
December 31, 1996 $ 67,755,009 $ 696,460 $ 68,451,469
============ ============ ============
See notes to financial statements.
F-5
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
1. Partnership Organization:
Smith Barney Mid-West Futures Fund L.P. II (the "Partnership") is a limited
partnership which was organized on June 3, 1994 under the partnership laws of
the State of New York to engage 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 July 7, 1994 and August 31, 1994, 9,421 Units of Limited Partnership
Interest ("Units") were sold at $1,000 per Unit. The proceeds of the initial
offering were held in an escrow account until September 1, 1994, at which
time they were turned over to the Partnership for trading. Partnership Units
are being continuously offered monthly during the continuous offering period.
The Partnership is authorized to sell 75,000 Units.
Smith Barney Futures Management Inc. is the general partner (the "General
Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of the
General Partner, acts as commodity broker for the Partnership (see Note 3c).
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, 2014; 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
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
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.)
(the "Advisor"), provides that the Advisor has sole discretion in
determining the investment of the assets of the Partnership allocated to
the Advisor by the General Partner. 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
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
c.Customer Agreement
The Partnership has entered into a Customer Agreement with 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, floor brokerage, user, give-up 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, 1996 and 1995, the
amount of cash held for margin requirements was $6,067,838 and $4,934,929,
respectively. SB will pay the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at a
30-day Treasury bill rate determined weekly by SB based on the
noncompetitive yield on 3-month U.S. Treasury bills maturing in 30 days
from the date on which such weekly rate is determined. 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, 1996 and 1995 was $1,353,865 and $1,455,058,
respectively. The average fair value during the years then ended, based on
monthly calculation, was $5,549,462 and $1,903,653, respectively.
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 ten Units) at the Net Asset Value thereof as of the last day
of any month beginning with the first full month ending at least three months
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 ten Units after such redemption is effected.
F-8
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
6. Organization and Offering Costs:
Offering and organization expenses of $128,173 relating to the issuance and
marketing of units offered during the initial offering period were initially
paid by SB. The Partnership has reimbursed SB for all such expenses from
interest paid to the Partnership and has recorded such reimbursement amounts
as an expense.
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31,
1996, 1995 and for the period ended December 31, 1994 were as follows:
1996 1995 1994
Net realized and
unrealized
gains (losses) $ 387.25 $ 342.80 $ (58.56)
Interest income 48.07 49.02 12.17
Expenses (115.45) (98.33) (29.04)
---------- --------- ---------
Increase (decrease)
for period 319.87 293.49 (75.43)
Net asset value per
Unit, beginning of period 1,218.06 924.57 1,000.00
---------- --------- ---------
Net asset value per
Unit, end of period $ 1,537.93 $1,218.06 $ 924.57
========== ========= =========
8. 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 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.
F-9
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
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.
F-10
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
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, 1996, the notional or
contractual amounts of the Partnership's commitment to purchase and sell
these instruments was $360,386,861 and $221,512,495, respectively, as
detailed below. All of these instruments mature within one year of December
31, 1996. However, due to the nature of the Partnership's business, these
instruments may not be held to maturity. At December 31, 1996, the fair value
of the Partnership's derivatives, including options thereon, was $1,353,865,
as detailed below.
Notional or Contractual
Amount of Commitments
To Purchase To Sell Fair Value
Currencies
-OTC Contracts $101,932,924 $ 75,955,004 $ 434,513
Interest Rate U.S. 13,918,500 0 (178,250)
Interest Rate Non-U.S 244,535,437 97,808,063 (164,031)
Metals 0 40,898,465 917,595
Indices 0 6,850,963 344,038
------------ ------------ ------------
$360,386,861 $221,512,495 $ 1,353,865
============ ============ ============
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, 1996, SB earned
$3,306,404 in brokerage commissions and clearing fees. The Advisor earned
$2,112,274 in management fees and $1,988,611 in incentive fees during 1996.
During the year ended December 31, 1996 the General Partner earned $528,068 in
administrative fees.
13
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 452.8553 (1.0%) Units of partnership interest as of December 31,
1996.
(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,
1996 and 1995.
14
Statement of Income and Expenses for the years ended December 31,
1996, 1995 and for the period from September 1, 1994 (commencement
of trading operations) to December 31, 1994.
Statement of Partners' Capital for the years ended December 31,1996,
1995 and for the period from June 3, 1994 (date Partnership was
organized) to December 31, 1994.
(2) Financial Statement Schedules: None
(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 Registrant 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 & Co., Inc.
extending Management Agreement (previously
filed).
15
10.5 - Letter dated January 25, 1996 from General
Partner to John W. Henry & Co., Inc.
Extending Management Agreement to June 30,
1996 (previously filed).
(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 1997.
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
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/ Philip M. Waterman, Jr. /s/ Daniel R. McAuliffe, Jr.
Philip M. Waterman, Jr. Daniel R. McAuliffe, Jr.
Director and Vice-Chairman Director
/s/ Steve J. Keltz /s/ Shelley Ullman
Steve J. Keltz Shelley Ullman
Secretary and Director Director
18