FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 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)
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
<PAGE>
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
September 30, 1996 and December 31,
1995. 3
Statements of Income and Expenses
and Partners' Capital for the Three
and Nine Months ended September 30,
1996 and 1995. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
September 30, DECEMBER 31,
1996 1995
Assets
----------- -----------
(Unaudited)
Equity in commodity futures trading account:
Cash $48,223,388 $37,848,599
Net unrealized appreciation
on open futures contracts 5,683,286 1,455,058
----------- -----------
53,906,674 39,303,657
Interest receivable 164,202 136,317
----------- -----------
$54,070,876 $39,439,974
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 270,354 $ 197,200
Management fees 179,335 130,809
Administrative fees 44,834 32,702
Other 8,650 41,916
Redemptions payable 1,564,387 161,340
----------- -----------
2,067,560 563,967
----------- -----------
Partners' Capital
General Partner, 429.1320 and 322.7075
Unit equivalents outstanding, respectively 531,240 393,077
Limited Partners, 41,578.9540 and 31,593.7100
Units of Limited Partnership Interest
outstanding, respectively 51,472,076 38,482,930
----------- -----------
52,003,316 38,876,007
----------- -----------
$54,070,876 $39,439,974
=========== ===========
See Notes to Financial Statements.
3
<PAGE>
SMITH BARNEY MID - WEST FUTURES FUND L. P. II
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
September 30, September 30, September 30, September 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Income:
Net gains on trading
of commodity futures:
Realized gains (losses) on
closed positions $ (2,577,793) $ 151,381 $ (780,225) $ 9,770,127
Change in unrealized gains /
losses on open positions 3,441,721 (782,074) 4,228,228 (1,939,847)
------------ ------------ ------------ ------------
863,928 (630,693) 3,448,003 7,830,280
Less, brokerage commissions and
clearing fees ($14,168, $4,815,
$32,747, and $17,188 respectively) (819,267) (478,425) (2,233,494) (1,266,000)
------------ ------------ ------------ ------------
Net realized and unrealized
gains (losses) 44,661 (1,109,118) 1,214,509 6,564,280
Interest income 500,850 331,515 1,350,480 842,681
------------ ------------ ------------ ------------
545,511 (777,603) 2,564,989 7,406,961
------------ ------------ ------------ ------------
Expenses:
Management fees 519,610 308,773 1,425,693 808,832
Incentive fees - - - 829,781
Administrative fees 129,903 77,193 356,423 202,207
Other 33,194 19,086 65,025 39,364
------------ ------------ ------------ ------------
682,707 405,052 1,847,141 1,880,184
------------ ------------ ------------ ------------
Net income (loss) (137,196) (1,182,655) 717,848 5,526,777
Additions 5,835,000 8,900,000 16,755,769 15,462,500
Redemptions (2,128,651) (512,171) (4,346,308) (7,012,413)
------------ ------------ ------------ ------------
Net increase in
Partners capital 3,569,153 7,205,174 13,127,309 13,976,864
Partners' capital, beginning
of period 48,434,163 24,831,603 38,876,007 18,059,913
------------ ------------ ------------ ------------
Partners' capital, end
of period $ 52,003,316 $ 32,036,777 $ 52,003,316 $ 32,036,777
============ ============ ============ ============
Net asset value per Unit
(42,008.0860 and 27,256.6599
Units outstanding at
September 30, 1996 and 1995) $ 1,237.94 $ 1,175.37 $ 1,237.94 $ 1,175.37
============ ============ ============ ============
Net Income (Loss) per Unit of Limited Partnership
Interest and General Partnership Unit equivalent $ (4.39) $ (46.68) $ 19.88 $ 250.80
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
September 30, 1996
(Unaudited)
1. General:
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 commodity
interests, including forward contracts on foreign currencies, commodity options
and commodity futures contracts including futures contracts on U.S. Treasuries
and certain other financial instruments, foreign currencies and stock indices.
The commodity interests that are traded by the Partnership are volatile and
involve a high degree of market risk. The Partnership commenced trading
operations on September 1, 1994.
Smith Barney Futures Management Inc. acts as 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. All trading
decisions for the Partnership are being made by John W. Henry & Company, Inc.
(the "Advisor").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at September 30, 1996 and the results of its operations for the three
and nine months ended September 30, 1996 and 1995. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements. It is suggested that these
financial statements be read in conjunction with the financial statements
included in the Partnership's annual report for the year ended December 31,
1995.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1996 and 1995 were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
---- ---- ---- ----
Net realized and unrealized
gains (losses) $ (0.11) $ (43.85) $ 33.19 $ 296.65
Interest income 11.82 12.84 35.13 36.25
Expenses (16.10) (15.67) (48.44) (82.10)
--------- --------- --------- ---------
Increase (decrease) for
period (4.39) (46.68) 19.88 250.80
Net Asset Value per Unit,
beginning of period 1,242.33 1,222.05 1,218.06 924.57
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $1,237.94 $1,175.37 $1,237.94 $1,175.37
========= ========= ========= =========
3. 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
activities are shown in the statements of income and expenses.
The Customer Agreement between the Partnership and SB gives the Partnership
the legal right to net unrealized gains and losses.
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 September 30, 1996 was $5,683,286 and the average fair value during
the nine months then ended, based on monthly calculation, was $3,281,845.
4. 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
6
<PAGE>
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.
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 September 30, 1996, the notional or
contractual amounts of the
7
<PAGE>
Partnership's commitment to purchase and sell these instruments was $822,243,470
and $205,340,270, respectively, as detailed below. All of these instruments
mature within one year of September 30, 1996. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity. At
September 30, 1996, the Partnership had net unrealized trading gains of
$5,683,286 as detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
----------- ------- -----------
Currencies * $ 94,216,157 $105,536,480 $ 474,208
Interest Rates US 0 24,744,250 (587,250)
Interest Rates Non US 722,201,593 0 4,634,073
Metals 0 75,059,540 1,182,455
Indices 5,825,720 0 (20,200)
------------ ----------- -----------
$822,243,470 $205,340,270 $5,683,286
============ ============ ==========
* The notional or contractual commitment amounts and the net unrealized gain
amount listed for the currency sector represent OTC contracts. All other sectors
listed represent exchange traded contracts.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, net unrealized
appreciation (depreciation) on open futures and forward contracts 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. While substantial losses could lead to a decrease in
liquidity, no such losses occurred in the third quarter of 1996.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 1996, Partnership capital increased
33.8% from $38,876,007 to $52,003,316. This increase was primarily attributable
to the addition of 13,627.1330 Units resulting in an inflow of $16,755,769. This
inflow was increased by net income from operations of $717,848 and was partially
offset by the redemption of 3,535.4645 Units which resulted in an outflow of
$4,346,308 for the nine months ended September 30, 1996. Future additions and
redemptions can impact the amount of funds available for investments in
commodity contract positions in subsequent periods.
Results of Operations
During the Partnership's third quarter of 1996, the net asset value per
Unit decreased 0.4% from $1,242.33 to $1,237.94 as compared to the third quarter
of 1995 in which the net asset value per Unit decreased by 3.8%. The Partnership
experienced a net trading gain before commissions and expenses in the third
quarter of 1996 of $863,928. Gains were recognized in the trading of commodity
futures in metals and interest rates which were partially offset by losses
recognized in currencies and indices. The Partnership experienced a net trading
loss before commissions and expenses in the third quarter of 1995 of $630,693.
These losses were attributable to the trading of metals, indices and interest
rates which were partially offset by gains recognized in currencies.
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
9
<PAGE>
price trends and the ability of the Advisor to identify correctly those price
trends. 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.
Interest income on 80% of the Partnership's average daily equity was earned
at the monthly average 30 day U.S. Treasury Bill yield. Interest income for the
three and nine months ended September 30, 1996 increased by $169,335 and
$507,799, respectively, as compared to the corresponding periods in 1995. The
increase in interest income is primarily the result of the effect of net
additions on the Partnership's equity maintained in cash in 1996 as compared to
the corresponding periods of 1995.
Brokerage commissions are calculated on the adjusted net asset value on the
last day of each month and, therefore, vary according to trading performance,
additions and redemptions. Accordingly, they must be compared in relation to the
fluctuations in the monthly net asset values. Commissions and clearing fees for
the three and nine months ended September 30, 1996 increased by $340,842 and
$967,494, respectively, as compared to the corresponding periods in 1995.
All trading decisions for the Partnership are currently being made by the
Advisor. Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance,
additions and redemptions. Management fees for the three and nine months ended
September 30, 1996 increased by $210,837 and $616,861, respectively, as compared
to the corresponding periods in 1995.
Administrative fees are paid to the General Partner for administering the
business and affairs of the Partnership. These fees are calculated as a
percentage of the Partnership's net asset value as of the end of each month and
are affected by trading performance, additions and redemptions. Administrative
fees for the three and nine months ended September 30, 1996 increased by $52,710
and $154,216, respectively, as compared to the corresponding periods in 1995.
Incentive fees are based on the new trading profits generated by the
Advisor as defined in the advisory agreement between the Partnership, the
General Partner and the Advisor. There were no incentive fees earned for the
three and nine months ended September 30, 1996. Trading performance for the nine
months ended September 30, 1995 resulted in incentive fees of $829,781.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/11/96
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013167
<NAME> Smith Barney Mid-West Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 48,223,388
<SECURITIES> 5,683,286
<RECEIVABLES> 164,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,070,876
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,070,876
<CURRENT-LIABILITIES> 2,067,560
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 52,003,316
<TOTAL-LIABILITY-AND-EQUITY> 54,070,876
<SALES> 0
<TOTAL-REVENUES> 2,564,989
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,847,141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 717,848
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 717,848
<EPS-PRIMARY> 19.88
<EPS-DILUTED> 0
</TABLE>
