<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
SMITH BARNEY MID-WEST FUTURES FUND L. P. II
(Exact name of registrant as specified in
its limited partnership agreement)
New York 13-3772374
(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification No.)
390 Greenwich Street-1st floor
New York, New York 10013
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code 212-723-5424
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered which each class is to be
registered
------------------------ ---------------------------
------------------------ ---------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
<PAGE>2
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 objective of the
Partnership is to achieve substantial appreciation of its assets through
speculative trading, directly and indirectly, in commodity interests, including
spot and forward contracts on foreign currencies, commodity options and
commodity futures contracts including futures and options contracts involving
interest rates, international stock exchange indexes, and base and precious
metals. The Partnership commenced trading on September 1, 1994. Redemptions for
the quarter ended March 31, 1996 and the years ended December 31, 1995 and 1994
are reported in the Statements of Partners' Capital under "Item 13. Financial
Statements and Supplementary Data."
The Partnership's trading of futures contracts on commodities
is done primarily on United States commodities exchanges and may, to a lesser
extent, be done on some 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., a corporation formed
under the laws of the State of Delaware, is the General Partner of the
Partnership (the "General Partner"). The General Partner is registered as a
commodity pool operator and commodity trading advisor with the Commodity Futures
Trading Commission (the "CFTC"). Registration as a commodity pool operator or as
a commodity trading advisor requires annual filings setting forth the
organization and identity of the management and controlling persons of the
commodity pool operator or commodity trading advisor. In addition, the CFTC has
authority under the Commodity Exchange Act, as amended (the "CEA") to require
and review books and records of, and review documents prepared by, a commodity
pool operator or a commodity trading advisor. The CFTC has adopted regulations
which impose certain disclosure, reporting and record-keeping requirements on
commodity pool operators and commodity trading advisors. The CFTC is authorized
to suspend a person's registration as a commodity pool operator or commodity
trading advisor if the CFTC finds that such person's trading practices tend to
disrupt orderly market conditions, that any controlling person thereof is
subject to an order of the CFTC denying such person trading privileges on any
exchange, and in certain other circumstances.
Under the Limited Partnership Agreement of the Partnership
(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
<PAGE>3
currently has a Management Agreement in effect with John W. Henry & Company,
Inc. (the "Advisor" or "JWH"), pursuant to which the Advisor manages the
Partnership's assets. Pursuant to the express terms of the Management
Agreement, the Advisor is considered to be an independent contractor of the
Partnership. The Advisor has managed the Partnership's assets since the
Partnership's commencement of trading. The General Partner selected the
Advisor on the basis of the trading strategies employed by the Advisor as well
as the Advisor's previous experience in managing commodity trading accounts
and the background and experience of the principals of the Advisor.
The Advisor has been instructed to use initially only its
Financial and Metals Portfolio trading program for the Partnership's account.
The Financial and Metals Portfolio participates in four primary financial
sectors - world currencies, precious metals, global interest rates, and U.S.
and non-U.S. stock indexes - and initiates trades according to trend-emergence
and computerized determination of relative risk. The Financial and Metals
Portfolio is designed to take advantage of global price trends, while
maintaining a long-term perspective. Trading is based upon the Advisor's
disciplined, technical trading strategy which includes the use of
sophisticated risk control techniques. The Financial and Metals Portfolio may
take long, short or neutral positions in markets within the four groups
traded, may use stop orders and commits 10-to-30% of equity to margin on open
positions. Because assets are concentrated in financial futures and metals
only, volatility can be higher than in a more diversified portfolio.
The trading strategy used by the Advisor for the Partnership
will generally be the same as the strategy used for all other accounts in the
Financial and Metals Portfolio with similar equity. From time to time accounts
in the portfolio that trade at other commodity brokers may not include all of
the markets which the Advisor intends to trade for the Partnership due to
operational difficulties that certain commodity brokers have in providing access
to certain foreign markets. Nonetheless, the trading strategy the Advisor will
utilize for the Partnership will in fact be materially similar to the strategy
used for other Financial and Metals Portfolio accounts. The General Partner may,
in its discretion, acting in the best interests of the limited partners,
allocate and reallocate all or a portion of the Partnership's assets among the
other trading programs operated by the Advisor; however, the General Partner
does not anticipate any material changes in the allocation of the Partnership's
assets for the remainder of 1996.
The quantitative models of the Advisor are guided by a
proprietary set of mathematical formulas that provide signals for investment
decisions integrated within a disciplined money-management framework. The
Advisor's trading techniques focus on long-term trends rather than day-to-day
price fluctuations.
<PAGE>4
Positions held for two to four months are not unusual, and
positions have been held for more than one year. Historically, only thirty to
forty percent of all trades made pursuant to the trading methods have been
profitable. Large profits on a few trades in positions that typically exist for
several months have produced favorable overall results. Generally, the majority
of losing trades have been liquidated within weeks. The greatest cumulative
percentage decline in daily net asset value the Advisor has experienced in any
single program was nearly sixty percent. Investors should understand that
similar or greater drawdowns are possible in the future.
The Advisor at its sole discretion may override
computer-generated trading signals, and may at times use discretion in the
application of its quantitative models which may affect performance positively
or negatively. Subjective aspects of the Advisor's trading systems also include
the determination of program leverage, commencement of trading in an account,
contracts traded, contract month selection, markets traded, margin utilization,
and effective trade execution.
In an effort to maintain and improve performance, the Advisor
has engaged, and continues to engage, in an extensive program of research. While
the basic parameters underlying the firm's investment approach have remained
intact throughout its history, the potential benefits of employing more than one
trading parameter alternatively, or in varying combinations, is a subject of
continual testing, review and evaluation. Extensive research and analysis may
suggest substitution of alternative parameters with respect to particular
contracts in light of relative differences in historical trading performance
achieved through testing different parameters. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, the addition or deletion of particular contracts for a
program or a change in the degree of leverage employed.
As capital in JWH trading program increases, additional
emphasis and weighting may be placed on certain markets which have historically
demonstrated the greatest liquidity and profitability. Furthermore, the
weighting of capital committed to various markets in the investment programs is
dynamic, and the Advisor may vary the weighting at its discretion as market
conditions, liquidity, position limit considerations and other factors warrant.
Investors will generally not be informed of changes.
Leverage adjustments have been and continue to be an integral
part of the Advisor's trading methods. At its discretion, the Advisor may adjust
leverage in certain markets or entire trading programs. Leverage adjustments may
be made at certain times for some trading programs but not for others. Factors
which may affect the decision to adjust leverage include ongoing research,
program volatility, current market volatility,
<PAGE>5
risk exposure, and subjective judgment and evaluation of these and other
general market conditions. Such decisions to change leverage may positively or
negatively affect performance, and will alter risk exposure for an account.
Leverage adjustments may lead to greater profits or losses, more frequent and
larger margin calls, and greater brokerage expense. No assurance is given that
such leverage adjustments will be to the financial advantage of the
Partnership. The Advisor reserves the right, in its sole discretion, to adjust
its leverage policy without notification to the Partnership.
The Advisor has developed procedures for trading fund
accounts, such as the Partnership, that provide for the addition, redemption
and/or reallocation of capital. Investors who purchase or redeem units in a fund
are most frequently permitted to do so at a price equal to the net asset value
per unit on the close of business on the last business day of the month or
quarter. In addition, funds often may reallocate capital among advisors at the
close of business on the last business day of the month. In order to provide
market exposure commensurate with equity in the account on the date of these
transactions, the Advisor's general practice is to adjust positions as near as
possible to the close of business on the last trading date of the month. The
intention is to provide for additions, redemptions and reallocations at a net
asset value per unit that will be the same for each of these transactions and to
eliminate possible variation in net asset value per unit that could occur as a
result of inter-day price changes when additions are calculated on the first day
of the subsequent month. Therefore, the Advisor may, in its sole discretion,
adjust its investment of the assets associated with the addition, redemption and
reallocation of capital as near as possible to the close of business on the last
business day of the month to reflect the amount then available for trading.
Based on the Advisor's determination of liquidity or other market conditions,
the Advisor may decide to commence trading earlier in the day on, or before, the
last business day of the month. In the case of an addition to a fund account,
the Advisor may also, in its sole discretion, delay the actual start of trading
for those new assets. No assurance is given that the Advisor will be able to
achieve the objectives described above in connection with funding level changes.
The use of discretion in the application of this procedure by the Advisor may
affect performance positively or negatively.
The Investment Policy Committee is one vehicle for
decision-making at JWH about the content and application of JWH trading
programs. Composition of the Investment Policy Committee, and participation
in its discussions and decisions by non-members, may vary over time.
A limited partner may require the Partnership to redeem some or all of
its Units (minimum 10 Units) at Net Asset Value per Unit as of the last day of a
month. No redemption will be permitted if after giving effect to the redemption
the limited partner owns fewer than 10 Units. The right to redeem is contingent
upon the Partnership's having property sufficient to discharge its liabilities
on the Redemption Date and upon receipt by the General Partner by registered
mail of a request for redemption at least 15 days prior to the Redemption Date.
<PAGE>6
Additional Information About the Partnership.
Fees and Expenses
Selling Price Per Unit $ 1,000.00
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Interest Income(1) $ (37.60)
Brokerage Fees and Commissions(2) $ 66.41
Advisor's Management Fee(3) $ 38.85
General Partner's Administrative Fee(4) $ 9.71
Offering Expenses(5) $ .83
Other Operating Expenses(6) $ 1.66
Amount of Trading Income Required for the
Partnership's Net Asset Value per Unit at
the End of One Year to Equal the Selling
Price per Unit $ 79.86
Percentage of Selling Price per Unit 7.99%
Break-Even Point. The break-even point per Unit (that is, the
trading profit the Partnership must realize in the first year of a limited
partner's investment so that such investment at the end of the year is equal to
its value at the beginning of the year), assuming a limited partner purchases
Units at $1,000 each as of the beginning of the year and redeems its Units at
the end of the first year of its investment, is 7.99%, or $79.86 per Unit. Each
of the above fees and expenses have been calculated in a sequence similar to the
actual methodology used by the Partnership. Such fee and expense amounts, and
the percentage of selling price per Unit, reflect the Partnership's effective
expense amounts. For example, the brokerage fee amount of $66.41 has been
calculated by adding interest income of $37.60 to the selling price per Unit of
$1,000 and multiplying the result by the brokerage fee and commission rate of
6.4%. The Advisor's management fee and the General Partner's administrative fee
have been calculated on the basis of assets after the addition of the interest
income and the subtraction of the brokerage commissions.
(1) Interest Income. All of the Partnership's funds are
deposited in cash in its trading account at SB. SB deposits the cash in
segregated bank accounts as required by CFTC regulations. At December 31, 1995,
the amount of cash held for minimum margin requirements was $4,934,929. Total
cash in the Partnership account was $37,848,599. Such accounts do not earn
interest. However, SB will pay the Partnership interest on 80% of the average
daily equity maintained in cash in its accounts during each month at the rate of
the average non-competitive yield of 30-day U.S. Treasury Bills as determined at
the weekly auctions thereof during the month.
(2) Brokerage Fees and Commissions. Pursuant to the terms of
the customer agreement entered into with SB (the "Customer Agreement"), the
Partnership is obligated to pay a monthly commodity brokerage fee equal to 1/2
of 1% of month-end Net Assets (6% per year) in lieu of brokerage commissions on
a
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per trade basis. The brokerage fee does not include exchange, clearing, floor
brokerage and NFA fees which will be borne by the Partnership and which are
payable to third parties on a per transaction basis regardless of how many or
how few trades are executed during the month. Although it is impossible to
predict exactly the amount of these per transaction fees payable by the
Partnership to third parties, based on the past performance of the Advisor,
the aggregate of such fees is estimated at approximately .4% of Net Assets per
year. In 1995, the Partnership paid approximately $66,000 in such fees, which
is equal to approximately .2% of the Partnership's Net Assets at December 31,
1995.
Pursuant to the Customer Agreement, SB will execute
transactions for the Partnership's account in accordance with orders placed by
the Advisor. The services to be provided by SB include the execution of orders
and the rendering of bookkeeping and clerical assistance to the Partnership and
the General Partner. The Customer Agreement may be terminated upon notice by
either party.
(3) The Advisor's Fee. The Partnership pays the Advisor a
monthly management fee equal to 4% per year of month-end Net Assets. In
addition, the Partnership pays to the Advisor an incentive fee equal to 15% of
New Trading Profits earned by the Advisor during each quarter. The incentive fee
is not included in computing the break-even point per Unit since it is paid, if
at all, after payment of all expenses. New Trading Profits means the excess, if
any, of Net Assets managed by the Advisor at the end of the fiscal quarter over
Net Assets managed by the Advisor at the end of the highest previous fiscal
quarter or Net Assets allocated to the Advisor at the date trading commences,
whichever is higher, and as further adjusted to eliminate the effect on Net
Assets resulting from new capital contributions, redemptions, reallocations or
capital distributions, if any, made during the fiscal quarter decreased by
interest or other income not directly related to trading activity, earned on the
Partnership's assets during the fiscal quarter.
(4) The General Partner's Administrative Fee. The Partnership
pays the General Partner a monthly administrative fee equal to 1% per year of
month-end Net Assets of the Partnership in return for its services to the
Partnership.
(5) Offering Expenses. SB initially bore all of the initial
offering and organizational expenses of the Partnership which were approximately
$128,000. Offering expenses incurred in the Continuous Offering are estimated at
approximately $25,000 per year (.09% of Net Assets) and will be borne by the
Partnership.
(6) Other Operating Expenses. The Partnership pays its
ongoing legal, accounting, filing and reporting fees
<PAGE>8
estimated at approximately $50,000 per year (or .18% of Net Assets). In 1995,
the Partnership incurred approximately $64,000 in such fees.
ERISA Considerations
The Units in the Partnership which are offered hereby may be
purchased by employee benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The phrase "employee benefit plan"
refers to plans of various types including corporate pension and profit-sharing
plans, "simplified employee pension plans", so-called "Keogh" (H.R. 10) plans
for self-employed individuals, including partners, and "individual retirement
accounts" (or "IRAs") for persons (including employees and self-employed
persons) who receive compensation income.
Units may not be purchased by an employee benefit plan if the
selling agent or its financial consultants, the General Partner or their
affiliates (a) exercise any discretionary authority or discretionary control
respecting management of such employee benefit plan, (b) exercise any authority
or control respecting management or disposition of the assets of such employee
benefit plan, (c) render investment advice for a fee or other compensation,
direct or indirect, with respect to any moneys or other property of such
employee benefit plan, (d) have any authority or responsibility to render
investment advice with respect to any moneys or other property of such employee
benefit plan, or (e) have any discretionary authority or discretionary
responsibility in the administration of such employee benefit plan. For the
purposes of this paragraph, "investment advice" shall mean rendering investment
advice as to the value of securities or other property, or making
recommendations as to the advisability of investing in securities, directly or
indirectly, and either (i) having discretionary authority or control, whether or
not pursuant to an agreement, arrangement or understanding, with respect to
purchasing or selling securities or other property for the plan, or (ii)
rendering such investment advice on a regular basis to the employee benefit plan
pursuant to a mutual agreement, arrangement or understanding, written or
otherwise, between such person and the employee benefit plan or a fiduciary with
respect to such employee benefit plan, that such services will serve as a
primary basis for investment decisions with respect to assets of the employee
benefit plan, and that such person will render individualized investment advice
to the employee benefit plan based on the particular needs of the employee
benefit plan regarding such matters, as, among other things, investment policies
or strategy, overall portfolio composition, or diversification of plan
investments.
Under ERISA, a fiduciary of an employee benefit plan is
required, among other things, to discharge his duties toward such plan with the
care, skill, prudence and diligence under the
<PAGE>9
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims. In considering an investment in the Partnership
of a portion of the assets of an employee benefit plan, a fiduciary having
investment responsibilities with respect to an employee benefit plan should
give appropriate consideration to those facts and circumstances that, given
the scope of his or her investment duties, he or she knows or should know are
relevant to investment in the Partnership, including the role the investment
in the Partnership plays in that portion of the plan's investment portfolio
with respect to which the fiduciary has investment duties.
A fiduciary having investment responsibilities with respect to
an employee benefit plan should consult regulations of the Department of Labor
to determine whether he or she has made appropriate consideration of relevant
factors in investing in the Partnership. In addition to any factors which must
be considered by such fiduciary with respect to investment of assets of an
employee benefit plan in the Partnership under the above regulation, such
fiduciary should also consider (i) whether the investment is in accordance with
the documents and instruments governing said plan, (ii) whether the investment
satisfies the diversification rules of Section 404(a)(1)(C) of ERISA, if
applicable, (iii) whether the investment will result in unrelated business
taxable income to the plan, (iv) whether the investment provides sufficient
liquidity, (v) the need to value the assets of the plan annually, and (vi)
whether the investment is prudent.
Assets of employee benefit plans ("plan assets") are generally
subject to the fiduciary duty provisions of ERISA and the prohibited transaction
provisions of ERISA and section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"). ERISA does not define "plan assets", however, the
Department of Labor has published a final regulation defining the term "plan
assets" (the "Final Regulation") for purposes of Title I of ERISA and section
4975 of the Code. Under the Final Regulation, generally, when a plan makes an
equity investment in another entity, the underlying assets of that entity will
be considered plan assets unless (i) the equity interest is a "publicly offered"
security or a security issued by an investment company registered under the
Investment Company Act of 1940, as amended (ii) the entity is an "operating
company", or (iii) equity participation by "benefit plan investors" is not
"significant".
The Units will not be deemed to be "publicly offered"
securities for purposes of the Final Regulation. In addition, the Partnership is
not an "operating company" within the meaning of the Final Regulation. The final
exception to the "plan assets" rule is for investment in entities in which there
is not "significant" investment by "benefit plan investors". "Benefit plan
investors" include employee benefit plans subject to ERISA as well as plans not
subject to ERISA, such as governmental
<PAGE>10
plans, IRAs and non-U.S. plans. Investment by benefit plan investors is not
"significant" as defined in the Final Regulation if the aggregate investment
by benefit plan investors in each class of equity securities of the investment
entity is less than 25%. Determinations of the percentage of participation by
benefit plan investors must be made after each investment or redemption, and
investments held by the investment entity's managers, investment advisers and
their affiliates must be disregarded.
The Partnership intends to qualify under the significant plan
exception in the Final Regulation by monitoring the percentage investment by
benefit plan investors and maintaining it below 25%. In order to accomplish
this, the subscription agreement requires that an employee benefit plan must
redeem its Units upon notice from the General Partner.
In the unlikely event that the Partnership were deemed to hold
plan assets, prohibited transactions could arise under ERISA and section 4975 of
the Code. In addition, investment by a fiduciary of an employee benefit plan
could be deemed an improper delegation of investment authority, and the
fiduciary could be liable, either directly or under the co-fiduciary rules of
ERISA, for the acts of the General Partner. Additional issues relating to "plan
assets" and "prohibited transactions" of ERISA and the Code arise by virtue of
the General Partner's ownership of interests in the Partnership and the possible
relationship between an affiliate of the General Partner and any employee
benefit plan which may purchase Units. Further, certain transactions between the
Partnership and the General Partner and certain affiliates of the General
Partner could be prohibited transactions.
It should be noted that even if the Partnership's assets are
not deemed to be plan assets, the Department of Labor has stated in Interpretive
Bulletin 75-2 (29 C.F.R. ss.2509.75-2, as amended by the Final Regulation) that
it would consider a fiduciary who makes or retains an investment in a
partnership for the purpose of avoiding application of the fiduciary
responsibility provisions of ERISA to be in contravention of the fiduciary
provisions of ERISA. The Department of Labor indicated further that if a plan
invests in or retains its investment in a partnership and as part of the
arrangement it is expected that the partnership will enter into a transaction
with a party in interest to the plan (within the meaning of ERISA) which
involves a direct or indirect transfer to or use by the party in interest of any
assets of the plan, the plan's investment in the partnership would be a
prohibited transaction under ERISA.
A prohibited transaction may result in the imposition of
potential personal liability upon fiduciaries of employee benefit plans subject
to ERISA and an excise tax under section 4975 of the Code upon the fiduciary or
other disqualified person
<PAGE>11
with respect to the Plan. A fiduciary that has engaged in a prohibited
transaction would be required to (i) restore to the plan any profit realized
on the transaction and (ii) make good to the plan any losses suffered by the
plan as a result of such investment. The fiduciary or other disqualified
person involved would be liable to pay an excise tax of 5% of the amount
involved in the prohibited transaction for each year in which the investment
is in place and would be required to eliminate the prohibited transaction by
reversing the transaction and making good to the plan any losses resulting
from the prohibited transaction. If the transaction is not corrected within a
certain time period, the fiduciary or other disqualified person could also be
liable for an additional excise tax in an amount equal to 100% of the amount
involved.
In addition to liability for plan losses, ERISA imposes a
civil penalty against fiduciaries of employee benefit plans who breach the
prudence or other fiduciary standards of ERISA and against non-fiduciaries who
knowingly participate in the transaction giving rise to the breach. A prohibited
transaction by an employee benefit plan fiduciary would constitute a breach of
the ERISA fiduciary standards. The civil penalty is equal to 20% of the amount
recovered from a fiduciary or non-fiduciary with respect to such breach or
knowing participation pursuant to a settlement agreement with the United States
Secretary of Labor or a court order resulting from a proceeding instituted by
the Secretary. The penalty may be waived and, in any event, would be offset to
the extent of the responsible party's liability for excise tax under section
4975 of the Code.
Each limited partner will be furnished with monthly statements
and annual reports which include the Net Asset Value per Unit. The General
Partner believes that these statements will be sufficient to permit plan
fiduciaries to provide an annual valuation of plan investments as required by
ERISA; however, fiduciaries should note that they have the ultimate
responsibility for providing such valuation. Accordingly, plan fiduciaries
should consult with their attorneys or other advisors regarding their
obligations under ERISA with respect to making such valuations.
Plan fiduciaries should understand the illiquid nature of an
investment in the Partnership and that a secondary market may not exist for a
Unit. Accordingly, plan fiduciaries should review both anticipated and
unanticipated liquidity needs for their respective plans, particularly those for
a participant's termination of employment, retirement, death, disability or plan
termination. Plan fiduciaries should be aware that distributions to participants
may be required to commence in the year after the participant attains age
70-1/2.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests, including forward contracts on
<PAGE>12
foreign currencies, commodity options and commodity futures contracts
(including futures contracts on U. S. Treasury Bills and other financial
instruments, foreign currencies and stock indices). The Partnership's net
income (loss) from operations for the quarter ended March 31, 1996, the year
ended December 31, 1995 and the period from September 1, 1994 (commencement of
operations) to December 31, 1994 are set forth under "Item 2. Financial
Information." The Partnership does not engage in sales of goods or services.
Partnership capital as of December 31, 1995 was $38,876,007.
(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. The directors and
officers of the General Partner and the Advisor are listed in "Item 5.
Directors and Executive Officers".
Item 2. Financial Information.
(a) 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 quarter ended
March 31, 1996, the year ended December 31, 1995 and for the period from
September 1, 1994 (commencement of operations) to December 31, 1994 and total
assets at March 31, 1996, December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Realized and unrealized trading gains
(losses) net of brokerage commissions
and clearing fees of $673,413,
$1,842,402 and $283,703, respectively $ 3,855 $ 8,020,122 $(1,112,429)
Interest income $ 400,388 $ 1,234,647 $ 170,516
---------- ---------- ----------
$ 404,243 $ 9,254,769 $ (941,913)
========== ========== ===========
Net Income (loss) $ (149,130) $ 6,875,816 $(1,325,660)
========== ========== ===========
Increase (decrease) in net asset value
per unit $ (1.73) $ 293.49 $ (75.43)
========== ========== ===========
Total assets $44,016,870 $39,439,974 $18,543,431
========== ========== ==========
</TABLE>
Investors should note that past performance is not necessarily
indicative of future performance and the Partnership's level of future
performance cannot be predicted.
(b) Management's Discussion and Analysis of Financial Condition and
Results of Operations
(1) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its equity in its commodity futures trading
account, consisting of cash and cash equivalents, net unrealized appreciation
(depreciation) on open futures 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. Such
substantial losses could lead to a material loss in liquidity. To minimize this
risk, the Partnership follows certain trading policies, including:
(i) 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.
(ii) 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.
(iii) 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
<PAGE>13
the appropriate clearing house, the physical commodity position is fully
hedged. The Partnership's ability to accept delivery of a commodity has been
adopted as a trading policy in order to protect the Partnership in the
extraordinary event that the Advisor fails to heed the time of expiration of a
commodity contract. Since the commencement of its operations, the Partnership
has never accepted delivery of a commodity and, under ordinary circumstances,
has no intention of accepting delivery in the future.
(iv) 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.
(v) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(vi) 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.
(vii) The Partnership will not permit the churning of its commodity
trading account.
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 futures dates. Each of these
instruments is subject to various risks similar to those relating to the
underlying financial instruments including market and credit risk. The General
Partner monitors and controls the Partnership 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
<PAGE>14
loss transactions and collateral positions. (See also "Item 13.
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 provided that the General Partner may, in 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.
As of March 31, 1996, the Partnership had privately offered 42,137.3733
Units of limited partnership interest resulting in aggregate proceeds to the
Partnership of $45,792,869, which includes proceeds of $9,421,000 from the
initial offering of 9,421 Units of limited partnership interest. All of the
proceeds of the Partnership's offering of its Units are deposited in its
commodity trading account at SB where they are available to margin the
Partnership's commodity futures trading.
The Partnership is currently privately offering additional Units. There
is no limit on the number of Units that may be sold by the Partnership; however
the Partnership currently contemplates offering a maximum of 60,000 Units.
(2) 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 to identify, such
as changing supply and demand relationships, weather, government agricultural,
commercial and trade programs and policies, national and international political
and economic events and changes in interest rates. Partnership expenses consist
of, among other things, commissions, management fees 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. The amount
of interest income payable by SB is dependent upon interest rates over which the
Partnership has no control. No forecast can be made as to the level of
redemptions in any given period. In the first quarter of 1996, 615.0012
<PAGE>15
Units were redeemed for a total of $753,759. In 1995, 6,145.4511 Units were
redeemed for a total of $7,436,822. In 1994, 286 Units were redeemed for a
total of $264,427.
(c) Results of Operations. For the quarter ended March 31, 1996, the
net asset value per Unit decreased 0.1% from $1,218.06 to $1,216.33. 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
operations) to December 31, 1994, the net asset value per Unit decreased 7.5%
from $1,000.00 to $924.57. "Net Assets" is defined as the total assets of the
Partnership including all cash, accrued interest, and the market value of all
open commodity positions maintained by the Partnership, less brokerage charges
accrued and less all other liabilities of the Partnership. Net Assets equal Net
Asset Value. Net Asset Value of a Unit means Net Asset Value divided by the
number of Units outstanding.
The Partnership experienced net trading gains of $677,268 and
$9,862,524 before commissions and expenses for the quarter ended March 31, 1996
and the year ended December 31, 1995, respectively. Gains for the first quarter
of 1996 were recognized in the trading of commodity futures in interest rates
and currencies which were partially offset by losses recognized in stock indices
and precious metals. Trading gains for the year ended December 31, 1995 were
primarily attributable to gains recognized in currency, interest rate and stock
index futures contracts which were partially offset by losses incurred in the
trading of commodity futures in precious metals. The Partnership experienced net
trading losses of $828,726 before commissions and expenses for the period ended
December 31, 1994. These trading losses were primarily attributable to losses
incurred in currency and stock index futures contracts which were partially
offset by gains recognized in the trading of commodity futures in interest rates
and 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
on the existence of major price trends and the ability of the Advisor to
identify correctly those price trends. These 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.
The business reason for the success or failure of the Partnership's
operations in any given period (including the
<PAGE>16
quarter ended March 31, 1996, the year ended December 31, 1995 and the period
from September 1, 1994 (commencement of operations) to December 31, 1994) is
the relative success or failure of the Advisor's technical trading strategy in
trading the various worldwide commodity markets during the relevant periods.
In addition, during the year ended December 31, 1995 and the period from
September 1, 1994 (commencement of operations) to December 31, 1994, the
Partnership sold 18,408.1696 and 10,194.9915 Units of limited partnership
interest, respectively, resulting in aggregate proceeds to the Partnership of
$21,242,100 in 1995 and $10,028,000 in 1994. There were additional sales of
4,113.2122 Units of limited partnership interest resulting in aggregate
proceeds of $5,101,769 for the three months ending March 31, 1996. The
increase in the Partnership's capital over that period entailed a commensurate
increase in the Partnership's contracts traded on various markets worldwide
with an increased exposure to the possibility of gain or loss on any given
contract. There is no assurance that the Partnership's performance in the past
will be the same or different in the future.
Item 3. Properties.
The Partnership does not own or lease any properties. The General
Partner operates out of facilities provided by its affiliate, SB.
Item 4. 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 322.7075 Units at December 31, 1995 (1.01%). David J. Vogel, the
President and a Director of the General Partner, owns 36.7358 Units at December
31, 1995 (0.1%). Other than Mr. Vogel, none of the directors and executive
officers of the General Partner or the Advisor beneficially own any Units.
(c) Changes in control. None.
Item 5. Directors and Executive Officers
The Partnership has no officers or directors and its affairs are
managed by its General Partner, Smith Barney Futures Management Inc. The
officers and directors of the General Partner are Jack H. Lehman, III
(Chairman and Director), Philip M. Waterman, Jr. (Vice-Chairman and Director),
David J. Vogel (Director and President), Michael Schaefer (Director), Steven
J.
<PAGE>17
Keltz (Secretary and Director), Daniel A. Dantuono (Chief Financial Officer,
Treasurer and Director), Daniel R. McAuliffe, Jr. (Director) and Shelley
Ullman (Director). Each director and officer is subject to re-appointment
annually.
The business background for the past five years of each director and
officer of the General Partner is as follows:
Mr. Lehman, age 50, is a Senior Executive Vice President and Director
of SB's commodity division from May 1992 until the present time. In addition, he
has been a Director of the General Partner since July 1993 and was Co-Chairman
of SB's commodity division from July 1993 through May 1996. Before joining SB,
he was employed for twenty years at Shearson Lehman Brothers Inc. ("SLB") where
from 1982 through April 1992 he was a Senior Executive Vice President and
Director of Commodities. He was a director and the Chairman of Lehman Brothers
Capital Management Corp., one of the predecessors of the General Partner. Mr.
Lehman is a past Chairman of the Futures Industry Association and currently
serves on its Executive Committee. He has been a member of the Board of
Governors of the New York Mercantile Exchange and the Comex Clearing
Association.
Mr. Waterman, age 59, has been in the brokerage business since 1958. He
is a Senior Executive Vice President of SB since 1989 and was Co-Director of
SB's commodity division from 1989 through May 1996. He has been a director of
the General Partner since 1989 and was its President from 1991 through June 21,
1993 when he became Co-Chairman. Before joining SB, he was employed for 15 years
by the brokerage firm of SLB, where from January 1980 to December 1988 he was
Senior Executive Vice President and from January 1980 to 1985 he was the head of
the firm's International Division. He is currently a board member of the New
York Mercantile Exchange and former board member of the Futures Industry
Association.
Mr. Vogel, age 51, became an Executive Vice President of SB and a
Director of the General Partner on August 2, 1993. In May 1996, he became
President of the General Partner. From January 1993 to July 1993, Mr. Vogel
was an Executive Vice President of SLB. Formerly, Mr. Vogel was the chairman
and CEO of LIT America, Inc. (September 1988 through December 1992) and an
Executive Vice President of Thomson McKinnon Securities Inc. (June 1979
through August 1988). Mr. Vogel is also a past chairman of the Futures
Industry Association, a past Director of Comex Clearing Corporation and a past
Governor of the Chicago Mercantile Exchange.
Mr. Schaefer, age 46, has been involved in the securities and
commodities brokerage business for over twenty-five years and is an Executive
Vice President of SB since early 1992. He has been employed with the firm in
various capacities associated with its commodity businesses since 1981. His
principal areas of
<PAGE>18
responsibility include futures research trade executions, clearing and
administration. He is a member of various major U.S. commodity exchanges and
a Director of the NFA. He has been a Director of the General Partner since
its organization in 1986.
Mr. Keltz, age 46, is an Associate General Counsel in the Law
Department of SB. He became Secretary and Director of the General Partner on
August 2, 1993 and has been a Director of SB since October 1995. From October
1988 through July 1993, Mr. Keltz was employed by SLB as First Vice President
and Associate General Counsel where he provided legal counsel to various
derivative products businesses. Mr. Keltz was Vice President, Product
Manager-Futures and an Associate General Counsel for Paine Webber Incorporated
from 1985 through September 1988.
Mr. Dantuono, age 38, is a Senior Vice President of SB (since March
1994) prior to which he was a First Vice President (since August 1993). Mr.
Dantuono was Vice President at SLB where he was employed since 1980. He has
been Chief Financial Officer, Treasurer and Director of the General Partner
since August 1993. Prior to August 1993, Mr. Dantuono was Controller and
Treasurer of a corporate predecessor of the General Partner.
Mr. McAuliffe, age 46, is a Senior Vice President of SB (since August
1990) and became a director of the General Partner in April 1994. Mr. McAuliffe
is Director of Managed Futures Marketing and Sales at SB, a position he has held
since 1989 at SLB. Since joining SLB in 1986, he has been responsible for the
marketing and sales of retail futures products, including public and private
futures funds and managed account programs. Prior to joining SLB, Mr. McAuliffe
was employed by Merrill Lynch Pierce Fenner & Smith from 1983 through 1986.
Prior to joining Merrill Lynch, Mr. McAuliffe was employed by Citibank from 1973
to 1983. He is a member of the Managed Futures Association and the Marketing
Division of the Futures Industry Association.
Ms. Ullman, age 37, is a Senior Vice President of SB (since October
1989) and a director of the General Partner (since April 1994). Previously, Ms.
Ullman was a First Vice President of SLB and a vice president and assistant
secretary of a predecessor of the General Partner, with responsibility for
execution, administration, operations and performance analysis for managed
futures funds and accounts.
As mentioned above, the General Partner has selected John W. Henry &
Co., Inc. as the Partnership's trading advisor. The Advisor is not affiliated
with the Partnership, the General Partner or its parent. The name and business
background for the past five years of each director and executive officer of the
Advisor is as follows:
Mr. John W. Henry, age 46, is Chairman of the JWH Board of Directors
and trustee and sole beneficiary of The John W. Henry Trust dated July 27,
1990. He currently concentrates his
<PAGE>19
activities at JWH on portfolio management, business issues and frequent
dialogue with trading supervisors. Mr. Henry is the exclusive owner of certain
trading systems licensed to Elysian Licensing Corporation, a corporation
wholly-owned by Mr. Henry, and sublicensed by Elysian Licensing Corporation to
JWH and utilized by JWH in managing client accounts.
Mr. Henry has served on the Board of Directors of the National
Association of Futures Trading Advisors and the Managed Futures Trade
Association. He has also served on the Nominating Committee of the National
Futures Association. Mr. Henry currently serves on the Board of Directors of the
FIA and is Chairman of the FIA Task Force on Derivatives for Investment. He also
currently serves on a panel created by the Chicago Mercantile Exchange and the
Chicago Board of Trade to study cooperative efforts related to electronic
trading, common clearing, and the issues regarding a merger. In 1989, Mr.
Henry established residency in Florida and since that time has performed
services from that location as well as at the offices of JWH in Westport,
Connecticut. Mr. Henry is a principal of Westport Capital Management
Corporation, Global Capital Management Limited, JWH Investments, Inc., JWH
Asset Management, Inc., and JWH Risk Management, Inc., all of which are
affiliates of John W. Henry & Co., Inc. Since the beginning of 1987, Mr.
Henry has devoted, and will continue to devote, considerable time to business
activities unrelated to JWH and its affiliates.
Mr. Mark H. Mitchell, age 46, is Vice Chairman, an Executive Vice
President of JWH and is a member of the Board of Directors. He is also Vice
Chairman and Director of JWH Risk Management, Inc., Director of JWH Asset
Management, Inc., Vice President of JWH Investments, Inc., and Vice President
of Westport Capital Management Corporation. Prior to his employment at JWH
beginning in January 1994, Mr. Mitchell was a partner of Chapman and Cutler,
a Chicago law firm, where he headed its futures law practice since August
1983. From August 1980 to March 1991, he served as General Counsel of the
National Association of Futures Trading Advisors and, from March 1991 to
December 1993, he served as General Counsel of the Managed Futures
Association. Mr. Mitchell is currently a member of the Government Relations
Committee of the Managed Futures Association; the Commodity Pool
Operator/Commodity Trading Advisor Advisory Committee and the Special
Committee for the Review of a Multi-Tiered Regulatory Approach to NFA Rules,
both of the National Futures Association; and of the Executive Committee of
the Law and Compliance Division of the Futures Industry Association. In 1985,
he received the Richard P. Donchian Award for Outstanding Contributions to
the Field of Commodity Money Management. He has been editor of Futures
International Law Letter and its predecessor publication, Commodities Law
Letter. He received an A.B. with honors from Dartmouth College and a J.D. from
the University of California at Los Angeles, where he was named to the Order
of the Coif, the national legal honorary society.
Mr. David R. Bailin, age 36, is an Executive Vice President and is a
member of the Operating Committee for JWH. Mr. Bailin is also President of
JWH Investments, Inc., JWH Risk Management, Inc., JWH Asset Management, Inc.,
President and Director of Westport Capital Management Corporation, and
President and Chairman of the Board of Directors of Global Capital Management
Limited. He is responsible for the development, implementation, and
management
<PAGE>20
of JWH's sales and marketing infrastructure. Prior to joining JWH in December
1995, Mr. Bailin was Managing Director--Development since April 1994 for
Global Asset Management ("GAM"), a Bermuda based management firm with over $7
billion in managed assets. He was responsible for overseeing the international
distribution of GAM's funds as well as for establishing new distribution
relationships and channels. Prior to his employment with GAM, Mr. Bailin
headed the real estate asset management division of Geometry Asset Management
beginning in July 1992. Prior to that time, beginning in 1987, he was
President of Warner Financial, an investment advisory business in Boston,
Massachusetts. Mr. Bailin received a B.A. from Amherst College and an M.B.A.
from Harvard Business School.
Mr. Peter F. Karpen, age 45, is a Managing Director and a member of
the Operating Committee of JWH. Mr. Karpen joined JWH in June 1995 from CS
First Boston where he was Director of Futures and Options since 1988 and Vice
President since 1981. Mr. Karpen has been a member of the board of the
Futures Industry Association since 1984 and a member of its Executive
Committee since 1988. Mr. Karpen was Chairman of the FIA from 1994-1995. In
addition, he is a Public Director of the New York Cotton Exchange and serves
on the CFTC's Financial Products Advisory Committee. He has been a Trustee of
the Futures Industry Institute, a member of the CFTC's Regulatory Coordination
Advisory Committee and a member of several commodities and securities
exchanges in the United States. He received his B.A. from Boston University
and M.B.A. from Boston College.
Mr. Karpen announced his resignation from JWH on March 18, 1996 but
will continue in his present capacity for 6 months from that date.
Mr. James E. Johnson, Jr., age 43, is Chief Financial Officer and
Chief Administrative Officer for JWH. In addition, Mr. Johnson is also a
principal of Westport Capital Management Corporation, JWH Risk Management,
Inc., JWH Investments, Inc. and JWH Asset Management, Inc. He also serves as
a member of JWH's Operating Committee. Mr. Johnson joined JWH in May 1995
from Bankers Trust Company where he was Managing Director and Chief Financial
Officer for their Institutional Asset Management Division since January 1983.
His areas of responsibility included finance, operations and technology for
the $160 billion global asset advisor. Prior to joining Bankers Trust, Mr.
Johnson was a Product Manager at American Express Company responsible for
research and market strategies for the Gold Card. He received a B.A. with
honors from Columbia University and an M.B.A. in Finance and Marketing from
New York University.
<PAGE>21
Ms. Elizabeth A.M. Kenton, age 30, is a Senior Vice President, the
Director of Compliance and a member of the Operating Committee of JWH. Ms.
Kenton is also a principal of JWH Risk Management Inc., JWH Asset Management,
Inc., Westport Capital Management Corporation, JWH Investments, Inc. and
Global Capital Management Limited. Since joining JWH in March 1989, Ms.
Kenton has held positions of increasing responsibility in Research and
Development, Administration and Regulatory Compliance. Prior to her
employment at JWH, Ms. Kenton was Associate Manager of Finance and Trading
Operations at Krieger Investments, a currency and commodity trading firm.
From July 1987 to September 1988, Ms. Kenton worked for Bankers Trust Company
as a Product Specialist for foreign exchange and Treasury options trading.
She received a B.S. in Finance from Ithaca College.
Ms. Mary Elizabeth Hardy, age 35, is a Vice President, the Director of
Trading Administration and is a member of the Operating and Investment Policy
Committees of JWH. Since joining JWH in September 1990, Ms. Hardy has held
positions of increasing responsibility in Research and Development and
Trading. Prior to her employment at JWH, Ms. Hardy held the position of
Associate Editor at Waters Information Services, a publishing company, where
she wrote weekly articles covering technological advances in the securities
and futures markets. Prior to joining Waters in 1989, Ms. Hardy was at SLB
where she held the position of Assistant Director of the Managed Futures
Trading Department. Prior to joining the Managed Futures Department, Ms.
Hardy was an institutional salesperson for SLB, in a group specializing in
financial futures and options. Previously, Ms. Hardy was an institutional
salesperson for Donaldson, Lufkin and Jenrette with a group which also
specialized in financial futures and options. Ms. Hardy serves on the Board of
Directors of the Managed Futures Association and chairs its Trading and
Markets Committee. She received a B.B.A. in Finance from Pace University.
Mr. David M. Kozak, age 48, is Counsel to the firm, a Vice President,
and Secretary and a member of the Investment Policy Committee of JWH. He is
also Secretary and a member of the Investment Policy Committee of JWH Risk
Management, Inc. Prior to joining JWH in September 1995, Mr. Kozak was
employed at the law firm of Chapman and Cutler, where he was an associate from
September 1983 and a partner from 1989. Mr. Kozak has concentrated in
commodity futures law since 1981, with emphasis in the area of commodity money
management. During the time he was employed at Chapman and Cutler, he served
as outside counsel to NAFTA and the MFA. Mr. Kozak is currently a member of
the NFA Special Committee on CPO/CTA Disclosure Issues, the Government
Relations Committee of the Managed Futures Association and the Visiting
Committee of The University of Chicago Library. He received a B.A. from Lake
Forest College, an M.A. from The University of Chicago, and a J.D. from
Loyola University of Chicago.
Mr. Kevin S. Koshi, age 32, is a Senior Vice President, Chief
Trader and a member of the Investment Policy Committee of JWH. Mr. Koshi is
responsible for the supervision and administration of all aspects of order
execution
<PAGE>22
strategies, and implementation of trading policies and procedures. Mr. Koshi
joined JWH in August 1988 as a professional in the Finance Department, and
since 1990 has held positions of increasing responsibility in the Trading
Department. He received a B.S. in Finance from California State University at
Long Beach.
Mr. Barry S. Fox, age 32, is the Director of Research and a member of
the Investment Policy Committee of JWH. Mr. Fox is responsible for the
design and testing of existing and new programs. He also supports and
maintains the proprietary algorithms used to generate JWH trades. Mr. Fox
joined JWH in March 1991 and since that time has held positions of increasing
responsibility in the Research and Development department. Prior to his
employment at JWH, Mr. Fox provided sales and financial analysis support for
Spreadsheet Solutions, a financial software development company. Prior to
joining Spreadsheet Solutions in October 1990, Mr. Fox operated a trading
company where he traded his own proprietary capital. Before that, he was
employed with Bankers Trust as a product specialist for foreign exchange and
treasury options trading. He received a B.S. in Business Administration from
the University of Buffalo.
Ms. Glenda G. Twist, age 45, is a Director of JWH and has held that
position since August 1993. Ms. Twist joined JWH in September 1991 with
responsibilities for corporate liaison and she continues her duties in that
area. Her responsibilities include assistance in the day-to-day
administration of the Florida office, and review and compilation of financial
information for JWH. Ms. Twist was President of J.W. Henry Enterprises Corp.,
for which she performed financial, consulting and administrative services from
January 1991 to August 1991. From 1988 to 1990, Ms. Twist was Executive
Director of Cities in Schools, a program in Arkansas designed to prevent
students from leaving school before completing their high school education.
She received her B.S. in Education from Arkansas State University.
Mr. Michael D. Gould, age 41, is Director of Investor Services at
JWH. He is responsible for general business development and oversees the
investor services function. He joined JWH in April 1994 from SB where he
served as Senior Sales Manager and Vice President--Futures for the Managed
Futures Department. He held the identical position with the predecessor firms
of SLB and Lehman Brothers Inc. Prior to that time, he was engaged in a
proprietary trader development program at Tricon USA from September 1990 to
October 1991. He was a registered financial consultant with Merrill Lynch from
1985 through August 1990. His professional career began in 1982 as an
owner-operator of a non-ferrous metals trading and export business which he
ran until September 1985.
Mr. Jack M. Ryng, C.P.A., age 34, joined JWH as the Controller in
November 1991. He is also Chief Financial Officer and Secretary of JWH
Investments, Inc. Prior to his employment
<PAGE>23
with JWH, Mr. Ryng was a Senior Manager with Deloitte & Touche where he held
positions of increasing responsibility since September 1985 for commodities
and securities industry clients. His clients included a large commodity pool
operator in the United States along with other broker/dealers, futures
commission merchants, investment banks, and foreign exchange operations in the
areas of accounting, regulatory compliance and consulting. Prior to his
employment by the Financial Services Center of Touche Ross & Co. (the
predecessor firm of Deloitte & Touche), he worked for Leonard Rosen & Co. as a
senior accountant. Mr. Ryng is a member of AICPA and the New York C.P.A.
Society and is a member of the board of the New York operations division of
the FIA. He received a B.S. in Business Administration from Duquesne
University.
Mr. Michael J. Scoyni, age 49, is a Managing Director of JWH, and is
a principal of Westport Capital Management Corporation. Mr. Scoyni has been
associated with Mr. Henry since 1974 and with JWH since 1982. He was engaged
in research and development for John W. Henry & Company (JWH's predecessor)
from November 1981 to December 1982 and subsequently has been employed in
positions of increasing responsibility. He received a B.A. in Anthropology
from California State University.
Mr. Christopher E. Deakins, age 36, is a Vice President of JWH. He is
responsible for general business development and investor services support.
Prior to joining JWH in August 1995, he was a vice president, national sales,
and a member of the Management Team for RXR Capital Management, Inc. His
responsibilities consisted of business development, institutional sales, and
broker dealer support. Prior to joining RXR in August 1986, he was engaged as
an account executive for Prudential-Bache Securities starting in February
1985. Prior to that, he was an account executive for Merrill Lynch, Pierce,
Fenner & Smith Incorporated. He received a B.A. in Economics from Hartwick
College.
Chris J. Lautenslager, age 38, is a Vice President of JWH. He is
responsible for general business development and Investor Services support.
Prior to joining JWH in April 1996, he was the Vice President of Institutional
Sales for I/B/E/S International, Inc., a distributor of corporate earnings
estimate information. His responsibilities consisted of business development
and support of global money managers and investment bankers. Prior to his
employment with I/B/E/S, Mr. Lautenslager devoted time to personal activities
from April 1994 to March 1995, following the closing of the Stamford,
Connecticut office of Gruntal & Co., where he had worked as a proprietary
equity trader since November 1993. Before that, he held the same position at
S.A.C. Capital Management starting in February 1993. From October 1987 to
December 1993, Mr. Lautenslager was a partner and managing director of
Limitless Option Partners, a registered Chicago Mercantile Exchange trading
and brokerage organization, where he traded currency futures and options. He
received a B.S. in
<PAGE>24
Accounting from the University of Colorado and a Masters in Management from
Northwestern University.
Mr. Edwin B. Twist, age 45, is a Director of JWH and has held that
position since August 1993. He is also a Director of JWH Risk Management,
Inc. and JWH Asset Management, Inc. Mr. Twist joined JWH as Internal Projects
Manager in September 1991. Mr. Twist's responsibilities include assistance in
the day-to-day administration and internal projects of JWH's Florida office.
Mr. Twist was Secretary and Treasurer of J.W. Henry Enterprises Corp., a
Florida corporation engaged in administrative and financial consulting
services, for which he performed financial, consulting and administrative
services from January 1991 to August 1991. Prior to his employment with JWH,
Mr. Twist was an owner and manager for 16 years of a 2,500 acre commercial
farm in eastern Arkansas.
Ms. Nancy O. Fox, C.P.A., age 30, is a Vice President and the
director of investment support of JWH. She is responsible for the day-to-day
activities of the Investment Support Department, including all aspects of
operations and performance reporting. Prior to joining JWH in January 1992,
Ms. Fox was a senior accountant at Deloitte & Touche, where she served
commodities and securities industry clients and held positions of increasing
responsibility since July 1987. Ms. Fox is a member of the AICPA and the New
Jersey Society of C.P.A.s. She received a B.S. in Accounting and Finance from
Fairfield University.
Item 6. Executive Compensation
The Partnership has no directors or officers. Its affairs are managed
by the 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". For the year ended
December 31, 1995, SB earned $1,842,402 in brokerage commissions and clearing
fees and $294,658 in administrative fees were paid or were payable to the
General Partner. The directors and officers of the General Partner are
employees of SB and do not receive any compensation from the Partnership or
the General Partner. One hundred percent (100%) of the compensation paid by
SB to Daniel A. Dantuono, Chief Financial Officer and Treasurer of the General
Partner, is allocated to the General Partner. No part of any compensation paid
by SB to any other officer of the General Partner is allocated to the General
Partner.
As compensation for its services, the Partnership pays the Advisor
the fees described under "Item 1. Business". For the year ended December 31,
1995, the Partnership paid to the Advisor $1,178,635 in management fees and
$829,781 in incentive fees.
Item 7. Certain Relationships and Related Transactions
Not applicable.
Item 8. Legal Proceedings
<PAGE>25
There are no material legal proceedings pending, on appeal or
concluded to which the Partnership is a party or to which any of its assets is
subject. There have been no material legal proceedings pending, on appeal or
concluded against the General Partner, the Advisor, or any of their respective
directors or executive officers within the past five years.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder 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 May 31, 1996 was 743.
(c) Distribution. The Partnership did not declare a distribution in
1995.
Item 10. Recent Sales of Unregistered Securities.
(a) Securities sold. As of September 1, 1994, the initial offering of
9,421 Units of limited partnership interest at a net asset value per Unit of
$1,000 resulted in aggregate proceeds to the Partnership of $9,421,000. As of
the first day of each of October, November and December, 1994, the first day of
January, February, March, April, May, June, July, August, September, October,
November and December, 1995, and the first day of January, February and March,
1996, the Partnership respectively sold Units of limited partnership interest as
follows: 2,347.0168 Units, 2,451.4599 Units, 5,396.5148 Units, 2,428.1558 Units,
679.8043 Units, 38.3029 Units, 552.7785 Units, 872.1331 Units, 1,549.9334 Units,
3,650.4235 Units, 2,244.9873 Units, 1,425.4186 Units, 1,593.5408 Units,
2,352.0298 Units, 1,020.6616 Units, 1,092.5312 Units, 1,438.4810 Units and
1,582.2000 Units at respective net asset values per Unit of $1,006.81,
$1,012.05, $960.62, $924.57, $887.02, $1,018.20, $1,162.31, $1,232.61,
$1,245.86, $1,222.05, $1,187.98, $1,205.26, $1,175.37, $1,174.73, $1,199.81,
$1,218.06, $1,290.25 and $1,210.34 for respective aggregate proceeds to the
Partnership of $2,363,000, $2,481,000, $5,184,000, $2,245,000, $603,000,
$39,000, $642,500, $1,075,000, $1,931,000, $4,461,000, $2,667,000, $1,718,000,
$1,873,000, $2,763,000, $1,224,600, $1,330,769, $1,856,000 and $1,915,000.
(b) Underwriters and other purchasers. 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 $25,000) or gross income for the two previous years and
projected gross
<PAGE>26
income for the current fiscal year of not less than three times his investment
in the Partnership for each year.
(c) Consideration. The aggregate proceeds of securities sold during the
period from September 1, 1994 (commencement of operations) through March 31,
1996 was $36,371,869. Units are sold monthly at net asset value per Unit. No
underwriting discounts or commissions are paid in connection with the Units.
(d) Exemption from registration claimed. Exemption is claimed from
registration under Securities Act Section 4(2).
The minimum subscription for Units is $25,000. The General Partner
may in its sole discretion accept subscriptions of less than $25,000. The
minimum additional subscription for investors who are currently limited
partners is $10,000. The Partnership is currently offering Units.
In accordance with Part 4 of the CFTC regulations, before making any
investment in the Partnership, each investor is provided with a Disclosure
Document as supplemented that contains information concerning the Partnership
as prescribed in CFTC regulations.
Item 11. Description of Registrant's Securities to be Registered.
The Partnership is registering Units of Limited Partnership Interest,
which are privately offered. Profits and losses of the Partnership are
allocated among the partners on a monthly basis in proportion to their capital
accounts (the initial balance of which is the amount paid for their Units).
Distributions of profits will be made at the sole discretion of the General
Partner.
The Units may not be transferred without the consent of the General
Partner except in the case of the death of an individual limited partner or
the termination of an entity that is a limited partner. No transfer or
assignment will be permitted unless the General Partner is satisfied that such
transfer or assignment will not violate federal or state securities laws and
will not jeopardize the Partnership's status as a partnership for federal
income tax purposes. No substitution may be made unless the transferor
delivers an instrument of substitution, the transferee adopts the terms of,
and executes, the Limited Partnership Agreement, and the General Partner
consents to such substitution (which consent may be withheld at its sole and
absolute discretion). A transferee who becomes a substituted limited partner
will be subject to all of the rights and liabilities of a limited partner of
the Partnership. A transferee who does not become a substituted limited
partner will be entitled to receive the share of the profits or the return of
capital to which his transferor would otherwise be entitled, but will not be
entitled to vote, to an accounting of Partnership transactions, to receive
<PAGE>27
tax information, or to inspect the books and records of the Partnership. Under
the New York Revised Limited Partnership Act, an assigning limited partner
remains liable to the Partnership for any amounts for which he may be liable
under such law regardless of whether any assignee to whom he has assigned Units
becomes a substituted limited partner.
A limited partner may require the Partnership to redeem some or all of
his Units (minimum 10 Units) at net asset value per Unit as of the last day of a
calendar month (the "Redemption Date") upon 15 days prior written notice to the
General Partner. No redemption will be permitted if, after giving effect to the
redemption, the limited partner owns fewer than 10 Units. The right to redeem is
contingent upon the Partnership's having property sufficient to discharge its
liabilities on the Redemption Date. Payment for a redeemed interest will be made
within 10 business days following the Redemption Date. There is no fee charged
to limited partners in connection with redemptions. The General Partner reserves
the right in its sole discretion to permit redemptions more frequently than
monthly and to waive the 15-day notice period. The General Partner may also, at
its sole discretion and upon 10 days' notice to a limited partner, require that
any limited partner redeem his Units if such redemption is in the best interests
of the Partnership.
Summary of the Limited Partnership Agreement
The following is an explanation of some of the more
significant terms and provisions of the Limited Partnership Agreement, a copy of
which is attached as Exhibit 3(ii) hereto and is incorporated herein by this
reference. Each prospective investor should read the Limited Partnership
Agreement thoroughly before investing. The following description is a summary
only, is not intended to be complete, and is qualified in its entirety by
reference to the Limited Partnership Agreement itself.
Liability of Limited Partners
The Partnership was formed under the laws of the State of New
York on June 3, 1994. The General Partner has been advised by its counsel that
except as required by New York law and as set forth in Paragraph 7(f) of the
Limited Partnership Agreement, Units of limited partnership interest purchased
and paid for pursuant to this offering will be fully paid and non-assessable,
and a limited partner will not be liable for amounts in excess of his
contributions to the Partnership and his share of Partnership assets and
undistributed profits. The General Partner will be liable for all obligations of
the Partnership to the extent that assets of the Partnership are insufficient to
discharge such obligations.
<PAGE>28
Management of Partnership Affairs
The limited partners will not participate in the management or
control of the Partnership. Under the Limited Partnership Agreement,
responsibility for managing the Partnership is vested solely in the General
Partner. The General Partner may select one or more trading advisors to direct
all trading for the Partnership. Other responsibilities of the General Partner
include, but are not limited to, the following: reviewing and monitoring the
trading of the trading advisors; administering redemptions of limited partners'
Units; preparing monthly and annual reports to the limited partners; preparing
and filing necessary reports with regulatory authorities; calculating the Net
Asset Value; executing various documents on behalf of the Partnership and the
limited partners pursuant to powers of attorney; and supervising the liquidation
of the Partnership if an event causing dissolution of the Partnership occurs.
Additional Partners
The General Partner has the sole discretion to determine
whether to offer for sale additional Units of limited partnership interest and
to admit additional limited partners. There is no limitation on the number of
Units which may be outstanding at any time. All Units offered by the Partnership
will be sold at the Partnership's then current Net Asset Value per Unit. The
General Partner may make arrangements for the sale of additional Units in the
future.
Dissolution of the Partnership
The affairs of the Partnership will be wound up and the
Partnership liquidated as soon as practicable upon the first to occur of the
following: (i) December 31, 2014; (ii) the vote to dissolve the Partnership by
limited partners owning more than 50% of the Units; (iii) assignment by the
General Partner of all of its interest in the Partnership, withdrawal, removal,
bankruptcy or dissolution of the General Partner, unless the Partnership is
continued as described in the Limited Partnership Agreement; (iv) a decline in
Net Asset Value to less than $350 per Unit as of the end of any trading day; or
(v) the occurrence of any event which shall make it unlawful for the existence
of the Partnership to be continued.
Removal or Admission of General Partner
The General Partner may be removed and successor general
partners may be admitted upon the vote of a majority of the outstanding Units.
<PAGE>29
Amendments; Meetings
The Limited Partnership Agreement may be amended if approved
in writing by the General Partner and limited partners owning more than 50% of
the outstanding Units.
Any limited partner, upon written request addressed to the
General Partner, may obtain from the General Partner a list of the names and
addresses of record of all limited partners and the number of Units held by each
for a purpose reasonably related to such Limited Partner's interest as a limited
partner in the Partnership. Upon receipt of a written request, signed by limited
partners owning at least 10% of the outstanding Units, that a meeting of the
Partnership be called to consider any matter upon which limited partners may
vote pursuant to the Limited Partnership Agreement, the General Partner, by
written notice to each limited partner of record mailed within fifteen days
after such receipt, must call a meeting of the Partnership. Such meeting must be
held at least thirty but not more than sixty days after the mailing of such
notice and the notice must specify the date, a reasonable time and place, and
the purpose of such meeting.
At any such meeting, upon the approval by an affirmative vote
of limited partners owning more than 50% of the Units, the following actions may
be taken: (i) the Limited Partnership Agreement may, with certain exceptions, be
amended; (ii) the Partnership may be dissolved; (iii) the General Partner may be
removed and a new general partner may be admitted; (iv) a new general partner or
general partners may be admitted if the General Partner elects to withdraw from
the Partnership; (v) any contracts with the General Partner or any of its
affiliates or any trading advisor may be terminated without penalty on 60 days'
notice; and (vi) the sale of all assets of the Partnership may be approved.
However, no such action may be taken unless the General Partner has been
furnished with an opinion of counsel that the action to be taken will not
adversely affect the status of the limited partners as limited partners under
the New York Revised Limited Partnership Act and that the action is permitted
under such law.
Reports to Limited Partners
The books and records of the Partnership will be maintained at
its principal office and the limited partners have the right at all times during
reasonable business hours to have access to and copy the Partnership's books and
records for a purpose reasonably related to such limited partner's interest as a
limited partner in the Partnership. Within 30 days of the end of each month, the
General Partner will provide the limited partners with a financial report
containing information relating to the Net Assets and Net Asset Value of a Unit
as of the end of such month, as well as other information relating to the
operations of the Partnership which is required to be reported to
<PAGE>30
the limited partners by CFTC regulations. In addition, if any of the following
events occur, notice thereof will be mailed to each limited partner within 7
business days of such occurrence: a decrease in the Net Asset Value of a Unit
to $350 or less as of the end of any trading day; any change in trading
advisors; any change in commodity brokers; any change in the General Partner;
any material change in the Partnership's trading policies or any material
change in an advisor's trading strategies. In addition, a certified annual
report of financial condition will be distributed to the limited partners not
more than 90 days after the close of the Partnership's fiscal year. Not more
than 75 days after the close of the fiscal year and if required by the then
applicable tax law, tax information necessary for the preparation of the
limited partners' annual federal income tax returns will be distributed to the
limited partners.
Item 12. Indemnification of Directors and Officers.
Section 16 of the Limited Partnership Agreement (attached as Exhibit
3(ii) hereto) provides for indemnification of the General Partner, its officers,
directors, more than 10% stockholders, and persons who directly or indirectly
control, are controlled by or under common control with the General Partner. The
Registrant is not permitted to indemnify the General Partner or its affiliates
for liabilities resulting from a violation of the Securities Act of 1933 or any
State securities law in connection with the offer or sale of the Units of
Limited Partnership Interest.
Section 6 of the Management Agreement (attached as Exhibit 10(a)
hereto) provides for indemnification by the General Partner of the Advisor for
any loss, liability, damage, cost, expense (including, without limitation,
attorneys' and accountants' fees), judgments and amounts paid in settlement
actually and reasonably incurred by it in connection with such action, suit, or
proceeding if the Advisor acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Partnership and
provided that its conduct did not constitute negligence, intentional misconduct,
or a breach of its fiduciary obligations to the Partnership as a commodity
trading advisor, unless and only to the extent that the court or administrative
forum in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all circumstances of
the case, the Advisor is fairly and reasonably entitled to indemnity for such
expenses which such court or administrative forum shall deem proper; and further
provided that no indemnification shall be available from the Partnership if such
indemnification is prohibited by Section 16 of the Limited Partnership
Agreement.
<PAGE>
Item 13. Financial Information and Supplemental Data.
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
ASSETS --------- ------------
(Unaudited)
<S> <C> <C>
Equity in commodity futures trading account:
Cash $ 41,441,584 $ 37,848,599
Net unrealized appreciation
on open futures contracts 2,431,331 1,455,058
------------- -------------
43,872,915 39,303,657
Interest receivable 143,955 136,317
------------- -------------
$ 44,016,870 $ 39,439,974
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions on open futures contracts $ 220,084 $ 197,200
Management Fees 145,989 130,809
Administrative Fees 36,497 32,702
Other 54,982 41,916
Redemptions payable 448,431 161,340
------------- -------------
905,953 563,967
Partners' Capital ------------- -------------
General Partner, 351.5813 and 322.7075
Unit equivalents outstanding, respectively 427,638 393,077
Limited Partners, 35,091.9210 and 31,593.7100
Units of Limited Partnership Interest outstanding, 42,683,249 38,482,930
respectively ------------- -------------
43,110,887 38,876,007
------------- -------------
44,016,870 39,439,974
============= =============
</TABLE>
See Notes to Financial Statements.
<PAGE>
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
MARCH 31,
1996 1995
---- ----
<S> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions ($ 299,005) $ 2,335,571
Change in unrealized gains/losses on open positions 976,273 4,151,811
-------------- -------------
677,268 6,487,382
Less, brokerage commissions and clearing fees
($10,335 and $7,778, respectively) (673,413) (372,523)
-------------- -------------
Net realized and unrealized gains 3,855 6,114,859
Interest income 400,388 225,839
-------------- -------------
404,243 6,340,698
-------------- -------------
Expenses:
Management Fees 429,126 232,898
Incentive Fees 0 647,663
Administrative Fees 107,282 58,224
Other 16,965 9,810
------------- ------------
553,373 948,595
------------- ------------
Net Income (loss) (149,130) 5,392,103
Additions 5,137,769 2,914,000
Redemptions (753,759) (2,026,079)
------------- ------------
Net increase in Partners' capital 4,234,880 6,280,024
Partner's capital, beginning of period 38,876,007 18,059,913
------------- ------------
Partners capital, end of period $ 43,110,887 $ 24,339,937
============= =============
Net asset value per Unit
(35,443.5023 and 20,941.0380 Units outstanding at
March 31, 1996 and 1995, respectively) $ 1,216.33 $ 1,162.31
============= =============
</TABLE>
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 1996
(Unaudited)
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 & Co., 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 March 31, 1996 and the results of its operations for the three
months ended March 31, 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 and notes 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.
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 period. Investments in commodity interests
denominated in foreign currency are translated into US dollars at the exchange
rates prevailing on the last business day
<PAGE>
of the period. 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. The Customer Agreement between the Partnership and SB gives
the Partnership the legal right to net unrealized gains and losses.
(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 reporting period. Actual results could differ from these
estimates.
Net Asset Value Per Unit
Changes in net asset value per Unit for the three months ended March 31,
1996 and 1995 were as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1996 1995
------------ ------------
Net realized and unrealized
gains ................................. $ 3.09 $ 269.77
Interest Income ........................ 11.64 10.08
Expenses ............................... (16.46) (42.11)
Increase (decrease) for period ......... (1.73) 237.74
Net Asset Value per Unit,
beginning of period ................... 1,218.06 924.57
------------ -------------
Net Asset Value per Unit,
end of period ......................... $ 1,216.33 $ 1,162.31
============ ============
Trading Activities and Financial Instrument Risk
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
<PAGE>
interests, including options thereon, at March 31, 1996 was $2,431,331 and the
average fair value during the quarter then ended, based on monthly calculation,
was $2,468,273.
The Partnership is party to financial instruments with offbalance 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 contracts.
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
<PAGE>
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 March 31, 1996, the
notional or contractual amounts of the Partnership's commitment to purchase
and sell these instruments was approximately $46,314,000 and $470,441,000
respectively, as detailed below. All of these instruments mature within one
year of March 31, 1996. However, due to the nature of the Partnership's
business, these instruments may not be held to maturity. At March 31, 1996,
the Partnership had net unrealized trading gains of approximately
$2,431,000, as detailed below.
Notional or Contractual
Amount of Commitments
Net Unrealized
To Purchase To Sell Gain
----------- ------- --------------
Currencies* $ 14,804,000 $ 69,085,000 $ 410,000
Interest Rates US 0 97,585,000 1,365,000
Interest Rate 23,308,000 293,785,000 528,000
Non US
Metals 0 9,986,000 26,000
Stock Indices 8,202,000 0 $ 102,000
------------ ------------- ------------
Total $ 46,314,000 $ 47,441,000 $ 2,431,000
============ ============ ============
- ------------------------
* The notional or contractual commitment amounts and the net unrealized
gain amount listed for the currency sector represent over the counter
contracts. All other sectors listed represent exchange traded contracts.
<PAGE>
Report of Independent Accountants
To the Partners of
Smith Barney Mid-West Futures Fund L.P. II:
We have audited the accompanying statements of financial condition of SMITH
BARNEY MID-WEST FUTURES FUND L.P. II (a New York Limited Partnership) as of
December 31, 1995 and 1994 and the related statements of income and expenses for
the year ended December 31, 1995 and for the period from September 1, 1994
(commencement of trading operations) to December 31, 1994, and of partners'
capital for the year ended December 31, 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, 1995 and 1994 and the results of its operations
for the year ended December 31, 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 21, 1996
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Statements of Financial Condition
December 31, 1995 and 1994
1995 1994
----------- -----------
Assets:
Equity in commodity futures
trading account:
Cash and cash equivalents (Note 3c) $37,848,599 $17,326,604
Net unrealized appreciation
on open futures contracts 1,455,058 1,153,887
----------- -----------
39,303,657 18,480,491
Interest receivable 136,317 62,940
----------- -----------
$39,439,974 $18,543,431
=========== ===========
Liabilities and Partners' Capital:
Liabilities:
Accrued e penses:
Commissions $ 197,200 $ 92,614
Management fees 130,809 61,434
Administrative fees 32,702 15,359
Organization e pense 20,597
Other 41,916 29,087
Redemptions payable (Note 5) 161,340 264,427
----------- -----------
563,967 483,518
----------- -----------
Partners' capital (Notes 1, 5 and 7)
General Partner, 322.7075 and
202.3304 Unit equivalents
outstanding, respectively 393,077 187,069
Limited Partners, 31,593.7100 and
19,330.9915 Units of Limited
Partnership Interest outstanding,
respectively 38,482,930 17,872,844
----------- -----------
38,876,007 18,059,913
----------- -----------
$39,439,974 $18,543,431
=========== ===========
See notes to financial statements.
F-3
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Statements of Income and Expenses
for the year ended December 31, 1995
and for the period from September 1, 1994
(commencement of trading operations)
to December 31, 1994
1995 1994
----------- -----------
Income:
Net gains (losses) on trading
of commodity interests:
Realized gains (losses) on
closed positions $ 9,561,353 $(1,982,613)
Change in unrealized
gains/losses on open
positions 301,171 1,153,887
----------- -----------
9,862,524 (828,726)
Less, Brokerage commissions
and clearing fees ($24,886 and
$4,576) (Note 3c) (1,842,402) (283,703)
----------- -----------
Net realized and unrealized
gains (losses) 8,020,122 (1,112,429)
Interest income (Notes 3c
and 6) 1,234,647 170,516
----------- -----------
9,254,769 (941,913)
E penses:
Management fees (Note 3b) 1,178,635 180,155
Administrative fees (Note 3a) 294,658 45,040
Incentive fees 829,781 128,173
Other e penses 75,879 30,379
----------- -----------
2,378,953 383,747
----------- -----------
Net income (loss) $ 6,875,816 $(1,325,660)
=========== ===========
Net income (loss) per
Unit of Limited Partnership
Interest and General Partner
Unit equivalent (Notes 1 and 7) $ 293.49 $ (75.43)
=========== ===========
See notes to financial statements.
F-4
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Statement of Partners' Capital
for the year ended December 31, 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 103,000 10,028,000 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 135,000 21,242,100 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
=========== ========== ============
See notes to financial statements.
F-5
<PAGE>
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 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.
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 offering were held in an escrow account until September
1, 1994, at which time they were turned over to the Partnership for
trading.
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
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, as defined. This fee may be increased or
decreased at the discretion of the General Partner.
F-6
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
b. Management Agreement:
The Management Agreement that the General Partner, on behalf of the
Partnership, entered into with the advisor (John W. Henry & Co.,
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 (as defined) and an incentive fee, payable
quarterly, equal to 15% of the New Trading Profits of the
Partnership (as defined). The Management Agreement is effective
until June 30, 1996 at which time it may be renewed at the sole
discretion of the General Partner.
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 per transaction fees
regardless of how many or how few trades are executed during the
month. 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 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, 1995, the amount of
cash held for margin requirements was $4,934,929. 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 30 day 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, 1995 was $1,455,058 and the
average fair value during the year then ended, based on monthly
calculation, was $1,903,653.
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.
6. Organization and Offering Costs:
Offering and organization expenses of $128,173 relating to the issuance
and marketing of units offered 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.
F-7
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the year ended December 31,
1995 and for the period ended December 31, 1994 were as follows:
1995 1994
--------- --------
Net realized
and unrealized
gains/losses $342.80 $(58.56)
Interest income 49.02 12.17
Expenses (98.33) (29.04)
--------- --------
Increase/decrease for period 293.49 (75.43)
Net asset value per
Unit, beginning of period 924.57 1,000.00
--------- --------
Net asset value per
Unit, end of period $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.
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 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, 1995, the notional or contractual amounts of the Partnership's
commitment to purchase and sell these instruments was approximately
$314,216,000 and $80,966,000, respectively, as detailed below. All of
these instruments mature within one year of December 31, 1995.
However, due to the nature of the Partnership's business, these
instruments may not be held to maturity. At December 31, 1995, the
Partnership had net unrealized trading gains of approximately
$1,455,000, as detailed below.
Notional or Contractual
Amount of Commitments
Net Unrealized
To Purchase To Sell Gain (Loss)
----------- ------- --------------
Currencies* $ 30,858,000 $ 58,675,000 $ (334,000)
Interest Rates US 71,187,000 766,000
Interest Rate 205,430,000 16,213,000 715,000
Non US
Metals 6,078,000 38,000
Stock Indices 6,741,000 270,000
------------ ----------- ------------
Total $314,216,000 $ 80,966,000 $ 1,455,000
============ ============ ============
- --------------------------
* The notional or contractual commitment amounts and the net unrealized
loss amount listed for the currency sector represent over the counter
contracts. All other sectors listed represent exchange traded contracts.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Smith Barney Futures Management Inc.:
We have audited the accompanying statement of financial condition of SMITH
BARNEY FUTURES MANAGEMENT INC. (a wholly-owned subsidiary of Smith Barney
Holdings Inc.) as of December 31, 1995. This statement of financial condition is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this statement of financial condition based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of SMITH
BARNEY FUTURES MANAGEMENT INC. as of December 31, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
March 29, 1996.
<PAGE>
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SMITH BARNEY HOLDINGS INC.)
STATEMENT OF FINANCIAL CONDITION AT MARCH 31, 1996 (UNAUDITED)
AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
MARCH 31, 1996 DECEMBER 31, 1995
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash equivalents............................................. $ 9,822 $ 700,106
Receivable from limited partnerships......................... 3,049,080 4,911,202
Receivable from affiliate.................................... 4,520,715 224,447
Investments in limited partnerships, at equity............... 5,633,953 5,674,078
--------------- -----------------
13,213,370 11,509,833
Fixed assets (net of accumulated depreciation of $74,139).... 21,163 24,187
--------------- -----------------
Total Assets....................................... $13,234,733 $11,534,020
============ =============
LIABILITIES & STOCKHOLDER'S EQUITY
Payable to affiliates........................................ 171,700 103,050
Accounts payable and accrued liabilities..................... 175,852 160,738
Dividends payable............................................ 1,650,000
--------------- -----------------
Total Liabilities............................................ 1,997,552 263,788
Common stock, no par value, 3,000 shares authorized, 200
shares issued and outstanding (100 shares, $1 stated value;
100 shares, no stated value)............................... 100 100
Additional paid-in capital................................... 67,413,746 67,413,746
Retained earnings............................................ 1,823,335 1,856,386
--------------- -----------------
69,237,181 69,270,232
Less: Note receivable from SBHI.............................. (58,000,000) (58,000,000)
--------------- -----------------
11,237,181 11,270,232
--------------- -----------------
Total Liabilities and Stockholder's Equity......... $13,234,733 $11,534,020
============ =============
</TABLE>
Purchasers of Units in the Partnership are not acquiring any interest in the
General Partner.
The accompanying notes are an integral part of this statement of financial
condition.
<PAGE>
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION
1. ORGANIZATION
Smith Barney Futures Management Inc. (the "Company") is a wholly-owned
subsidiary of Smith Barney Holdings Inc. ("SBHI"). The Company's ultimate parent
company is Travelers Group Inc. ("Travelers"). The Company is registered as a
commodity pool operator with the Commodity Futures Trading Commission. The
Company was organized and is authorized to act as a general partner for the
management of investment funds. At December 31, 1995, the Company is the general
partner for 18 limited partnerships and trading manager for 1 offshore
corporation with total assets of $544,056,106, total liabilities of $27,200,681
and total partners' capital of $516,855,425. The limited partnerships are
organized to engage in the speculative trading of commodity futures contracts
and other commodity interests. The Company's responsibilities as the general
partner are described in the various limited partnership agreements. The Company
has a general partner's liability, which is unlimited (except to the extent it
may be limited by contract) with respect to the partnerships.
2. SIGNIFICANT ACCOUNTING POLICIES
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 statement of financial condition. Actual results could differ from
these estimates.
Cash equivalents consist of highly liquid investments issued by an
affiliate, with a maturity of three months or less when purchased.
Investments in limited partnerships, at equity, are valued at the Company's
proportionate share of the net asset values as reported by the limited
partnerships. The limited partnerships value positions at the closing market
quotations on the last business day of the year.
Under the terms of each of the limited partnership agreements for which it
is a general partner, the Company is solely responsible for managing the
partnership. Other responsibilities are disclosed in each limited partnership
agreement. The Company is required to make a capital contribution to each such
partnership. The Limited Partnership Agreements generally require the General
Partner to maintain a cash investment in the partnerships equal to the greater
of (i) an amount which will entitle the General Partner to an interest of 1% in
each material item of partnership income, gain, loss, deduction or credit and
(ii) the greater of (a) 1% of the aggregate capital contributions of all
partners or (b) a minimum of $25,000. While it is the general partner thereof,
it may not reduce its percentage interest in such partnerships to less than such
required level, as defined in each partnership agreement. The Company has also
agreed that so long as it remains the general partner, it will at all times
maintain its net worth, as defined in the limited partnership agreements
(excluding its investment in each such partnership), at an amount not less than
10% of the total contributions to the partnerships by all partners. SBHI will
contribute such amounts of additional capital to the Company, all or part of
which may be contributed by a note (see Note 3), so that the Company maintains
its net worth requirement. The Company further agrees that it will not be a
general partner of any additional limited partnerships unless at all times when
it is general partner of any such additional partnership its net worth shall be
at least equal to the net worth required by the preceding sentence plus, for
each such additional partnership, an amount equal (excluding its investment in
each such partnership) to 10% of the total contributions to such partnership.
Receivable from limited partnerships includes deferred offering costs which
represent payments made by the Company on behalf of certain funds during their
original offering, such as legal fees, printing costs, etc. These costs are
deferred until the funds commence operations and then are reimbursed over a
period varying from eighteen to twenty-four months or as interest income is
earned by the fund in accordance with the funds' prospectus. The unreimbursed
organizational and offering costs at December 31, 1995 are approximately
<PAGE>
SMITH BARNEY FUTURES MANAGEMENT INC.
(A WHOLLY-OWNED SUBSIDIARY OF SMITH BARNEY HOLDINGS INC.)
NOTES TO STATEMENT OF FINANCIAL CONDITION -- (CONTINUED)
$1,134,756. In addition, as general partner, the Company earns monthly
management fees and commissions from certain partnerships as defined by the
partnership agreements.
All financial instruments in the statement of financial condition
approximate fair value as they are short term or carried at fair value as of
December 31, 1995.
3. NOTE RECEIVABLE
The note receivable consists of a $58,000,000 demand note dated June 22,
1994 which is non-interest bearing. The demand note was issued to the Company by
SBHI.
4. RELATED PARTY TRANSACTIONS
Substantially all transactions of the Company, including the allocation of
certain income and expenses, are with SBHI, limited partnerships of which it is
the general partner, and other affiliates. Receivable from affiliate represents
amounts due from Smith Barney Inc. for interest income, advisory fees, and
commissions. Payable to affiliates includes amounts due to SBHI and other
affiliates.
5. INCOME TAXES
Under income tax allocation agreements with SBHI and Travelers, the
Company's Federal, state, and local income taxes are provided on a separate
return basis and are subject to utilization of tax attributes in Travelers
consolidated income tax provision. Under the tax sharing agreement with SBHI,
the Company remits taxes to SBHI.
6. EMPLOYEE BENEFIT PLANS
The Company participates in a noncontributory defined benefit pension plan
with Travelers which covers substantially all U.S. employees.
The Company, through Travelers, has a defined contribution employee savings
plan covering substantially all U.S. employees. In addition, the Company has
various incentive plans under which stock of Travelers is purchased for
subsequent distribution to employees, subject to vesting requirements.
7. STOCKHOLDERS EQUITY
During the year the Company declared and distributed an earnings dividend
of $8,190,058 and a liquidating dividend in the amount of $1,809,942 on its
outstanding common stock. Other than net income, there were no other changes to
equity.
8. SUBSEQUENT EVENTS
The Company declared a dividend in the amount of $1,650,000 payable to
holder of record at the close of business on March 29, 1996 payable on April 15,
1996.
<PAGE>31
Item 14. 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.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements.
Statements of Financial Condition of the Partnership at
March 31, 1996 (unaudited) and December 31, 1995 and 1994
Statements of Income and Expenses for the quarter ended
March 31, 1996 (unaudited), the year ended December 31, 1995
and for the period from September 1, 1994 (commencement of
operations) to December 31, 1994
Statements of Partners' Capital for the quarter ended March
31, 1996 (unaudited), the year ended December 31, 1995 and
for the period from June 3, 1994 (date Partnership was
organized) to December 31, 1994
Notes to Financial Statements
Statement of Financial Condition of Smith Barney Futures
Management Inc. at March 31, 1996 (unaudited) and December
31, 1995
(b) Exhibits.
*Exhibit 3(i)- Certificate of Limited Partnership
*Exhibit 3(ii)- Limited Partnership Agreement
Exhibit 10(a)- Management Agreement among the
Partnership, the General
Partner and John W. Henry & Co., Inc.
*Exhibit 10(b)(i)- Customer Agreement between the
Partnership and Smith Barney Inc.
Exhibit 10(b)(ii)- Amendment to Customer Agreement
*Exhibit 10(c)- Form of Subscription Agreement
Exhibit 27- Financial Data Schedule
- -------------------------
*Incorporated by reference to the Partnership's Form 10 previously
filed on April 26, 1996.
<PAGE>32
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY MID-WEST FUTURES FUND L. P. II
(Registrant)
Date: June 30, 1996
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono, Chief Financial Officer
<PAGE>1
MANAGEMENT AGREEMENT
AGREEMENT made as of the 30th day of April, 1996 among
SMITH BARNEY FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"),
SMITH BARNEY MID-WEST FUTURES FUND L. P. II, a New York limited
partnership (the "Partnership") and JOHN W. HENRY & CO., INC., a
California corporation (the "Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of SMITH BARNEY MID-WEST
FUTURES FUND L. P. II, a limited partnership organized with the objective to
achieve substantial capital appreciation by engaging in speculative trading of a
diversified portfolio of commodity interests which may include futures
contracts, options, forward contracts and physicals; and
WHEREAS, the Limited Partnership Agreement establishing the
Partnership (the "Limited Partnership Agreement") permits SBFM to delegate to
one or more commodity trading advisors SBFM's authority to make trading
decisions for the Partnership; and
WHEREAS, the Advisor is registered as a commodity trading
advisor with the Commodity Futures Trading Commission ("CFTC") and is a member
of the National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator
with the CFTC and is a member of the NFA; and
WHEREAS, SBFM and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) For the period and on the terms
and conditions of this Agreement, the Advisor shall have sole authority and
responsibility, as one of the Partnership's agents and attorneys-in-fact, for
directing the investment and reinvestment of the assets and funds of the
Partnership allocated to it by SBFM in commodity interests, including commodity
futures contracts, options and forward contracts and physicals. The Advisor will
not be allocated notional funds. All such trading on behalf of the Partnership
shall be in accordance with the trading strategies and trading policies set
forth in the Partnership's private placement offering memorandum and disclosure
document dated as of February
<PAGE>2
23, 1996 (as supplemented, the "Prospectus"), and as such trading policies may
be changed from time to time upon receipt by the Advisor of prior written notice
of such change. Any open positions or other investments at the time of receipt
of such notice shall not be deemed to violate the changed policy and shall be
closed or sold in the ordinary course of trading. The Advisor may not change the
trading policies set forth in the Prospectus without the prior written consent
of the Partnership given by SBFM. The Advisor makes no representation or
warranty that the trading to be directed by it for the Partnership will be
profitable or will not incur losses.
(b) SBFM acknowledges receipt of the Advisor's Disclosure
Document dated September 1, 1995 and as amended September 15, November 10,
December 27, 1995 and February 29, 1996 (the "Disclosure Document"). All trades
made by the Advisor for the account of the Partnership shall be made through
such commodity broker or brokers as SBFM shall direct, and the Advisor shall
have no authority or responsibility for selecting or supervising any such broker
in connection with the clearance or confirmation of transactions for the
Partnership or for the negotiation of brokerage rates charged therefor. SBFM
shall also direct the Advisor in writing on Appendix A to this Agreement (which
may be revised by SBFM from time to time) to direct trades in commodity futures
and options to such independent floor brokers as SBFM may determine as agent for
Smith Barney Inc. for execution with instructions to give-up the trades to the
broker designated by SBFM. The Partnership's initial futures commission merchant
will be Smith Barney Inc. All give-up or similar fees relating to the foregoing
shall be paid by the Partnership after all parties have executed the relevant
give-up agreement. The terms of this Section 1(b) shall supersede any
inconsistent terms in the give-up agreement. The Partnership's futures
commission merchant will provide copies of all brokerage statements to the
Advisor.
(c) In connection with its trading for the Partnership, the
Advisor will use its Financial and Metals Portfolio Program. In the event the
Advisor wishes to use a trading system or methodology other than or in addition
to the systems or methodologies outlined in the Prospectus in connection with
its trading for the Partnership, either in whole or in part, it may not do so
unless the Advisor gives SBFM prior written notice of its intention to utilize
such different trading system or methodology and SBFM consents thereto in
writing. In addition, the Advisor will provide five days' prior written notice
to SBFM of any change in a trading system or methodology to be utilized for the
Partnership which the Advisor deems material. If the Advisor deems such change
in system or methodology to be material, the changed system or methodology will
not be utilized for the Partnership without the prior written consent of SBFM.
Changes in contracts traded or in the leverage employed shall not be deemed to
be material and no prior
<PAGE>3
notice or consent shall be required. The Advisor also agrees to provide SBFM,
upon request, with a written report of the assets under the Advisor's management
together with all other matters deemed by the Advisor to be material changes to
its business not previously reported to SBFM.
(d) The Advisor agrees to make all material disclosures to
the Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals unless SBFM determines that such disclosure is
required in order to fulfill its fiduciary obligations to the Partnership or the
reporting, filing or other obligations imposed on it by Federal or state law or
NFA rule or order. The Partnership and SBFM acknowledge that the trading advice
to be provided by the Advisor is a property right belonging to the Advisor and
that they will keep all such advice confidential. Further, SBFM agrees to treat
as confidential any results of proprietary accounts and/or proprietary
information with respect to trading systems obtained from the Advisor. Nothing
contained in this Agreement shall be deemed or construed to require the Advisor
to disclose any confidential or proprietary details of the Advisor's trading
strategies or the names or identities of the Advisor's clients.
(e) The Advisor understands and agrees that SBFM intends to
designate other trading advisors for the Partnership and to apportion or
reapportion to such other trading advisors the management of an amount of Net
Assets (as defined in Section 3(b) hereof) as it shall determine in its absolute
discretion. The designation of other trading advisors and the apportionment or
reapportionment of Net Assets to any such trading advisors pursuant to this
Section 1 shall neither terminate this Agreement nor modify in any regard the
respective rights and obligations of the parties hereunder.
(f) SBFM may, from time to time, in its absolute discretion,
select additional trading advisors and reapportion funds among the trading
advisors for the Partnership as it deems appropriate. SBFM shall use its best
efforts to make reapportionments, if any, as of the first day of a month. The
Advisor agrees that it may be called upon at any time promptly to liquidate
positions in SBFM's sole discretion so that SBFM may reallocate the
Partnership's assets, meet margin calls on the Partnership's account, fund
redemptions, or for any other reason, except that SBFM will not require the
liquidation of specific
<PAGE>4
positions by the Advisor. The Advisor shall not be responsible for the effects
of such liquidations ordered by SBFM. SBFM will use its best efforts to give
three days' prior notice to the Advisor of any reallocations or liquidations and
will use its best efforts to effect such reallocation or liquidation only at
month-end.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
the Advisor will be liable to the Partnership with respect to losses incurred
due to errors committed or caused by it or any of its principals or employees in
communicating improper trading instructions or orders to any broker on behalf of
the Partnership.
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the
Advisor shall be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Partnership in any way and shall not be deemed an agent, promoter
or sponsor of the Partnership, SBFM, or any other trading advisor or to be
establishing a partnership or joint venture with any of the foregoing. The
Advisor shall not be responsible to the Partnership, its general partner or any
limited partners for any acts or omissions of any other trading advisor acting
or previously acting as an advisor to the Partnership.
3. COMPENSATION. (a) In consideration of and as compensation
for all of the services to be rendered by the Advisor to the Partnership under
this Agreement, the Partnership shall pay the Advisor (i) an incentive fee
payable quarterly equal to 15% of New Trading Profits (as such term is defined
below) earned by the Advisor for the Partnership and (ii) a monthly fee for
professional management services equal to 1/3 of 1% (4% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in
Paragraph 7(d)(1) of the Limited Partnership Agreement dated as of June 3, 1994
and without regard to amendments thereto (and as set forth in Appendix A
hereto), provided that in determining the Net Assets of the Partnership on any
date, no adjustment shall be made to reflect any distributions, redemptions,
management fees payable, incentive fees payable or accrued other expenses as of
the date of such determination.
(c) "New Trading Profits" shall mean the excess, if any, of
Net Assets before incentive fees paid managed by the Advisor at the end of the
fiscal period over Net Assets managed by the Advisor at the end of the highest
previous fiscal period or Net Assets allocated to the Advisor at the date
trading commences, whichever is higher, and as further adjusted to eliminate the
effect on Net Assets resulting from new capital
<PAGE>5
contributions, redemptions, reallocations or capital distributions, if any, made
during the fiscal period decreased by interest or other income, not directly
related to trading activity, earned on the Partnership's assets during the
fiscal period, whether the assets are held separately or in margin accounts.
Ongoing expenses will be attributed to the Advisor based pro rata on the
Advisor's proportionate share of Net Assets and shall not include management
fees of the Partnership's other advisors. Ongoing expenses above will not
include expenses of litigation not involving the activities of the Advisor on
behalf of the Partnership. Interest income earned, if any, will not be taken
into account in computing Trading Profits earned by the Advisor. If Net Assets
allocated to the Advisor are reduced due to redemptions, distributions or
reallocations, there will be a corresponding proportional reduction in the
related loss carryforward amount that must be recouped before the Advisor is
eligible to receive another incentive fee.
(d) Quarterly incentive fees and monthly management fees
shall be paid within twenty (20) business days following the end of the period,
as the case may be, for which such fee is payable. In the event of the
termination of this Agreement as of any date which shall not be the end of a
calendar quarter or a calendar month, as the case may be, the quarterly
incentive fee shall be computed and paid as if the effective date of the
termination were the last day of the then current quarter and the monthly
management fee shall be prorated to the effective date of termination. If,
during any month, the Partnership does not conduct business operations or the
Advisor is unable to provide the services contemplated herein for more than two
successive business days, the monthly management fee shall be prorated by the
ratio which the number of business days during which SBFM conducted the
Partnership's business operations or utilized the Advisor's services bears in
the month to the total number of business days in such month, it being
acknowledged that under the Advisor's trading programs there will be periods
when no open positions will be maintained for the Partnership.
(e) The provisions of this Paragraph 3 shall survive
the termination of this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services
provided by the Advisor hereunder are not to be deemed exclusive. SBFM on its
own behalf and on behalf of the Partnership acknowledges that, subject to the
terms of this Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other
clients and accounts. The Advisor and its officers, directors, employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity accounts during the term of this Agreement
and to use the same or different information, computer programs and trading
strategies, programs or formulas which they obtain, produce or utilize in the
performance of services to SBFM for the
<PAGE>6
Partnership. However, the Advisor represents, warrants and agrees that it
believes that the rendering of such consulting, advisory and management services
to other accounts and entities will not require any material change in the
Advisor's basic trading strategies and will not affect the capacity of the
Advisor to continue to render services to SBFM for the Partnership of the
quality and nature contemplated by this Agreement.
(b) If, at any time during the term of this Agreement, the
Advisor is required to aggregate the Partnership's commodity positions with the
positions of any other person for purposes of applying CFTC- or exchange-imposed
speculative position limits, the Advisor agrees that it will promptly notify
SBFM if the Partnership's positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if
its trading recommendations are altered because of the application of any
speculative position limits, it will not modify the trading instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially disproportionately as compared with the Advisor's other accounts.
The Advisor further represents, warrants and agrees that under no circumstances
will it knowingly or deliberately use trading strategies or methods for the
Partnership that are inferior to strategies or methods employed for any other
client or account and that it will not knowingly or deliberately favor any
client or account managed by it over any other client or account in any manner,
it being acknowledged, however, that the Advisor offers ten different trading
programs, and that different trading strategies or methods may be utilized for
differing sizes of accounts, accounts with different trading policies, fees,
commissions or levels of diversification, accounts experiencing differing
inflows or outflows of equity, accounts which commence trading at different
times, accounts which have different portfolios or different fiscal years,
accounts utilizing different executing brokers and accounts with other
differences, and that such differences may cause divergent trading results.
(c) It is acknowledged that the Advisor and/or its officers,
employees, directors and shareholder(s) presently act, and it is agreed that
they may continue to act, as advisor for other accounts managed by them, and may
continue to receive compensation with respect to services for such accounts in
amounts which may be more or less than the amounts received from the
Partnership.
(d) The Advisor agrees that it shall make such information
available to SBFM respecting the performance of the Partnership's account as
compared to the performance of other accounts managed by the Advisor or its
principals as shall be reasonably requested by SBFM, provided that in no event
shall the Advisor be required to disclose the identity of its customers. The
Advisor presently believes and represents that existing
<PAGE>7
speculative position limits will not materially adversely affect its ability to
manage the Partnership's account given the potential size of the Partnership's
account and the Advisor's and its principals' current accounts and all proposed
accounts for which they have contracted to act as trading manager.
5. TERM. (a) This Agreement shall continue in effect until
June 30, 1997. SBFM may, in its sole discretion, renew this Agreement for
one-year periods upon notice to the Advisor not less than 30 days prior to the
expiration of the previous period. At any time during the term of this
Agreement, SBFM may terminate this Agreement at any month-end upon 30 days'
notice to the Advisor. At any time during the term of this Agreement, SBFM may
elect to immediately terminate this Agreement if (i) the Net Asset Value per
Unit (as that term is defined in Section 7(d)(2) of the Limited Partnership
Agreement) shall decline as of the close of business on any day to $400 or less;
(ii) the Net Assets allocated to the Advisor (adjusted for redemptions,
distributions, withdrawals or reallocations, if any) decline by 50% or more as
of the end of a trading day from such Net Assets' previous highest value; (iii)
limited partners owning more than 50% of the outstanding Units shall vote to
require SBFM to terminate this Agreement; (iv) the Advisor fails to comply with
the terms of this Agreement as to any material term; (v) SBFM, in good faith,
upon due consideration by its board of directors, reasonably determines that the
performance of the Advisor has been such that SBFM's fiduciary duties to the
Partnership require SBFM to terminate this Agreement; or (vi) SBFM reasonably
believes that the application of speculative position limits will substantially
affect the performance of the Partnership. At any time during the term of this
Agreement, SBFM may elect immediately to terminate this Agreement if (i) the
Advisor merges, consolidates with another entity not controlled by John W.
Henry, sells a substantial portion of its assets to an entity not controlled by
John W. Henry, or becomes bankrupt or insolvent, (ii) Mr. John W. Henry dies,
becomes incapacitated, leaves the employ of the Advisor, ceases to control the
Advisor or is otherwise not managing the trading programs or systems of the
Advisor, or (iii) the Advisor's registration as a commodity trading advisor with
the CFTC or its membership in the NFA or any other regulatory authority, is
terminated or suspended. This Agreement will immediately terminate upon
dissolution of the Partnership or upon cessation of trading prior to
dissolution.
(b) The Advisor may terminate this Agreement by giving not
less than 30 days' notice to SBFM in the event that (i) the trading policies of
the Partnership as set forth in the Prospectus are changed in such manner that
the Advisor reasonably believes will adversely affect the performance of its
trading strategies; (ii) after June 30, 1997; (iii) SBFM or the Partnership
fails to comply with the terms of this Agreement. The Advisor may immediately
terminate this Agreement if SBFM's registration as a commodity pool operator or
its membership in the NFA is terminated or suspended; (iv) if SBFM withholds its
<PAGE>8
consent to a change in the Advisor's program specified in Section 1(c) of this
Agreement; or (v) if SBFM requires the Advisor to liquidate positions pursuant
to section 1(f) hereof. In addition, the Advisor may terminate this Agreement at
any month-end after the termination of the Initial Offering Period (as that term
is defined in the Prospectus) upon 60 days' prior written notice to SBFM.
(c) Except as otherwise provided in this Agreement, any
termination of this Agreement in accordance with this Paragraph 5 shall be
without penalty or liability to any party.
6. INDEMNIFICATION. (a)(i) In any threatened, pending or
completed action, suit, or proceeding to which the Advisor was or is a party or
is threatened to be made a party arising out of or in connection with this
Agreement or the management of the Partnership's assets, SBFM shall, subject to
subparagraph (a)(iii) of this Paragraph 6, indemnify and hold harmless the
Advisor against any loss, liability, damage, cost, expense (including, without
limitation, attorneys' and accountants' fees), judgments and amounts paid in
settlement actually and reasonably incurred by it in connection with such
action, suit, or proceeding if the Advisor acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
Partnership, and provided that its conduct did not constitute negligence,
intentional misconduct, or a breach of its fiduciary obligations to the
Partnership as a commodity trading advisor in accordance with applicable law,
unless and only to the extent that the court or administrative forum in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all circumstances of the case, the
Advisor is fairly and reasonably entitled to indemnity for such expenses which
such court or administrative forum shall deem proper; and further provided that
no indemnification shall be available from the Partnership if such
indemnification is prohibited by Section 16 of the Partnership Agreement. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, of itself, create a presumption that the Advisor did not act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Partnership.
(ii) To the extent that the Advisor has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in subparagraph (i) above, or in defense of any claim, issue or matter therein,
SBFM shall indemnify it against the expenses (including, without limitation,
attorneys' and accountants' fees) actually and reasonably incurred by it in
connection therewith.
(iii) Any indemnification under subparagraph (i) above,
unless ordered by a court or administrative forum, shall be made by SBFM only as
authorized in the specific case and only upon a determination by independent
legal counsel in a written
<PAGE>9
opinion that such indemnification is proper in the circumstances because the
Advisor has met the applicable standard of conduct set forth in subparagraph (i)
above. Such independent legal counsel shall be selected by SBFM in a timely
manner, subject to the Advisor's approval, which approval shall not be
unreasonably withheld. The Advisor will be deemed to have approved SBFM's
selection unless the Advisor notifies SBFM in writing, received by SBFM within
five days of SBFM's telecopying to the Advisor of the notice of SBFM's
selection, that the Advisor does not approve the selection.
(iv) In the event the Advisor is made a party to any claim,
dispute or litigation or otherwise incurs any loss or expense as a result of, or
in connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall
include the Advisor, its principals, officers, directors, stockholders and
employees and the term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold
harmless SBFM, the Partnership and their affiliates against any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees), judgments and amounts paid in settlement actually and
reasonably incurred by them (A) as a result of the breach of any representations
and warranties made by the Advisor in this Agreement, or (B) as a result of any
act or omission of the Advisor relating to the Partnership if there has been a
final judicial or regulatory determination or, in the event of a settlement of
any action or proceeding with the prior written consent of the Advisor, a
written opinion of an arbitrator pursuant to Paragraph 14 hereof, to the effect
that such acts or omissions violated the terms of this Agreement or involved
negligence, bad faith, recklessness or intentional misconduct on the part of the
Advisor.
(ii) In the event SBFM, the Partnership or any of their
affiliates is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of, or in connection with, the activities
or claimed activities of the Advisor or its principals, officers, directors,
shareholder(s) or employees unrelated to SBFM's or the Partnership's business,
the Advisor shall indemnify, defend and hold harmless SBFM, the Partnership or
any of their affiliates against any loss, liability, damage, cost or expense
(including, without limitation, attorneys' and accountants' fees) incurred in
connection therewith.
<PAGE>10
(c) In the event that a person entitled to indemnification
under this Paragraph 6 is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Paragraph
6 shall be applicable with respect to default judgments, confessions of judgment
or settlements entered into by the party claiming indemnification without the
prior written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the
termination of this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the
Prospectus dated February 23, 1996 are accurate in all material respects and as
to them the Prospectus does not contain any untrue statement of a material fact
or omit to state a material fact which is necessary to make the statements
therein not misleading. All references to the Advisor and its principals in the
Prospectus will, after review and approval of such references by the Advisor
prior to the use of such Prospectus in connection with the offering of the
Partnership's units, be accurate in all material respects.
(ii) The information with respect to the Advisor set forth in
the actual performance tables in the Prospectus is based on all of the customer
accounts managed on a discretionary basis by the Advisor's principals and/or the
Advisor during the period covered by such tables and required to be disclosed
therein.
(iii) The Advisor will be acting as a commodity trading
advisor with respect to the Partnership and not as a securities investment
adviser and is duly registered with the CFTC as a commodity trading advisor, is
a member of the NFA, and is in compliance with such other registration and
licensing requirements as shall be necessary to enable it to perform its
obligations hereunder, and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
full power and authority to enter into this Agreement and to provide the
services required of it hereunder.
<PAGE>11
(v) The Advisor will not, by acting as a commodity trading
advisor to the Partnership, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or regulation to which it is a party or by
which it is bound.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by the Advisor and is a valid and binding agreement
enforceable in accordance with its terms.
(vii) At any time during the term of this Agreement that a
prospectus relating to the Units is required to be delivered in connection with
the offer and sale thereof, the Advisor agrees upon the request of SBFM to
provide the Partnership with such information as shall be necessary so that, as
to the Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the
Partnership that:
(i) The Prospectus (as from time to time amended or
supplemented, which amendment or supplement is approved by the Advisor as to
descriptions of itself and its actual performance) does not contain any untrue
statement of a material fact or omit to state a material fact which is necessary
to make the statements therein not misleading, except that the foregoing
representation does not apply to any statement or omission concerning the
Advisor in the Prospectus, made in reliance upon, and in conformity with,
information furnished to SBFM by or on behalf of the Advisor expressly for use
in the Prospectus.
(ii) It is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full corporate
power and authority to perform its obligations under this Agreement.
(iii) SBFM and the Partnership have the capacity and
authority to enter into this Agreement on behalf of the Partnership.
(iv) This Agreement has been duly and validly authorized,
executed and delivered on SBFM's and the Partnership's behalf and is a valid and
binding agreement of SBFM and the Partnership enforceable in accordance with its
terms.
(v) SBFM will not, by acting as General Partner to the
Partnership and the Partnership will not, breach or cause to be breached any
undertaking, agreement, contract, statute, rule or regulation to which it is a
party or by which it is bound which would materially limit or affect the
performance of its duties under this Agreement.
<PAGE>12
(vi) It is registered as a commodity pool operator and is a
member of the NFA, and it will maintain and renew such registration and
membership during the term of this Agreement.
(vii) The Partnership is a limited partnership duly organized
and validly existing under the laws of the State of New York and has full power
and authority to enter into this Agreement and to perform its obligations under
this Agreement.
(viii) SBFM and the Partnership agree that John W. Henry
shall have no liability to the Partnership or SBFM under this Agreement or in
connection with the transactions contemplated herein except for fraud and
willful misconduct by John W. Henry.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
(a) The Advisor agrees as follows:
(i) In connection with its activities on behalf of the
Partnership, the Advisor will comply with all applicable rules and regulations
of the CFTC and/or the commodity exchange on which any particular transaction is
executed.
(ii) The Advisor will promptly notify SBFM of the
commencement of any material suit, action or proceeding involving it, whether or
not any such suit, action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's
account and for the accounts of any other client, the Advisor will utilize a
fair and reasonable order entry system, which shall, on an overall basis, be no
less favorable to the Partnership than to any other account managed by the
Advisor. The Advisor acknowledges its obligation to review the Partnership's
positions in the account managed by the Advisor daily and promptly to notify the
broker and SBFM and the Partnership's broker of (i) any error committed by the
Advisor or its principals or employees or (ii) any trade which the Advisor
believes was not executed in accordance with its instructions.
(iv) The Advisor shall, upon written demand of SBFM related
to a possible claim arising under Section 6(b)(i) or (ii) hereof, maintain a net
worth of not less than $2,000,000.
(b) SBFM agrees for itself and the Partnership that:
(i) SBFM and the Partnership will comply with all applicable
rules and regulations of the CFTC and/or the commodity exchange on which any
particular transaction is executed.
(ii) SBFM will promptly notify the Advisor of the
commencement of any material suit, action or proceeding involving
<PAGE>13
it or the Partnership, whether or not such suit, action or proceeding also
involves the Advisor.
9. COMPLETE AGREEMENT. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter hereof.
10. ASSIGNMENT. This Agreement may not be assigned by any
party without the express written consent of the other parties.
11. AMENDMENT. This Agreement may not be amended except by
the written consent of the parties.
12. NOTICES. All notices, demands or requests required to
be made or delivered under this Agreement shall be in writing and
delivered personally or by registered or certified mail or expedited
courier, return receipt requested, postage prepaid, to the addresses
below or to such other addresses as may be designated by the party
entitled to receive the same by notice similarly given:
If to SBFM:
Smith Barney Futures Management Inc.
390 Greenwich Street - 1st Floor
New York, New York 10013
Attention: David J. Vogel
If to the Advisor:
John W. Henry & Co., Inc.
One Glendinning Place
Westport, Connecticut 06880
Attention: Ms. Elizabeth A. M. Kenton
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement or the interpretation
thereof, shall be settled by arbitration in accordance with the rules, then in
effect, of the National Futures Association or, if the National Futures
Association shall refuse jurisdiction, then in accordance with the rules, then
in effect, of the American Arbitration Association; provided, however, that the
power of the arbitrator shall be limited to interpreting this Agreement as
written and the arbitrator shall state in writing his reasons for his award.
Judgment upon any award made by the arbitrator may be entered in any court of
competent jurisdiction.
<PAGE>14
15. NO THIRD PARTY BENEFICIARIES. There are no third
party beneficiaries to this Agreement.
16. SALES MATERIALS. SBFM will provide a copy of all sales
materials referring to the Advisor and used in connection with the offering to
the Advisor for its review and approval prior to SBFM's public use of the
sales materials.
IN WITNESS WHEREOF, this Agreement has been executed for
and on behalf of the undersigned as of the day and year first above written.
SMITH BARNEY
FUTURES MANAGEMENT INC.
By:
David J. Vogel
President and Director
SMITH BARNEY
MID-WEST FUTURES FUND L. P. II
By: Smith Barney
Futures Management Inc.
(General Partner)
By:
David J. Vogel
President and Director
JOHN W. HENRY & CO., INC.
By:
Name:
Title:
<PAGE>
Appendix A
1. GIVE-UP BROKERS: The initial give-up brokers shall be Dean Witter,
Barclays de Zoete Wedd Futures, E. D. & F. Man and J.P. Morgan Futures, Inc.
2. NET ASSETS of the Partnership shall mean the total assets of the
Partnership including all cash, accrued interest, and the market value of all
open commodity positions maintained by the Partnership, less brokerage charges
accrued and less all other liabilities of the Partnership, determined
in accordance with generally accepted accounting principles under the
accrual basis of accounting. The value of a commodity futures or option
contract is the unrealized gain or loss on the contract that is determined by
marking it to the current settlement price for a like contract acquired on
the valuation date. Physical commodities, options, forward contracts and
futures contracts, when no market quote is available, will be valued at
their fair market value as determined by the General Partner. U. S.
Treasury securities and other interest bearing obligations will be
valued at cost plus accrued interest. Interests in other commodity pools
will be valued at their net asset value as determined by the pool operator,
or, if the General Partner has not received such determination or believes
that fairness so requires, at fair value determined by the General
Partner.
<PAGE>1
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
c/o Smith Barney Futures Management Inc.
390 Greenwich Street
New York, NY 10013
December 31, 1995
SMITH BARNEY INC.
390 Greenwich Street
New York, NY 10013
Re: Customer Agreement
Gentlemen:
Reference is made to the Customer Agreement ("Customer Agreement") dated July
7, 1994, between Smith Barney Inc. and Smith Barney Mid-West Futures Fund
L.P. II. This letter sets forth our understanding with respect to the
following amendment to the Customer Agreement:
1. SB and the Partnership agree that the parties shall have the right to
offset any unrealized gains and losses on the Partnership's open positions and
to net any open orders for the purchase or sale of any property of the
Partnership.
2. All other provisions of the Customer Agreement remain unchanged.
<PAGE>2
If you agree to the foregoing, please return a signed copy of this letter to
the undersigned.
Sincerely,
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
By: Smith Barney Futures
Management Inc.
its General Partner
By:
Name:
Title:
ACCEPTED AND AGREED to
this 31st day of December, 1995
SMITH BARNEY INC.
By:
Name:
Title:
0124666.02
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<ARTICLE> 5
<CIK> 0001013167
<NAME> SMITH BARNEY MIDWEST FUTURES FUND LP II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 41,441,584
<SECURITIES> 2,431,331
<RECEIVABLES> 143,955
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44,016,870
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,016,870
<CURRENT-LIABILITIES> 905,983
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 43,110,887
<TOTAL-LIABILITY-AND-EQUITY> 44,016,870
<SALES> 0
<TOTAL-REVENUES> 404,243
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 553,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (149,130)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,130)
<EPS-PRIMARY> (1.73)
<EPS-DILUTED> 0
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<NAME> SMITH BARNEY MIDWEST FUTURES FUND LP II
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0
0
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