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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10/A
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
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Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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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").
The General Partner
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.
The Advisor
Under the Limited Partnership Agreement of the Partnership
(the "Limited Partnership Agreement") the General Partner has sole
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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 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.
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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. 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
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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, 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.
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Redemption of Units
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 (the "Redemption Date"). 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. Because Net Asset Value fluctuates daily,
limited partners will not know the Net Asset Value applicable to their
redemption at the time a notice of redemption is submitted. 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.
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
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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 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
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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. 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.
(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 estimated at approximately $50,000
per year (or .18% of Net Assets). In 1995, the Partnership incurred
approximately $64,000 in such fees.
Conflicts of Interest
The General Partner is wholly owned by Smith Barney Holdings,
Inc., which is the sole owner of SB. Smith Barney Holdings, Inc. is a wholly
owned subsidiary of Travelers Group, Inc., a publicly-held company whose shares
are listed on the New York Stock Exchange and which is engaged in various
financial services and other businesses. The General Partner is the surviving
corporation of a merger that occurred on August 2, 1993 merging three commodity
pool operators: Smith Barney Futures Partners, Inc., Lehman Brothers Capital
Management Corp. and Hutton Commodity Management, Inc.
Relationship among the Partnership, the General Partner and
SB. The General Partner is an affiliate of SB, which acts as the commodity
broker/dealer for the Partnership. Financial Consultants who sell Units in this
offering will receive a portion of the brokerage commissions paid to SB.
Consequently, these Financial Consultants may have a conflict of interest
between their obligations to advise limited partners with respect to the
purchase of additional Units or redemption of Units and their interest in
continuing to receive commissions and fees from SB. Because the General Partner
is an affiliate of SB, the General Partner has a potential conflict of interest
in its decision to replace the Partnership's futures commission
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merchant, if necessary. In addition, the flat rate brokerage fee to be paid by
the Partnership to SB may not have been set by "arm's length" negotiation. The
General Partner may have a conflict of interest between its responsibility to
manage the Partnership for the benefit of the limited partners and its interest
in selecting trading advisors that will generate a small number of trades thus
incurring small amounts of charges incidental to trading (such as NFA fees) so
that Net Assets, from which SB's and the General Partner's fees are paid,
remain relatively higher. The General Partner may, in its discretion, allocate
and reallocate all or a portion of the Partnership's assets among the trading
programs operated by the Advisor, or select and appoint additional or
replacement trading advisors, if it is determined that such change is in the
best interests of the limited partners.
Notwithstanding the potential conflicts of interest resulting
from these multiple relationships, the Limited Partnership Agreement
specifically permits the General Partner to enter into contracts on behalf of
the Partnership with or for the benefit of the General Partner and SB. Such
contracts include the Customer Agreement with respect to brokerage services to
be entered into by the Partnership and SB.
Brokerage Rate to be Charged by the Commodity Broker. Pursuant
to the Customer Agreement between the Partnership and SB, SB acts as the
commodity broker for the Partnership. Because the General Partner is an
affiliate of SB, the General Partner may have a conflict of interest between its
responsibility to manage the Partnership for the benefit of the limited partners
and its interest in obtaining brokerage rates which are favorable to SB. SB will
charge the Partnership a monthly flat rate brokerage fee equal to 6% per year of
month-end Net Assets of the Partnership. This rate may be changed at any time by
SB. Although the Customer Agreement will be non-exclusive, so that the
Partnership will have the right to seek lower brokerage rates from other brokers
at any time, the General Partner believes that the arrangements between the
Partnership and SB are consistent with arrangements other comparable commodity
pools have entered into with other futures commission merchants and are fair to
the Partnership and, further, does not intend to negotiate with SB to obtain
lower commission rates or to refer brokerage transactions to other firms.
Accounts of SB, the General Partner, the Advisor and their
Affiliates. The officers, directors and employees of SB, SBFM and the Advisor,
as well as SB, SBFM and the Advisor themselves may trade in commodity interests
for their own accounts. The records of such trading will not be available for
inspection by limited partners. In addition, SB is a futures commission merchant
and effects transactions in commodity futures and options for its customers.
Thus, it is possible that SB could effect transactions for the Partnership in
which the other
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parties to the transactions are its officers, directors or employees or its
customers. Such persons might also compete with the Partnership in making
purchases or sales of contracts without knowing that the Partnership is also
bidding on such contracts.
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
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plan with the care, skill, prudence and diligence under the 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
<PAGE>12
as well as plans not subject to ERISA, such as governmental 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
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4975 of the Code upon the fiduciary or other disqualified person 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
<PAGE>14
trading of commodity interests, including forward contracts on 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:
1996 1995 1994
---- ---- ----
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
========== ========== ==========
Investors should note that past performance is not necessarily
indicative of future performance and the Partnership's level of future
performance cannot be predicted.
<PAGE>15
(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 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.
<PAGE>16
(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 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.
<PAGE>17
(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 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.
<PAGE>18
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 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.
<PAGE>19
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. See Item 1(a), "General Development of Business Conflicts of Interests
for a description of the entities that control the General Partner. As of June
30, 1996, none of the directors and executive officers of the General Partner or
the Advisor beneficially owned any Units, except as set forth in the following
table:
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ---------------- -------------------- --------
Units of General Smith Barney Futures 397.4667 Units; 1.02%
Partnership Interest Management, Inc. Direct Ownership
36.7358 Units;
Units of Limited David J. Vogel Direct Ownership 0.09%
Partnership Interest
(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.
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.
<PAGE>20
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 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.
<PAGE>21
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 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.
<PAGE>22
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 JWH 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 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.
<PAGE>23
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.
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.
<PAGE>24
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 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 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
<PAGE>25
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 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.
<PAGE>26
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 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.
<PAGE>27
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(a). General Development of Business -
Fees and Expenses". 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(a). General Development of Business - Fees
and Expenses ". 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 executive
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.
Item 7. Certain Relationships and Related Transactions
See Item 1(a) for a description of the Customer Agreement
between the Partnership and SB and the fees paid thereunder as well as a
discussion of conflicts of interest that may arise due to the affiliation among
the Partnership, the General Partner and SB.
Item 8. Legal Proceedings
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.
<PAGE>28
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 income for the current fiscal year of not
less than three times his investment in the Partnership for each year.
<PAGE>29
(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 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.
<PAGE>30
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 all of the material 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.
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
<PAGE>31
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.
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
<PAGE>32
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 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
<PAGE>33
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.
Income Tax Aspects
The trading activities of the Partnership, in general,
generate capital gain and loss and ordinary income. The Partnership pays no
federal income tax; rather, limited partners are allocated their proportionate
share of the taxable income or losses realized by the Partnership during the
period of the Partnership's taxable year that Units were owned by them.
Unrealized gains on "Section 1256 contracts" (as defined in the Code) held by
the Partnership at the end of its taxable year must be included in income under
the "mark-to-market" rule and will be allocated to partners in proportion to
their respective capital accounts. The mark-to-market rule does not apply to
the Partnership's positions in futures contracts on most foreign exchanges and
in foreign currency forward contracts not in the interbank market, unless the
Partnership elects such treatments under Code Section 988.
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>34
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.
**Incorporated by reference to the Partnership's Form 10 previously
filed on July 5, 1996.
<PAGE>35
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: August 20, 1996
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono,
Chief Financial Officer
<TABLE> <S> <C>
<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
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<NAME> SMITH BARNEY MIDWEST FUTURES FUND LP II
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0
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