SMITH BARNEY MID WEST FUTURES FUND LP II, 10-K, 1999-03-30

SMITH BARNEY MID WEST FUTURES FUND LP II
10-K, 1999-03-30
COMMODITY CONTRACTS BROKERS & DEALERS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998

Commission File Number 0-28336

SMITH BARNEY MID-WEST FUTURES FUND L.P. II
(Exact name of registrant as specified in its charter)

New York 13-3772374
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)

(212) 723-5424 (Registrant's telephone number, including area
code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein,and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]

As of February 28,1999 Limited Partnership Units with an aggregate value of
$1,691.57 were outstanding and held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

None

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PART I

Item 1. Business.

(a) General development of business. Smith Barney Mid-West Futures Fund
L.P. II, (the "Partnership") is a limited partnership organized on June 3, 1994
under the partnership laws of the State of New York. The Partnership commenced
trading operations on September 1, 1994. The Partnership engages in the
speculative trading of a diversified portfolio of commodity interests including
futures contracts, options and forward contracts. Between July 7, 1994 and
August 31, 1994, 9,421 Units of Limited Partnership Interest ("Units") were sold
at $1,000 per Unit. The proceeds of the initial offering were held in an escrow
account until September 1, 1994, at which time they were turned over to the
Partnership for trading. Sales and redemptions of Units and general partner
contributions and redemptions for the years ending December 31, 1998, 1997, and
1996 are reported in the Statement of Partners' Capital on page F-6 under "Item
8. Financial Statements and Supplementary Data."
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2014; if the Net Asset Value per Unit falls below $350
as of the end of business on any business day or upon the earlier occurrence of
certain other circumstances set forth in the Limited Partnership Agreement of
the Partnership (the "Limited Partnership Agreement"). Partnership Units were
being continuously offered monthly during the continuous offering period through
April 1997. The Partnership was authorized to sell 75,000 Units.

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Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. On September 1, 1998, the Partnership's
commodity broker, Smith Barney Inc., merged with Salomon Brothers Inc and
changed its name to Salomon Smith Barney Inc. ("SSB"). SSB is an affiliate of
the General Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings, Inc. ("SSBH"), which is the sole owner of SSB. On October 8, 1998,
Travelers Group Inc. merged with Citicorp Inc. and changed its name to Citigroup
Inc. SSBH is a wholly owned subsidiary of Citigroup Inc.
The Partnership's trading of futures contracts on commodities is done
primarily on United States commodity exchanges and foreign commodity exchanges.
It engages in such trading through a commodity brokerage account maintained with
SSB.
Under the Limited Partnership Agreement, the General Partner has sole
responsibility for the administration of the business and affairs of the
Partnership, but may delegate trading discretion to one or more trading
advisors. The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading decisions
for the Partnership. The Partnership pays the General Partner a monthly
administrative fee in return for its services to the Partnership equal to 1/12
of 1% (1% per year) of month-end Net Assets of the Partnership. This fee may be
increased or decreased at the discretion of the General Partner.

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The General Partner has entered into a management agreement (the
"Management Agreement") with John W. Henry & Company Inc. (the AAdvisor@) who
will make all commodity trading decisions for the Partnership. The Advisor is
not affiliated with the General Partner or SSB. The Advisor is not responsible
for the organization or operation of the Partnership.
Pursuant to the terms of the Management Agreement, the Partnership is
obligated to pay the Advisor a monthly management fee equal to 1/3 of 1% (4% per
year) of Net Assets allocated to the Advisor as of the end of the month and an
incentive fee payable quarterly of 15% of New Trading Profits (as defined in the
Management Agreement) of the Partnership.
The Customer Agreement between the Partnership and SSB (the "Customer
Agreement") provides that the Partnership pays SSB a monthly brokerage fee equal
to 1/2 of 1% of month-end Net Assets (6% per year) in lieu of brokerage
commissions on a per trade basis. SSB pays a portion of its brokerage fees to
its financial consultants who have sold Units. The Partnership pays for National
Futures Association ("NFA") fees, exchange and clearing fees, give-up and user
fees and floor brokerage fees. The Customer Agreement between the Partnership
and SSB gives the Partnership the legal right to net unrealized gains and
losses. Brokerage fees will be paid for the life of the Partnership, although
the rate at which such fees are paid may be changed.

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In addition, SSB pays the Partnership interest on 80% of the average daily
equity maintained in cash in its account during each month at a 30 day U.S.
Treasury bill rate determined weekly by SSB based on the non-competitive yield
on 3 month U.S. Treasury bills maturing in 30 days from the date in which such
weekly rate is determined. The Customer Agreement may be terminated by either
party.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income from operations for the years ended December 31, 1998,
1997, 1996, and 1995 are set forth under "Item 6. Selected Financial Data." The
Partnership capital as of December 31, 1998 was $94,174,439.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) -The Partnership has no employees.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales. The Partnership does not engage in sales of goods or services, and
therefore this item is not applicable.
Item 2. Properties. The Partnership does not own or lease any properties. The
General Partner operates out of facilities provided by its affiliate, SSB.

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Item 3. Legal Proceedings.
There are no material legal proceedings pending against the Partnership
or the General Partner.
This section describes the major legal proceedings, other than ordinary
routine litigation incidental to the business, to which SSBH, the parent company
of this General Partner or its subsidiaries is a party or to which any of their
property is subject.
In September 1992, Harris Trust and Savings Bank (as trustee for
Ameritech Pension Trust ("APT"), Ameritech Corporation, and an officer of
Ameritech filed suit against Salomon Brothers Inc. ("SBI") and Salomon Brothers
Realty Corporation ("SBRC") in the U.S. District Court for the Northern District
of Illinois (Harris Trust Savings Bank, not individually but solely as trustee
for the Ameritech Pension Trust, Ameritech Corporation and John A. Edwardson v.
Salomon Brothers Inc and Salomon Brothers Realty Corp.). The second amended
complaint alleges that three purchases by APT from defendants of participation
interests in net cash flow or resale proceeds of three portfolios of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation interest with respect to a portfolio of motels owned by
Best Inns, Inc. ("Best"), violated the Employee Retirement Income Security Act
("ERISA"), and that the purchase of the participation interests for the third
MOA portfolio and for the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and state law. SBI had acquired the
participation interests in transactions in which it purchased as principal

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<PAGE>

mortgage notes issued by MOA and Best to finance purchases of motel portfolios;
95% of three such interests and 100% of one such interest were sold to APT for
purchase prices aggregating approximately $20.9 million. Plaintiffs' second
amended complaint seeks (a) judgment on the ERISA claims for the purchase prices
of the four participation interests (approximately $20.9 million), for
rescission and for disgorgement of profits, as well as other relief, and (b)
judgment on the claims brought under RICO and state law in the amount of $12.3
million, with damages trebled to $37 million on the RICO claims and punitive
damages in excess of $37 million on certain of the state law claims as well as
other relief. The court dismissed the RICO, breach of contract, and unjust
enrichment claims. The court also found that defendants did not qualify as an
ERISA fiduciary and dismissed the claims based on that allegation. Defendants
moved for summary judgment on the sole remaining claim. The motion was denied,
and defendants appealed to the U.S. Court of Appeals for the Seventh Circuit.
Defendants are awaiting a decision.
Both the Department of Labor and the Internal Revenue Service have advised
SBI that they were or are reviewing the transactions in which APT acquired such
participation interests. With respect to the Internal Revenue Service review,
SSBH, SBI and SBRC have consented to extensions of time for the assessment of
excise taxes that may be claimed to be due with respect to the transactions for
the years 1987, 1988 and 1989. In August 1996, the IRS sent SSBH, SBI and SBRC
what appeared to be draft "30-day letters" with respect to the transactions and
SSBH, SBI and SBRC were given an opportunity to comment on whether the IRS
should issue 30-day letters, which would actually commence the assessment
process. In October 1996, SSBH, SBI and SBRC submitted a memorandum setting
forth reasons why the IRS should not issue 30-day letters with respect to the
transactions.

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In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California (County of Orange et al. v. Bear Stearns & Co. Inc. et al.).
Plaintiff alleges, among other things, that defendants recommended and sold to
plaintiff unsuitable securities and that such transactions were outside the
scope of plaintiff's statutory and constitutional authority (ultra vires).
Defendants' motion for summary judgment was granted with respect to the ultra
vires claims in February 1999. The court allowed the filing of an amended
complaint asserting claims based on alleged breaches of fiduciary duty.
In June 1998, complaints were filed in the U.S. District Court for the
Eastern District of Louisiana in two actions (Board of Liquidations, City Debt
of the City of New Orleans v. Smith Barney Inc. et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.), in which the City of New Orleans seeks a
declaratory judgment that Smith Barney Inc. and another underwriter are
responsible for any damages that the City may incur in the event the Internal
Revenue Service denies tax exempt status to the City's General Obligation
Refunding Bonds Series 1991. The Company filed a motion to dismiss the
complaints in September 1998, and the complaints were subsequently amended. The
Company has filed a motion to dismiss the amended complaints.

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<PAGE>

In November 1998, a purported class action complaint was filed in the
United States District Court for the Middle District of Florida (Dwight Brock as
Clerk for Collier County v. Merrill Lynch, et al.). The complaint alleges that,
pursuant to a nationwide conspiracy, 17 broker-dealer defendants, including SSB,
charged excessive mark-ups in connection with advanced refunding transactions.
The Company intends to contest this complaint vigorously.
Environmental Matters
In July 1996, the City and County of Denver ("Denver") enacted an ordinance
imposing a substantial fee on any radioactive waste or radium-contaminated
material disposed of in the City of Denver. Under this ordinance, Denver
assessed a subsidiary of Salomon, the S.W. Shattuck Chemical Company, Inc.
("Shattuck"), $9.35 million for certain disposal already carried out. Shattuck
sued to enjoin imposition of the fee on constitutional grounds. The United
States also sued, seeking to enjoin imposition of the fee on constitutional
grounds. Denver counterclaimed and moved to add SSBH as a defendant for past
costs. These cases have been consolidated before the U.S. District Court in
Colorado, which granted Shattuck's motion for a preliminary injunction enjoining
Denver from enforcing the ordinance during the pendency of the litigation. The
parties have reached a settlement.

9
<PAGE>

The Company and various subsidiaries have also been named as defendants in
various matters incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and other
matters in which the Company's broker-dealer subsidiaries have been named,
arising in the normal course of business out of activities as a broker and
dealer in securities, as an underwriter of securities, as an investment banker
or otherwise. In the opinion of the Company's management, none of these actions
is expected to have a material adverse effect on the consolidated financial
condition of the Company and its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote
during the last fiscal year covered by this report.

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<PAGE>

Item 5. Market for Registrant's Common Equity and ,Related Security
Holder Matters.
(a) Market Information. The Partnership has issued no stock. There is no
public market for the Units of Limited Partnership Interest.
(b) Holders. The number of holders of Units of Partnership Interest
as of December 31, 1998 was 981.
(c) Distribution. The Partnership did not declare a distribution in 1998
or 1997.

<PAGE>

Item 6. Selected Financial Data. The Partnership commenced trading
operations on September 1, 1994. Realized and unrealized trading gains, interest
income, net income and increase in net asset value per Unit for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 and total assets at December 31,
1998, 1997, 1996, 1995 and 1994 were as follows:

Realized and unrealized
trading gains
net of brokerage
commissions and clearing
fees of $5,793,730,
$5,672,628, $3,306,404,
$1,842,402 and $283,703,
respectively $ 4,233,828 $ 13,762,069 $ 16,597,447 $ 8,020,122 $ (1,112,429)

Interest income 3,300,032 3,513,989 1,920,850 1,234,647 170,526

$ 7,533,860 $ 17,276,058 $ 18,518,297 $ 9,254,769 $ (941,913)

Net Income $ 2,107,683 $ 11,255,193 $ 13,746,736 $ 6,875,816 $ (1,325,660)

Increase in net asset
value per Unit
$ 54.16 $ 196.20 $ 319.87 $ 293.49 $ (75.43)

Total assets $ 96,893,196 $103,999,164 $ 71,647,148 $ 39,439,974 $ 18,543,431

</TABLE>

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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its commodity futures trading account, consisting
of cash, net unrealized appreciation (depreciation) on open futures contracts,
commodity options, if applicable, and interest receivable. Because of the low
margin deposits normally required in commodity futures trading, relatively small
price movements may result in substantial losses to the Partnership. Such
substantial losses could lead to a material decrease in liquidity. To minimize
this risk, the Partnership follows certain policies including:
(1) Partnership funds are invested only in futures contracts which are
traded in sufficient volume to permit, in the opinion of the Advisor, ease of
taking and liquidating positions.
(2) The Partnership diversifies its positions among various commodities.
The Advisor does not initiate additional positions in any commodity for the
Partnership if such additional positions would result in aggregate positions for
all commodities requiring a margin of more than 66-2/3% of net assets of the
Partnership managed by the Advisor.
(3) The Partnership may occasionally accept delivery of a commodity. Unless
such delivery is disposed of promptly by retendering the warehouse receipt
representing the delivery to the appropriate clearing house, the physical
commodity position is fully hedged.

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(4) The Partnership does not employ the trading technique commonly known as
"pyramiding", in which the speculator uses unrealized profits on existing
positions as margin for the purchases or sale of additional positions in the
same or related commodities.
(5) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(6) The Advisor may, from time to time, employ trading strategies such as
spreads or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference between the prices
of the contracts.
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
may include forwards, futures and options, whose value is based upon an
underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
financial instruments at specified terms at specified future dates. Each of
these instruments is subject to various risks similar to those relating to the
underlying financial instruments including market and credit risk. The General
Partner monitors and controls the Partnership risk exposure on a daily basis

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through financial, credit and risk management monitoring systems and,
accordingly believes that it has effective procedures for evaluating and
limiting the credit and market risks to which the Partnership is subject. (See
also Item 8. Financial Statements and Supplementary Data, for further
information on financial instrument risk included in the notes to financial
statements). Other than the risks inherent in commodity futures trading, the
Partnership knows of no trends, demands, commitments, events or uncertainties
which will result in or which are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, at its
discretion, cause the Partnership to cease trading operations and liquidate all
open positions under certain circumstances including a decrease in Net Asset
Value per Unit to less than $350 as of the close of business on any business
day.
(b) Capital resources. (i) The Partnership has made no material commitments
for capital expenditures.
(ii) The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading and by expenses, interest income, redemptions of Units and distributions
of profits, if any. Gains or losses on commodity futures trading cannot be
predicted. Market moves in commodities are dependent upon fundamental and
technical factors which the Partnership may or may not be able to identify.
Partnership expenses will consist of, among other things, commissions,
management fees, and incentive fees. The level of these expenses is dependent

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upon the level of trading gains or losses and the ability of the Advisor to
identify and take advantage of price movements in the commodity markets, in
addition to the level of Net Assets maintained. In addition, the amount of
interest income payable by SSB is dependent upon interest rates over which the
Partnership has no control.
The Partnership ceased to offer Units effective April 1997. For the year
ended December 31, 1997, there were additional sales of 17,098.7004 Units
totaling $26,633,900 and contributions by the General Partner representing
156.0603 Unit equivalents totaling $243,000. For the year ended December 31,
1996, the Partnership sold 17,430.8344 Units resulting in aggregate proceeds to
the Partnership of $22,142,769 and General Partner contributions of $164,000 to
the Partnership representing 130.1478 Unit equivalents.
No forecast can be made as to the level of redemptions in any given period.
For the year ended December 31, 1998, 5,763.4832 Units were redeemed totaling
$9,250,318. For the year ended December 31, 1997, 3,338.4562 Units were redeemed
totaling $5,266,488. For the year ended December 31, 1996, 4,968.4779 Units were
redeemed totaling $6,478,043.
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 was $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.

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(c) Results of Operations. For the year ended December 31, 1998 the Net
Asset Value Per Unit increased 3.1% from $1,734.13 to $1,788.29. For the year
ended December 31, 1997, the Net Asset Value per Unit increased 12.8% from
$1,537.93 to $1,734.13. For the year ended December 31, 1996 the Net Asset Value
Per Unit increased 26.3% from $1,218.06 to $1,537.93
The Partnership experienced net trading gains of $10,027,558 before
commissions and expenses for the year ended December 31, 1998. Gains were
primarily attributable to the trading of U.S. and non-U.S.interest rate futures
contracts. These gains were partially offset by losses incurred while trading
metals, currencies and indices.
The Partnership experienced net trading gains of $19,434,697 before
commissions and expenses for the year ended December 31, 1997. Gains were
primarily attributable to the trading of commodity futures in metals,
currencies, indices and U.S. and non-U.S. interest rate futures contracts.
The Partnership experienced net trading gains of $19,903,851 before
commissions and expenses for the year ended December 31, 1996. These gains were
primarily attributable to the trading of currency, precious metals and U.S. and
non-U.S. interest rate futures contracts. These gains were partially offset by
losses incurred in the trading of indices.

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Commodity futures markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also
increase the possibility of profit. The profitability of the Partnership depends
on the existence of major price trends and the ability of the Advisor to
identify those price trends correctly. Price trends are influenced by, among
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
(d) Operational Risk
The Company is directly exposed to market risk and credit risk, which arise
in the normal course of its business activities. Slightly less direct, but of
critical importance, are risks pertaining to operational and back office
support. This is particularly the case in a rapidly changing and increasingly
global environment with increasing transaction volumes and an expansion in the
number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Company is subject to
increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.

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Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Company's ability to gather, process, and
communicate information efficiently and securely, without interruption, with
customers, among units within the Company, and in the markets where the Company
participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Company's
stockholder, creditors, and regulators, is free of material errors.
Risk of Computer System Failure (Year 2000 Issue)
The Year 2000 issue is the result of existing computers in many businesses
using only two digits to identify a year in the date field. These computers and
programs, often referred to as "information technology," were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results at the Year 2000. Such systems and processes are dependent on correctly
identifying dates in the next century.

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The General Partner administers the business of the Partnership through
various systems and processes maintained by SSBH and SSB. In addition, the
operation of the Partnership is dependent on the capability of the Partnership's
Advisor, the brokers and exchanges through which the Advisor trades, and other
third parties to prepare adequately for the Year 2000 impact on their systems
and processes. The Partnership itself has no systems or information technology
applications relevant to its operations. The General Partner, SSB, SSBH and
their parent organization Citigroup Inc. have undertaken a comprehensive,
firm-wide evaluation of both internal and external systems (systems related to
third parties) to determine the specific modifications needed to prepare for the
year 2000. The combined Year 2000 program in SSB is expected to cost
approximately $140 million over the four years from 1996 through 1999, and
involve over 450 people at the peak staffing level. SSB expects to complete all
compliance and certification work by June 1999. At this time, over 95% of SSBH
systems have completed the correction process and are Year 2000 compliant. Over
73% of the systems have completed certification testing. The Year 2000 project
at SSBH remains on schedule.
The systems and components supporting the General Partner's business that
require remediation have been identified and modifications have been made to
bring them into Year 2000 compliance. Testing of these systems was completed in
the fourth quarter of 1998. Final testing and certification are expected to be
completed by the end of the first quarter of 1999.

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This expenditure and the General Partner's resources dedicated to the
preparation for Year 2000 do not and will not have a material impact on the
operation or results of the Partnership.
The General Partner has requested and received statements from the Advisor
that it has undertaken its own evaluation and remediation plans to identify any
of its computer systems that are Year 2000 vulnerable. The Advisor has confirmed
it is taking immediate actions to remedy those systems as necessary. The General
Partner will continue to inquire into and to confirm the Advisor's readiness for
Year 2000.
The most likely and most significant risk to the Partnership associated
with the lack of Year 2000 readiness is the failure of outside organizations,
including the commodities exchanges, clearing organizations, or regulators with
which the Partnership interacts to resolve their Year 2000 issues in a timely
manner. This risk could involve the inability to determine the value of the
Partnership at some point in time and would make effecting purchases or
redemptions of Units in the Partnership infeasible until such valuation was
determinable.
SSB has successfully participated in industry-wide testing including: The
Streetwide Beta Testing organized by the Securities Industry Association (SIA),
a government securities clearing test with the Federal Reserve Bank of New York,
The Depository Trust Company, and The Bank of New York, and Futures Industry
Association participants test. SSBH is also participating in the streetwide
testing which commenced in March 1999.

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It is possible that problems may occur that would require some time to
repair. Moreover, it is possible that problems will occur outside SSBH for which
SSBH could experience a secondary effect. Consequently, SSBH is preparing
comprehensive, written contingency plans so that alternative procedures and a
framework for critical decisions are defined before any potential crisis occurs.
The goal of Year 2000 contingency planning is a set of alternate procedures
to be used in the event of a critical system failure or a failure by a supplier
or counterparty. Planning work was completed in December 1998, and testing of
alternative procedures will be conducted in the first half of 1999.
European Economic and Monetary Union
European Economic and Monetary Union ("EMU") is an historic event in Europe
involving the unification of currency in eleven major countries. The new unified
currency, called the Euro, is expected to compete on a global scale with the
U.S. Dollar and the Japanese Yen. Introduction of the Euro began on January 1,
1999, when the European Central Bank assumed control of the monetary policy for
participating nations. Exchange rates between the participating countries were
fixed and the Euro is available for electronic payments. Also on January 1,
1999, various issuers re-denominated their securities and harmonized bond
payment conventions. A three-year transition period began on January 1, 1999,
after which Euro notes and coins will be issued by the European Central Bank and
national currencies will be phased out.

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The Company completed a successful conversion to the Euro and has commenced
trading and settlement in the new currency with no major exceptions.
As the preceding risks are largely interrelated, so are the Company's
actions to mitigate and manage them. The Company's Chief Administrative Officer
is responsible for, among other things, oversight of global operations and
technology. An essential element in mitigating the risks noted above is the
optimization of information technology and the ability to manage and implement
change. To be an effective competitor in an information-driven business of a
global nature requires the development of global systems and databases that
ensure increased and more timely access to reliable data.
(e) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires that an entity recognize all derivatives in the statement of
financial condition and measure those instruments at fair value. SFAS 133 is
effective for fiscal year beginning after June 15, 1999 SFAS 133 is expected to
have no material impact on the financial statements of the Partnership as all
commodity interests are recorded at fair value, with changes therein reported in
the statement of income and expenses

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<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership's market risk is influenced by a wide variety of factors,
including the level and volatility of interest rates, exchange rates, equity
price levels, the market value of financial instruments and contracts, the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the Partnership's past performance is not necessarily indicative of its future
results.

24
<PAGE>

Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets traded by the Partnership of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's experience to date (i.e., "risk of
ruin"). In light of the foregoing as well as the risks and uncertainties
intrinsic to all future projections, the inclusion of the quantification
included in this section should not be considered to constitute any assurance or
representation that the Partnership's losses in any market sector will be
limited to Value at Risk or by the Partnership's attempts to manage its market
risk.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's market
risk exposures contain "forward-looking statements" within the meaning of the
safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor except for statements of historical
fact (such as the terms of particular contracts and the number of market risk
sensitive instruments held during or at the end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Partnership's
mark-to-market accounting, any loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings (realized or
unrealized).

25
<PAGE>

Exchange maintenance margin requirements have been used by the Partnership
as the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
In the case of market sensitive instruments which are not exchange traded
(almost exclusively currencies in the case of the Partnership), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
In quantifying the Partnership's Value at Risk, 100% positive correlation
in the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been added to determine each trading category's aggregate Value at Risk.
The diversification effects resulting from the fact that the Partnership's
positions are rarely, if ever, 100% positively correlated have not been

26
<PAGE>

reflected.
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of December 31, 1998. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 1998, the
Partnership's total capitalization was $94,174,439.

December 31, 1998

% of Total
Market Sector Value at Risk Capitalization

Currencies $1,088,100 1.16%
Interest Rate U.S. 1,395,500 1.48%
Interest Rate Non-U.S 5,916,186 6.28%
Metals 208,000 0.22%

Total $8,607,786 9.14%
</TABLE>

Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is
typically many times the applicable margin requirement (margin requirements
generally range between 2% and 15% of contract face value) as well as the
capitalization of the Partnership. The magnitude of the Partnership's open
positions creates a "risk of ruin" not typically found in most other investment
vehicles. Because of the size of its positions, certain market conditions -
unusual, but historically recurring from time to time - could cause the
Partnership to incur severe losses over a short period of time. The foregoing
Value at Risk table - as well as the past performance of the Partnership - give
no indication of this "risk of ruin."

27
<PAGE>

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances
not needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Partnership's
market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market
risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership's primary market risk exposures as well as the
strategies used and to be used by the General Partner and the Advisors for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price

28
<PAGE>

relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Partnership.
There can be no assurance that the Partnership's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long- term. Investors must
be prepared to lose all or substantially all of their investment in the
Partnership.
The following were the primary trading risk exposures of the Partnership as
of December 31, 1998, by market sector.
Interest Rates. Interest rate risk is the principal market exposure of the
Partnership. Interest rate movements directly affect the price of the futures
positions held by the Partnership and indirectly the value of its stock index
and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations - e.g., Australia. The General Partner anticipates that G-7
interest rates will remain the primary market exposure of the Partnership for
the foreseeable future. The changes in interest rates which have the most effect
on the Partnership are changes in long-term, as opposed to short-term, rates.
Consequently, even a material change in short-term rates would have little
effect on the Partnership were the medium- to long-term rates to remain steady.

29
<PAGE>

Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership's major exposures have typically
been in the dollar/yen, dollar/mark and dollar/pound positions. The General
Partner does not anticipate that the risk profile of the Partnership's currency
sector will change significantly in the future, although it is difficult at this
point to predict the effect of the introduction of the Euro on the Advisors'
currency trading strategies. The currency trading Value at Risk figure includes
foreign margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the dollar-based
Partnership in expressing Value at Risk in a functional currency other than
dollars.
Stock Indices. The Partnership's primary equity exposure is to equity price
risk in the G-7 countries. The stock index futures traded by the Partnership are
by law limited to futures on broadly based indices. Although the Partnership
does trade stock indices such as the Financial Times (England) and Nikkei
(Japan), at December 31, 1998. The Partnership held no open positions in these
instruments. The General Partner anticipates little, if any, trading in non-G-7
stock indices. The Partnership is primarily exposed to the risk of adverse price
trends or static markets in the major U.S., European and Japanese indices.
(Static markets would not cause major market changes but would make it difficult
for the Partnership to avoid being "whipsawed" into numerous small losses.)

30
<PAGE>

Metals. The Partnership's primary metal market exposure is to fluctuations
in the price of gold and silver. Although the Advisor will from time to time
trade base metals such as aluminum, copper and tin, the principal market
exposures of the Partnership have consistently been in the precious metals, gold
and silver. The Advisor's gold trading has been increasingly limited due to the
long-lasting and mainly non-volatile decline in the price of gold over the last
10-15 years. However, silver prices have remained volatile over this period, and
the Advisor has from time to time taken substantial positions as they have
perceived market opportunities to develop. The General Partner anticipates that
gold and silver will remain the primary metals market exposure for the
Partnership.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership
as of December 31, 1998.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds and French francs.
The Advisor regularly converts foreign currency balances to dollars in an
attempt to control the Partnership's non-trading risk.

31
<PAGE>

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors the Partnership's performance and the
concentration of its open positions, and consults with the Advisor concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require the Advisor to close out individual
positions as well as enter programs traded on behalf of the Partnership.
However, any such intervention would be a highly unusual event. The General
Partner primarily relies on the Advisor's own risk control policies while
maintaining a general supervisory overview of the Partnership's market risk
exposures.
The Advisor applies its own risk management policies to its trading. The
Advisor often follows diversification guidelines, margin limits and stop loss
points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.

32
<PAGE>

Item 8. Financial Statements and Supplementary Data

SMITH BARNEY MID-WEST FUTURES FUND L.P. II
INDEX TO FINANCIAL STATEMENTS

Page
Number

Oath or Affirmation F-2

Report of Independent Accountants F-3

Financial Statements:
Statement of Financial Condition at
December 31, 1998 and 1997 F-4

Statement of Income and Expenses for
the years ended December 31, 1998, 1997
and 1996 F-5

Statement of Partners' Capital for the
years ended December 31, 1998, 1997 and
1996 F-6

Notes to Financial Statements F-7 - F-11

F-1
Continued

<PAGE>
To The Limited Partners of
Smith Barney Mid-West Futures Fund L.P. II

To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.

By: Daniel A. Dantuono, Chief Financial Officer
Smith Barney Futures Management Inc.
General Partner, Smith Barney Mid-West
Futures Fund L.P. II

390 Greenwich Street
1st Floor
New York, N.Y. 10013
212-723-5424

F-2

<PAGE>

Report of Independent Accountants

To the Partners of
Smith Barney Mid-West Futures Fund L.P. II:

In our opinion, the accompanying statement of financial condition and the
related statements of income and expenses and of partners' capital present
fairly, in all material respects, the financial position of Smith Barney
Mid-West Futures Fund L.P. II at December 31, 1998 and 1997, and the results of
its operations for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. 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 of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by the management of the General Partner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

New York, New York
February 26, 1999
F-3

<PAGE>

Smith Barney Mid-West Futures Fund L.P. II
Statement of Financial Condition
December 31, 1998 and 1997

1998 1997
<S> <C> <C>
Assets:
Equity in commodity futures
trading account:
Cash (Note 3c) $ 87,033,493 $ 98,812,037
Net unrealized appreciation
on open futures contracts 9,603,763 4,837,350
------------ ------------
96,637,256 103,649,387
Interest receivable 255,940 349,777
------------ ------------
$ 96,893,196 $103,999,164
============ ============

Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 484,466 $ 519,996
Management fees 321,183 344,931
Administrative fees 80,296 86,233
Incentive fees -- 1,062,363
Other 53,822 47,822
Redemptions payable (Note 5) 1,778,990 620,745
------------ ------------
2,718,757 2,682,090
------------ ------------
Partners' capital (Notes 1, 5, and 6):
General Partner, 608.9156 Unit
equivalents outstanding
in 1998 and 1997 1,088,918 1,055,939
Limited Partners, 52,052.8275 and
57,816.3107 Units of Limited
Partnership Interest outstanding
in 1998 and 1997, respectively 93,085,521 100,261,135
------------ ------------
94,174,439 101,317,074
------------ ------------
$ 96,893,196 $103,999,164
============ ============
</TABLE>

See notes to financial statements.

F-4
<PAGE>

Smith Barney Mid-West Futures Fund L.P. II
Statement of Income and Expenses
for the years ended
December 31, 1998, 1997 and 1996

1998 1997 1996
<S> <C> <C> <C>

Income:
Net gains on trading of
commodity interests:
Realized gains on closed positions $ 5,261,145 $ 15,951,212 $ 20,005,044
Change in unrealized gains/ losses
on open positions 4,766,413 3,483,485 (101,193)
------------ ------------ ------------
10,027,558 19,434,697 19,903,851
Less, Brokerage commissions
including clearing
fees of $73,613, $71,533,
and $49,253, respectively (Note 3c) (5,793,730) (5,672,628) (3,306,404)
------------ ------------ ------------
Net realized and unrealized gains 4,233,828 13,762,069 16,597,447
Interest income (Note 3c) 3,300,032 3,513,989 1,920,850
------------ ------------ ------------
7,533,860 17,276,058 18,518,297
------------ ------------ ------------
Expenses:
Management fees (Note 3b) 3,611,428 3,633,607 2,112,274
Administrative fees (Note 3a) 902,857 908,156 528,068
Incentive fees (Note 3b) 832,948 1,390,262 1,988,611
Other expenses 78,944 88,840 142,608
------------ ------------ ------------
5,426,177 6,020,865 4,771,561
------------ ------------ ------------
Net income $ 2,107,683 $ 11,255,193 $ 13,746,736
============ ============ ============

Net income per Unit
of Limited Partnership
Interest and General Partner
Unit equivalent (Notes 1 and 6) $ 54.16 $ 196.20 $ 319.87
============ ============ ============

</TABLE>

See notes to financial statements.
F-5

<PAGE>

Smith Barney Mid-West Futures Fund L.P. II
Statement of Partners' Capital
for the years ended
December 31, 1998, 1997 and 1996

Limited General
Partners Partners Total
<S> <C> <C> <C>
Partners' capital at
December 31, 1995 $ 38,482,930 $ 393,077 $ 38,876,007
Net income 13,607,353 139,383 13,746,736
Sale of 17,430.8344 Units of
Limited Partnership Interest
and General Partner's contribution
representing 130.1478 Unit equivalents 22,142,769 164,000 22,306,769
Redemption of 4,968.4779 Units of
Limited Partnership Interest (6,478,043) -- (6,478,043)
------------- ------------- -------------
Partners' capital at December 31, 1996 67,755,009 696,460 68,451,469
Net income 11,138,714 116,479 11,255,193
Sale of 17,098.7004 Units of
Limited Partnership Interest
and General Partner's contribution
representing 156.0603 Unit equivalents 26,633,900 243,000 26,876,900
Redemption of 3,338.4562 Units of
Limited Partnership Interest (5,266,488) -- (5,266,488)
------------- ------------- -------------
Partners' capital at December 31, 1997 100,261,135 1,055,939 101,317,074
Net income 2,074,704 32,979 2,107,683
Redemption of 5,763.4832 Units of
Limited Partnership Interest (9,250,318) -- (9,250,318)
------------- ------------- -------------
Partners' capital at December 31, 1998 $ 93,085,521 $ 1,088,918 $ 94,174,439
============= ============= =============

</TABLE>

See notes to financial statements.

F-6
<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 a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk.
Partnership Units were being continuously offered monthly during the
continuous offering period through April 30, 1997. The Partnership was
authorized to sell 75,000 Units.

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 fair value on the
last business day of the year, which represents market value for those
commodity interests for which market quotations are readily available.
Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gains (losses) 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. This fee may be increased or decreased at the discretion
of the General Partner.
F-7
<PAGE>

b. Management Agreement:

The Management Agreement that the General Partner, on behalf of the
Partnership, entered into with the advisor (John W. Henry & Company,
Inc.) (the "Advisor"), provides that the Advisor has sole discretion in
determining the investment of the assets of the Partnership allocated to
the Advisor by the General Partner. As compensation for services, the
Partnership is obligated to pay the Advisor a monthly management fee of
1/3 of 1% (4% per year) of month-end Net Assets managed by the Advisor
and an incentive fee, payable quarterly, equal to 15% of the New Trading
Profits, as defined, of the Partnership.

c. Customer Agreement

The Partnership has entered into a Customer Agreement with SSB whereby
SSB 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 SSB equal to 1/2 of 1 % of month-end Net Assets (6% per
year) in lieu of brokerage commissions on a per trade basis. A portion of
this fee is paid to employees of SSB who have sold Units of the
Partnership. This fee does not include exchange, clearing, floor
brokerage, user, give-up and NFA fees which will be borne by the
Partnership. All of the Partnership's assets are deposited in the
Partnership's account at SSB. The Partnership's cash is deposited by SSB
in segregated bank accounts to the extent required by Commodity Futures
Trading Commission regulations. At December 31, 1998 and 1997, the amount
of cash held for margin requirements was $9,169,011 and $11,857,674,
respectively. SSB will pay the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at a
30-day Treasury bill rate determined weekly by SSB based on the
non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days
from the date on which such weekly rate is determined. The Customer
Agreement between the Partnership and SSB 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, if applicable, at December 31, 1998 and 1997 was $9,603,763 and
$4,837,350, respectively. The average fair value during the years then
ended, based on a monthly calculation, was $5,751,592 and $5,283,180,
respectively.

5. Distributions and Redemptions:

Distributions of profits, if any, will be made at the sole discretion of the
General Partner; however, a limited partner may redeem all or some of his
Units (minimum ten Units) at the Net Asset Value thereof as of the last day
of any month beginning with the first full month ending at least three
months after trading commences on fifteen days written notice to the General
Partner, provided that no redemption may result in the limited partner
holding fewer than ten Units after such redemption is effected.
F-8
<PAGE>

6. Net Asset Value Per Unit:

Changes in the net asset value per Unit of Partnership interest for the
years ended December 31, 1998, 1997 and 1996 were as follows:

1998 1997 1996
<S> <C> <C> <C>

Net realized and unrealized gains $ 92.61 $ 239.91 $ 387.25
Interest income 58.57 61.39 48.07
Expenses (97.02) (105.10) (115.45)
--------- --------- ---------
Increase for year 54.16 196.20 319.87
Net asset value per Unit,
beginning of year 1,734.13 1,537.93 1,218.06
--------- --------- ---------
Net asset value per Unit,
end of year $ 1,788.29 $ 1,734.13 $ 1,537.93
========= ========= =========

</TABLE>

7. Financial Instrument Risks:

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 may 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 SSB.

F-9
<PAGE>

The General Partner monitors and controls the Partnership's risk exposure on
a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership
is subject. These monitoring systems allow the General Partner to
statistically analyze actual trading results with risk adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.

The notional or contractual amounts of these instruments, while not recorded
in the financial statements, reflect the extent of the Partnership's
involvement in these instruments.

At December 31, 1998, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was
$586,519,983 and $601,838,838, respectively, as detailed below. All of these
instruments mature within one year of December 31, 1998. However, due to the
nature of the Partnership's business, these instruments may not be held to
maturity. At December 31, 1998, the fair value of the Partnership's
derivatives, including options thereon, if applicable, was $9,603,763, as
detailed below.

December 31, 1998
Notional or Contractual
Amount of Commitments

To Purchase To Sell Fair Value
Currencies
-OTC Contracts $ 49,170,952 $ 15,254,946 $ 507,509
Interest Rate U.S. 92,333,813 104,166,375 (699,138)
Interest Rate Non-U.S 445,015,218 474,903,517 9,800,592
Metals -- 7,514,000 (5,200)
------------ ------------ ------------
$586,519,983 $601,838,838 $ 9,603,763
============ ============ ============

</TABLE>

F-10
<PAGE>

At December 31, 1997, the notional or contractual amounts of the Partnership's
commitment to purchase and sell these instruments was $439,703,147 and
$674,462,459, respectively, and the fair value of the Partnership's
derivatives, including options thereon, if applicable, was $4,837,350, as
detailed below.

December 31, 1997
Notional or Contractual
Amount of Commitments

To Purchase To Sell Fair Value
Currencies
-OTC Contracts $112,161,137 $214,988,952 $ (476,904)
Interest Rate U.S. 93,164,750 -- 740,813
Interest Rate Non-U.S 222,477,455 410,908,324 268,873
Metals 11,899,805 39,967,590 3,603,175
Indices -- 8,597,593 701,393
------------ ------------ ------------
$439,703,147 $674,462,459 $ 4,837,350
============ ============ ============

8. New Accounting Pronouncements:

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that an entity recognize all derivatives in the statement
of financial condition and measure those instruments at fair value. SFAS 133
is effective for fiscal years beginning after June 15, 1999. SFAS 133 is
expected to have no material impact on the financial statements of the
Partnership as all commodity interests are recorded at fair value, with
changes therein reported in the statement of income and expenses.

F-11

<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
During the last two fiscal years and any subsequent interim period, no
independent accountant who was engaged as the principal accountant to audit the
Partnership's financial statements has resigned or was dismissed.
PART III

Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are managed by
its General Partner, Smith Barney Futures Management Inc. Investment decisions
are made by John W. Henry & Company, Inc. (the "Advisor").
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by
Smith Barney Futures Management Inc., its General Partner, which receives
compensation for its services, as set forth under "Item 1. Business." SSB, an
affiliate of the General Partner, is the commodity broker for the Partnership
and receives brokerage commissions for such services, as described under "Item
1. Business." During the year ended December 31, 1998, SSB earned $5,793,730 in
brokerage commissions and clearing fees. The Advisor earned $3,611,428 in
management fees and $832,948 in incentive fees during 1998. During the year
ended December 31, 1998, the General Partner earned $902,857 in administrative
fees.

33
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. The Partnership knows
of no person who beneficially owns more than 5% of the Units outstanding.
(b).Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the General
Partner. The General Partner owns Units of general partnership interest
equivalent to 608.9156 (1.2%) Units of partnership interest as of December 31,
1998.
(c).Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Smith Barney Inc. and Smith Barney Futures Management Inc. would be
considered promoters for purposes of item 404(d) of Regulation S-K. The nature
and the amounts of compensation each promoter will receive from the Partnership
are set forth under "Item 1. Business." and "Item 11. Executive Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) (1) Financial Statements:
Statement of Financial Condition at
December 31, 1998 and 1997.
Statement of Income and Expenses for the years ended
December 31, 1998, 1997 and 1996
Statement of Partners' Capital for the years ended December 31,
1998, 1997 and 1996.

34
<PAGE>

(2) Financial Statement Schedules: Financial Data Schedule for year
ended December 31, 1998.

(3) Exhibits:

3.1 - Certificate of Limited Partnership (previously filed).

3.2 - Limited Partnership Agreement (previously filed).

10.1 - Management Agreement among the Partnership, the General Partner
and John W. Henry & Company, Inc. (previously filed).

10.2 - Customer Agreement between Registrant and Smith Barney Shearson
Inc. (previously filed).

10.3 - Form of Subscription Agreement (previously filed).

10.4 - Letter dated February 16, 1995 from General Partner to John W.
Henry & Co., Inc. extending Management Agreement (previously
filed).

10.5 - Letter dated January 25, 1996 from General Partner to John W.
Henry & Co., Inc. extending Management Agreement to June 30, 1996
(previously filed).

35
<PAGE>

10.6 - Letters extending Management Agreements with John W. Henry &
Company, Inc. for 1996 and 1997 (filed as Exhibit 10.6 to the
Form 10-K for the fiscal year ended December 31, 1997 and
incorporated herein by reference).

10.7.Letter from General Partner to John W. Henry & Co., Inc.
extending Management Agreement for 1998. (filed herein).

(b) Report on Form 8-K: None Filed

<PAGE>

Supplemental Information To Be Furnished With Reports Filed Pursuant To Section
15(d) Of The Act by Registrants Which Have Not Registered Securities Pursuant To
Section 12 Of the Act.

Annual Report to Limited Partners

37
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 24th day of March 1999.

SMITH BARNEY MID-WEST FUTURES FUND L.P. II

By: Smith Barney Futures Management Inc.
(General Partner)

By /s/ David J. Vogel
David J. Vogel, President & Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

/s/ David J. Vogel /s/ Jack H. Lehman III
David J. Vogel, Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President

/s/ Michael Schaefer /s/ Daniel A. Dantuono
Michael Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director

/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director

/s/ Shelley Ullman
Shelley Ullman
Director
38

<ARTICLE> 5
<CIK> 0001013167
<NAME> Smith Barney Mid-West Futures Fund L.P.II

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 87,033,493
<SECURITIES> 9,603,763
<RECEIVABLES> 255,940
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 96,893,196
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,718,757
<CURRENT-LIABILITIES> 96,893,196
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 94,174,439
<TOTAL-LIABILITY-AND-EQUITY> 96,893,196
<SALES> 0
<TOTAL-REVENUES> 7,533,860
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,426,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,107,683
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,107,683
<EPS-PRIMARY> 54.16
<EPS-DILUTED> 0

</TABLE>

June 22, 1998

John W. Henry & Company
One Glendinning Place
Westport, Ct. 06880
Attn: Ms. Beth Kenton

Re: Management Agreement Renewal
Smith Barney Mid-West Futures Fund L.P. II

Dear Ms. Kenton:

We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1999
and make the attached modification on Rider 1. All other provisions of the
Management Agreement will remain unchanged.

Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above or fax to 212-723-8985. If you have any questions I can be
reached at 212-723-5416.

Very truly yours,

SMITH BARNEY FUTURES MANAGEMENT INC.

By:
Daniel A. Dantuono
Chief Financial Officer,
Director & Treasurer

AGREED AND ACCEPTED

JOHN W. HENRY & COMPANY

By:

Print Name:

DAD/sr