FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2000
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 LLC
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition
at March 31, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses
and Partners' Cpital for the three
months ended March 31, 2000 and 1999
(unaudited). 4
Notes to Financial Statements
(unaudited) 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 11 - 12
PART II - Other Information 13 - 17
<PAGE>
PART I
Item 1. Financial Statements
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENT OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
2000 1999
Assets:
Equity in commodity futures trading account:
Cash $57,082,094 $ 74,847,977
Net unrealized appreciation (depreciation)
on open futures contracts 1,734,747 (108,784)
----------- ------------
58,816,841 74,739,193
Interest receivable 215,608 255,434
----------- ------------
$59,032,449 $ 74,994,627
=========== ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 295,162 $ 374,973
Management fees 195,537 248,533
Administrative fees 48,884 62,133
Other 76,069 59,706
Redemptions payable 3,092,568 1,542,100
----------- ------------
3,708,220 2,287,445
----------- ------------
Partners' Capital:
General Partner, 608.9156 Unit equivalents
outstanding in 2000 and 1999 747,188 859,490
Limited Partners, 44,476.9951 and
50,901.2159 Units of Limited
Partnership Interest outstanding
in 2000 and 1999, respectively 54,577,041 71,847,692
----------- ------------
55,324,229 72,707,182
----------- ------------
$59,032,449 $ 74,994,627
=========== ============
See Notes to Financial Statements.
3
<PAGE>
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2000 1999
------------ --------------
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ (9,937,432) $ 1,283,994
Change in unrealized gains (losses) on open
positions 1,843,531 (7,261,795)
------------ ------------
(8,093,901) (5,977,801)
Less, brokerage commissions including
clearing fees of $17,613 and
$23,549, respectively (1,017,236) (1,411,057)
------------ ------------
Net realized and unrealized losses (9,111,137) (7,388,858)
Interest income 697,565 734,986
------------ ------------
(8,413,572) (6,653,872)
------------ ------------
Expenses:
Management fees 646,423 866,391
Administrative fees 161,605 216,598
Other 27,001 21,482
------------ ------------
835,029 1,104,471
------------ ------------
Net loss (9,248,601) (7,758,343)
Additions 835,000 --
Redemptions (8,969,352) (7,491,118)
------------ ------------
Net decrease in Partners' capital (17,382,953) (15,249,461)
Partners' capital, beginning of period 72,707,182 94,174,439
------------ ------------
Partners' capital, end of period $ 55,324,229 $ 78,924,978
------------ ------------
Net asset value per Unit
(45,085.9107 and 48,158.3369 Units
outstanding at March 31, 2000 and
1999, respectively) $ 1,227.08 $ 1,638.86
------------ ------------
Net loss per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (184.43) $ (149.43)
------------ ------------
See Notes to Financial Statements
4
<PAGE>
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2000
(Unaudited)
1. General:
Smith Barney Mid-West Futures Fund L.P. II,(the "Partnership") is a limited
partnership which was organized on June 3, 1994 under the partnership laws of
the State of New York to engage in the speculative trading of 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. The Partnership commenced
trading operations on September 1, 1994.
Smith Barney Futures Management LLC acts as the general partner (the
"General Partner") of the Partnership. The Partnership's commodity broker is
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.
("SSBHI"), which is the sole owner of SSB. SSBHI is a wholly owned subsidiary of
Citigroup Inc. All trading decisions for the Partnership are made by John W.
Henry & Company, Inc. ("the Advisor").
The accompanying financial statements are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at March 31, 2000 and December 31, 1999 and the results of its
operations for the three months ended March 31, 2000 and 1999. 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 on Form 10-K
filed with the Securities and Exchange Commission for the year ended December
31, 1999.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
<PAGE>
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three months ended March
31, 2000 and 1999 were as follows:
THREE-MONTHS ENDED
MARCH 31,
2000 1999
-------- ---------
Net realized and unrealized
losses $ (181.68) $ (142.27)
Interest income 13.93 14.25
Expenses (16.68) (21.41)
--------- ---------
Decrease for period (184.43) (149.43)
Net Asset Value per Unit,
beginning of period 1,411.51 1,788.29
--------- ---------
Net Asset Value per Unit,
end of period $ 1,227.08 $ 1,638.86
========= =========
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the statement of income and expenses.
The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized gains and losses.
6
<PAGE>
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the periods ended March 31, 2000
and December 31, 1999, based on a monthly calculation, was $(51,092) and
$3,353,244, respectively. The fair value of these commodity interests, including
options thereon, if applicable, at March 31, 2000 and December 31, 1999, was
$1,734,747 and $(108,784), respectively, as detailed below.
Fair Value
March 31, December 31,
2000 1999
----------- -----------
Currency:
- OTC Contracts $(1,530,780) $(1,118,876)
Interest Rates U.S. 1,214,595 888,138
Interest Rates Non-U.S 1,824,124 321,323
Metals 30,705 (420,062)
Indices 196,103 220,693
----------- -----------
Total $1,734,747 $ (108,784)
=========== ===========
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
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, through physical delivery 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.
7
<PAGE>
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.
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. The majority of these instruments mature
within one year of March 31, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its
only assets are its equity in its commodity futures trading account, net
unrealized appreciation (depreciation) on open futures and forward contracts,
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. While
substantial losses could lead to a decrease in liquidity, no such losses
occurred in the first quarter of 2000.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the three months ended March 31, 2000, Partnership capital
decreased 23.9% from $72,707,182 to $55,324,229. This decrease was primarily
attributable to a net loss from operations of $9,248,601 coupled with the
redemption of 7,015.7859 Units resulting in an outflow of $8,969,352 which was
partially offset by additional sales of 591.5651 Units totaling $835,000 for the
three months ended March 31, 2000. Future redemptions can impact the amount of
funds available for investments in commodity contract positions in subsequent
periods.
Results of Operations
During the Partnership's first quarter of 2000, the net asset value per
unit decreased 13.1% from $1,411.51 to $1,227.08 as compared to a decrease of
8.4% in the first quarter of 1999. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the first quarter of 2000
of $8,093,901. Losses were primarily attributable to the trading of commodity
futures in currencies, non-U.S. interest rates, metals and indices and were
offset by gains in U.S. interest rates. The Partnership experienced a net
trading loss before commissions and related fees in the first quarter of 1999 of
$5,977,801. Losses were primarily attributable to the trading of commodity
futures in non-U.S. interest rates and metals and were partially offset by gains
in currencies, U.S. interest rates and indices.
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. Price trends are influenced by, among
9
<PAGE>
other things, changing supply and demand relationships, weather, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. To
the extent that market trends exist and the Advisor is able to identify them,
the Partnership expects to increase capital through operations.
Interest income on 80% of the Partnership's average daily equity was
earned at the monthly average 30 day U.S. Treasury bill rate. Interest income
for the three months ended March 31, 2000 decreased by $37,421 as compared to
the corresponding period in 1999. The decrease in interest income is primarily
the result of the effect of redemptions and losses on the Partnership's equity
maintained in cash during the three month period.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and, therefore, vary according to trading
performance, additions and redemptions. Accordingly, they must be analyzed in
relation to the fluctuations in the monthly net asset values. Commissions and
fees for the three months ended March 31, 2000 decreased by $393,821 as compared
to the corresponding period in 1999.
All trading decisions for the Partnership are currently being made by
the Advisor. Management fees are calculated as a percentage of the Partnership's
net asset value as of the end of each month and are affected by trading
performance, additions and redemptions. Management fees for the three months
ended March 31, 2000 decreased by $219,968 as compared to the corresponding
period in 1999.
Administrative fees are paid to the General Partner for administering
the business and affairs of the Partnership. These fees are calculated as a
percentage of the Partnership's net asset value as of the end of each month and
are affected by trading performance, additions and redemptions. Administrative
fees for the three months ended March 31, 2000 decreased by $54,993 as compared
to the corresponding period in 1999.
Incentive fees are based on the new trading profits generated by the
Advisor as defined in the advisory agreement between the Partnership, the
General Partner and the Advisor. There were no incentive fees earned for the
three months ended March 31, 2000 or 1999.
10
<PAGE>
Item 3. Quantitative and Qualitative Disclosures of 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 of 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.
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.
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. 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.
11
<PAGE>
The following table indicates the trading Value at Risk associated
with the Partnership's open positions by market category as of March 31, 2000.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of March 31, 2000, the
Partnership's total capitalization was $55,324,229. There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 1999.
March 31, 2000
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk
- --------------------------------------------------------------------------------
Currencies:
- OTC Contracts $2,717,006 4.91% $4,227,270 $524,928
Interest Rates U.S. 983,000 1.78% 1,497,400 472,813
Interest Rates Non-U.S 2,874,264 5.19% 5,317,015 745,674
Metals 1,548,750 2.80% 1,642,000 54,000
Indices 957,068 1.73% 1,488,000 551,174
---------- --------
Total $9,080,088 16.41%
========== ========
12
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning a suit filed by Harris Trust Savings Bank (as trustee
for the Ameritech Pension Trust) and others against Salomon Brothers Inc., and
Salomon Brothers Realty Corp., see the description that appears in the second
and third paragraphs under the caption "Legal Proceedings" beginning on page 11
of the Annual Report on Form 10-K of the Company for the year ended December 31,
1999 (File No. 1-4346), which description is included as Exhibit 99.1 to this
Form 10-Q and incorporated by reference herein. In April 2000, the U.S. Supreme
Court heard oral argument on plaintiffs' petition to reverse the decision of the
U.S. Court of Appeals for the Seventh Circuit. The U.S. Supreme Court reserved
its decision, and has not yet released its opinion.
For information concerning the complaints filed in the U.S. District Court for
the Eastern District of Louisiana (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.), a purported class action in Florida against
numerous broker-dealers including the Company (Dwight Brock as Clerk for Collier
County v. Merrill Lynch, et al.), and the IRS and SEC industry-wide
investigation into the pricing of Treasury securities in advanced refunding
transactions, see the description that appears in the fourth, fifth and sixth
paragraphs under the caption " Legal Proceedings" beginning on page 11 of the
Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999 (File
No. 1-4346), which description is included as Exhibit 99.2 to this form 10-Q and
incorporated by reference herein. In April 2000, seventeen investment banks,
including the Company, entered into an agreement with the federal government to
settle charges related to the pricing of Treasury securities in advanced
refunding transactions. Thereafter, plaintiffs filed voluntary discontinuances
in the two Louisiana federal actions.
For information concerning the matter entitled MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc., see the description that appears in the seventh
paragraph under the caption "Legal Proceedings" beginning on page 11 of the
Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999 (File
No. 1-4346), which description is included as Exhibit 99.3 to this Form 10-Q and
incorporated by reference herein. In March 2000, plaintiffs' motion to dismiss
the Company's amended counterclaims was argued, and no decision has been
rendered.
13
<PAGE>
Exhibit 99.1
Second and third paragraphs under the caption "Legal Proceedings" beginning on
page 11 of the Annual Report on Form 10-K of SSBHI for the year ended December
31, 1999 (File No. 1-4346).
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 in a portfolio of motels owned by Best Inns,
Inc. ("Best"), violated the Employee Retirement Income Security Act ("ERISA"),
and that APT's purchase of the participation interests in the third MOA
portfolio and in the Best portfolio violated the Racketeer Influenced and
Corrupt Organization Act ("RICO") and the Illinois Consumer Fraud and Deceptive
Practices Act ("Consumer Fraud Act"), and constituted fraud, negligent
misrepresentation, breach of contract and unjust enrichment. SBI had acquired
the participation interests when it purchased principal mortgage notes issued by
MOA and Best to finance purchases of motel portfolios; 95% of three of those
interests and 100% of the fourth were sold to APT for a total of approximately
$20.9 million. Plaintiffs' second amended complaint seeks judgment (a) on the
ERISA claims for the approximately $20.9 million purchase price, for rescission
and for disgorgement of profits, as well as other relief, and (b) on the RICO
and state law claims 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. Following motions by
defendants, the court dismissed the RICO, Consumer Fraud Act, fraud, negligent
misrepresentation, breach of contract, and unjust enrichment claims. The court
also found that defendants were not ERISA fiduciaries and dismissed two of the
three claims based on that allegation. Defendants moved for summary judgment on
plaintiffs' only remaining claim, which alleged an ERISA violation. The motion
was denied, and defendants appealed to the U.S. Court of Appeals for the Seventh
Circuit. In July 1999, the U. S. Court of Appeals for the Seventh Circuit
reversed the denial of defendants' motion for summary judgment and dismissed the
sole remaining ERISA claim against the Company. Plaintiffs filed a petition for
certiorari with the U. S. Supreme Court seeking review of the decision of the
Court of Appeals. The petition was granted in January 2000.
14
<PAGE>
Both the Department of Labor and the Internal Revenue Service have advised SBI
that they were or are reviewing the underlying transactions. With respect to the
Internal Revenue Service, SSBHI, SBI and SBRC have consented to extensions of
time for the assessment of excise taxes that may be claimed with respect to the
transactions for the years 1987, 1988 and 1989. In August 1996, the IRS sent
SSBHI, SBI and SBRC what appeared to be draft "30-day letters" with respect to
the transactions and SSBHI, 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, SSBHI, SBI and SBRC submitted a memorandum
setting forth reasons why the IRS should not issue such 30-day letters. Since
that time, the IRS has not issued such 30-day letters to SSBHI, SBI or SBRC.
15
<PAGE>
Exhibit 99.2
Fourth, fifth and sixth paragraphs under the caption "Legal Proceedings"
beginning on page 11 of the Annual Report on Form 10-K of SSBHI for the year
ended December 31, 1999 (File No. 1-4346).
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 if 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, the
complaints were subsequently amended, and the Company then filed a motion to
dismiss the amended complaints. In May 1999, the Court denied the Company's
motion to dismiss, but stayed the litigation because the matter was not ripe.
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.
Plaintiff amended its complaint to name an additional defendant and, in March
1999, the Company filed a motion to dismiss the amended complaint. In October
1999, plaintiff filed a second amended complaint. The Company moved to dismiss
the second amended complaint in November 1999.
In connection with the Board of Liquidations, The City of New Orleans and Brock
matters, the IRS and SEC have been conducting an industry-wide investigation
into the pricing of Treasury securities in advanced refunding transactions.
16
<PAGE>
Exhibit 99.3
Seventh paragraph under the caption "Legal Proceedings" beginning on page 11 of
the Annual Report on Form 10-K of SSBHI for the year ended December 31, 1999
(File No. 1-4346).
In March 1999, a complaint seeking in excess of $250 million was filed by a
hedge fund and its investment advisor against SSB in the Supreme Court of the
State of New York, County of New York (MKP Master Fund, LDC et al. v. Salomon
Smith Barney Inc.). Plaintiffs allege that while acting as their prime broker
SSB breached its contracts with plaintiffs, converted plaintiffs' monies and
engaged in tortious conduct, including breaching its fiduciary duties. In
October 1999, the court dismissed plaintiffs' tort claims, including the breach
of fiduciary duty claims, but allowed the breach of contract and conversion
claims to stand. In December 1999, SSB filed an answer and asserted
counterclaims against the investment advisor. In response to plaintiffs' motion
to strike the counterclaims, in January 2000, SSB amended its counterclaims
against the investment advisor to seek indemnification and contribution.
Plaintiffs moved to strike SSB's amended counterclaims in February 2000.
Item 2. Changes in Securities and Use of Proceeds
For the three months ended March 31, 2000, there were
additional sales of 591.5651 Units totaling $835,000. The
Partnership ceased to offer units as of the end of the quarter.
Proceeds from the sale of additional Units are used in the
trading of commodity interests including futures contracts,
options and forward contracts.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
17
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/12/00
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 5/12/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 5/12/00
18
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<NAME> Smith Barney Mid-West Futures Fund L.P. II
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
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