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 September 30, 1997
Commission File Number 0-24280
SHEARSON MID-WEST FUTURES FUND
(Exact name of registrant as specified in its charter)
New York 13-3634370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
<PAGE>
SHEARSON MID-WEST FUTURES FUND
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition at
September 30, 1997 and December 31,
1996. 3
Statement of Income and Expenses
and Partners' Capital for the three
and nine months ended September 30,
1997 and 1996. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
<PAGE>
PART I
Item 1. Financial Statements
Shearson Mid - West Futures Fund
Statement of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -----------
Assets: (Unaudited)
<S> <C> <C>
Equity in commodity futures trading account:
Cash and cash equivalents $58,217,790 $67,722,636
Net unrealized appreciation
on open futures contracts 4,865,828 1,232,573
----------- -----------
63,083,618 68,955,209
Interest receivable 203,407 220,614
=========== ===========
$63,287,025 $69,175,823
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accrued expenses:
Commissions $ 316,435 $ 345,879
Management fees 209,902 229,433
Administrative fees 52,475 57,358
Incentive fees 254,790 1,923,668
Other fees 47,986 56,280
Redemptions payable 489,948 4,487,900
----------- -----------
1,371,536 7,100,518
----------- -----------
Partners' Capital:
General Partner, 322.1307 Unit equivalents
outstanding in 1997 and 1996 784,562 744,070
Limited Partners, 25,099.5006 and 26,552.1832
Units of Limited Partnership Interest
outstanding in 1997 and 1996, respectively 61,130,927 61,331,235
----------- -----------
61,915,489 62,075,305
----------- -----------
$63,287,025 $69,175,823
=========== ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
SHEARSON MID - WEST FUTURES FUND
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------------
1997 1996 1997 1996
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ 6,716,443 $ (2,299,375) $ 3,244,145 $ 527,260
Change in unrealized gains/losses on open
positions 2,822,794 3,329,960 3,633,255 3,843,193
------------ ------------ ------------ ------------
9,539,237 1,030,585 6,877,400 4,370,453
Less, brokerage commissions and clearing fees
($15,855, $15,597, $36,263 and $39,974, respectively) (1,002,539) (872,790) (2,871,286) (2,676,513)
------------ ------------ ------------ ------------
Net realized and unrealized gains 8,536,698 157,795 4,006,114 1,693,940
Interest income 634,571 551,717 1,873,276 1,665,465
------------ ------------ ------------ ------------
9,171,269 709,512 5,879,390 3,359,405
------------ ------------ ------------ ------------
Expenses:
Management fees 640,598 552,736 1,848,625 1,707,219
Administrative fees 160,149 138,184 462,155 426,804
Other 14,073 19,734 49,940 53,135
Incentive fees 254,790 -- 254,790 --
------------ ------------ ------------ ------------
1,069,610 710,654 2,615,510 2,187,158
------------ ------------ ------------ ------------
Net income (loss) 8,101,659 (1,142) 3,263,880 1,172,247
Redemptions (2,249,752) (1,605,301) (3,423,696) (3,970,852)
------------ ------------ ------------ ------------
Net increase (decrease) in Partners' capital 5,851,907 (1,606,443) (159,816) (2,798,605)
Partners' capital, beginning of period 56,063,582 56,204,322 62,075,305 57,396,484
------------ ------------ ------------ ------------
Partners' capital, end of period $ 61,915,489 $ 54,597,879 $ 61,915,489 $ 54,597,879
============ ============ ============ ============
Net asset value per Unit
(25,421.6313 and 29,347.3348 Units outstanding
at September 30, 1997 and 1996, respectively) $ 2,435.54 $ 1,860.40 $ 2,435.54 $ 1,860.40
============ ============ ============ ============
Net income per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ 308.39 $ 0.39 $ 125.70 $ 37.89
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 1997
(Unaudited)
1. General:
Shearson Mid-West Futures Fund (the "Partnership") is a limited
partnership which was organized on August 21, 1991 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 December 2, 1991.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner, acts as commodity broker for the Partnership. All trading
decisions for the Partnership are being made by John W. Henry & Company, Inc.
(the "Advisor").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at September 30, 1997 and the results of its operations for the three
and nine months ended September 30, 1997, and 1996. 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, 1996.
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>
Shearson Mid-West Futures Fund
Notes to Financial Statements
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net realized and unrealized
gains $ 325.11 $ 5.69 $ 153.83 $ 54.81
Interest income 24.33 18.40 70.81 54.33
Expenses (41.05) (23.70) (98.94) (71.25)
--------- --------- --------- ---------
Increase for period 308.39 .39 * 125.70 37.89
Net Asset Value per Unit,
beginning of period 2,127.15 1,860.01 2,309.84 1,822.51
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $2,435.54 $1,860.40 2,435.54 $1,860.40
========= ========= ========= =========
</TABLE>
* The amount shown per Unit for the three months ended September 30, 1997 does
not accord with the net income as shown in the Statement of Income and
Expenses for the three months ended September 30, 1997 because of the timing
of redemptions of the Partnership's Units in relation to the fluctuating
values of the Partnership's commodity interests
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 SB gives the
Partnership the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1997 was $4,865,828 and
6
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the average fair value during the nine months then ended, based on monthly
calculation, was $2,594,276.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off- balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, to purchase or sell other financial
instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled
in cash or with another financial instrument. These instruments may be traded on
an exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC contracts are
negotiated between contracting parties and include forwards and certain options.
Each of these instruments is subject to various risks similar to those related
to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of
default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
7
<PAGE>
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell these
instruments was $593,916,396 and $108,096,132, respectively, as detailed below.
All of these instruments mature within one year of September 30, 1997. However,
due to the nature of the Partnership's business, these instruments may not be
held to maturity. At September 30, 1997, the fair value of the Partnership's
derivatives including options thereon, was $4,865,828 as detailed below.
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS
TO PURCHASE TO SELL FAIR VALUE
Currencies * $ 53,519,661 $ 91,462,790 $ (55,005)
Interest Rates Non-U.S 471,563,810 3,259,589 3,624,669
Interest Rates U.S. 59,040,000 0 343,500
Metals 9,792,925 0 357,155
Stock Indices 0 13,373,753 595,509
------------ ------------ ------------
Totals $593,916,396 $108,096,132 $ 4,865,828
============ ============ ============
* The notional or contractual commitment amounts and the fair value amount
listed for the currency sector represent OTC contracts. All other sectors listed
represent exchange traded contracts.
5. Pending Merger:
On September 24, 1997, Travelers Group Inc. ("Travelers") and Salomon
Inc ("Salomon") announced an agreement and plan of merger pursuant to which
Salomon will become a wholly owned subsidiary of Travelers and Smith Barney
Holdings Inc., the parent company of Smith Barney Inc. and Smith Barney Futures
Management Inc., will be merged into Salomon forming Salomon Smith Barney
Holdings Inc. The transaction is expected to be completed by year-end 1997.
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 contracts and interest receivable.
Because of the low margin deposits normally required in commodity futures
trading, relatively small price movements may result in substantial losses to
the Partnership. While substantial losses could lead to a decrease in liquidity,
no such losses occurred in the third quarter of 1997.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, redemptions of Units and distributions of
profits, if any.
For the nine months ended September 30, 1997, Partnership capital
decreased 0.3% from $62,075,305 to $61,915,489. This decrease was attributable
to the redemption of 1,452.6826 limited partnership Units resulting in an
outflow of $3,423,696 which was partially offset by net income from operations
of $3,263,880 for the nine months ended September 30, 1997. 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 third quarter of 1997, the net asset value per
Unit increased 14.5% from $2,127.15 to $2,435.54 as compared to the third
quarter of 1996 in which the net asset value per Unit increased by 0.02%. The
Partnership experienced a net trading gain before commissions and expenses in
the third quarter of 1997 of $9,539,237. Gains were recognized in the trading of
commodity futures in currencies, interest rate products, metals and indices. The
Partnership experienced a net trading gain before commissions and expenses in
the third quarter of 1996 of $1,030,585. Gains were recognized in the trading of
commodity futures in interest rate products and metals which were partially
offset by losses recognized in the trading of currencies 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
other things, changing supply and demand relationships, weather,
9
<PAGE>
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 on the monthly average 13-week U.S. Treasury Bill yield. Interest income
for the three and nine months ended September 30, 1997, increased by $82,854 and
$207,811, respectively as compared to the corresponding periods in 1996. The
increase in interest income is primarily due to positive trading performance
during the nine months ended September 30, 1997.
Brokerage commissions are calculated on the adjusted net asset value on
the last day of each month and, therefore, vary according to trading performance
and redemptions. Accordingly, they must be compared in relation to the
fluctuations in the monthly net asset values. Commissions and clearing fees for
the three and nine months ended September 30, 1997 increased by $129,749 and
$194,773, respectively, as compared to the corresponding periods in 1996.
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
and redemptions. Management fees for the three and nine months ended September
30, 1997 increased by $87,862 and $141,406, respectively, as compared to the
corresponding periods in 1996.
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 and redemptions. Administrative fees for the
three and nine months ended September 30, 1997 increased by $21,965 and $35,351,
respectively, as compared to the corresponding periods in 1996.
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. Trading performance for the three and nine
months ended September 30, 1997 resulted in incentive fees of $254,790. No
incentive fees were earned for the three and nine months ended September 30,
1996.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHEARSON MID-WEST FUTURES FUND
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/12/97
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/12/97
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000924875
<NAME> SHEARSON MID-WEST FUTURES FUND
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 58,217,790
<SECURITIES> 4,865,828
<RECEIVABLES> 203,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 63,287,025
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,287,025
<CURRENT-LIABILITIES> 1,371,536
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 61,915,489
<TOTAL-LIABILITY-AND-EQUITY> 63,287,025
<SALES> 0
<TOTAL-REVENUES> 5,879,390
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,615,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,263,880
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,263,880
<EPS-PRIMARY> 125.70
<EPS-DILUTED> 0
</TABLE>
