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, 2000
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 LLC
388 Greenwich St. - 7th 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, 2000 and December 31,
1999 (unaudited). 3
Statement of Income and Expenses and
Partners' Capital for the three and
nine months ended September 30, 2000
and 1999 (unaudited). 4
Notes to Financial Statements
(unaudited) 5 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10 - 11
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 12 - 13
PART II - Other Information 14
2
<PAGE>
PART I
Item 1. Financial Statements
Shearson Mid - West Futures Fund
Statement of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------- ---------------
<S> <C> <C>
Assets:
Equity in commodity futures trading account:
Cash $ 27,098,347 $ 44,743,618
Net unrealized depreciation
on open contracts (2,085,601) (68,584)
-------------- ---------------
25,012,746 44,675,034
Interest receivable 108,700 158,229
-------------- ---------------
$ 25,121,446 $ 44,833,263
============== ===============
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions $ 125,607 $ 224,166
Management fees 83,174 148,501
Administrative fees 20,794 37,125
Other fees 43,576 58,833
Redemptions payable 350,258 399,192
-------------- ---------------
623,409 867,817
-------------- ---------------
Partners' Capital:
General Partner, 322.1307 Unit equivalents
outstanding in 2000 and 1999 489,223 686,544
Limited Partners, 15,808.7001 and 20,306.6804
Units of Limited Partnership Interest
outstanding in 2000 and 1999, respectively 24,008,814 43,278,902
-------------- ---------------
24,498,037 43,965,446
-------------- ---------------
$ 25,121,446 $ 44,833,263
============== ===============
</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,
------------------------ -----------------------
2000 2000 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity
futures:
Realized gains (losses) on closed positions $ (442,771) $ (24,720) $(7,876,425) $ 5,004,840
Change in unrealized losses on open
positions (1,598,767) (6,845,553) (2,017,017) (7,366,140)
---------- ---------- ---------- ----------
(2,041,538) (6,870,273) (9,893,442) (2,361,300)
Less, brokerage commissions including
clearing fees of $8,017, $12,713,
$27,510 and $39,651, respectiively (433,424) (871,969) (1,592,031) (2,743,547)
---------- ---------- ---------- ----------
Net realized and unrealized losses (2,474,962) (7,742,242) (11,485,473) (5,104,847)
Interest income 345,803 539,379 1,178,134 1,532,213
---------- ---------- ---------- ----------
(2,129,159) (7,202,863) (10,307,339) (3,572,634)
---------- ---------- ---------- ----------
Expenses:
Management fees 273,658 554,604 1,011,296 1,722,432
Administrative fees 68,415 138,650 252,825 430,606
Other 10,329 17,254 40,323 50,600
---------- ---------- ---------- ----------
352,402 710,508 1,304,444 2,203,638
---------- ---------- ---------- ----------
Net loss (2,481,561) (7,913,371) (11,611,783) (5,776,272)
Redemptions (3,320,493) (396,589) (7,855,626) (5,411,566)
---------- ---------- ---------- ----------
Net decrease in Partners' capital (5,802,054) (8,309,960) (19,467,409) (11,187,838)
Partners' capital, beginning of period 30,300,091 59,904,625 43,965,446 62,782,503
---------- ---------- ---------- ----------
Partners' capital, end of period $24,498,037 $ 51,594,665 $ 24,498,037 $ 51,594,665
---------- ---------- ---------- ----------
Net asset value per Unit
(16,130.8308 and 21,156.1724 Units
outstanding at September 30, 2000
and 1999, respectively) $ 1,518.71 $ 2,438.75 $ 1,518.71 $ 2,438.75
---------- ---------- ---------- ----------
Net loss per Unit of Limited Partnership
Interest and General Partner
Unit equivalent $ (145.87) $ (373.08) $ (612.55) $ (263.08)
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 2000
(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 on December 2, 1991.
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 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, 2000 and December 31, 1999 and the results of its
operations for the three and nine months ended September 30, 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>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net realized and unrealized
losses $ (145.51) $ (365.02) $ (606.11) $ (232.72)
Interest income 20.15 25.41 62.51 69.69
Expenses (20.51) (33.47) (68.95) (100.05)
----------- ---------- ---------- ----------
Decrease for Period (145.87) (373.08) (612.55) (263.08)
Net Asset Value per Unit,
beginning of period 1,664.58 2,811.83 2,131.26 2,701.83
----------- ---------- ---------- ----------
Net Asset Value per Unit,
end of Period $ 1,518.71 $2,438.75 $1,518.71 $ 2,438.75
=========== ========== ========== ===========
</TABLE>
6
<PAGE>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
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.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the periods ended September 30,
2000 and December 31, 1999, based on a monthly calculation, was $482,758 and
$2,304,096, respectively. The fair value of these commodity interests, including
options thereon, if applicable, at September 30, 2000 and December 31, 1999, was
$(2,085,601) and $(68,584), respectively, as detailed below.
Fair Value
September 30, December 31,
2000 1999
------------- ------------
Currency:
- Exchange Traded Contracts $ (118,025) $ -
- OTC Contracts (1,741,309) (668,860)
Energy (31,645) -
Grains 66,061 -
Interest Rates U.S. 97,119 529,988
Interest Rates Non-U.S. (444,340) 189,104
Livestock (2,660) -
Metals (16,290) (250,490)
Softs (33,660) -
Indices 139,148 131,674
------------ ----------
Total $(2,085,601) $ (68,584)
============ ==========
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
7
<PAGE>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
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.
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.
8
<PAGE>
Shearson Mid-West Futures Fund
Notes to Financial Statements
September 30, 2000
(Unaudited)
(Continued)
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 September 30, 2000. However, due to the nature of the
Partnership's business, these instruments may not be held to maturity.
9
<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 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
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 nine months ended September 30, 2000, Partnership capital
decreased 44.3% from $43,965,446 to $24,498,037. This decrease was attributable
to the redemption of 4,497.9803 Units resulting in an outflow of $7,855,626,
coupled with a net loss from operations of $11,611,783 for the nine months ended
September 30, 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 third quarter of 2000, the net asset value per
unit decreased 8.8% from $1,664.58 to $1,518.71 as compared to an decrease of
13.3% in the third quarter of 1999. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the third quarter of 2000
of $2,041,538. Losses were primarily attributable to the trading of commodity
contracts in currencies, non-U.S. interest rates, livestock, metals, softs and
indices and were partially offset by gains in energy, grains and U.S. interest
rates. The Partnership experienced a net trading loss before brokerage
commissions and related fees in the third quarter of 1999 of $6,870,273. Losses
were primarily attributable to the trading of commodity contracts in currencies,
U.S. and non-U.S. interest rates, metals 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 Advisors to
identify correctly those price trends. Price trends are influenced by, among
10
<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 on the monthly average 13-week U.S. Treasury Bill yield. Interest income
for the three and nine months ended September 30, 2000, decreased by $193,576
and $354,079, respectively, as compared to the corresponding periods in 1999.
This decrease is primarily the result of the effect of redemptions and losses on
the Partnership's equity maintained in cash during the nine month period ended
September 30, 2000.
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 analyzed in relation to the
fluctuations in the monthly net asset values. Commissions and fees for the three
and nine months ended September 30, 2000 decreased by $438,545 and $1,151,516,
respectively, as compared to the corresponding periods in 1999.
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, 2000 decreased by $280,946 and $711,136, respectively, as compared to the
corresponding periods 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 and redemptions. Administrative fees for the
three and nine months ended September 30, 2000 decreased by $70,235 and
$177,781, respectively, as compared to the corresponding periods 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 and nine months ended September 30, 2000 or 1999.
11
<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 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.
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.
12
<PAGE>
The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of September 30, 2000.
All open position trading risk exposures of the Partnership have been included
in calculating the figures set forth below. As of September 30, 2000, the
Partnership's total capitalization was $24,498,037. 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.
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Currencies:
- Exchange Trade Contracts $ 155,900 0.64% $1,534,166 $ 32,852
- OTC Contracts 1,258,015 5.14% 2,563,782 315,355
Energy 706,800 2.89% 828,000 433,950
Grains 74,800 0.31% 149,150 65,400
Interest Rates U.S. 147,620 0.60% 898,500 147,620
Interest Rates Non-U.S. 801,786 3.27% 3,179,004 451,562
Livestock 2,450 0.01% 2,450 2,100
Metals 251,950 1.03% 1,025,500 33,000
Softs 94,150 0.38% 249,145 44,467
Indices 605,793 2.47% 1,042,723 273,099
----------- ------
Total $4,099,264 16.73%
=========== ======
</TABLE>
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings -
For information concerning the matter entitled MKP Master Fund, LDC et al. v.
Salomon Smith Barney Inc., see the description that appears in the ninth
paragraph under the caption "Legal Proceedings" of the Annual Report on Form
10-K of the Partnership for the year ended December 31, 1999. In September 2000,
the court denied plaintiffs' motion to dismiss SSB's counterclaims based on
indemnification and contribution.
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
14
<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 LLC
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/14/00
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: 11/14/00
By: /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Date: 11/14/00
15
