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, 2002
--------------
Commission File Number 0-28336
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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
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
----- ----
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, 2002 and December 31,
2001 (unaudited). 3
Statement of Income and Expenses and Partners'
Capital for the three months ended March 31, 2002
and 2001 (unaudited). 4
Notes to Financial Statements
including the Financial Statements
of JWH Strategic Allocation Master
Fund LLC (unaudited). 5 - 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 15 - 17
Item 3. Quantitative and Qualitative
Disclosures of Market Risk 18 - 19
PART II - Other Information 20
2
PART I
Item 1. Financial Statements
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENT OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
2002 2001
----------- -----------
Assets:
Investment in Master , at fair value $30,773,573 $37,231,806
Cash, in commodity futures trading account 29,268 42,242
----------- -----------
30,802,841 37,274,048
Interest receivable 36,470 42,247
----------- -----------
$30,839,311 $37,316,295
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accrued expenses:
Commissions $ 154,197 $ 186,581
Management fees 51,088 61,844
Administrative fees 25,544 30,922
Other 32,121 23,557
Redemptions payable 625,412 1,234,421
----------- -----------
888,362 1,537,325
----------- -----------
Partners' Capital:
General Partner, 608.9156 Unit equivalents
outstanding in 2002 and 2001 740,941 829,173
Limited Partners, 24,005.1327 and 25,665.9357 Units
of Limited Partnership Interest outstanding in
2002 and 2001, respectively 29,210,008 34,949,797
----------- -----------
29,950,949 35,778,970
----------- -----------
$30,839,311 $37,316,295
=========== ===========
See Notes to Financial Statements.
3
SMITH BARNEY MID-WEST FUTURES FUND L.P. II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2002 2001
----------- -----------
Income:
Realized gains (losses) on closed positions from Master $ (1,347,036) $ 6,126,063
Change in unrealized gains (losses) on open positions
from Master (1,670,399) 5,334,033
Net gains (losses) on trading of commodity
interests (See Note 1):
Realized gains on closed positions - 1,517,732
Change in unrealized losses on
open positions - (7,601,505)
------------ ------------
(3,017,435) 5,376,323
Interest income 110,628 416,641
------------ ------------
(2,906,807) 5,792,964
------------ ------------
Expenses:
Brokerage commissions including clearing fees
of $10,582 and $11,664, respectively (Allocated from the Master) 523,651 702,160*
Management fees 165,723 223,686
Administrative fees 82,861 111,842
Other expenses 12,822 16,838
------------ ------------
785,057 1,054,526
------------ ------------
Net income (loss) (3,691,864) 4,738,438
Redemptions (2,136,157) (2,901,914)
------------ ------------
Net increase (decrease) in Partners' capital (5,828,021) 1,836,524
Partners' capital, beginning of period 35,778,970 43,781,224
------------ ------------
Partners' capital, end of period $ 29,950,949 $ 45,617,748
============ ==========
Net asset value per Unit
(24,614.0483 and 29,239.2554 Units outstanding
at March 31, 2002 and 2001, respectively) $ 1,216.82 $ 1,560.15
========= =========
Net income (loss) per Unit of Limited Partnership
Interest and General Partner Unit equivalent $ (144.90) $ 154.66
========= ========
* Amount reclassified for comparative purposes
See Notes to Financial Statements
4
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(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 directly or indirectly in the speculative
trading of a diversified portfolio of commodity interests including futures
contracts, options and forward contracts. The Partnership commenced trading
operations on September 1, 1994. From September 1, 1994 through January 25,
2001, the Partnership engaged directly in the trading of commodity interests.
Effective January 26, 2001, the Partnership transferred substantially all
of its assets as a tax-free transfer to the JWH Strategic Allocation Master Fund
LLC, a New York limited liability company (the "Master"), as a non-managing
member for 42,510.5077 Units of the Master and a fair value of $42,510,508. The
Master was formed in order to permit commodity pools managed now or in the
future by John W. Henry & Company, Inc. (the "Advisor") using the Strategic
Allocation Program, the Advisor's proprietary trading program, to invest
together in one trading vehicle. Smith Barney Futures Management LLC (the
"General Partner") is the general partner of the Partnership and the managing
member of the Master. Expenses to investors as a result of investment in the
Master are approximately the same and redemption rights are not affected.
As of March 31, 2002, the Partnership owns approximately 37.4% of the
Master. It is the Partnership's intention to continue to invest substantially
all of its assets in the Master. The performance of the Partnership is directly
affected by the performance of the Master. The Master's Statement of Financial
Condition and the Statement of Income and Expenses and Members' Capital,
Condensed Schedule of Investments and Financial Highlights are included herein.
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. As of March 31, 2002, all
trading decisions for the Partnership are made by 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, 2002 and December 31, 2001 and the results of its
operations for the three months ended March 31, 2002 and 2001. These financial
5
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(Unaudited)
(Continued)
statements present the results of interim periods and do not include all
disclosures normally provided in annual financial statements. You should read
these financial statements together 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, 2001.
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.
6
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(Unaudited)
(Continued)
The Master's Statement of Financial Condition at March 31, 2002 and
December 31, 2001, Condensed Schedule of Investments at March 31, 2002 and
December 31, 2001, and its Statement of Income and Expenses and Members' Capital
for the three months ended March 31, 2002 and the period from January 26, 2001
(commencement of trading operations) to March 31, 2001 were:
JWH Strategic Allocation Master Fund LLC
Statement of Financial Condition
(Unaudited)
March 31, December 31,
2002 2001
------------ -------------
ASSETS:
Equity in commodity futures
trading account:
Cash $81,569,225 $88,330,292
Net unrealized appreciation
on open futures positions 876,457 5,392,646
----------- -----------
$82,445,682 $93,722,938
=========== ===========
LIABILITIES AND MEMBERS' CAPITAL:
Liabilities:
Accrued expenses:
Professional fees $ 56,250 $ 45,000
----------- -----------
56,250 45,000
----------- -----------
Members' Capital:
Members' capital 86,458.2689 and
89,573.7730 Units outstanding in
2002 and 2001, respectively 82,389,432 93,677,938
----------- -----------
$82,445,682 $93,722,938
=========== ===========
See Notes to Financial Statements
7
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
JWH Strategic Allocation
Master Fund LLC
Condensed Schedule of Investments
March 31, 2002
(Unaudited)
Sector Contract Fair Value
- -------------------------------------- ------------------------------------------- -------------------
Currencies
Over the counter contracts sold - 0.66% $ 546,741
Over the counter contracts purchased - (3.09)% (2,547,104)
-------------------
Total Currencies - (2.43)% (2,000,363)
-------------------
Total Energy - 1.11 % Futures contracts purchased - 1.11% 916,827
-------------------
Grains
Futures contracts sold - 0.19% 156,788
Futures contracts purchased - 0.04% 33,849
-------------------
Total Grains - 0.23% 190,637
-------------------
Total Interest Rates U.S. - 0.16% Futures contracts sold - 0.16% 129,046
-------------------
Interest Rates Non-U.S.
Futures contracts sold - 1.30% 1,069,811
Futures contracts purchased - 0.01% 9,875
-------------------
Total Interest Rates Non-U.S. - 1.31% 1,079,686
-------------------
Total Livestock - 0.04% Futures contracts sold - 0.04% 33,440
-------------------
Metals
Futures contracts sold - (0.11)% (91,706)
Futures contracts purchased - 0.32% 265,674
-------------------
Total Metals - 0.21% 173,968
-------------------
Softs
Futures contracts sold - (0.06)% (47,334)
Futures contracts purchased - 0.32% 261,677
-------------------
Total Softs - 0.26% 214,343
-------------------
Indices
Futures contracts sold - 0.21% 171,135
Futures contracts purchased - (0.04)% (32,262)
-------------------
Total Indices - 0.17% 138,873
-------------------
Total Fair Value - 1.06% $ 876,457
===================
Investments % of Investments
Country Composition at Fair Value at Fair Value
- -------------------------------------- ------------------------------------------- -------------------
Australia $ (117,289) (13.38)%
Canada (653) (0.07)%
Germany 1,121,292 127.92%
Japan (82,319) (9.39)%
United Kingdom 383,770 43.79%
United States (428,345) (48.87)%
------------------------------------------- -------------------
$ 876,457 100.00%
=========================================== ===================
Percentages are based on Members' capital unless otherwise indicated
See Notes to Financial Statements
8
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
JWH Strategic Allocation
Master Fund LLC
Condensed Schedule of Investments
December 31, 2001
(Unaudited)
Notional
Sector Amount Contract Fair Value
- ---------------------------------------------------- ------------------------------------------- ----------------------
Currencies
Over the counter contracts sold - 5.89%
JPY (16,890,265,200) JPY/USD - 5.98%, March 20, 2002 $ 5,601,926
Other - (0.09)% (84,884)
Over the counter contracts purchased - 0.11% 105,908
----------------------
Total Currencies - 6.00% 5,622,950
----------------------
Total Energy - (0.35)% Futures contracts purchased - (0.35)% (327,598)
----------------------
Total Grains - 0.29% Futures contracts sold - 0.29% 274,911
----------------------
Total Interest Rates U.S. - (0.01)% Futures contracts sold - (0.01)% (14,360)
----------------------
Interest Rates Non-U.S.
Futures contracts sold 1.04% 970,405
Futures contracts purchased - (0.20)% (188,580)
----------------------
Total Interest Rates Non-U.S.- 0.84% 781,825
----------------------
Total Livestock - (0.02)% Futures contracts sold - (0.02)% (17,180)
----------------------
Metals
Futures contracts sold - (0.74)% (696,167)
Futures contracts purchased - (0.37)% (348,785)
----------------------
Total Metals - (1.11)% (1,044,952)
----------------------
Total Softs - 0.01% Futures contracts purchased - 0.01% 11,267
----------------------
Total Indices - 0.11% Futures contracts purchased - 0.11% 105,783
----------------------
Total Fair Value - 5.76% $5,392,646
======================
Investments % of Investments
Country Composition at Fair Value at Fair Value
----------------------------------------------------------------- ----------------------
Australia $151,788 2.82%
Canada 49,705 0.92%
Germany 1,084,146 20.10%
Japan (355,642) (6.59)%
Switzerland (2,304) (0.04)%
United Kingdom 176,518 3.27%
United States 4,288,435 79.52%
------------------------------------------- ----------------------
$5,392,646 100.00%
=========================================== ======================
Percentages are based on Members' capital unless otherwise indicated
See Notes to Financial Statements.
9
Smith Barney Mid-West Futures Fund L.P. II
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
JWH STRATEGIC ALLOCATION MASTER FUND LLC
STATEMENT OF INCOME AND EXPENSES AND MEMBERS' CAPITAL
(UNAUDITED)
FOR THE FOR THE
THREE PERIOD FROM
MONTHS ENDED JANUARY 26, 2001 TO
MARCH 31, MARCH 31,
------------- ---------------
2002 2001
------------- --------------
Income:
Net gains (losses) on trading of commodity interests:
Realized gains (losses) on closed positions $ (3,507,955) $ 13,840,447
Change in unrealized gains (losses) on open
positions (4,516,189) 631,164
------------- -------------
(8,024,144) 14,471,611
Less, clearing fees (61,245) (38,828)
------------- -------------
Net realized and unrealized gains (losses) (8,085,389) 14,432,783
------------- -------------
Expenses:
Other expenses 11,250 -
------------- -------------
11,250 -
------------- -------------
Net income (loss) (8,096,639) 14,432,783
Additions 1,537,008 20,750,000
Redemptions (4,728,875) (1,563,540)
------------- -------------
Net increase (decrease) in Members' capital (11,288,506) 33,619,243
Members' capital, beginning of period 93,677,938 74,020,393
------------- -------------
Members' capital, end of period $ 82,389,432 $ 107,639,636
============= ===========
See Notes To Financial Statements
10
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in the Partnership's net asset value per Unit for the three
months ended March 31, 2002 and 2001 were as follows:
THREE-MONTHS ENDED
MARCH 31,
--------------------------
2002 2001
--------- ---------
Net realized and unrealized
gains (losses) $ (139.04) $ 152.58
Interest income 4.30 13.46
Expenses (10.16) (11.38)
--------- ---------
Increase(decrease) for period (144.90) 154.66
Net Asset Value per Unit,
beginning of period 1,361.72 1,405.49
--------- ----------
Net Asset Value per Unit,
end of period $ 1,216.82 $ 1,560.15
========= =========
Total Return (10.64)% 11.00%
Ratio of expenses, including
brokerage commissions, to
average net assets* 9.59% 9.79%
Ratio of net income (loss) to
average net assets* (45.09)% 43.99%
- -------------------------------------------------------------------------------
Financial Highlights of the
Master:
Total Return (8.88)% 18.09% **
Ratio of expenses, including
clearing fees, to average net
assets * 0.33% 0.18% **
Ratio of net income (loss) to
average net assets * (36.76)% 63.02% **
* Annualized
** For the period from January 26, 2001 (commencement of trading operations)
to March 31, 2001
11
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(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 Partnership invests the majority of its
assets through a "master fund/feeder fund" structure. The results of the
Partnership's investment in the Master are shown in the statement of income and
expenses and partners' capital are discussed in Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations, herein.
The respective Customer Agreements between the Partnership and SSB and the
Master and SSB give the Partnership and the Master, respectively, the legal
right to net unrealized gains and losses.
All of the commodity interests owned by the Master are held for trading
purposes. The average fair value during the three months ended March 31, 2002
and for the period from January 26, 2001 to March 31, 2001, based on a monthly
calculation, was $5,018,442 and $5,146,554, respectively. The fair value of
these commodity interests, including options thereon, if applicable, at March
31, 2002 and 2001, was $876,457 and $5,392,646, respectively.
4. Financial Instrument Risk:
The Partnership and through the Partnership's investment in the Master, 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.
The Master 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
12
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
March 31, 2002
(Unaudited)
(Continued)
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 Master 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
Master's risk of loss in the event of counterparty default is typically limited
to the amounts recognized as unrealized appreciation (depreciation) in the
statement of financial condition and not represented by the contract or notional
amount of the instruments. The Master has concentration risk because the sole
counterparty or broker with respect to the Master's assets is SSB.
The General Partner monitors and controls the Master'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 Master is subject. These
monitoring systems allow the General Partner to statistically analyze actual
trading results with risk adjusted performance indicators and correlation
statistics.
13
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 Master's
involvement in these instruments. The majority of these instruments mature
within one year of March 31, 2002. However, due to the nature of the Master's
business, these instruments may not be held to maturity.
14
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 investment in the Master and interest receivable. The Master does
not engage in the sale of goods or services. Its only assets are its investment
in the Master 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 2002.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by its investment in the Master, expenses,
interest income, redemptions of Units and distributions of profits, if any.
For the three months ended March 31, 2002, Partnership capital decreased
16.3% from $35,778,970 to $29,950,949. This decrease was attributable to the
redemption of 1,660.8030 Units resulting in an outflow of $2,136,157, coupled
with a net loss from operations of $3,691,864, for the three months ended March
31, 2002. Future redemptions can impact the amount of funds available for
investment in the Master in subsequent periods.
The Master's capital consists of the capital contributions of the members
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, 2002 the Master's capital decreased
12.1% from $93,677,938 to $82,389,432. This decrease was attributable to a net
loss from operations of $8,096,639 coupled with redemptions of 4,585.1735 Units
resulting in an outflow of $4,728,875, which was partially offset by additional
sales of 1,469.6693 Units totaling $1,537,008, for the three months ended March
31, 2002. Future redemptions can impact the amount of funds available for
investments in commodity contract positions in subsequent periods.
Results of Operations
During the first quarter of 2002, the Partnership's net asset value per
unit decreased 10.6% from $1,361.72 to $1,216.82 as compared to an increase of
11.0% in the first quarter of 2001. The Partnership experienced a net trading
loss before brokerage commissions and related fees in the first quarter of 2002
of $3,017,435. Losses were primarily attributable to the Master's trading of
commodity futures in currencies, grains, U.S. interest rates, indices and softs
and were partially offset by gains in energy, non-U.S. interest rates, livestock
15
and metals. The Partnership experienced a net trading gain before commissions
and related fees in the first quarter of 2001 of $5,376,323. Gains were
primarily attributable to the Master's trading of commodity futures in
currencies, livestock, U.S. and non-U.S. interest rates, grains, softs, metals
and indices and were partially offset by losses in energy.
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 (and
Master) 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,
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 (and Master) expects to increase capital through operations.
Interest income on 80% of the Partnership's average daily equity, allocated
to it by the Master, was earned at the monthly average 30 day U.S. Treasury bill
rate. Interest income for the three months ended March 31, 2002 decreased by
$306,013 as compared to the corresponding period in 2001. The decrease in
interest income is primarily due to a decrease in interest rates during the
period ended March 31, 2002 as compared to 2001.
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, 2002 decreased by $178,509 as compared to the
corresponding period in 2001. The decrease in brokerage commissions is due to a
decrease in assets during the three months ended March 31, 2002.
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,
2002 decreased by $57,963 as compared to the corresponding period in 2001
primarily due to a decrease in the management fee rate during the first quarter
of 2001. The decrease in management fees is due to a decrease in assets during
the three months ended March 31, 2002.
16
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, 2002 decreased by $28,981 as compared
to the corresponding period in 2001. The decrease in administrative fees is due
to a decrease in assets during the three months ended March 31, 2002.
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, 2002 or 2001.
17
Item 3. Quantitative and Qualitative Disclosures of Market Risk
All of the Partnership's assets are subject to the risk of trading loss
through its investment in the Master.
The Master 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 Master'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 Master's main line of business.
Market movements result in frequent changes in the fair value of the
Master's open positions and, consequently, in its earnings and cash flow. The
Master'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
value of financial instruments and contracts, the diversification effects of the
Master's open positions and the liquidity of the markets in which it trades.
The Master 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
Master's past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Master could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Master's speculative trading and the recurrence in the
markets traded by the Master of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Master'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
Master's losses in any market sector will be limited to Value at Risk or by the
Master's attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Master 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.
18
The following table indicates the trading Value at Risk associated with the
Master's open positions by market category as of March 31, 2002. All open
position trading risk exposures of the Master have been included in calculating
the figures set forth below. As of March 31, 2002, the Master's total
capitalization was $82,389,432.
March 31, 2002
(Unaudited)
Year to Date
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk
- -----------------------------------------------------------------------------------------
Currencies:
- - OTC Contracts $ 2,371,060 2.88% $5,751,991 $1,570,104
Energy 2,170,800 2.64% 2,197,900 557,000
Grains 242,300 0.29% 304,500 153,200
Interest Rates U.S. 1,269,600 1.54% 1,302,100 180,800
Interest Rates Non-U.S. 3,235,607 3.93% 3,271,172 1,804,320
Livestock 21,000 0.02% 21,000 14,400
Metals:
- Exchange Traded Contracts 464,000 0.56% 464,000 271,000
- OTC Contracts 98,625 0.12% 349,250 48,000
Softs 666,459 0.81% 683,208 119,740
Indices 1,303,592 1.58% 1,874,684 869,172
----------- ------
Total $11,843,043 14.37%
=========== ======
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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
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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: 5/13/02
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: 5/13/02
By: /s/ Daniel R. McAuliffe, Jr.
-----------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
Date: 5/13/02
21