UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003
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 Citigroup Managed Futures LLC
399 Park Ave. - 7th Fl.
New York, New York 10022
(Address and Zip Code of principal executive offices)
(212) 559-2011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Redeemable Units of
Limited Partnership
Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
Limited Partnership Redeemable Units with an aggregate value of $27,650,072 were
outstanding and held by non-affiliates as of the last business day of the
registrants most recently completed second fiscal quarter.
As of February 29, 2004, 13,472.2129 Limited Partnership Redeemable Units were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Smith Barney Mid-West Futures Fund
L.P. II, (the "Partnership") is a limited partnership organized on June 3, 1994
under the partnership laws of the State of New York. The Partnership commenced
trading operations on September 1, 1994. Between July 7, 1994 and August 31,
1994, 9,421 redeemable units of Limited Partnership Interest ("Redeemable
Units") were sold at $1,000 per Redeemable Unit. The proceeds of the initial
offering were held in an escrow account until September 1, 1994, at which time
they were turned over to the Partnership for trading. From September 1, 1994 to
January 25, 2001, the Partnership engaged directly in the speculative trading of
a diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The Partnership has invested all of its assets in
the JWH Strategic Allocation Master Fund LLC, a New York Limited Liability
Company (the "Master"). The commodity interests traded by the Master are
volatile and involve a high degree of market risk. Partnership Redeemable Units
were being continuously offered monthly during the continuous offering period
through April 1997. The Partnership was authorized to sell 75,000 Redeemable
Units. As of June 7, 1999, the Partnership was authorized to sell an additional
25,000 Redeemable Units. Sales and redemptions of Redeemable Units and general
partner contributions and redemptions for the years ending December 31, 2003,
2002, and 2001 are reported in the Statement of Partners' Capital on page F-7
under "Item 8. Financial Statements and Supplementary Data."
Effective January 26, 2001, the Partnership allocated substantially all of
its capital to the Master. With this cash, the Partnership purchased 42,510.5077
Units of the Master with 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. ("JWH") (the "Advisor") using the Strategic Allocation Program,
JWH's proprietary trading program, to invest together in one trading vehicle.
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management LLC,
acts as the general partner (the "General Partner") of the Partnership. The
General Partner is the managing member (the "Managing Member") of the Master.
Individual and pooled accounts currently managed by JWH, including the
Partnership (collectively, the "Feeder Funds"), are permitted to be a
non-managing member of the Master. The General Partner and JWH believe that
trading through this master/feeder structure should promote efficiency and
economy in the trading process. Expenses to investors as a result of investment
in the Master are approximately the same and redemption rights are not affected.
At December 31, 2003 and 2002, the Partnership owns 18.11% and 31.19%,
respectively 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 Partnership's commodity broker is Citigroup Global Markets Inc.
("CGM"); formerly Salomon Smith Barney Inc. CGM is an affiliate of the General
Partner. The General Partner is wholly owned by Citigroup Global Markets
Holdings Inc. ("CGMHI"), formerly Smith Barney Holdings Inc., which is the sole
owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc.
("Citigroup").
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The Master's trading of futures, forwards and options contracts, if
applicable, on commodities is done primarily on United States of America
commodity exchanges and foreign commodity exchanges. It engages in such trading
through a commodity brokerage account maintained with CGM.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2014; if the Net Asset Value per Redeemable Unit falls
below $350 per Redeemable Unit as of the end of business on any business day or
upon the earlier occurrence of certain other circumstances set forth in the
Limited Partnership Agreement of the Partnership (the "Limited Partnership
Agreement").
Under the Limited Partnership Agreement, the General Partner has sole
responsibility for the administration of the business and affairs of the
Partnership, but may delegate trading discretion to one or more trading
Advisors. The Partnership pays the General Partner a monthly administrative fee
in return for its services to the Partnership equal to 1/12 of 1% (1% per year)
of month-end Net Assets of the Partnership. Month-end Net Assets, for the
purpose of calculating administrative fees are Net Assets, as defined in the
Limited Partnership Agreement, prior to the reduction of redemptions and
incentive fees. This fee may be increased or decreased at the discretion of the
General Partner.
The General Partner has entered into a management agreement (the
"Management Agreement") with the Advisor, who will make all commodity trading
decisions for the Partnership. The Advisor is not affiliated with the General
Partner or CGM. The Advisor is not responsible for the organization or operation
of the Partnership.
Pursuant to the terms of the Management Agreement the Partnership is
obligated to pay the Advisor a monthly management fee equal to 1/6 of 1% (2% per
year) of month-end Net Assets allocated pro-rata by the Master. Month-end Net
Assets, for the purpose of calculating management fees are Net Assets, as
defined in the Limited Partnership Agreement, prior to the reduction of
redemptions and incentive fees. In addition, the Partnership is obligated to pay
the Advisor an incentive fee, payable quarterly, equal to 20% of the New Trading
Profits allocated pro-rata by the Master.
Prior to January 26, 2001, the customer agreement between the Partnership
and CGM (the "Customer Agreement") provided that the Partnership pay CGM a
monthly brokerage fee equal to 1/2 of 1% of month-end Net Assets (6% per year)
in lieu of brokerage commissions on a per trade basis (the "Brokerage Fee").
Month-end Net Assets for the purpose of calculating brokerage commissions are
Net Assets, as defined in the Limited Partnership Agreement, prior to the
reduction of accrued expenses and redemptions payable. CGM pays a portion of its
Brokerage Fees to its financial consultants who have sold Redeemable Units of
the Partnership. This fee did not include National Futures Association ("NFA")
fees, exchange and clearing fees, give-up and user fees and floor brokerage fees
which were borne by the Partnership. Effective January 26, 2001, the Partnership
is obligated to pay the Brokerage Fee based on month-end Net Assets allocated
3
pro-rata from the Master. Effective January 26, 2001, all exchange, clearing,
user, give-up, floor brokerage and NFA fees will be borne by the Master and
allocated to the Partnership through its investment in the Master.
The Customer Agreement between the Master and CGM gives the Master the
legal right to net unrealized gains and losses. Brokerage Fees will be paid for
the life of the Partnership, although the rate at which such fees are paid may
be changed.
Prior to January 26, 2001, CGM paid the Partnership interest on 80% of the
average daily equity maintained in cash in its account during each month at a 30
day U.S. Treasury bill rate determined weekly by CGM based on the
non-competitive yield on 3 month U.S. Treasury bills maturing in 30 days from
the date in which such weekly rate is determined. Effective January 26, 2001,
CGM will pay the Partnership interest on 80% of the average daily equity
allocated pro-rata to the Partnership by the Master during each month at the
rate of the average non-competitive yield of 13-week U.S. Treasury Bills as
determined at the weekly auctions thereof during the month. The Customer
Agreement may be terminated upon notice by either party.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income from operations for the years ended December 31, 2003,
2002, 2001, 2000 and 1999 are set forth under "Item 6. Selected Financial Data."
The Partnership's capital as of December 31, 2003 was $25,854,335.
(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership does not
engage in sales of goods or services or own any long lived assets, and therefore
this item is not applicable.
(e) Available information. The Partnership does not have an Internet
address. The Partnership will provide paper copies of its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to these reports free of charge upon request.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner
operates out of facilities provided by its affiliate, CGM.
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Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which Citigroup
Global Markets Holdings Inc. ("CGMHI") or its subsidiaries is a party or to
which any of their property is subject. There are no material legal proceedings
pending against the Partnership or the General Partner.
Citigroup Managed Futures LLC. ("CGM") is a New York corporation with its
principal place of business at 388 Greenwich Street, New York, New York 10013.
CGM is registered as a broker-dealer and futures commission merchant ("FCM"),
and provides futures brokerage and clearing services for institutional and
retail participants in the futures markets. CGM and its affiliates also provide
investment banking and other financial services for clients worldwide.
There have been no material administrative, civil or criminal actions
within the past five years against CGM or any of its individual principals and
no such actions are currently pending, except as follows.
In December 1996, a complaint seeking unspecified monetary damages was
filed by Orange County, California against numerous brokerage firms, including
Salomon Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California. (County of Orange et al. v. Bear Stearns & Co. Inc. et al.) The
complaint alleged, among other things, that the brokerage firms recommended and
sold unsuitable securities to Orange County. Salomon Smith Barney and the
remaining brokerage firms settled with Orange County in mid 1999. Salomon Smith
Barney paid $1,333,333 to settle this matter.
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 sought a
determination that Smith Barney Inc. and another underwriter would be
responsible for any damages that the City may incur in the event the Internal
Revenue Service ("IRS") denies tax exempt status to the City's General
Obligation Refunding Bonds Series 1991. The complaints were subsequently
amended. Salomon Smith Barney has asked the court to dismiss the amended
complaints. The court denied the motion but stayed the case. Subsequently, the
City withdrew its lawsuit.
In November 1998, a class action complaint was filed in the U.S. District
Court for the Middle District of Florida (Dwight Brock as Clerk for Collier
County v. Merrill Lynch, et al.). The complaint alleged that, pursuant to a
nationwide conspiracy, 17 broker-dealer defendants, including Salomon Smith
Barney, charged excessive mark-ups in connection with advanced refunding
transactions. Among other relief, plaintiffs sought compensatory and punitive
damages, restitution and/or rescission of the transactions and disgorgement of
alleged excessive profits. In October 1999, the plaintiffs filed a second
amended complaint. In November 1999, Salomon Smith Barney moved to dismiss the
amended complaint. In May 2001, the parties reached and the court preliminarily
approved a tentative settlement. Salomon Smith Barney paid $1,063,457 to settle
this matter and in September 2001, the court approved the settlement.
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In connection with the Louisiana and Florida matters, the IRS and the SEC
conducted an industry-wide investigation into the pricing of Treasury securities
in advanced refunding transactions. In April 2000, Salomon Smith Barney and
several other broker-dealers entered into a settlement with the IRS and the SEC.
Thereafter, the plaintiffs filed voluntary discontinuances.
In December 1998, Salomon Smith Barney was one of 28 market making firms
that reached a settlement with the SEC in the matter titled In the Matter of
Certain Market Making Activities on NASDAQ. As part of the settlement of that
matter, Salomon Smith Barney, without admitting or denying the factual
allegations, agreed to an order that required that it: (i) cease and desist from
committing or causing any violations of Sections 15(c)(1) and (2) of the
Securities Exchange Act of 1934 and SEC Rules 15c1-2, 15c2-7 and 17a-3
thereunder, (ii) pay penalties totaling approximately $760,000 and (iii) submit
certain policies and procedures to an independent consultant for review.
In April 2002, numerous class action complaints were filed against Salomon
Smith Barney and other investment banks in the U.S. District Court for the
Southern District of New York alleging violations of certain federal securities
laws (including Section 11 of the Securities Act of 1933 and Section 10(b) of
the Securities Exchange Act of 1934) with respect to the allocation of shares
for certain initial public offerings and related aftermarket transactions and
damage to investors caused by allegedly biased research analyst reports. On
February 19, 2003, the court issued an opinion denying the defendants' motion to
dismiss the complaints.
In April 2002, Citigroup and, in one case, Salomon Smith Barney were named
as defendants along with, among others, commercial and/or investment banks,
certain current and former Enron officers and directors, lawyers and accountants
in two alleged consolidated class action complaints that were filed in the U.S.
District Court for the Southern District of Texas seeking unspecified damages.
One action, brought on behalf of individuals who purchased Enron securities
(Newby, et al. v. Enron Corp., et al.), alleges violations of Sections 11 and 15
of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and the other action, brought on behalf of current and
former Enron employees (Tittle, et al. v. Enron Corp., et al.), alleges
violations of ERISA and the Racketeer Influenced and Corrupt Organizations Act,
as well as negligence and civil conspiracy. On May 8, 2002, Citigroup and
Salomon Smith Barney filed motions to dismiss the complaints. On December 19,
2002, the motions to dismiss the Newby complaint were denied. On September 30,
2003, all of the claims against Citigroup in the Tittle litigation were
dismissed.
Several additional actions, previously identified, have been consolidated
with the Newby action and are stayed, except with respect to certain discovery,
until after the Court's decision on class certification. In addition, on April
17, 2003, an action was brought by two investment firms in connection with
purchases of Osprey Trust certificates for alleged violations of federal
securities laws and state securities and other laws. Also, in July 2003, an
action was brought by purchasers in the secondary market of Enron bank debt
against Citigroup, Citibank, Citigroup Global Markets, and others, alleging
claims for common law fraud, conspiracy, gross negligence, negligence and breach
of fiduciary duty.
Since April 2002, Salomon Smith Barney and several other broker dealers
have received subpoenas and/or requests for information from various
governmental and self-regulatory agencies and Congressional committees,
including the NASD Inc. which has raised issues about Salomon Smith Barney's
6
internal e-mail retention practices and research on Winstar Communications, Inc.
With respect to Winstar, Salomon Smith Barney has entered into a settlement
agreement. Salomon Smith Barney agreed to pay a penalty in the amount of $5
million and did not admit to any wrongdoing. With respect to other such matters,
on December 20, 2002, Salomon Smith Barney and a number of other broker/dealers
reached a settlement-in-principle with the SEC, the NASD, the New York Stock
Exchange (the "NYSE") and the Attorney General of New York of all issues raised
in their research, initial public offerings allocation and spinning-related
inquiries. In addition, with respect to issues raised by the NASD, the NYSE and
the SEC about Salomon Smith Barney's and other firms' e-mail retention
practices, Salomon Smith Barney and several other broker/dealers and the NASD,
the NYSE and the SEC entered into a settlement agreement in December 2002.
Salomon Smith Barney agreed to pay a penalty in the amount of $1.65 million and
did not admit any wrongdoing.
Since May 2002, Citigroup, Salomon Smith Barney and certain principals and
current and former employees have been named as defendants in a number of
alleged class action complaints filed by purchasers of various securities
alleging they violated federal securities law, including Sections 10 and 20 of
the Securities Exchange Act of 1934 by issuing research reports without
reasonable basis and failing to disclose conflicts of interest in connection
with published investment research, including Global Crossing, WorldCom, Inc.,
AT&T, Winstar, Rhythm Net Connections, Level 3 Communications, MetroMedia Fiber
Network, XO Communications and Williams Communications Group Inc. Nearly all of
these actions are pending before a single judge in the U.S. District Court for
the Southern District of New York for coordinated proceedings. The court has
consolidated these actions into nine separate categories corresponding to the
companies named above.
Additional actions have been filed against Citigroup and certain of its
affiliates, including Salomon Smith Barney, and certain of their current and
former directors, officers and employees, along with other parties, including:
(1) three alleged class actions filed in state courts and federal courts on
behalf of persons who maintained accounts with Salomon Smith Barney asserting,
among other things, common law claims, claims under state statutes, and claims
under the Investment Advisers Act of 1940, for allegedly failing to provide
objective and unbiased investment research and investment management, seeking,
among other things, return of fees and commissions; (2) approximately fifteen
actions filed in different state courts by individuals asserting, among other
claims, common law claims and claims under state securities laws, for allegedly
issuing research reports without a reasonable basis in fact and for allegedly
failing to disclose conflicts of interest with companies in connection with
published investment research, including Global Crossing and WorldCom, Inc.; (3)
approximately five actions filed in different state courts by pension and other
funds asserting common law claims and statutory claims under, among other
things, state and federal securities laws, for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with companies in connection with published investment
research, including WorldCom, Inc. and Qwest Communications International Inc.;
and (4) more than two hundred arbitrations asserting common law claims and
statutory claims under, among other things, state and federal securities laws,
for allegedly issuing research reports without a reasonable basis in fact and
for allegedly failing to disclose conflicts of interest with companies in
connection with published investment research.
In July 2002, Citigroup, Salomon Smith Barney and various of its affiliates
7
and certain of their officers and other employees were named as defendants,
along with, among others, commercial and/or investment banks, certain current
and former Enron officers and directors, lawyers and accountants in an alleged
class action filed in the U.S. District Court for the Southern District of New
York on behalf of purchasers of the Yosemite Notes and Enron Credit-Linked
Notes, among other securities (Hudson Soft Co., Ltd v. Credit Suisse First
Boston Corporation, et al.). The complaint alleges violations of RICO and of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks
unspecified damages.
Additional actions have been filed against Citigroup and certain of its
affiliates, along with other parties, including (i) three actions brought in
state courts by state pension plans for alleged violations of state securities
law and common law fraud and unjust enrichment; (ii) an action by banks that
participated in two Enron revolving credit facilities, alleging fraud, gross
negligence and breach of implied duties in connection with the defendants'
administration of a credit facility with Enron; (iii) an action brought by
several funds in connection with secondary market purchases of Enron Corp. debt
securities alleging violations of federal securities law, including Section 11
of the Securities Act of 1933, and claims for fraud and misrepresentation; (iv)
a series of alleged class actions by purchasers of New Power Holdings common
stock alleging violations of federal securities law, including Section 11 of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934;
(v) an action brought by two investment funds in connection with purchases of
Enron-related securities for alleged violations of state securities and unfair
competition statutes; (vi) an action brought by several investment funds and
fund owners in connection with purchases of notes of the Osprey I and Osprey II
Trusts for alleged violation of state and federal securities laws and claims for
common law fraud, misrepresentation and conspiracy; (vii) an action brought by
several investment funds and fund owners in connection with purchases of notes
of the Osprey I and Osprey II Trusts for alleged violation of state and federal
securities laws and state unfair competition laws and claims for common law
fraud and misrepresentation; (viii) an action brought by the Attorney General of
Connecticut in connection with various commercial and investment banking
services provided to Enron; (ix) an alleged class action brought by clients of
Salomon Smith Barney in connection with research reports concerning Enron,
alleging breach of contract; (x) actions brought by several investment funds in
connection with the purchase of notes and/or certificates of the Osprey Trusts,
the Marlin Trust, and the Marlin Water trust, as well as the purchase of other
Enron or Enron-related securities, alleging violation of state and federal
securities laws, and common law civil conspiracy and fraud; (xi) an action
brought by a retirement and health benefits plan in connection with the purchase
of certain Enron notes, alleging violation of federal securities law, including
Section 11 of the Securities Act of 1933, violations of state securities and
unfair competition law, and common law fraud and breach of fiduciary duty; and
(xii) an action brought by two broker/dealers in connection with the purchase of
certain notes, alleging violation of federal and state securities laws. Several
of these cases have been consolidated with the Newby action and stayed pending
the Court's decision on the pending motions of certain defendants to dismiss
Newby. On April 17, 2003, the motion to dismiss the complaints in the putative
class actions relating to the New Power Holdings common stock was denied.
Additionally, Citigroup and certain of its affiliates, including Salomon
Smith Barney, have provided substantial information to, and have entered into
substantive discussions with, the SEC regarding certain of their transactions
with Enron and a transaction with Dynegy Inc. Citigroup and certain of its
affiliates, including Salomon Smith Barney, also have received subpoenas and
8
requests for information from various other regulatory and governmental agencies
and Congressional committees, as well as from the Special Examiner in the Enron
bankruptcy, regarding certain transactions and business relationships with Enron
and its affiliates. Citigroup and its affiliates, including Salomon Smith
Barney, are cooperating fully with all such requests.
On July 28, 2003, Citigroup entered into a final settlement agreement with
the SEC to resolve the SEC's outstanding investigations into Citigroup
transactions with Enron and Dynegy. Pursuant to the settlement, Citigroup has,
among other terms, (1) consented to the entry of an administrative cease and
desist order, which bars Citigroup from committing or causing violations of
provisions of the federal securities laws, and (2) agreed to pay $120 million
($101.25 million allocable to Enron and $18.75 million allocable to Dynegy).
Citigroup entered into this settlement without admitting or denying any
wrongdoing or liability, and the settlement does not establish wrongdoing or
liability for purposes of any other proceeding. On July 28, 2003, Citibank, N.A.
entered into an agreement with the Office of the Comptroller of the Currency
("OCC") and Citigroup entered into an agreement with the Federal Reserve Bank of
New York ("FED") to resolve their inquiries into certain of Citigroup's
transactions with Enron. Pursuant to the agreements, Citibank and Citigroup have
agreed to submit plans to the OCC and FED, respectively, regarding the handling
of complex structured finance transactions. Also on July 28, 2003, Citigroup
entered into a settlement agreement with the Manhattan District Attorney's
Office to resolve its investigation into certain of Citigroup's transactions
with Enron; pursuant to the settlement, Citigroup has agreed to pay $25.5
million and to abide by its agreements with the SEC, OCC and FED.
Citigroup and Salomon Smith Barney are involved in a number of lawsuits
arising out of the underwriting of debt securities of WorldCom, Inc. These
lawsuits include alleged class actions filed in July 2002 by alleged purchasers
of WorldCom debt securities in the United States District Court for the Southern
District of New York (Above Paradise Investments Ltd. V. Worldcom, Inc., et al.;
Municipal Police Employees Retirement System Of Louisiana V. Worldcom, Inc., et
al.), and in the United States District Court for the Southern District of
Mississippi (Longacre Master Fund V. Worldcom, Inc., et al.). These alleged
class action complaints assert violations of federal securities law, including
Sections 11 and 12 of the Securities Act of 1933, and seek unspecified damages
from the underwriters.
On October 11, 2002, the Above Paradise and Municipal Police Employees
lawsuits filed in the United States District Court for the Southern District of
New York were superseded by the filing of a consolidated alleged class action
complaint in the United States District Court for the Southern District of New
York (In Re Worldcom, Inc. Securities Litigation). In the consolidated
complaint, in addition to the claims of violations by the underwriters of the
federal securities law, including Sections 11 and 12 of the Securities Act of
1933, the plaintiffs allege violations of Section 10(b) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by Salomon Smith
Barney arising out of alleged conflicts of interest of Salomon Smith Barney and
certain of its principals. The plaintiffs continue to seek unspecified
compensatory damages. In addition to the consolidated class action complaint,
the Southern District of Mississippi class action has been transferred by the
Judicial Panel on MultiDistrict Litigation to the Southern District of New York
for centralized pre-trial proceedings with other WorldCom-related actions. On
May 19, 2003, the motion to dismiss the amended complaint in the WorldCom, Inc.
Securities Litigation was denied.
9
In addition to the several alleged class actions that have been commenced,
certain individual actions have been filed in various federal and state courts
against Citigroup and Salomon Smith Barney, along with other parties, concerning
WorldCom debt securities including individual state court actions brought by
approximately 18 pension funds and other institutional investors in connection
with the underwriting of debt securities of WorldCom alleging violations of
Section 11 of the Securities Act of 1933 and, in one case, violations of various
state securities laws and common law fraud. Citigroup and/or Salomon Smith
Barney are now named in approximately 35 of these individual state court
actions. Most of these actions have been removed to federal court and have been
transferred to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions. On October 24, 2003, the court
granted plaintiffs' motion to have this matter certified as a class action.
An alleged class action on behalf of participants in WorldCom's 401(k)
salary savings plan and those WorldCom benefit plans covered by ERISA alleging
violations of ERISA and common law fraud, which was commenced in the United
States District Court for the District of Columbia, also has been transferred by
the Judicial Panel on MultiDistrict Litigation to the Southern District of New
York for centralized pre-trial proceedings with other WorldCom-related actions.
In December 2002, the claims against Salomon Smith Barney and the other
underwriters were dismissed without prejudice.
On or about January 27, 2003, the lead plaintiff in a consolidated alleged
class action in the United States District Court for the District of New Jersey
(In Re AT&T Corporation Securities Litigation) sought permission to amend its
complaint on behalf of purchasers of AT&T common stock asserting claims against,
among others, AT&T Corporation, to add as named defendants Citigroup, Salomon
Smith Barney and certain executive officers and current and former employees,
asserting claims under federal securities laws for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with AT&T in connection with published investment
research. By order dated March 27, 2003, the court denied plaintiffs' request to
amend their complaint to add as defendants Citigroup, Salomon Smith Barney and
certain of their executive officers and current and former employees.
On or about January 28, 2003, the lead plaintiff in a consolidated alleged
class action in the United States District Court for the Southern District of
New York (In Re Global Crossing, Ltd. Securities Litigation) filed a
consolidated complaint on behalf of purchasers of the securities of Global
Crossing and its subsidiaries, which names as defendants, among others,
Citigroup, Salomon Smith Barney and certain executive officers and current and
former employees, asserting claims under federal securities laws for allegedly
issuing research reports without a reasonable basis in fact and for allegedly
failing to disclose conflicts of interest with Global Crossing in connection
with published investment research.
On March 5, 2003, an action was brought on behalf of the purchasers of the
Yosemite Notes and Enron Credit Linked Notes, alleging violation of federal
securities laws.
On April 9, 2003, an action was brought by a group of related mutual funds
that purchased certain Yosemite Notes, alleging violations of state securities
laws and common law claims.
10
On April 28, 2003, Citigroup Global Markets (formerly known as Salomon
Smith Barney) announced final agreements with the SEC, the NASD, the NYSE and
the New York Attorney General (as lead state among the 50 states, the District
of Columbia and Puerto Rico) to resolve on a civil basis all of their
outstanding investigations into its research and IPO allocation and distribution
practices. As part of the settlements, Salomon Smith Barney has consented to the
entry of (1) an injunction under the federal securities laws to be entered in
the United States District Court for the Southern District of New York, barring
Salomon Smith Barney from violating provisions of the federal securities laws
and related NASD and NYSE rules relating to research, certain IPO allocation
practices, the safeguarding of material nonpublic information and the
maintenance of required books and records, and requiring Salomon Smith Barney to
adopt and enforce new restrictions on the operation of research; (2) an NASD
Acceptance Waiver and Consent requiring Salomon Smith Barney to cease and desist
from violations of corresponding NASD rules and requiring Salomon Smith Barney
to adopt and enforce the same new restrictions; (3) an NYSE Stipulation and
Consent requiring Salomon Smith Barney to cease and desist from violations of
corresponding NYSE rules and requiring Salomon Smith Barney to adopt and enforce
the same new restrictions; and (4) an Assurance of Discontinuance with the New
York Attorney General containing substantially the same or similar restrictions.
As required by the settlements, Salomon Smith Barney expects to enter into
related settlements with each of the other states, the District of Columbia and
Puerto Rico. Consistent with the settlement-in-principle announced in December
2002, these settlements require Salomon Smith Barney to pay $300 million for
retrospective relief, plus $25 million for investor education, and commit to
spend $75 million to provide independent third-party research to its clients at
no charge. Salomon Smith Barney reached these final settlement agreements
without admitting or denying any wrongdoing or liability. The settlements do not
establish wrongdoing or liability for purposes of any other proceeding. The $300
million was accrued during the fourth quarter of 2002.
On June 23, 2003, the West Virginia Attorney General filed an action
against Citigroup Global Markets Holdings Inc. and nine other firms that were
parties to the April 28, 2003 settlement with the SEC, the NASD, the NYSE and
the New York Attorney General (the "Research Settlement"). The West Virginia
Attorney General alleges that the firms violated the West Virginia Consumer
Credit and Protection Act in connection with their research activities and seeks
monetary penalties.
In May 2003, the SEC, NYSE and NASD issued a subpoena and letters to
Citigroup Global Markets Holdings Inc. requesting documents and information with
respect to their continuing investigation of individuals in connection with the
supervision of the research and investment banking departments of Citigroup
Global Markets Holdings Inc. Other parties to the Research Settlement have
received similar subpoena and letters.
In April 2003, to effectuate the Research Settlement, the SEC filed a
Complaint and Final Judgment in the United States District Court for the
Southern District of New York. Also in April 2003, the NASD accepted the Letter
of Acceptance, Waiver and Consent entered into with Citigroup Global Markets
Holdings Inc. in connection with the Research Settlement; and in May 2003, the
NYSE advised Citigroup Global Markets Holdings Inc. that the Hearing Panel's
Decision, in which it accepted the Research Settlement, had become final.
Citigroup Global Markets Holdings Inc. is currently in discussion with various
of the states with respect to completion of the state components of the Research
Settlement. Payment will be made in conformance with the payment provisions of
the Final Judgment. On October 31, 2003, the Final Judgment was entered against
Salomon Smith Barney and nine other investment banks. In addition, Salomon Smith
11
Barney has entered into separate settlement agreements with numerous states and
certain U.S. territories.
On June 6, 2003, the complaint in a pre-existing putative class action
pending in the United States District Court for the Southern District of Texas,
brought by purchasers of publicly traded debt and equity securities of Dynegy,
Inc., was amended to add Citigroup, Citibank and Citigroup Global Markets
Holdings Inc., as well as other banks, as defendants. The plaintiffs allege
violations of the federal securities laws against the Citigroup defendants.
On July 6, 2003, an adversary proceeding was filed by the Official
Committee of Unsecured Creditors on behalf of Adelphia against certain lenders
and investment banks, including Citigroup Global Markets Holdings Inc.,
Citibank, N.A., Citicorp USA, Inc., and Citigroup Financial Products, Inc.
(together, the Citigroup Parties). The Complaint alleges that the Citigroup
Parties and numerous other defendants committed acts in violation of the Bank
Company Holding Act and the common law. The complaint seeks equitable relief and
an unspecified amount of compensatory and punitive damages.
In addition, Salomon Smith Barney Inc. (predecessor of Citigroup Global
Markets Inc.) is among the underwriters named in numerous civil actions brought
to date by investors in Adelphia debt securities in connection with Adelphia
securities offerings between September 1997 and October 2001. Three of the
complaints also assert claims against Citigroup Inc. and Citibank, N.A. All of
the complaints allege violations of federal securities laws, and certain of the
complaints also allege violations of state securities laws and the common law.
The complaints seek unspecified damages.
On August 15, 2003, a purported class action was brought by purchasers of
Enron stock alleging state law claims of negligent misrepresentation, fraud,
breach of fiduciary duty and aiding and abetting a breach of fiduciary duty.
On August 29, 2003, an investment company filed a lawsuit alleging that
Citigroup, Citigroup Global Markets and several other defendants (including,
among others, Enron's auditor, financial institutions, outside law firms and
rating agencies) engaged in a conspiracy, which purportedly caused plaintiff to
lose credit (in the form of a commodity sales contract) it extended to an Enron
subsidiary in purported reliance on Enron's financial statements. On September
24, 2003, Enron filed a preferential proceeding in its Chapter 11 bankruptcy
proceedings to recover alleged preferential payments and fraudulent transfers
involving Citigroup, Citigroup Global Markets and other entities, and to
disallow or to subordinate bankruptcy claims that Citigroup, Citigroup Global
Markets and other entities have filed against Enron.
In the course of its business, Citigroup Global Markets, as a major futures
commission merchant and broker-dealer, is a party to various claims and routine
regulatory investigations and proceedings that the General Partner believes do
not have a material effect on the business of Citigroup Global Markets.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote during the
last fiscal year covered by this report.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There is
no public market for the Redeemable Units of Limited Partnership
Interest.
(b) Holders. The number of holders of Redeemable Units of Partnership
Interest as of December 31, 2003 was 355.
(c) Distribution. The Partnership did not declare a distribution in
2003 or 2002.
(d) Use of Proceeds. There were no additional sales of Redeemable
Units in the years ended December 31, 2003, 2002 and 2001.
13
Item 6. Selected Financial Data. Realized and unrealized trading gains (losses),
interest income, net income (loss) and increase (decrease) in Net Asset Value
per Redeemable Unit for the years ended December 31, 2003, 2002, 2001, 2000, and
1999 and total assets at December 31, 2003, 2002, 2001, 2000, and 1999 were as
follows:
2003 2002 2001 2000 1999
---------- ----------- ---------- ----------- ------------
Realized and unrealized
trading gains (losses) net of
expenses allocated from
Master, brokerage commissions
and clearing fees of
$1,758,106, $1,874,426,
$2,506,228, $3,096,407, and
$5,296,707, respectively $ 1,983,308 $ 8,791,282 $ (889,142) $(4,945,018) $(18,354,842)
Interest income 229,309 377,817 1,122,566 2,193,751 2,923,960
---------- ----------- ---------- ----------- ------------
$ 2,212,617 $ 9,169,099 $233,424 $(2,751,267) $(15,430,882)
Net income (loss) $ 1,115,014 $ 8,196,531 $(1,014,999) $(5,075,829) $(19,681,820)
---------- ----------- ---------- ----------- ------------
Increase (decrease) in Net
Asset Value per Redeemable
Unit $ 52.86 $431.46 $(43.77) $(6.02) $(376.78)
---------- ----------- ---------- ----------- ------------
Total assets $26,296,781 $28,253,989 $37,316,295 $45,323,728 $74,994,627
---------- ----------- ---------- ----------- ------------
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Partnership, through its investment in the Master, aims to achieve
substantial capital appreciation through speculative trading in U.S. and
international markets for currencies, interest rates, stock indices,
agricultural and energy products and precious and base metals. The Partnership
has invested all of its assets in the Master. The Master may employ futures,
options on futures, and forward, spot and swap contracts in those markets.
The General Partner/Managing Member manages all business of the
Partnership/Master. The General Partner has delegated its responsibility for the
investment of the Partnership's assets to JWH. The Partnership has invested
these assets in the Master. The General Partner employs a team of approximately
15 professionals whose primary emphasis is on attempting to maintain quality
control among the Advisors to the Partnerships operated or managed by the
General Partner. A full-time staff of due diligence professionals use
state-of-the-art technology and on-site evaluations to monitor new and existing
futures money managers. The accounting and operations staff provide processing
of trading activity and reporting to limited partners and regulatory
authorities. In selecting the Advisor for the Partnership, the General Partner
considered past performance, trading style, volatility of markets traded and fee
requirements.
Responsibilities of the General Partner include:
o due diligence examinations of the Advisor;
o selection, appointment and termination of the Advisor;
o negotiation of the management agreement; and
o monitoring the activity of the Advisor.
In addition, the General Partner/Managing Member prepares the books and
records and provides the administrative and compliance services that are
required by law or regulation from time to time in connection with operation of
the Partnership/Master. These services include the preparation of required books
and records and reports to limited partners, government agencies and regulators;
computation of net asset value; calculation of fees; effecting subscriptions,
redemptions and limited partner communications; and preparation of offering
documents and sales literature.
The General Partner/Managing Member shall seek the best prices and services
available in its commodity futures brokerage transactions. The General
Partner/Managing Member reviews at least annually, the brokerage rates charged
to commodity pools similar to the Partnership/Master to determine that the
brokerage fee the Partnership/Master pays is competitive with other rates.
The Advisor specializes in managing institutional and individual capital in
the global futures, interest rate and foreign exchange markets. Since 1981, JWH
has developed and implemented proprietary trend-following trading techniques
that focus on long-term trends.
15
JWH trades its Strategic Allocation Program ("SAP") on behalf of the
Partnership, through its investment in the Master. SAP's objective is capital
appreciation with the reduction of the volatility and risk of loss that
typically would be associated with an investment in any one JWH investment
program.
JWH currently operates 11 investment programs including SAP. Any or all of
the other ten programs may be included in SAP from time to time. Each investment
program has distinctive style, timing, and market characteristics. SAP program
selection and allocations are made at the discretion of the JWH Investment
Policy Committee.
As of December 31, 2003, the Master's assets were allocated among the JWH
programs as follows:
Percentage
Allocation in the
Master as of
December 31, 2003
Broadly Diversified
Programs
o Original Investment
Program 17.5%
o Global Diversified
Portfolio 10%
o JWH
GlobalAnalytics(R) 10%
Family of Programs
Financial Programs
o Financial and
Metals Portfolio 15%
o Global Financial &
Energy Portfolio 20%
o Worldwide Bond
Program 5%
Multiple Style Programs
o Currency Strategic
Allocation Program 22.5%
16
The allocation of SAP's assets among the investment programs, as well as
the selection of the programs used for SAP, is dynamic. While JWH's individual
investment programs are technical, trend-following programs, the selection of
programs as well as the allocation of assets among the programs in SAP are
entirely discretionary.
As a managed futures Partnership, the Partnership's performance is
dependent upon the successful trading of the Partnership's/Master's Advisor to
achieve the Partnership's/Master's objectives. It is the business of the General
Partner/Managing Member to monitor the Advisor's performance to assure
compliance with the Partnership's/Master's trading policies and to determine if
the Advisor's performance is meeting the Partnership's/Master's objectives.
Based on 2003 results, the General Partner continues to believe the Advisor and
the trading of SAP have met the Partnership's objectives and expects to continue
to allocate the Partnership's/Master's assets to the Advisor and this program
unless otherwise indicated.
(a) Liquidity.
The Partnership does not engage in sales of goods or services. Its only
assets are its investment in the Master and cash. Because of the low margin
deposits normally required in commodity futures trading, relatively small price
movements may result in substantial losses to the Master. Such substantial
losses could lead to a material loss in liquidity.
To minimize this risk relating to low margin deposits, the Master follows
certain trading policies, including:
(i) The Master invests its assets only in commodity interests that an
Advisor believes are traded in sufficient volume to permit ease of
taking and liquidating positions. Sufficient volume, in this context,
refers to a level of liquidity that the Advisor believes will permit
it to enter and exit trades without noticeably moving the market.
(ii) An Advisor will not initiate additional positions in any commodity if
these positions would result in aggregate positions requiring a margin
of more than 66 2/3% of the Master's net assets allocated to that
Advisor.
(iii)The Master may occasionally accept delivery of a commodity. Unless
such delivery is disposed of promptly by retendering the warehouse
receipt representing the delivery to the appropriate clearinghouse,
the physical commodity position is fully hedged.
(iv) The Master does not employ the trading technique commonly known as
"pyramiding", in which the speculator uses unrealized profits on
existing positions as margin for the purchases or sale of additional
positions in the same or related commodities.
(v) The Master does not utilize borrowings except short-term borrowings if
the Master takes delivery of any cash commodities.
(vi) The Advisors may, from time to time, employ trading strategies such as
spreads or straddles on behalf of the Master. The term "spread" or
"straddle" describes a commodity futures trading strategy involving
the simultaneous buying and selling of futures contracts on the same
commodity
17
but involving different delivery dates or markets and in which the
trader expects to earn a profit from a widening or narrowing of the
difference between the prices of the two contracts.
(vii)The Master will not permit the churning of its commodity trading
account. The term "churning" refers to the practice of entering and
exiting trades with a frequency unwarranted by legitimate efforts to
profit from the trades, driven by the desire to generate commission
income.
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, through its investment in the Master.
In the normal course of business, the Master is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments
include forwards, futures, options and swaps, whose values are based upon an
underlying asset, index or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
financial instruments at specified terms at specified future dates, or, in the
case of derivative commodity interests, 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, swaps and certain options. Each of these instruments is
subject to various risks similar to those relating 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 counterparty to the transactions. The Master'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 Master has credit
risk and concentration risk because the sole counterparty or broker with respect
to the Master's assets is CGM.
The General Partner/Managing Member 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/Managing Member 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,
18
margin requirements, gain and loss transactions and collateral positions. (See
also "Item 8. Financial Statements and Supplementary Data" for further
information on financial instrument risk included in the notes to financial
statements.)
Other than the risks inherent in commodity futures and swaps trading, the
Master knows of no trends, demands, commitments, events or uncertainties which
will result in or which are reasonably likely to result in the Master's
liquidity increasing or decreasing in any material way. The Limited Partnership
Agreement provides that the General Partner may, in its discretion, cause the
Partnership to cease trading operations and liquidate all open positions under
certain circumstances including a decrease in Net Asset Value per Redeemable
Unit to less than $350 as of the close of business on any business day.
(b) Capital resources.
(i) The Partnership has made no material commitments for capital
expenditures.
(ii) The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on trading and by
expenses, interest income, redemptions of Redeemable Units and distributions of
profits, if any. Gains or losses on trading cannot be predicted. Market moves in
commodities are dependent upon fundamental and technical factors which the
Advisor may or may not be able to identify, such as changing supply and demand
relationships, weather, government agricultural, commercial and trade programs
and policies, national and international political and economic events and
changes in interest rates. Partnership expenses consist of, among other things,
commissions, advisory fees and administrative fees. The level of these expenses
is dependent upon the level of trading and the ability of the Advisors to
identify and take advantage of price movements in the commodity markets, in
addition to the level of Net Assets maintained. In addition, the amount of
interest income payable by CGM is dependent upon interest rates over which the
Partnership has no control.
No forecast can be made as to the level of redemptions in any given period.
A limited partner may redeem all or some of his Redeemable Units at the Net
Asset Value thereof as of the last day of any month on fifteen days' written
notice to the General Partner. For the year ended December 31, 2003, 1,509.9888
Redeemable Units were redeemed totaling $3,082,349. For the year ended December
31, 2002, 10,759.5577 Redeemable Units were redeemed totaling $16,153,831. For
the year ended December 31, 2001, 4,875.3133 Redeemable Units were redeemed
totaling $6,987,255.
Redeemable Units of Limited Partnership Interest were sold to persons and
entities who are accredited investors as that term is defined in rule 501(a) of
Regulation D under the Securities Act of 1933 as well as to those persons who
are not accredited investors but who have either a net worth (exclusive of home,
furnishings and automobile) either individually or jointly with the investor's
spouse of at least three times his investment in the Partnership (the minimum
investment for which was $25,000) or gross income for the two previous years and
projected gross income for the current fiscal year of not less than three times
his investment in the Partnership for each year.
19
(j) Results of Operations.
For the year ended December 31, 2003, the Net Asset per Redeemable Unit
increased 2.9% from $1,793.18 to $1,846.04. For the year ended December 31,
2002, the Net Asset Value Per Redeemable Unit increased 31.7% from $1,361.72 to
$1,793.18. For the year ended December 31, 2001, the Net Asset Value Per
Redeemable Unit decreased 3.1% from $1,405.49 to $1,361.72.
The Partnership, through its investment in the Master, experienced a net
trading gains of $3,848,959 before commissions and expenses for the year ended
December 31, 2003. Gains were attributable to the trading of currencies,
livestock, metals and stock indices and were partially offset by losses incurred
in the trading of energy, grains, U.S. and non-U.S. interest rates and softs.
In 2003, the markets had periodic strong trends and then just as strong
reversals resulting in a mixed year for the Partnership's overall performance.
Of the nine JWH programs traded on behalf of the Partnership, the programs
that concentrate in interest rate and currencies programs ended the year with
positive returns based on strong performance for the month of December.
Unfortunately, many of these programs were off their high watermarks set earlier
in 2003. After a strong period of trending behavior in the first half of the
year, many programs gave up their gains during the third quarter due to changing
directions in the dollar and interest rates and the high level of volatility in
the energy complex.
The Financial & Metals (F&M) Portfolio was the best performing program for
the year, as much as a result of the trading model used as the markets traded.
Traditionally this program has been volatile because of its focus on financial
markets and its use of a three-phase models; but historically it has been
rewarded for its aggressive market positioning. The diversified programs
employed by the Advisor trade several sectors, including agricultural and energy
markets, and some financial programs also actively trade the energy complex. In
both these cases, the inclusion of these sectors was a drag on overall
performance. Energy markets showed extremely choppy behavior, especially in the
second half of the year, while the agricultural sector was driven lower by
losses in the soft commodities of coffee, sugar, and cotton.
Over the course of the year, on a very broad basis, the year 2003 can be
divided into three periods: the time surrounding the Iraq War (January through
May), the transition to higher world growth (June through October), and the
renewed dollar decline (November and December).
The Iraq war was the focus for much of the first half of the year. Like any
uncertain event, there is the market reaction to the impending event, the event
itself when uncertainty is resolved and the response to the event. The first two
months of the year represented the pre-war uncertainty. With uncertainty
concerning when hostilities would begin and the possible impact of these events,
investors showed a desire to move to a defensive and conservative stance. Equity
markets sold-off, the dollar sold-off, gold prices rose, bond markets rallied,
and the energy markets exhibited a risk premium concerning potential supply
disruptions. This was a continuation of many of the trends carried over from
2002. During the first two months of the year, the Advisor's programs had solid
performance, up over 23%.
20
Just prior to the inception of the hostilities, JWH reduced leverage in all
programs by 50 percent, in expectation of higher volatility in the markets.
Markets were more volatile with a reduction of liquidity in response to events
in March. During this period, bond markets sold-off, the dollar stabilized,
crude oil prices declined significantly, and the stock market started to rally.
Even with this reduced leverage the markets were volatile and prior trends
disrupted leading to losses for the month of March. Positions returned to normal
leverage in all programs in April and May saw a substantial recovery of
Partnership performance with profits coming from short dollar, long interest
rate and long commodity positions. The Advisor performance during these periods
was consistent with their past actions in uncertain and potentially highly
volatile markets. The General Partner was aware of and acknowledged the
Advisor's actions as appropriate for the conditions of the economic and
political environment.
In a transition to economic recovery and growth, the major markets began to
reflect changed expectations in the middle of June. The announcements of
consistent, positive macroeconomic news led to the unexpected pronouncement of
no further easing actions by the ECB and the Fed. News of stronger growth,
especially in the U.S., suggested that the deflationary story may have been
over-done; consequently, there was a trend change, interest rates moved up off
40 year lows. Additionally, the dollar actually rallied on the positive US
economic news, reversing the slide from earlier in the year. In both cases, the
program saw a giveback in JWH trading profits, as the markets transitioned to
new trends.
While there were gains in stock index trading, JWH's exposure in these
markets has been relatively low; so they were not able to make a sustainable
impact on performance. In additional to this negative market action, there were
further increases in volatility for the energy sector and growing volatility
within a relatively tight range for many agricultural markets. The third quarter
and the beginning of the fourth quarter were unprofitable for many of the
Advisors trading programs. This was the result of a transition to higher
worldwide economic growth.
The final period of 2003 was the renewed dollar decline beginning in late
November. Regardless of the strong growth exhibited in the United States in the
third quarter, the best in 20 years, the dollar began a new significant slide
against both the euro and yen. This led to significant fourth quarter profits,
which boosted performance for many of the JWH programs. It is notable how smooth
the declining trend in the dollar was relative to many markets that ended the
year not much differently from where they began. During this period, other
market sectors were unable to find very strong trends, as the dollar concerns
did not carry over to equities or fixed income. With limited news in other
markets, there were no changes in trading ranges.
In the General Partner's opinion, the Advisor continues to employ its
trading methods in a consistent and disciplined manner and its results are
consistent with the objectives of the Partnership and expectations for the
Advisor's programs. The General Partner continues to monitor the Advisor's
performance on a daily, weekly, monthly and annual basis to assure these
objectives are met.
The Partnership, through its investment in the Master, experienced net
trading gains of $10,758,693 before commissions and expenses for the year ended
December 31, 2002. Gains were primarily attributable to the trading of
currencies, energy, grains, livestock, U.S. and non-U.S. interest rates and
indices and were partially offset by losses incurred in the trading of metals
and softs.
21
The Partnership, through its investment in the Master, experienced net
trading gains of $1,681,388 before commissions and expenses for the year ended
December 31, 2001. Gains were primarily attributable to the trading of U.S. and
non-U.S. interest rates, currencies, softs and indices and were partially offset
by losses recognized in the trading of metals, energy and grains.
It should be noted that commodity markets are highly volatile. Broad price
fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
Partnership depends on the existence of major price trends and the ability of
the Advisor to identify those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisor is able to
identify them, the Partnership expects to increase capital through operations.
(d) Operational Risk
The Partnership, through its investment in the Master, is directly exposed
to market risk and credit risk, which arise in the normal course of its business
activities. Slightly less direct, but of critical importance, are risks
pertaining to operational and back office support. This is particularly the case
in a rapidly changing and increasingly global environment with increasing
transaction volumes and an expansion in the number and complexity of products in
the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss
and legal liability attributable to operational problems, such as inaccurate
pricing of transactions, untimely trade execution, clearance and/or settlement,
or the inability to process large volumes of transactions. The Partnership,
through its investment in the Master, is subject to increased risks with respect
to its trading activities in emerging market securities, where clearance,
settlement, and custodial risks are often greater than in more established
markets.
Technological Risk - the risk of loss attributable to technological
limitations or hardware failure that constrain the Partnership's and the
Master's ability to gather, process, and communicate information efficiently and
securely, without interruption, with customers, among Redeemable Units within
the Partnership and the Master, and in the markets where the Partnership and the
Master participate.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in
the documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
unit holders, creditors, and regulators, is free of material errors.
22
(e) Critical Accounting Policies.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the financial statements and accompanying notes.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statement of financial condition at fair value on the last business day of the
period, which represents market value for those commodity interests for which
market quotations are readily available or other measures of fair value deemed
appropriate by management of the General Partner for those commodity interests
and foreign currencies for which market quotations are not readily available,
including dealer quotes for swaps and certain option contracts. Investments in
commodity interests denominated in foreign currencies are translated into U.S.
dollars at the exchange rates prevailing on the last business day of the period.
Realized gains (losses) and changes in unrealized values on commodity interests
and foreign currencies are recognized in the period in which the contract is
closed or the changes occur and are included in net gains (losses) on trading of
commodity interests.
Foreign currency contracts are those contracts where the Partnership agrees
to receive or deliver a fixed quantity of foreign currency for an agreed-upon
price on an agreed future date. Foreign currency contracts are valued daily, and
the Partnership's net equity therein, representing unrealized gain or loss on
the contracts as measured by the difference between the forward foreign exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting dates, is included in the statement of financial condition. Realized
gains (losses) and changes in unrealized values on foreign currency contracts
are recognized in the period in which the contract is closed or the changes
occur and are included in the statement of income and expenses and partners'
capital.
The General Partner believes that the accounting policies that will be most
critical to the Partnership's financial condition and results of operations
relate to the valuation of the Master's positions. The majority of the Master's
positions will be exchange-traded futures contracts, which will be valued daily
at settlement prices published by the exchanges. If applicable, the
Partnership's spot and forward foreign currency contracts will also be valued at
published daily settlement prices or at dealers' quotes. The General
Partner/Managing Member expects that under normal circumstances substantially
all of the Partnership's/Master's assets will be valued by objective measures
and without difficulty.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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 Partnership's assets are subject to the risk of trading
loss, through its investment in the Master. Unlike an operating company, the
risk of market sensitive instruments is integral, not incidental, to the
Partnership's and the Master's main line of business.
23
The risk to the limited partners that have purchased interests in the
Partnership is limited to the amount of their capital contributions to the
Partnership and their share of the Partnership assets and undistributed profits.
This limited liability is a consequence of the organization of the Partnership
as a limited partnership under applicable law.
Market movements result in frequent changes in the fair market value of the
Master's open positions and, consequently, in its earnings and cash flow. The
Master's and 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 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 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.
Quantifying the Master's Trading Value at Risk
The following quantitative disclosures regarding the Master's and the
Partnership's market risk exposures contain "forward-looking statements" within
the meaning of the safe harbor from civil liability provided for such statements
by the Private Securities Litigation Reform Act of 1995 (set forth in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor except for statements
of historical fact (such as the terms of particular contracts and the number of
market risk sensitive instruments held during or at the end of the reporting
period).
The Master's and the Partnership's risk exposure in the various market
sectors traded by the Advisor is quantified below in terms of Value at Risk. Due
to the Master's mark-to-market accounting, any loss in the fair value of the
Master's open positions is directly reflected in the Master's earnings (realized
or unrealized) and cash flow.
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
24
incurred in the fair value of any given contract in 95%-99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component, which is not relevant to Value
at Risk.
In the case of market sensitive instruments, which are not exchange traded
(almost exclusively currencies in the case of the Master), the margin
requirements for the equivalent futures positions have been used as Value at
Risk. In those rare cases in which a futures-equivalent margin is not available,
dealers' margins have been used.
The fair value of the Master's futures and forward positions does not have
any optional component. However, the Advisor trades commodity options. The Value
at Risk associated with options is reflected in the following table as the
margin requirement attributable to the instrument underlying each option. Where
this instrument is a futures contract, the futures margin, and where this
instrument is a physical commodity, the futures-equivalent maintenance margin
has been used. This calculation is conservative in that it assumes that the fair
value of an option will decline by the same amount as the fair value of the
underlying instrument, whereas, in fact, the fair values of the options traded
by the Master in almost all cases fluctuate to a lesser extent than those of the
underlying instruments.
In quantifying the Master's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been added to determine each trading category's aggregate Value at Risk.
The diversification effects resulting from the fact that the Master's positions
are rarely, if ever, 100% positively correlated have not been reflected.
25
The Master's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Master's open positions by market category as of December 31, 2003 and the
highest and lowest value at any point during the year. All open position trading
risk exposures of the Master have been included in calculating the figures set
forth below. As of December 31, 2003, the Master's total capitalization was
$145,076,617.
December 31, 2003
Year to Date
---------------------------------------------
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Average*
- ------------ ------------- -------------- -------------- ------------ ---------
Currencies
- - OTC $ 9,075, 287 6.25% $9,696,832 $1,910,405 $6,684,699
Energy 5,468,850 3.77% 6,633,674 1,837,000 4,354,588
Grains 578,400 0.40% 760,425 152,175 506,502
Interest rates U.S. 2,439,000 1.68% 2,557,100 419,700 1,519,918
Interest rates Non-U.S. 4,079,811 2.81% 6,547,640 1,288,573 4,018,251
Livestock 150,000 0.10% 336,800 9,350 82,020
Metals
- Exchange Traded Contracts 1,259,500 0.87% 2,120,000 198,000 917,917
- OTC 912,480 0.63% 935,700 175,800 603,845
Softs 663,973 0.46% 1,227,182 295,046 685,656
Indices 3,764,466 2.60% 3,871,103 709,998 2,379,432
---------- -------
Total $ 28,391,767 19.57%
---------- ------
* monthly average based on month-end value at risk
26
As of December 31, 2002, the Master's total capitalization was $90,459,415.
December 31, 2002
Year to Date
---------------------------------------------
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Average*
- ------------ -------------- -------------- -------------- ------------ ---------
Currencies
- - OTC Contracts $ 4,189,488 4.63% $7,032,293 $962,872 $3,609,073
Energy 3,346,400 3.70% 3,346,400 557,000 2,095,725
Grains 245,903 0.27% 450,900 86,150 256,876
Interest rates U.S. 590,280 0.65% 1,302,100 180,800 1,014,145
Interest rates Non-U.S. 3,100,649 3.43% 3,493,265 979,315 3,047,371
Livestock 13,500 0.02% 24,750 13,500 17,025
Metals
- Exchange Traded Contracts 418,000 0.46% 464,000 76,500 394,875
- OTC Contracts 434,425 0.48% 550,250 48,000 367,250
Softs 385,842 0.43% 694,904 119,740 494,737
Indices 752,257 0.83% 1,931,347 641,735 1,337,731
----------- -------
Total $13,476,744 14.90%
----------- -----
* quarterly average based on month-end value at risk
27
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Master is
typically many times the applicable maintenance margin requirement (margin
requirements generally range between 2% and 15% of contract face value) as well
as many times the capitalization of the Master. The magnitude of the Master's
open positions creates a "risk of ruin" not typically found in most other
investment vehicles. Because of the size of its positions, certain market
conditions -- unusual, but historically recurring from time to time -- could
cause the Master to incur severe losses over a short period of time. The
foregoing Value at Risk table -- as well as the past performance of the Master
- -- gives no indication of this "risk of ruin."
Non-Trading Risk
The Master has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as any market risk they
represent) are considered to be immaterial.
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Master's market
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Master's market risk
exposures - except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Master manages its primary market risk
exposures - constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Master's primary market risk exposures as well as the strategies
used and to be used by the General Partner and the Advisor for managing such
exposures are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Master's risk controls to
differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Master. There
can be no assurance that the Master's current market exposure and/or risk
management strategies will not change materially or that any such strategies
will be effective in either the short or long term. Investors must be prepared
to lose all or substantially all of their investment in the Partnership.
The following were the primary trading risk exposures of the Master as of
December 31, 2003, by market sector.
28
Interest Rates. Interest rate movements directly affect the price of the
futures positions held by the Master and indirectly the value of its stock index
and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Master's profitability. The Master's primary interest rate exposure is to
interest rate fluctuations in the United States and the other G-8 countries.
However, the Master also takes futures positions on the government debt of
smaller nations -- e.g., Australia.
Currencies. The Master's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The General Partner does not anticipate that the
risk profile of the Master's currency sector will change significantly in the
future. The currency trading Value at Risk figure includes foreign margin
amounts converted into U.S. dollars with an incremental adjustment to reflect
the exchange rate risk inherent to the U.S. dollar-based Master in expressing
Value at Risk in a functional currency other than U.S. dollars.
Stock Indices. The Master's primary equity exposure is to equity price risk
in the G-8 countries. The stock index futures traded by the Master are limited
to futures on broadly based indices. As of December 31, 2003, the Master's
primary exposures were in the Eurex (Germany) and Chicago Mercantile Exchange
(United States) stock indices. The General Partner anticipates little, if any,
trading in non-G-8 stock indices. The Master is primarily exposed to the risk of
adverse price trends or static markets in the major U.S., European and Japanese
indices. (Static markets would not cause major market changes but would make it
difficult for the Master to avoid being "whipsawed" into numerous small losses.)
Metals. The Master's primary metal market exposure is to fluctuations in
the price of gold and silver. Although the Advisor will from time to time trade
base metals such as aluminum and copper, the principal market exposures of the
Master have consistently been in the precious metals, gold and silver.
Softs. The Master's primary commodities exposure is to agricultural price
movements, which are often directly affected by severe, or unexpected weather
conditions. Coffee, cotton and sugar accounted for the substantial bulk of the
Master's commodity exposure as of December 31, 2003.
Energy. The Master's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East. Oil
prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Master as of
December 31, 2003.
Foreign Currency Balances. The Master's primary foreign currency balances
are in Japanese yen, Euro dollar and Swiss francs. The Advisor regularly
converts foreign currency balances to U.S. dollars in an attempt to control the
Master's non-trading risk.
29
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Master's and 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
Master and the Partnership are subject.
The General Partner monitors the Master's performance and the concentration
of its open positions, and consults with the Advisor concerning the Master's
overall risk profile. If the General Partner felt it necessary to do so, the
General Partner could require the Advisor to close out individual positions as
well as enter certain positions traded on behalf of the Master. However, any
such intervention would be a highly unusual event. The General Partner primarily
relies on the Advisor's own risk control policies while maintaining a general
supervisory overview of the Master's market risk exposures.
The Advisor applies its own risk management policies to its trading. The
Advisor often follows diversification guidelines, margin limits and stop loss
points to exit a position. The Advisor's research of risk management often
suggests ongoing modifications to its trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisor to discuss its risk management and to look
for any material changes to the Advisor's portfolio balance and trading
techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
30
Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY MIDWEST FUTURES FUND L.P. II
INDEX TO FINANCIAL STATEMENTS
Page Number
Oath or Affirmation F-2
Independent Auditors' Report. F-3 - F-4
Statements of Financial Condition at
December 31, 2003 and 2002. F-5
Statements of Income and Expenses for
the years ended December 31,
2003, 2002 and 2001. F-6
Statements of Partners' Capital for the
years ended December 31, 2003,
2002 and 2001. F-7
Notes to Financial Statements. F-8 - F-13
Selected Unaudited Quarterly Financial Data. F-14
Financial Statements of the Master:
Oath or Affirmation. F-15
Independent Auditors' Report. F-16 - F-17
Statements of Financial Condition at
December 31, 2003 and 2002. F-18
Condensed Schedules of Investments at
December 31, 2003 and 2002. F-19 - F-20
Statements of Income and Expenses for the
years ended December 31, 2003, 2002 and for
the period January 26, 2001 (commencement of
trading operations) to December 31, 2001. F-21
Statements of Members' Capital for the years
ended December 31, 2003, 002 and for the period
January 26, 2001 (commencement of Trading
operations) to December 31, 2001. F-22
Notes to Financial Statements. F-23 - F-26
Selected Unaudited Quarterly Financial Data. F-27
To the Limited Partners of
Smith Barney Mid-West Futures Fund L.P. II
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Daniel R. Mcauliffe, Jr
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Citigroup Managed Futures LLC
General Partner, Smith Barney Mid-West
Futures Fund L.P. II
Citigroup Managed Futures LLC
399 Park Avenue
7th Floor
New York, N.Y. 10022
212-559-2011
F-2
Independent Auditors' Report
To the Partners of
Smith Barney Mid-West Futures Fund L.P. II:
We have audited the accompanying statements of financial condition of Smith
Barney Mid-West Futures Fund L.P. II (the Partnership), as of December 31, 2003
and 2002, and the related statements of income and expenses, and partners'
capital for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The statements of
income and expenses and partners' capital of the Partnership for the year ended
December 31, 2001 were audited by other auditors whose report dated February 28,
2002 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smith Barney Mid-West Futures
Fund L.P. II as of December 31, 2003 and 2002, and the results of its operations
and its partners' capital for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 27, 2004
F-3
Report of Independent Auditors
To the Partners of
Smith Barney Mid-West Futures Fund L.P. II:
In our opinion, the accompanying statements of income and expenses and partners'
capital present fairly, in all material respects, the results of Smith Barney
Mid-West Futures Fund L.P. II's operations for the year ended December 31, 2001,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the management
of the General Partner; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the management
of the General Partner, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-4
Smith Barney Mid-West Futures Fund L.P. II
Statements of Financial Condition
December 31, 2003 and 2002
2003 2002
----------- -----------
Assets:
Investment in Master, at fair value $26,278,490 $28,234,107
Cash 18,291 19,882
----------- -----------
$26,296,781 $28,253,989
----------- -----------
Liabilities and Partners' Capital:
Liabilities:
Accrued expenses:
Commissions (Note 3c) $ 131,484 $ 141,270
Management fees (Note 3b) 43,570 46,812
Administrative fees (Note 3a) 21,785 23,406
Professional fees 19,261 21,578
Other 3,865 3,920
Redemptions payable (Note 5) 222,481 195,333
----------- -----------
442,446 432,319
----------- -----------
Partners' capital (Notes 1 and 5):
General Partner, 401.3070 and 451.3070 Unit equivalents
outstanding in 2003 and 2002, respectively 740,829 809,275
Limited Partners, 13,603.9978 and 15,063.9866 Redeemable Units of Limited
Partnership Interest outstanding in 2003 and 2002, respectively 25,113,506 27,012,395
----------- -----------
25,854,335 27,821,670
----------- -----------
$26,296,781 $28,253,989
----------- -----------
See accompanying notes to financial statements.
F-5
Smith Barney Mid-West Futures Fund L.P. II
Statements of Income and Expenses
for the years ended
December 31, 2003, 2002 and 2001
2003 2002 2001
------------ ------------ ------------
Income:
Realized gains on closed positions and foreign
currencies from Master $ 3,369,625 $ 9,359,691 $ 3,950,697
Change in unrealized gains (losses) on open
positions from Master 479,334 1,399,002 (1,000,510)
Expenses allocated from Master (107,545) (92,985) (64,302)
Interest income allocated from Master 229,309 377,817 --
Net gains (losses) on trading of commodity
interests:
Realized gains on closed positions -- -- 1,696,703*
Change in unrealized losses on
open positions -- -- (2,965,502)*
------------ ------------ ------------
3,970,723 11,043,525 1,617,086
Interest income (Note 3c) -- -- 1,122,566
------------ ------------ ------------
3,970,723 11,043,525 2,739,652
------------ ------------ ------------
Expenses:
Brokerage commissions including clearing fees
of $53,530 in 2001 (Note 3c) 1,758,106 1,874,426 2,506,228
Management fees (Note 3b) 582,488 620,986 809,363
Administrative fees (Note 3a) 291,243 310,492 404,680
Incentive fees (Note 3b) 178,139 -- --
Professional fees 39,498 36,313 27,287
Other expenses 6,235 4,777 7,093
------------ ------------ ------------
2,855,709 2,846,994 3,754,651
------------ ------------ ------------
Net income (loss) $ 1,115,014 $ 8,196,531 $ (1,014,999)
------------ ------------ ------------
Net income (loss) per Redeemable Unit of Limited
Partnership Interest and General Partner Unit
equivalent (Notes 1 and 6) $ 52.86 $ 431.46 $ (43.77)
------------ ------------ ------------
* For the period from January 1, 2001 to January 25, 2001 (Note 1)
See accompanying notes to financial statements.
F-6
Smith Barney Mid-West Futures Fund L.P. II
Statements of Partners' Capital
for the years ended
December 31, 2003, 2002 and 2001
Limited General
Partners Partner Total
------------ ------------ ------------
Partners' capital at December 31, 2000 42,925,399 855,825 43,781,224
Net loss (988,347) (26,652) (1,014,999)
Redemption of 4,875.3133 Redeemable Units
of Limited Partnership Interest (6,987,255) -- (6,987,255)
-------------- ----------- --------------
Partners' capital at December 31, 2001 34,949,797 829,173 35,778,970
Net income 7,936,656 259,875 8,196,531
Redemption of 10,601.9491 Redeemable Units of
Limited Partnership Interest and 157.6086 Units
of General Partnership equivalent (15,874,058) (279,773) (16,153,831)
-------------- ----------- --------------
Partners' capital at December 31, 2002 27,012,395 809,275 27,821,670
Net income 1,080,639 34,375 1,115,014
Redemption of 1,459.9888 Redeemable Units
of Limited Partnership Interest and 50.0000
Units of General Partnership equivalent (2,979,528) (102,821) (3,082,349)
-------------- ----------- --------------
Partners' capital at December 31, 2003 $25,113,506 $740,829 $25,854,335
------------- ----------- -------------
See accompanying notes to financial statements.
F-7
Smith Barney Mid-West Futures Fund L.P. II
Notes to Financial Statements
1. Partnership Organization:
Smith Barney Mid-West Futures Fund L.P. II (the "Partnership") is a limited
partnership which was organized on June 3, 1994 under the partnership laws
of the State of New York to engage, 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 on September 1, 1994. From September 1, 1994 to January
25, 2001, the Partnership engaged directly in the speculative trading of a
diversified portfolio of commodity interests. The commodity interests that
were traded by the Partnership are volatile and involve a high degree of
market risk. The Partnership was authorized to sell 75,000 redeemable units
of Limited Partnership Interest ("Redeemable Units") during its initial
offering period. As of June 7, 1999, the Partnership was authorized to sell
an additional 25,000 Redeemable Units.
Effective January 26, 2001, the Partnership allocated substantially all of
its capital to the JWH Strategic Allocation Master Fund LLC, a New York
Limited Liability Company (the "Master"). With this cash, the Partnership
purchased 42,510.5077 Redeemable Units of the Master with 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. ("JWH") using
the Strategic Allocation Program, JWH's proprietary trading program, to
invest together in one trading vehicle. Citigroup Managed Futures LLC,
formerly Smith Barney Futures Management LLC, acts as the general partner
(the "General Partner") of the Partnership. The General Partner is the
managing member of the Master. Individual and pooled accounts currently
managed by JWH, including the Partnership (collectively, the "Feeder
Funds"), are permitted to be a non-managing member of the Master. The
General Partner and JWH believe that trading through this master/feeder
structure should promote efficiency and economy in the trading process.
Expenses to investors as a result of investment in the Master are
approximately the same and redemption rights are not affected.
The financial statements of the Master, including the condensed schedules
of investments, are contained elsewhere in this report and should be read
together with the Partnership's financial statements.
At December 31, 2003 and 2002, the Partnership owns 18.11% and 31.19%,
respectively 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 Partnership's commodity broker is Citigroup Global Markets Inc.
("CGM"), formerly Salomon Smith Barney Inc. CGM is an affiliate of the
General Partner. The General Partner is wholly owned by Citigroup Global
Markets Holdings Inc. ("CGMHI"), formerly Salomon Smith Barney Holdings
Inc., which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of
Citigroup Inc. ("Citigroup").
The General Partner and each limited partner share in the profits and
losses of the Partnership in proportion to the amount of partnership
interest owned by each except that no limited partner shall be liable for
obligations of the Partnership in excess of their initial capital
contribution and profits, if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2014; when the Net Asset Value of a Redeemable Unit
decreases to less than $350 per Redeemable Unit as of the close of business
on any business day; or under certain other circumstances as defined in the
Limited Partnership Agreement.
F-8
2. Accounting Policies:
a. The value of the Partnership's investment in the Master reflects the
Partnership's proportional interest in the members' capital of the
Master. All of the income and expenses and unrealized and realized
gains and losses from the commodity transactions of the Master are
allocated pro rata among the investors at the time of such
determination. All commodity interests (including derivative financial
instruments and derivative commodity instruments) held by the Master
and prior to January 26, 2001 by the Partnership are used for trading
purposes. The commodity interests are recorded on trade date and open
contracts are recorded in the statements of financial condition at
fair value on the last business day of the year, which represents
market value for those commodity interests for which market quotations
are readily available. Investments in commodity interests denominated
in foreign currencies are translated into U.S. dollars at the exchange
rates prevailing on the last business day of the year. Realized gains
(losses) and changes in unrealized gains (losses) on open positions
are recognized in the period in which the contract is closed or the
changes occur and are included in net gains (losses) on trading of
commodity interests.
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on their share of the Partnership's
income and expenses.
c. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
d. Certain prior period amounts have been reclassified to conform to
current year presentation.
F-9
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership. The Partnership will pay the General
Partner a monthly administrative fee in return for its services to the
Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets
of the Partnership. This fee may be increased or decreased at the
discretion of the General Partner. Month-end Net Assets, for the
purpose of calculating administrative fees are Net Assets, as defined
in the Limited Partnership Agreement, prior to the reduction of
redemptions and incentive fees.
b. Management Agreement:
The Management Agreement that the General Partner, on behalf of the
Partnership, entered into with the Advisor, provides that the Advisor
has sole discretion in determining the allocation of the assets of the
Partnership by the General Partner. The Partnership is obligated to
pay the Advisor a monthly management fee equal to 1/6 of 1% (2% per
year) of month-end Net Assets allocated pro-rata by the Master.
Month-end Net Assets, for the purpose of calculating management fees
are Net Assets, as defined in the Limited Partnership Agreement, prior
to the reduction of redemptions and incentive fees. In addition, the
Partnership is obligated to pay the Advisor an incentive fee, payable
quarterly, equal to 20% of the New Trading Profits allocated pro-rata
by the Master, as defined in the Management Agreement, of the
Partnership.
c. Customer Agreement:
Prior to January 26, 2001, the Partnership entered into a Customer
Agreement with CGM whereby CGM provided services which included, among
other things, the execution of transactions for the Partnership's
account in accordance with orders placed by the Advisor. The
Partnership was obligated to pay a monthly brokerage fee to CGM equal
to 1/2 of 1 % of month-end Net Assets (6% per year) in lieu of
brokerage commissions on a per trade basis (the "Brokerage Fee").
Month-end Net Assets, for the purpose of calculating commissions are
Net Assets, as defined in the Limited Partnership Agreement, prior to
the reduction of accrued expenses and redemptions payable. A portion
of this fee is paid to employees of CGM who have sold Redeemable Units
of the Partnership. This fee did not include exchange, clearing, floor
brokerage, user, give-up and National Futures Association fees which
were borne by the Partnership. Effective January 26, 2001, the
Partnership is obligated to pay the Brokerage Fee based on month-end
Net Assets allocated pro-rata from the Master. Effective January 26,
2001, all exchange, clearing, user, give-up, floor brokerage and
National Futures Association fees will be borne by the Master and
allocated
F-10
to the Partnership through its investment in Master. Effective January
26, 2001, cash margin requirements are maintained by the Master. For
the period from January 1, 2001 to January 25, 2001, CGM paid the
Partnership interest on 80% of the average daily equity maintained in
cash in its account during each month at a 30-day Treasury bill rate
determined weekly by CGM based on the non-competitive yield on 3-month
U.S. Treasury bills maturing in 30 days from the date on which such
weekly rate is determined. Effective January 26, 2001, CGM pays the
Partnership interest on 80% of the average daily equity allocated
pro-rata to the Partnership by the Master during each month at the
rate of the average non-competitive yield of 13-week U.S. Treasury
bills as determined at the weekly auctions thereof during the month.
Interest income allocated from the Master in 2001 was not reclassified
on the statements of income and expenses. The Customer Agreement
between the Master and CGM gives the Master the legal right to net
unrealized gains and losses. The Customer Agreement may be terminated
upon notice by either party.
4. Trading Activities:
The results of the Master's trading activities, and prior to January 26,
2001, the Partnership's trading activities are shown in the statements of
income and expenses.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner; however, a limited partner may redeem all or some of
their Redeemable Units at the Net Asset Value thereof as of the last day of
any month beginning with the first full month ending at least three months
after trading commenced on fifteen days written notice to the General
Partner.
The Partnership is permitted to withdraw all or a portion of its interest
in the Master as of each month-end in order to meet its obligations with
respect to the redemption rights of limited partners.
F-11
6. Financial Highlights:
Changes in the Net Asset Value per Redeemable Unit of Partnership interest
for the years ended December 31, 2003, 2002 and 2001 were as follows:
2003 2002 2001
--------- --------- --------
Net realized and unrealized gains (losses)* $ 111.43 $ 463.00 $ (38.33)
Interest income 15.58 19.08 38.33
Expenses** (74.15) (50.62) (43.77)
--------- --------- ---------
Increase (decrease) for year 52.86 431.46 (43.77)
Net asset value per Redeemable Unit,
beginning of year 1,793.18 1,361.72 1,405.49
--------- --------- ---------
Net asset value per Redeemable Unit, end of year $ 1,846.04 $ 1,793.18 $ 1,361.72
--------- --------- ---------
Ratios to Average Net Assets :
Net investment loss before incentive fees*** (8.9)% (8.5)% (6.1)%
--------- --------- ---------
Operating expenses 9.7% 9.8% 8.8%
Incentive fees 0.6% --% --%
--------- --------- ---------
Total expenses 10.3% 9.8% 8.8%
--------- --------- ---------
Total return:
Total return before incentive fees 3.7% 31.7% (3.1)%
Incentive fees (0.7)% --% --%
--------- --------- ---------
Total return after incentive fees 3.0% 31.7% (3.1)%
--------- --------- ---------
* Includes brokerage commissions
** Excludes brokerage commissions
*** Interest income less total expenses (exclusive of incentive fees)
The above ratios may vary for individual investors based on the timing of
capital transactions during the year. Additionally, these ratios are
calculated for the Limited Partner class using the Limited Partners' share
of income, expenses and average net assets.
F-12
7. Financial Instrument Risks:
In the normal course of its business, the Partnership, 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. These financial instruments may include
forwards, futures and options, whose values are 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 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 Partnership's/Master's risk of loss in the event of
counterparty default is typically limited to the amounts recognized in the
statements of financial condition and not represented by the contract or
notional amounts of the instruments. The Partnership, through the
Partnership's investment in the Master has concentration risk because the
sole counterparty or broker with respect to the Master's assets is CGM.
The General Partner monitors and controls the Partnership's/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 Partnership/Master are 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 majority of these instruments mature within one year of December 31,
2003. However, due to the nature of the Partnership's/Master's business,
these instruments may not be held to maturity.
F-13
Selected unaudited quarterly financial data for the years ended December
31, 2003 and 2002 are summarized below:
For the period from For the period from For the period from For the period from
October 1, 2003 to July 1, 2003 to April 1, 2003 to January 1, 2003 to
December 31, 2003 September 30, 2003 June 30, 2003 March 31, 2003
Net realized and unrealized trading
gains (losses) net of expenses allocated
from Master, brokerage commissions
and clearing fees including interest
income $ 498,262 $ (2,068,454) $ (766,409) $ 4,549,218
Net Income (loss) $ 298,999 $ (2,288,378) $ (1,009,380) $ 4,113,773
Increase (decrease) in Net Asset
Value per Redeemable Unit $ 22.11 $ (161.12) $ (71.37) $ 263.24
For the period from For the period from For the period from For the period from
October 1, 2002 to July 1, 2002 to April 1, 2002 to January 1, 2002 to
December 31, 2002 September 30, 2002 June 30, 2002 March 31, 2002
Net realized and unrealized trading
gains (losses) net of expenses allocated
from Master, brokerage commissions
and clearing fees including interest
income $ (2,824,268) $ 6,165,953 $ 9,257,872 $ (3,430,458)
Net Income (loss) $ (3,037,323) $ 5,916,110 $ 9,009,608 $ (3,691,864)
Increase (decrease) in Net Asset
Value per Redeemable Unit $ (190.28) $ 345.91 $ 420.73 $ (144.90)
F-14
To the Members of
JWH Strategic Allocation Master Fund LLC
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Daniel R. Mcauliffe, Jr
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Citigroup Managed Futures LLC
Managing Member, JWH Strategic Allocation
Master Fund LLC
Citigroup Managed Futures LLC
399 Park Avenue
7th Floor
New York, N.Y. 10022
212-559-2011
F-15
Independent Auditors' Report
To the Members of
JWH Strategic Allocation Master Fund LLC:
We have audited the accompanying statements of financial condition of JWH
Strategic Allocation Master Fund LLC (the Company), including the condensed
schedules of investments, as of December 31, 2003 and 2002, and the related
statements of income and expenses, and members' capital for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The financial statements of the Company for the
period from January 26, 2001 (commencement of trading operations) to December
31, 2001 were audited by other auditors whose report dated February 28, 2002
expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JWH Strategic Allocation Master
Fund LLC as of December 31, 2003 and 2002, and the results of its operations and
its members' capital for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 27, 2004
F-16
Report of Independent Auditors
To the Members of
JWH Strategic Allocation Master Fund LLC:
In our opinion, the accompanying statements of income and expenses and members'
capital present fairly, in all material respects, the results of JWH Strategic
Allocation Master Fund LLC's operations for the period from January 26, 2001
(commencement of trading operations) to December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the management of the General
Partner; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by the management
of the General Partner, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 28, 2002
F-17
JWH Strategic Allocation Master Fund LLC
Statements of Financial Condition
December 31, 2003 and 2002
2003 2002
------------ ------------
Assets:
Equity in commodity futures trading account:
Cash (restricted $31,852,745 and $15,044,312 in 2003 $131,979,502 $ 81,112,283
and 2002, respectively) (Note 3c)
Net unrealized appreciation on open futures positions 1,477,101 4,544,545
Unrealized appreciation on open forward contracts 13,496,013 7,528,350
Interest receivable 80,717 76,955
------------ ------------
$147,033,333 $ 93,262,133
------------ ------------
Liabilities and Members' Capital:
Liabilities:
Unrealized depreciation on open forward contracts $ 1,799,594 $ 2,677,940
Accrued expenses:
Professional fees 76,405 47,823
Distribution payable 80,717 76,955
------------ ------------
1,956,716 2,802,718
------------ ------------
Members' capital:
Members' capital, 86,435.1829 and 60,664.1530 Units
outstanding in 2003 and 2002, respectively 145,076,617 90,459,415
------------ ------------
$147,033,333 $ 93,262,133
------------ ------------
See accompanying notes to financial statements.
F-18
JWH Strategic Allocation
Master Fund LLC
Condensed Schedule of Investments
December 31, 2003
Sector Contract Fair Value
------ -------- ----------
Currencies Unrealized appreciation on forward contracts 7.66% $11,113,632
Unrealized depreciation on forward contracts (1.22)% (1,771,985)
----------
Total Currencies 6.44% 9,341,647
---------
Total Energy 0.90% Futures contracts sold 0.90% 1,299,873
---------
Total Grains 0.22% Futures contracts purchased 0.22% 318,552
---------
Interest Rates Non-U.S. Futures contracts sold (0.08)% (121,386)
Futures contracts purchased (0.01)% (8,299)
---------
Total Interest Rates Non-U.S. (0.09)% (129,685)
---------
Total Interest Rates 0.01% Futures contracts purchased 0.01% 19,950
---------
Livestock Futures contracts sold 0.02% 27,750
Futures contracts purchased (0.46)% (671,770)
---------
Total Livestock (0.44)% (644,020)
---------
Metals Futures contracts purchased 1.40% 2,028,135
Unrealized depreciation on forward contracts (0.02)% (27,609)
Unrealized appreciation on forward contracts 1.64% 2,382,381
---------
Total forward contracts 1.62% 2,354,772
---------
Total Metals 3.02% 4,382,907
---------
Softs Futures contracts sold (0.15)% (212,200)
Futures contracts purchased (0.59)% (854,280)
---------
Total Softs (0.74)% (1,066,480)
----------
Indices Futures contracts sold (0.85)% (1,230,359)
Futures contracts purchased 0.61% 881,135
---------
Total Indices (0.24)% (349,224)
---------
Total Fair Value 9.08% $13,173,520
===========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- ---------------------------------- -------------------------- ------------------------
Australia $(106,707) (0.81)%
Canada 90,406 0.69
Germany 468,304 3.55
Japan (1,350,542) (10.25)
United Kingdom 2,351,597 17.85
United States 11,720,462 88.97
-------------------------- ------------------------
$13,173,520 100.00%
========================== ========================
Percentages are based on Members' capital unless otherwise indicated.
See accompanying notes to financial statements
F-19
JWH Strategic Allocation
Master Fund LLC
Condensed Schedule of Investments
December 31, 2002
Sector Notional Amount Contract Fair Value
- ----------------------- ------------------- -------------------------- -----------
Currencies Unrealized appreciation on forward contracts 8.23%
EUR (116,850,000) EUR/USD 3.52%, March 19, 2003 $3,188,260
CHF (60,550,000) CHF/USD 1.82%, March 19, 2003 1,644,000
JPY (9,565,600,000) JPY/USD 1.51%, March 19, 2003 1,364,829
Other 1.38% 1,251,826
Unrealized depreciation on forward contracts(2.61)% (2,364,747)
----------
Total Currencies 5.62% Total forward contracts 5.62% 5,084,168
---------
Total Energy 1.22% Futures contracts purchased 1.22% 1,104,121
---------
Grains Futures contracts purchased (0.01)% (10,640)
Futures contracts sold 0.36% 329,388
---------
Total Grains 0.35% 318,748
---------
Interest Rates U.S. Futures contracts purchased 0.55% 497,228
Futures contracts sold (0.96)% (872,094)
---------
Total Interest Rates U.S. (0.41)% (374,866)
---------
Total Interest Rates Non-U.S. 2.78% Futures contracts purchased 2.78% 2,515,874
---------
Total Livestock 0.03% Futures contracts purchased 0.03% 23,980
---------
Metals Futures contracts purchased 1.01% 916,440
Unrealized appreciation on forward contracts 0.09% 79,435
Unrealized depreciation on forward contracts (0.35)% (313,193)
---------
Total forward contracts (0.26)% (233,758)
---------
Total Metals 0.75% 682,682
---------
Softs Futures contracts purchased 0.27% 246,814
Futures contracts sold (0.00)%* (2,844)
---------
Total Softs 0.27% 243,970
---------
Indices Futures contracts purchased (0.24)% (222,005)
Futures contracts sold 0.02% 18,283
---------
Total Indices (0.22)% (203,722)
---------
Total Fair Value 10.39% $9,394,955
==========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- ---------------------------------- -------------------------- ------------------------
Australia $220,191 2.34%
Canada 51,439 0.55
Germany 879,354 9.36
Japan 771,920 8.22
United Kingdom 195,396 2.08
United States 7,276,655 77.45
-------------------------- ------------------------
$9,394,955 100.00%
========================== ========================
Percentages are based on Members' capital unless otherwise indicated.
* Due to rounding.
See accompanying notes to financial statements.
F-20
JWH Strategic Allocation Master Fund LLC
Statements of Income and Expenses
for the years ended December 31, 2003 and 2002 and
for the period from January 26, 2001
(commencement of trading operations)
to December 31, 2001
2003 2002 2001
----------- ----------- -----------
Income:
Net gains (losses) on trading of commodity
interests:
Realized gains on closed positions and
foreign currencies $ 1,507,963 $29,185,102 $ 9,307,481
Change in unrealized gains (losses)
on open positions 3,778,565 4,002,309 (2,710,941)
Interest income 1,160,948 1,213,624 --
----------- ----------- -----------
6,447,476 34,401,035 6,596,540
----------- ----------- -----------
Expenses:
Clearing fees 438,351 220,446 230,343
Professional fees 60,000 50,000 45,000
----------- ----------- -----------
498,351 270,446 275,343
----------- ----------- -----------
Net income $ 5,949,125 $34,130,589 $ 6,321,197
----------- ----------- -----------
Net income per Unit
of Member Interest (Notes 1 and 6) $ 202.70 $ 462.09 $ 45.82
----------- ----------- -----------
See accompanying notes to financial statements.
F-21
JWH Strategic Allocation Master Fund LLC
Statement of Members' Capital
for the years ended December 31, 2003 and 2002
and for the period from January 26, 2001
(commencement of trading operations)
to December 31, 2001
Members'
Capital
-----------
Initial capital contribution from the Members
representing 74,020.3930 Units $ 74,020,393
Net Income 6,321,197
Sale of 29,596.7052 Units
of Members' Interest 28,929,324
Redemption of 14,043.3252 Units
of Members' Interest (15,592,976)
-------------
Members' capital at December 31, 2001 93,677,938
Net Income 34,130,589
Sale of 3,545.8883 Units
of Members' Interest 4,638,927
Redemption of 32,455.5083 Units
of Members' Interests (40,774,415)
Distribution of interest to feeder funds (1,213,624)
-------------
Members' capital at December 31, 2002 90,459,415
Net Income 5,949,125
Sale of 33,577.0811 Units
of Members' Interest 63,340,545
Redemption of 7,806.0512 Units
of Members' Interests (13,511,520)
Distribution of interest to feeder funds (1,160,948)
-------------
Members' capital at December 31, 2003 $ 145,076,617
-------------
See accompanying notes to financial statements.
F-22
JWH Strategic Allocation Master Fund LLC
Notes to Financial Statements
1. General:
JWH Strategic Allocation Master Fund LLC (the "Master") is a limited
liability company formed under the New York Limited Liability Company Law.
The Master's purpose is to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The Master is authorized to sell an
unlimited number of member interests.
Effective January 26, 2001, Shearson Mid-West Futures Fund ("Mid-West") and
Smith Barney Mid-West Futures Fund L.P. II ("Mid-West II") allocated
substantially all of their capital to the Master. With this cash, Mid-West
and Mid-West II purchased a total of 74,020.3930 Units of the Master with a
fair value of $74,020,393. The Master was formed 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 vehicle.
The Master operates under a "master/feeder fund" structure where its
investors consist of Mid-West, Mid-West II, The Aspetuck Fund L.P., The
Saugatuck Fund L.P., JWH Global Strategies Limited and SSB Diversified 2000
Fund L.P. (each a "Member", collectively the "Feeder Funds") with 17.84%,
18.11%, 5.91%, 21.06%, 18.13% and 18.95% investments in the Master for 2003
and with 29.68%, 31.19%, 6.17%, 30.76%, 2.20%, and 0% investments in the
Master for 2002.
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the managing member (the "Managing Member") of the Master. The
Managing Member administers the business affairs of the Master including
selecting one or more advisors to make trading decisions for the Master.
The Master's commodity broker is Citigroup Global Markets Inc. ("CGM"),
formerly Salomon Smith Barney Inc. CGM is an affiliate of the Managing
Member. The Managing Member is wholly owned by Citigroup Global Markets
Holdings Inc. ("CGMHI"), formerly Salomon Smith Barney Holdings Inc., which
is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup
Inc. ("Citigroup").
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments
and derivative commodity instruments) are used for trading purposes.
The commodity interests are recorded on trade date and open contracts
are recorded in the statements of financial condition at fair value on
the last business day of the year, which represents market value for
those commodity interests for which market quotations are readily
available. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates
prevailing on the last business day of the year. Realized gains
(losses) and changes in unrealized values on open positions are
recognized in the period in which the contract is closed or the
changes occur and are included in net gains (losses) on trading of
commodity interests.
b. All of the income and expenses and realized and unrealized gains and
losses on trading of commodity interests are determined on each
valuation day and are allocated pro rata among the Feeder Funds at the
time of such determination. Income taxes have not been provided as
each member is individually liable for the taxes, if any, on their
share of the Master's income and expenses.
F-23
c. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
d. Certain prior period amounts have been reclassified to conform to
current year presentation.
3. Agreements:
a. Managing Member Agreement:
The Managing Member administers the business affairs of the Master.
b. Management Agreement:
The Managing Member, on behalf of the Master, has entered into a
Management Agreement with the Advisor, a registered commodity trading
advisor. The Advisor is not affiliated with the Managing Member or CGM
and is not responsible for the organization or operation of the
Master. The Management Agreement provides that the Advisor has sole
discretion in determining the investment of the assets of the Master
allocated to it by the Managing Member. All management fees in
connection with the Management Agreement are borne by the Feeder
Funds.
c. Customer Agreement:
The Master has entered into a Customer Agreement with CGM whereby CGM
provides services which include, among the other things, the execution
of transactions for the Master's account in accordance with orders
placed by the Advisor. All exchange, clearing, user, give-up, floor
brokerage and National Futures Association fees are borne by the
Master. All other fees including CGM's direct brokerage commission
shall be borne by the Feeder Funds. All of the Master's assets are
deposited in the Master's account at CGM. The Master's cash is
deposited by CGM in segregated bank accounts to the extent required by
Commodity Futures Trading Commission regulations. At December 31, 2003
and 2002, the amount of cash held by the Master for margin
requirements was $31,852,745 and $15,044,312, respectively. The
Customer Agreement between the Master and CGM gives the Master the
legal right to net unrealized gains and losses. The Customer Agreement
may be terminated upon notice by either party.
F-24
4. Trading Activities:
The Master 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 Master's trading
activities are shown in the statements of income and expenses.
All of the commodity interests owned by the Master are held for trading
purposes. The average fair value for the years ended December 31, 2003 and
2002, based on a monthly calculation, was $7,057,885 and $9,163,093,
respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the Managing Member and at such time as the Managing Member may decide. A
Member may require the Master to redeem their Units at their Net Asset
Value as of the last day of each month. The Managing Member, in its sole
discretion, may permit redemptions more frequently than monthly.
6. Financial Highlights:
Changes in the Net Asset Value per Unit of Member interest for the years
ended December 31, 2003 and 2002 and for the period from January 26, 2001
(commencement of trading operations) to December 31, 2001 were as follows:
2003 2002 2001
--------- --------- ---------
Net realized and unrealized gains* $ 188.13 $ 446.04 $ 46.32
Interest income 15.41 16.76 --
Expenses** (0.84) (0.71) (0.50)
--------- --------- ---------
Increase for period 202.70 462.09 45.82
Distributions (15.41) (16.76) --
Net asset value per Unit, beginning of period 1,491.15 1,045.82 1,000.00
--------- --------- ---------
Net asset value per Unit, end of period $ 1,678.44 $ 1,491.15 $ 1,045.82
--------- --------- ---------
Ratio to average net assets***
Net investment income**** 0.5% 0.3% 0.3%
Operating expenses** (0.4)% (0.3)% (0.3)%
Total return 13.6% 44.2% 4.6%
* Includes clearing fees.
** Excludes clearing fees.
*** Annualized in 2001.
****Interest income less total expenses (exclusive of incentive fees).
The above ratios may vary for individual investors based on the timing of
capital transactions during the year.
F-25
7. Financial Instrument Risks:
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. These financial
instruments may include forwards, futures and options, whose values are
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 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 in the statements of
financial condition and not represented by the contract or notional amounts
of the instruments. The Master has concentration risk because the sole
counterparty or broker with respect to the Master's assets is CGM.
The Managing Member 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 Managing Member 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 majority of these instruments mature within one year of December 31,
2003. However, due to the nature of the Master's business, these
instruments may not be held to maturity.
F-26
Selected unaudited quarterly financial data for the years ended December 31,
2003 and 2002 are summarized below:
For the period from For the period from For the period from For the period from
October 1, 2003 to July 1, 2003 to April 1, 2003 to January 1, 2003 to
December 31, 2003 September 30, 2003 June 30, 2003 March 31, 2003
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $ 5,054,902 $ (8,879,506) $ (6,518,834) $ 16,352,563
Net Income (loss) $ 5,039,902 $ (8,894,506) $ (6,533,834) $ 16,337,563
Increase (decrease) in Net Asset
Value per Unit $ 67.20 $ (102.73) $ (25.93) $ 264.16
For the period from For the period from For the period from For the period from
October 1, 2002 to July 1, 2002 to April 1, 2002 to January 1, 2002 to
December 31, 2002 September 30, 2002 June 30, 2002 March 31, 2002
Net realized and unrealized trading
gains net (loss) of brokerage
commissions and clearing fees
including interest income $ (7,583,868) $ 20,470,126 $ 28,166,096 $ (8,085,389)
Net Income (loss) $ (7,598,868) $ 20,457,626 $ 28,154,846 $ (8,096,639)
Increase (decrease) in Net Asset
Value per Unit $ (125.14) $ 308.13 $ 355.22 $ (92.88)
F-27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
PricewaterhouseCoopers LLP was previously the principal accountant for the
Partnership. On July 9, 2002, that firm was dismissed as principal accountant
and KPMG LLP was engaged as principal accountant. The decision to change
accountants was approved by the General Partner of the Partnership.
In connection with the audit of the fiscal year ended December 31, 2001,
and through July 9, 2002, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to
make reference thereto in their report on the financial statements for the year.
The audit report of PricewaterhouseCoopers LLP on the financial statements
of the Partnership as of and for the year ended December 31, 2001 did not
contain any adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, audit scope, or accounting principle.
Item 9A. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of year end the Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are effective.
There were no significant changes in the Partnership's internal controls or
in other factors that could significantly affect such controls subsequent to the
date of their evaluation as of year end.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its General Partner,
Citigroup Managed Futures LLC, manages its affairs. Investment decisions are
made by John W. Henry & Company, Inc. (the "Advisor").
The Partnership has not adopted a code of ethics that applies to officers
because it has no officers.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by
Citigroup Managed Futures LLC, its General Partner, which receives compensation
for its services, as set forth under "Item 1. Business." CGM, an affiliate of
31
the General Partner, is the commodity broker for the Partnership and receives
brokerage commissions for such services, as described under "Item 1. Business."
During the year ended December 31, 2003, CGM earned $1,758,106 in brokerage
commissions and clearing fees. The Advisor earned $582,488 in management fees
during 2003. During the year ended December 31, 2003, the General Partner earned
$291,243 in administrative fees. The Advisor earned an incentive fee of $178,139
in the year ended December 31, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a). Security ownership of certain beneficial owners. The Partnership knows
of no person who beneficially owns more than 5% of the Redeemable Units
outstanding.
(b). Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the General
Partner. The General Partner owns Units of general partnership interest
equivalent to 401.3070 (2.9%) Redeemable Units of Limited Partnership Interest
as of December 31, 2003.
(c). Changes in control. None.
Item 13. Certain Relationships and Related Transactions.
Citigroup Global Markets Inc. and Citigroup Managed Futures LLC, would be
considered promoters for purposes of item 404(d) of Regulation S-K. The nature
and the amounts of compensation that each promoter will receive from the
Partnership are set forth under "Item 1. Business.", "Item 8. Financial
Statements and Supplementary Data." and "Item 11. Executive Compensation."
Item 14. Principal Accountant Fees and Services
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG for the audit of the
Partnership's annual financial statements, review of financial statements
included in the Partnership's Forms 10-Q and other services normally provided in
connection with regulatory filings or engagements are as follows:
2002 $17,146
2003 $11,119
(b) Audit-Related Fees. None
(c) Tax Fees. The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG for tax compliance and tax
advice given in the preparation of the Partnership's Schedule K1s, the
preparation of the Partnership's Form 1065 and preparation of all State Tax
Returns are as follows:
2002 $4,809
2003 $4,809
(d) All Other Fees. None.
(e) Not Applicable.
(f) Not Applicable.
32
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements: Statements of Financial Condition at
December 31, 2003 and 2002.
Statements of Income and Expenses for the years ended December 31,
2003, 2002 and 2001.
Statements of Partners' Capital for the years ended December 31, 2003,
2002 and 2001.
Notes to Financial Statements
(2) Financial Statement Schedules: Financial Data Schedule for year ended
December 31, 2003.
(3) Exhibits:
3.1 - Certificate of Limited Partnership (previously filed).
3.2 - Limited Partnership Agreement (previously filed).
10.1 - Management Agreement among the Partnership, the General Partner and
John W. Henry & Company, Inc. (previously filed).
10.2 - Customer Agreement between Registrant and Smith Barney Shearson Inc.
(previously filed).
10.3 - Form of Subscription Agreement (previously filed).
10.4 - Letter dated February 16, 1995 from the General Partner to John W.
Henry & Co., Inc. extending Management Agreement (previously filed).
10.5 - Letter dated January 25, 1996 from the General Partner to John W.
Henry & Co., Inc. extending Management Agreement to June 30, 1996
(previously filed).
10.6 - Letters extending Management Agreements with John W. Henry &
Company, Inc. for 1996 and 1997 (filed as Exhibit 10.6 to the Form
10-K for the fiscal year ended December 31, 1997 and incorporated
herein by reference).
10.7 - Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 1998 (previously filed).
33
10.8 - Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 1999 (previously filed).
10.9 - Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 2000 (previously filed).
10.10- Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 2001 (previously filed).
10.11- Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 2002 (previously filed).
10.12- Letter from the General Partner to John W. Henry & Company, Inc.
extending Management Agreement for 2003 (filed herein).
16.1 - Letter from PricewaterhouseCoopers LLP (filed herein).
The exhibits required to be filed by Item 601 of Regulations S-K are
incorporated herin by reference.
31.1 - Rule 13a-14(a)/15d-14(a) Certification (Certification of President
and Director).
31.2 - Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief
Financial Officer and Director).
32.1 - Section 1350 Certification (Certification of President and
Director).
32.2 - Section 1350 Certification (Certification of Chief Financial Officer
and Director)
(b) Report on Form 8-K: None filed.
34
Supplemental Information To Be Furnished With Reports Filed Pursuant To
Section 15(d) Of The Act by Registrants Which Have Not Registered Securities
Pursuant To Section 12 Of the Act.
Annual Report to Limited Partners
No proxy material has been sent to Limited Partners.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York and State of New York on the 15th day of March 2004.
SMITH BARNEY MID WEST FUTURES FUND L.P. II
By: Citigroup Managed Futures LLC
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Shelley Ullman
David J. Vogel Shelley Ullman
Director, Principal Executive Director
Officer and President
/s/ Maureen O'Toole /s/ Steve J. Keltz
Maureen O'Toole Steve J. Keltz
Director Secretary and Director
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
36
Exhibit 31.1
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this Annual report on Form 10-K of Smith Barney Mid-West
Futures Fund L.P. II (the "registrant"); 2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition and results of operations of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2004
/s/ David j. Vogel
David J. Vogel
Citigroup Managed Futures LLC
President and Director
37
Exhibit 31.2
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this Annual report on Form 10-K of Smith Barney Mid-West
Futures Fund L.P. II (the "registrant"); 2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition and results of operations of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2004
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
38
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTIONS 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT HAVE 2002
In connection with the Annual Report of Smith Barney Mid-West Futures Fund L.P.
II (the "Partnership") on Form 10-K for the year ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ David J. Vogel
David J. Vogel
Citigroup Managed Futures LLC
President and Director
March 15, 2004
Date
39
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Smith Barney Mid-West Futures Fund L.P.
II (the "Partnership") on Form 10-K for the year ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
/s/ Daniel R. McAuliffe, Jr.
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
March 15, 2004
Date
40
Smith Barney Futures Management LLC
388 Greenwich Street, 7th Floor
New York, New York 10013-2396
June 11, 2002
John W. Henry & Company, Inc.
301 Yamato Road, Suite 2200
Boca Raton, Fl. 33431-4931
Attn: Mr. Ken Webster
Re: Management Agreement Renewals
Dear Mr. Webster:
We are writing with respect to your management agreements concerning the
commodity pools to which reference is made below (the "Management Agreements").
We are extending the term of the Management Agreements through June 30, 2003 and
all other provisions of the Management Agreements will remain unchanged.
o Shearson Mid-West Futures Fund
o Shearson Lehman Select Advisors Futures Fund L.P.
o JWH Strategic Allocation Master FD LLC
o Smith Barney Mid-West Futures Fund L.P. II
o Smith Barney Westport Futures Fund L.P.
o Hutton Investors Futures Fund, L.P. II (HIFF II)
o AURORA 2001
Please acknowledge receipt of this modification by signing one copy of this
letter and returning it to the attention of Mr. Daniel McAuliffe at the address
above or fax to 212-723-8985. If you have any questions I can be reached at
212-723-5435.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT LLC
By: /s/ Daniel R. McAuliffe, Jr.
-------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer & Director
JOHN W. HENRY & COMPANY, INC.
By: /s/ Ken Webster
-------------------------
Print Name: Ken Webster