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 year ended December 31, 1998

                         Commission File Number 0-22489

                SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
             (Exact name of registrant as specified in its charter)

        New York                                   13-3862967 
(State or other jurisdiction of                (I.R.S. Employer
 incorporation or organization)                 Identification No.)

                    c/o Smith Barney Futures Management Inc.
                           390 Greenwich St. - 1st Fl.
                            New York, New York 10013
              (Address and Zip Code of principal executive offices)

                                 (212) 723-5424
              (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 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]

As of February 28, 1999  Limited  Partnership  Units with an aggregate  value of
$1,332.79 were outstanding and held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


<PAGE>


                                     PART I

Item 1. Business.

         (a) General  development  of  business.  Smith  Barney  Principal  Plus
Futures Fund L.P. II (the "Partnership") is a limited  partnership  organized on
November  16,  1995  under the  Partnership  Law of the  State of New York.  The
Partnership  engages in speculative  trading of commodity  interests,  including
contracts  on  foreign  currencies,  commodity  options  and  commodity  futures
contracts  including  futures  contracts  on United  States  Treasury  and other
financial  instruments,  foreign  currencies and stock indices.  The Partnership
maintains  a portion  of its  assets in  principal  amounts  stripped  from U.S.
Treasury  Bonds under the  Treasury's  STRIPS  program  ("Zero  Coupons")  which
payments will be due November 15, 2003.  The  Partnership  uses the Zero Coupons
and its other assets to margin its commodities account.
         A  total  of  60,000  Units  of  Limited  Partnership  Interest  in the
Partnership (the "Units") were offered to the public.  Between April 3, 1996 and
August  8,  1996,  19,897  Units  were sold to the  public  at $1,000  per Unit.
Proceeds  of the  offering  along with the  General  Partners'  contribution  of
$203,000  were held in escrow until August 9, 1996 at which time an aggregate of
$20,100,000  were turned over to the Partnership  and the Partnership  commenced
trading operations.
       Smith Barney  Futures  Management  Inc. acts as the general  partner (the
"General  Partner") of the Partnership.  On September 1, 1998, the Partnership's
commodity  broker,  Smith Barney Inc.,  merged with  Salomon  Brothers  Inc. and
 
                                      1
<PAGE>

changed its name to Salomon  Smith Barney Inc.  ("SSB").  SSB is an affiliate of
the General Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings,  Inc.  ("SSBH"),  which is the sole owner of SSB.  On October 8, 1998,
Travelers Group Inc. merged with Citicorp Inc. and changed its name to Citigroup
Inc. SSBH is a wholly owned subsidiary of Citigroup Inc.
         The  Partnership's  trading of futures contracts on commodities is done
on United  States and foreign  commodity  exchanges.  It engages in such trading
through a commodity brokerage account maintained with SSB.
       Under the Limited Partnership  Agreement of the Partnership (the "Limited
Partnership  Agreement"),  the General  Partner  administers  the  business  and
affairs of the  Partnership.  As of December 31,  1998,  all  commodity  trading
decisions are made for the Partnership by John W. Henry & Company,  Inc. ("JWH")
and   Willowbridge   Associates   Inc.   ("Willowbridge")   (collectively,   the
"Advisors").  Neither of the Advisors is affiliated  with the General Partner or
SSB. The Advisors are not responsible  for the  organization or operation of the
Partnership.
         Pursuant to the terms of the  Management  Agreements  (the  "Management
Agreements"),  the  Partnership  is  obligated  to pay  Willowbridge  a  monthly
management  fee  equal  to 1/6 of 1% (2%  per  year)  of  month-end  Net  Assets
allocated to it and pay JWH a monthly  management fee equal to 1/3 of 1% (4% per
year) of the month-end Net Assets allocated to it. The Partnership will also pay
Willowbridge  an  incentive  fee payable  quarterly  equal to 20% of New Trading
Profits earned by it for the  Partnership  and JWH will receive an incentive fee
of 15% of the New Trading Profits (as defined in the Management Agreements).

                                       2
<PAGE>

         The Customer  Agreement  provides that the  Partnership  will pay SSB a
monthly  brokerage fee equal to 7/12 of 1% of month-end Net Assets  allocated to
the  Advisors  (7% per  year) in lieu of  brokerage  commissions  on a per trade
basis. SSB will pay a portion of its brokerage fees to its financial consultants
who have sold  Units  and who are  registered  as  associated  persons  with the
Commodity Futures Trading Commission (the "CFTC").  The Partnership will pay for
National Futures  Association  ("NFA") fees, exchange and clearing fees, give-up
and user fees and floor brokerage fees. Brokerage fees will be paid for the life
of the  Partnership,  although  the  rate at  which  such  fees  are paid may be
changed.  The  Customer  Agreement  between  the  Partnership  and SSB gives the
Partnership the legal right to net unrealized gains and losses.
         In  addition,  SSB  will  pay 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 SSB based on the average
non-competitive  yield on 3-month U.S.  Treasury  bills maturing in 30 days from
the date on which such weekly rate is determined.
         In the unlikely event that the Partnership is required to meet a margin
call in excess of the cash balance in its trading accounts, SSBH will contribute
up to an amount  equal to the  maturity  value of the Zero  Coupons  held by the

                                       3
<PAGE>

Partnership at the time of such call to the capital of the Partnership to permit
it to meet its margin  obligations in excess of its cash balance.  The guarantee
can only be invoked once. After the guarantee is invoked, trading will cease and
the  General  Partner  will  either wait until the end of the month in which the
Zero Coupons come due  (November  2003),  (the "First  Payment  Date"),  or will
distribute  cash and Zero Coupons to the limited  partners.  The General Partner
will provide a copy of SSBH's annual report as filed with the SEC to any limited
partner requesting it.
         (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, 1998
and 1997 and for the  period  from  August  9,  1996  (commencement  of  trading
operations) to December 31, 1996 is set forth under "Item 6. Selected  Financial
Data." Partnership capital as of December 31, 1998 was $22,938,154.

                                       4
<PAGE>


         (c)        Narrative  description  of business.  See Paragraphs (a) and
                    (b) above.  (i) through (x) - Not  applicable.  (xi) through
                    (xii) - Not  applicable.  (xiii)  - The  Partnership  has no
                    employees.

        (d) Financial  Information  About  Foreign and Domestic  Operations  and
            Export Sales.  The Partnership  does not engage in sales of goods or
            services, and therefore this item is not applicable.
Item 2.  Properties.
         The  Partnership  does not own or lease  any  properties.  The  General
Partner operates out of facilities provided by its affiliate, SSB.
Item 3.  Legal Proceedings.
              There are  no material  legal  proceedings   pending  against  the
Partnership  or the General  Partner.  This  section  describes  the major legal
proceedings,  other than ordinary routine litigation incidental to the business,
to which SSBH, the parent company of this General Partner or its subsidiaries is
a party or to which any of their property is subject.
              In September  1992,  Harris Trust and Savings Bank (as trustee for
Ameritech  Pension  Trust  ("APT"),  Ameritech  Corporation,  and an  officer of
Ameritech filed suit against Salomon  Brothers Inc. ("SBI") and Salomon Brothers
Realty Corporation ("SBRC") in the U.S. District Court for the Northern District
of Illinois  (Harris Trust Savings Bank, not  individually but solely as trustee
for the Ameritech Pension Trust,  Ameritech Corporation and John A. Edwardson v.
Salomon  Brothers Inc and Salomon  Brothers  Realty  Corp.).  The second amended

                                       4
<PAGE>

complaint  alleges that three purchases by APT from defendants of  participation
interests  in net cash flow or resale  proceeds  of three  portfolios  of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation  interest with respect to a portfolio of motels owned by
Best Inns, Inc. ("Best"),  violated the Employee  Retirement Income Security Act
("ERISA"),  and that the purchase of the  participation  interests for the third
MOA portfolio and for the Best portfolio  violated the Racketeer  Influenced and
Corrupt   Organization  Act  ("RICO")  and  state  law.  SBI  had  acquired  the
participation  interests  in  transactions  in which it  purchased  as principal
mortgage notes issued by MOA and Best to finance  purchases of motel portfolios;
95% of three such  interests  and 100% of one such interest were sold to APT for
purchase prices  aggregating  approximately  $20.9 million.  Plaintiffs'  second
amended complaint seeks (a) judgment on the ERISA claims for the purchase prices
of  the  four  participation   interests   (approximately  $20.9  million),  for
rescission and for  disgorgement  of profits,  as well as other relief,  and (b)
judgment on the claims  brought  under RICO and state law in the amount of $12.3
million,  with  damages  trebled to $37 million on the RICO claims and  punitive
damages  in excess of $37  million on certain of the state law claims as well as
other  relief.  The court  dismissed  the RICO,  breach of contract,  and unjust

                                       5
<PAGE>

enrichment  claims.  The court also found that  defendants did not qualify as an
ERISA  fiduciary and dismissed the claims based on that  allegation.  Defendants
moved for summary  judgment on the sole remaining  claim. The motion was denied,
and defendants  appealed to the U.S.  Court of Appeals for the Seventh  Circuit.
Defendants are awaiting a decision.
              Both the Department of Labor and the Internal Revenue Service have
advised  SBI that  they  were or are  reviewing  the  transactions  in which APT
acquired  such  participation  interests.  With respect to the Internal  Revenue
Service review,  SSBH, SBI and SBRC have consented to extensions of time for the
assessment  of excise  taxes that may be  claimed to be due with  respect to the
transactions  for the years 1987,  1988 and 1989.  In August 1996,  the IRS sent
SSBH,  SBI and SBRC what appeared to be draft  "30-day  letters" with respect to
the  transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters,  which would actually  commence the
assessment  process.  In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth  reasons why the IRS should not issue 30-day  letters with respect
to the transactions.
              In December 1996, a complaint seeking unspecified monetary damages
was  filed by  Orange  County,  California  against  numerous  brokerage  firms,
including 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.).
Plaintiff alleges,  among other things, that defendants  recommended and sold to
plaintiff  unsuitable  securities  and that such  transactions  were outside the
scope of  plaintiff's  statutory and  constitutional  authority  (ultra  vires).
Defendants'  motion for summary  judgment  was granted with respect to the ultra
vires  claims in  February  1999.  The court  allowed  the  filing of an amended
complaint asserting claims based on alleged breaches of fiduciary duty.

                                       6
<PAGE>

              In June 1998, complaints were filed in the U.S. District Court for
the Eastern  District of Louisiana in two actions (Board of  Liquidations,  City
Debt of the City of New Orleans v. Smith Barney Inc. et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.),  in which the City of New Orleans seeks a
declaratory  judgment  that  Smith  Barney  Inc.  and  another  underwriter  are
responsible  for any damages  that the City may incur in the event the  Internal
Revenue  Service  denies tax  exempt  status to the  City's  General  Obligation
Refunding  Bonds  Series  1991.  The  Company  filed a  motion  to  dismiss  the
complaints in September 1998, and the complaints were subsequently  amended. The
Company has filed a motion to dismiss the amended complaints.
              In November 1998, a purported class action  complaint was filed in
the United  States  District  Court for the Middle  District of Florida  (Dwight
Brock as Clerk for Collier  County v.  Merrill  Lynch,  et al.).  The  complaint
alleges that, pursuant to a nationwide conspiracy,  17 broker-dealer defendants,
including SSB, charged excessive  mark-ups in connection with advanced refunding
transactions.   The  Company  intends  to  contest  this  complaint  vigorously.

                                       7
<PAGE>

Environmental Matters
         In July  1996,  the City and  County of Denver  ("Denver")  enacted  an
ordinance   imposing   a   substantial   fee  on  any   radioactive   waste   or
radium-contaminated  material  disposed  of in the City of  Denver.  Under  this
ordinance,  Denver assessed a subsidiary of Salomon,  the S.W. Shattuck Chemical
Company, Inc.  ("Shattuck"),  $9.35 million for certain disposal already carried
out. Shattuck sued to enjoin  imposition of the fee on  constitutional  grounds.
The  United  States  also  sued,  seeking  to  enjoin  imposition  of the fee on
constitutional  grounds.  Denver  counterclaimed  and  moved  to add  SSBH  as a
defendant  for past costs.  These cases have been  consolidated  before the U.S.
District Court in Colorado,  which granted  Shattuck's  motion for a preliminary
injunction  enjoining Denver from enforcing the ordinance during the pendency of
the litigation. The parties have reached a settlement.
         The Company and various subsidiaries have also been named as defendants
in various  matters  incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and other
matters  in which the  Company's  broker-dealer  subsidiaries  have been  named,
arising in the  normal  course of  business  out of  activities  as a broker and
dealer in securities,  as an underwriter of securities,  as an investment banker
or otherwise. In the opinion of the Company's management,  none of these actions
is  expected to have a material  adverse  effect on the  consolidated  financial
condition of the Company and its subsidiaries.  

                                       8
<PAGE>

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.
                                     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  Units  of  Limited
                    Partnership Interest.
                (b)Holders.   The   number  of   holders  of  Units  of  Limited
                    Partnership Interest as of December 31, 1998 was 1,212.
                (c)Distribution.  The Partnership did not declare a distribution
                    in 1998 or 1997.

                                       9
<PAGE>


Item 6. Selected Financial Data. The Partnership commenced trading operations on
August 9, 1996.  Realized and unrealized trading gains,  realized and unrealized
gains on Zero  Coupons,  interest  income,  net income and increase in net asset
value per Unit for the years ended December 31, 1998 and 1997 and for the period
from August 9, 1996  (commencement  of trading  operations) to December 31, 1996
and total assets at December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>

                                                                   1998                       1997                        1996
                                                               -----------                -----------                   --------
<S>                                                                <C>                        <C>                          <C>  

Realized and unrealized
 trading gains net of brokerage
 commissions and clearing fees
 of $914,741, $958,141 and
 $346,364, respectively                                        $ 2,010,123               $   372,990                 $ 2,812,357

Realized and unrealized gains
 on  Zero Coupons                                                  644,098                   429,903                      80,764

Interest income                                                  1,126,341                 1,212,251                $    434,374
                                                               ------------              ------------                -----------

                                                               $ 3,780,562               $ 2,015,144                 $ 3,327,495
                                                               ============              ============                ===========

Net income                                                     $ 3,174,331               $ 1,359,429                 $ 2,717,561
                                                               ============              ============                ===========

Increase in net asset value
 per unit                                                          $186.29                   $ 68.65                     $135.20
                                                                   ========                  ========                    =======

Total assets                                                   $23,386,690               $23,217,865                 $23,276,499
                                                               ============              ============                ===========
</TABLE>

                                       10
<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.
         (a)  Liquidity.  The  Partnership  does not engage in sales of goods or
services.  Its only  assets  are its  equity in its  commodity  futures  trading
account,  consisting of cash and cash equivalents,  Zero Coupons, net unrealized
appreciation  (depreciation) on open futures contracts and interest  receivable.
Because  of the low margin  deposits  normally  required  in  commodity  futures
trading,  relatively  small price movements may result in substantial  losses to
the Partnership.  Such substantial  losses could lead to a material  decrease in
liquidity.  To minimize this risk,  the  Partnership  follows  certain  policies
including:
         (1)  Partnership  funds are invested only in commodity  contracts which
are traded in sufficient volume to permit, in the opinion of the Advisors,  ease
of taking and liquidating positions.
         (2) No Advisor will initiate  additional  positions in any commodity if
such  additional   positions  would  result  in  aggregate   positions  for  all
commodities  requiring as margin more than 66-2/3% of the  Partnership's  assets
allocated to the Advisor.
         (3) The  Partnership  will not employ the  trading  technique  commonly
known as  "pyramiding",  in which the  speculator  uses  unrealized  profits  on
existing positions as margin for the purchase or sale of additional positions in
the same or related commodities.
         (4) The  Partnership  will not  utilize  borrowings  except  short-term
borrowings if the Partnership takes delivery of any cash commodities.

                                       11
<PAGE>

         (5) The Advisors may, from time to time, employ trading strategies such
as spreads or  straddles  on behalf of the  Partnership.  The term  "spread"  or
"straddle"   describes  a  commodity  futures  trading  strategy  involving  the
simultaneous buying and selling of contracts on the same commodity 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.
         (6) The  Partnership  will not permit  the  churning  of its  commodity
trading accounts.
         (7) The  Partnership may cease trading and liquidate all open positions
prior to its dissolution if its Net Assets  (excluding assets maintained in Zero
Coupons) decrease to 10% of those assets on the day trading commenced  (adjusted
for redemptions).
         The  Partnership  is party to financial  instruments  with  off-balance
sheet risk, including derivative financial  instruments and derivative commodity
instruments,  in the normal course of its business.  These financial instruments
include forwards,  futures and options,  whose value is based upon an underlying
asset,  index, or reference rate, and generally  represent future commitments to
exchange  currencies  or cash  flows,  or to  purchase  or sell other  financial
instruments  at  specified  terms  at  specified  future  dates.  Each of  these
instruments  is subject  to  various  risks  similar  to those  relating  to the
underlying financial  instruments  including market and credit risk. The General
Partner monitors and controls the  Partnership's  risk exposure on a daily basis
through   financial,   credit  and  risk  management   monitoring  systems  and,
accordingly  believes  that  it has  effective  procedures  for  evaluating  and
limiting the credit and market risks to which the  Partnership is subject.  (See
also  "Item 8.  Financial  Statements  and  Supplementary  Data.",  for  further
information  on  financial  instrument  risk  included in the notes to financial
statements.)

                                       12
<PAGE>

             Other than the risks  inherent in commodity  futures  trading,  the
Partnership knows of no trends,  demands,  commitments,  events or uncertainties
which  will  result  in  or  which  are  reasonably  likely  to  result  in  the
Partnership's  liquidity  increasing  or  decreasing  in any  material  way. The
Limited  Partnership  Agreement  provides  that the General  Partner may, at its
discretion,  cause the Partnership to cease trading operations and liquidate all
open positions upon the first to occur of the following:  (i) December 31, 2015;
(ii)  at the end of the  month  in  which  the  Zero  Coupons  purchased  by the
Partnership  come due  (November 15, 2003),  unless the General  Partner  elects
otherwise; (iii) the vote to dissolve the Partnership by limited partners owning
more than 50% of the Units; (iv) assignment by the General Partner of all of its
interest in the  Partnership  or  withdrawal,  removal,  bankruptcy or any other
event that causes the General Partner to cease to be a general partner under the
Partnership  Act unless the Partnership is continued as described in the Limited
Partnership  Agreement;  (v) the  Partnership  is required to register under the
Investment  Company  Act  of  1940  and  the  General  Partner  determines  that
dissolution  is  therefore  in the  Partnership's  best  interest;  or (vi)  the
occurrence  of any event which shall make it unlawful  for the  existence of the
Partnership to be continued.

                                       13
<PAGE>

         (b)  Capital  resources.  (i) The  Partnership  has  made  no  material
commitments  for  capital  expenditures.  (ii) The  Partnership's  capital  will
consist of the capital  contributions  of the partners as increased or decreased
by gains or losses on commodity futures trading and Zero Coupon  appreciation or
depreciation,  and by  expenses,  interest  income,  redemptions  of  Units  and
distributions of profits,  if any. Gains or losses on commodity  futures trading
cannot be predicted.  Market moves in commodities are dependent upon fundamental
and technical  factors which the Partnership may or may not be able to identify.
Partnership   expenses  will  consist  of,  among  other  things,   commissions,
management  fees and incentive  fees.  The level of these  expenses is dependent
upon the level of trading  gains or losses 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.  Furthermore,  the  Partnership
will receive no payment on its Zero Coupons until their due date.  However,  the
Partnership  will accrue interest on the Zero Coupons and Limited  Partners will
be required to report as interest  income on their U.S. tax returns in each year
their pro-rata share of the accrued  interest on the Zero Coupons even though no
interest  will be paid  prior to their  due date.  In  addition,  the  amount of
interest  income  payable by SSB is dependent upon interest rates over which the
Partnership has no control.

                                       14
<PAGE>

         No  forecast  can be made as to the level of  redemptions  in any given
period.  Beginning  with the first full quarter ending at least six months after
trading commences (March 31, 1997), a Limited Partner may cause all of his Units
to be redeemed by the  Partnership at the Net Asset Value thereof as of the last
day of a quarter  (the  "Redemption  Date") on ten days'  written  notice to the
General  Partner.  Redemption fees equal to 2% of Redemption Net Asset Value per
Unit  redeemed  will be charged to any Limited  Partner who redeems his Units on
the first,  second or third possible  redemption  dates and 1% on the fourth and
fifth possible  redemption dates,  respectively.  Thereafter,  no redemption fee
will be charged. For the year ended December 31, 1998, 2,130 Units were redeemed
totaling  $2,542,381.  During 1998, SSB received  redemption fees of $8,992. For
the year ended December 31, 1997, 1,132 Units were redeemed totaling $1,310,786.
During 1997, SSB received redemption fees of $19,277. Redemption Net Asset Value
differs from Net Asset Value calculated for financial reporting purposes in that
the accrued  liability for  reimbursement of offering and organization  expenses
will not be included in the calculation of Redemption Net Asset Value.
         Offering and organization expenses of $541,205 relating to the issuance
and marketing of Units offered were initially paid by SSB. The accrued liability
for  reimbursement  of offering and  organization  expenses  will not reduce Net
Asset Value per Unit for any purpose (other than financial reporting), including
calculation of advisory and brokerage  fees and the  redemption  value of Units.

                                       15
<PAGE>

Interest  earned  by the  Partnership  will  be used  to  reimburse  SSB for the
offering and organization expenses of the Partnership plus interest at the prime
rate quoted by The Chase  Manhattan  Bank until such time as such  expenses  are
fully  reimbursed.  As of December 31, 1998, the  Partnership had reimbursed SSB
for the offering and  organizational  expenses  plus  interest at the prime rate
quoted by the Chase  Manhattan  Bank totaling  $38,261 from interest paid to the
Partnership.
         For each Unit redeemed the  Partnership  liquidates  $1,000  (principal
amount) of Zero Coupons and will continue to liquidate $1,000 (principal amount)
of Zero Coupons per Unit redeemed.  These  liquidations  will be at market value
which will be less than the amount  payable on their due date.  Moreover,  it is
possible  that  the  market  value  of the Zero  Coupon  could be less  than its
purchase price plus the original issue discount amortized to date.
         (c) Results of  operations.  For the year ended  December 31, 1998, the
Net Asset Value per Unit increased  15.8% from  $1,175.99 to $1,362.28.  For the
year ended  December 31, 1997,  the Net Asset Value per Unit increased 6.2% from
$1,107.34  to  $1,175.99.  For the period from August 9, 1996  (commencement  of
trading operations) to December 31, 1996, the net asset value per Unit increased
13.9% from $972.14 to $1,107.34.  The net asset value of $972.14 at commencement
of trading  operations  is reflective  of charging  offering and  organizational
expenses against the initial capital of the Partnership for financial  reporting
purposes. The redemption value per unit at December 31, 1998, 1997 and 1996 were
$1,362.28, $1,180.06 and $1,129.72, respectively.

                                       16
<PAGE>

         The  Partnership  experienced  net trading gains of $2,924,864,  before
commissions  and expenses in 1998.  These gains were  attributable to trading in
energy  and U.S.  and  non-U.S.  interest  rates  products  offset  by losses in
currencies,  grains,  livestock,  metals,  softs and  indices.  The  Partnership
experienced unrealized  appreciation of $565,392 on Zero Coupons during 1998 and
a gain on the sale of Zero Coupons of $78,706 during 1998.
         The  Partnership  experienced  net trading gains of  $1,331,131  before
commissions  and  expenses  for the year ended  December  31,  1997.  Gains were
attributable to the trading of commodity futures in foreign currencies,  grains,
non U.S. interest rates,  metals, softs and indices and were partially offset by
losses  experienced in the trading of energy products,  U.S.  interest rates and
livestock.  The Partnership  experienced unrealized  appreciation of $415,817 on
Zero  Coupons  during  1997 and a gain on the sale of Zero  Coupons  of  $14,086
during 1997.
         The  Partnership  experienced  net trading gains of  $3,158,721  before
commissions  and  expenses for the period  ended  December 31, 1996.  Gains were
attributable to the trading of commodity  futures in U.S. and non-U.S.  interest
rates, metals, energy and foreign currencies.  These gains were partially offset
by losses experienced in the trading of indices and agricultural  products.  The
Partnership  experienced  unrealized  appreciation  of $80,764  on Zero  Coupons
during 1996. The  Partnership  included in interest  income the  amortization of
original issue discount on Zero Coupons based on the interest method.

                                       17
<PAGE>

         Commodity futures markets are highly volatile. Broad price fluctuations
and rapid inflation increase the risks involved in commodity  trading,  but also
increase the possibility of profit. The profitability of the Partnership depends
on the  existence  of major  price  trends and the  ability of the  Advisors  to
identify  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 Advisors are able to identify  them,
the Partnership expects to increase capital through operations.
         (d) Operational Risk
         The Company 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 Company 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 Company's ability to gather, process, and
communicate  information  efficiently and securely,  without interruption,  with
customers,  among units within the Company, and in the markets where the Company
participates.
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  Company's
stockholder, creditors, and regulators, is free of material errors.

                                       18
<PAGE>

Risk of Computer System Failure (Year 2000 Issue)
                  The Year 2000 issue is the  result of  existing  computers  in
many  businesses  using  only two digits to  identify a year in the date  field.
These  computers and programs,  often referred to as  "information  technology,"
were  designed  and  developed  without  considering  the impact of the upcoming
change in the century. If not corrected,  many computer  applications could fail
or create  erroneous  results at the Year 2000.  Such systems and  processes are
dependent on correctly identifying dates in the next century.
                  The  General   Partner   administers   the   business  of  the
Partnership through various systems and processes maintained by SSBH and SSB. In
addition, the operation of the Partnership is dependent on the capability of the
Partnership's  Advisors,  the brokers and  exchanges  through which the Advisors
trade, and other third parties to prepare adequately for the Year 2000 impact on
their  systems  and  processes.   The  Partnership  itself  has  no  systems  or
information technology applications relevant to its operations.
                  The General Partner,  SSB, SSBH and their parent  organization
Citigroup Inc. have  undertaken a  comprehensive,  firm-wide  evaluation of both
internal and external  systems  (systems  related to third parties) to determine
the  specific  modifications  needed to prepare for the year 2000.  The combined
Year 2000 program in SSB is expected to cost approximately $140 million over the
four years  from 1996  through  1999,  and  involve  over 450 people at the peak
staffing level. SSB expects to complete all compliance and certification work by
June 1999. At this time,  over 95% of SSBH systems have completed the correction
process  and are Year 2000  compliant.  Over 73% of the systems  have  completed
certification testing. The Year 2000 project at SSBH remains on schedule.

                                       19
<PAGE>

                  The systems and components  supporting  the General  Partner's
business that require  remediation have been identified and  modifications  have
been made to bring them into Year 2000 compliance.  Testing of these systems was
completed in the fourth  quarter of 1998.  Final testing and  certification  are
expected to be completed by the end of the first quarter of 1999.
                  This expenditure and the General Partner's resources dedicated
to the  preparation  for Year 2000 do not and will not have a material impact on
the operation or results of the Partnership.
                  The General Partner has requested and received statements from
the Advisors that each has undertaken its own evaluation and  remediation  plans
to identify any of its  computer  systems  that are Year 2000  vulnerable.  Each
Advisor has confirmed it is taking immediate  actions to remedy those systems as
necessary. The General Partner will continue to inquire into and to confirm each
Advisor's readiness for Year 2000.
                  The most likely and most  significant  risk to the Partnership
associated  with the lack of Year  2000  readiness  is the  failure  of  outside
organizations,  including the commodities exchanges, clearing organizations,  or
regulators  with which the  Partnership  interacts  to  resolve  their Year 2000
issues in a timely  manner.  This risk could  involve the inability to determine
the value of the  Partnership  at some  point in time and would  make  effecting
purchases  or  redemptions  of Units in the  Partnership  infeasible  until such
valuation was determinable.

                                       20
<PAGE>

                  SSB has  successfully  participated in  industry-wide  testing
including:  The Streetwide  Beta Testing  organized by the  Securities  Industry
Association  (SIA),  a  government  securities  clearing  test with the  Federal
Reserve Bank of New York,  The  Depository  Trust  Company,  and The Bank of new
York,  and Futures  Industry  Association  participants  test.  The firm is also
participating in the streetwide testing which commenced in March 1999.
                  It is possible that problems may occur that would require some
time to repair.  Moreover,  it is possible that problems will occur outside SSBH
for which  SSBH could  experience  a  secondary  effect.  Consequently,  SSBH is
preparing   comprehensive,   written   contingency  plans  so  that  alternative
procedures  and a  framework  for  critical  decisions  are  defined  before any
potential crisis occurs.
         The  goal of  Year  2000  contingency  planning  is a set of  alternate
procedures to be used in the event of a critical  system failure or a failure by
a supplier or  counterparty.  Planning work was completed in December  1998, and
testing of alternative procedures will be conducted in the first half of 1999.
European Economic and Monetary Union
         European  Economic and Monetary  Union ("EMU") is an historic  event in
Europe involving the unification of currency in eleven major countries.  The new
unified currency, called the Euro, is expected to compete on a global scale with
the U.S. Dollar and the Japanese Yen.

                                       21
<PAGE>

         Introduction  of the Euro began on January 1, 1999,  when the  European
Central Bank assumed control of the monetary policy for  participating  nations.
Exchange  rates between the  participating  countries were fixed and the Euro is
available for  electronic  payments.  Also on January 1, 1999,  various  issuers
re-denominated  their  securities and  harmonized  bond payment  conventions.  A
three-year  transition  period began on January 1, 1999,  after which Euro notes
and coins will be issued by the European  Central  Bank and national  currencies
will be phased out.
         The  Company  completed  a  successful  conversion  to the Euro and has
commenced trading and settlement in the new currency with no major exceptions.
         As the preceding risks are largely  interrelated,  so are the Company's
actions to mitigate and manage them. The Company's Chief Administrative  Officer
is  responsible  for,  among other things,  oversight of global  operations  and
technology.  An  essential  element in  mitigating  the risks noted above is the
optimization  of information  technology and the ability to manage and implement
change.  To be an effective  competitor in an  information-driven  business of a
global nature  requires the  development  of global  systems and databases  that
ensure increased and more timely access to reliable data.
         (e)      New Accounting Pronouncements
         In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative  Instruments and Hedging Activities ("SFAS 133"). SFAS
133  requires  that an entity  recognize  all  derivatives  in the  statement of
financial  condition and measure those  instruments  at fair value.  SFAS 133 is
effective for fiscal year beginning  after June 15, 1999 SFAS 133 is expected to
have no material  impact on the financial  statements of the  Partnership as all
commodity interests are recorded at fair value, with changes therein reported in
the  statement of income and expenses.  

                                       21
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk Introduction
         The Partnership is a speculative  commodity pool. The market  sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company,  the risk of market sensitive  instruments is
integral, not incidental, to the Partnership's main line of business.
         Market movements result in frequent changes in the fair market value of
the  Partnership's  open positions and,  consequently,  in its earnings and cash
flow. The Partnership's  market risk is influenced by a wide variety of factors,
including the level and volatility of interest  rates,  exchange  rates,  equity
price  levels,  the market value of financial  instruments  and  contracts,  the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
         The  Partnership  rapidly  acquires and liquidates  both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance,  and
the Partnership's  past performance is not necessarily  indicative of its future
results.

                                       22
<PAGE>

         Value at Risk is a measure of the maximum amount which the  Partnership
could  reasonably  be expected to lose in a given market  sector.  However,  the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets  traded by the  Partnership  of market  movements  far  exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's  experience to date (i.e., "risk of
ruin").  In  light  of the  foregoing  as well as the  risks  and  uncertainties
intrinsic  to all  future  projections,  the  inclusion  of  the  quantification
included in this section should not be considered to constitute any assurance or
representation  that the  Partnership's  losses  in any  market  sector  will be
limited to Value at Risk or by the  Partnership's  attempts to manage its market
risk.
Quantifying the Partnership's Trading Value at Risk
         The following  quantitative  disclosures  regarding  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).

                                       23
<PAGE>

         The Partnership's risk exposure in the various market sectors traded by
the  Advisors  is  quantified  below in  terms  of  Value  at  Risk.  Due to the
Partnership's  mark-to-market  accounting,  any  loss in the  fair  value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized or unrealized).  Exchange  maintenance  margin  requirements have been
used by the Partnership as the measure of its Value at Risk.  Maintenance margin
requirements  are set by  exchanges  to  equal  or  exceed  the  maximum  losses
reasonably  expected to be  incurred in the fair value of any given  contract in
95%-99% of any one-day intervals.  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  Partnership),  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.

                                       24
<PAGE>

         The fair value of the Partnership's  futures and forward positions does
not have any  optionality  component.  However,  certain of the  Advisors  trade
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  Partnership  in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
         In  quantifying  the   Partnership'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
Partnership's positions are rarely, if ever, 100% positively correlated have not
been reflected.

                                       25
<PAGE>





The Partnership's Trading Value at Risk in Different Market Sectors
         The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of December 31, 1998. All
open position  trading risk exposures of the  Partnership  have been included in
calculating  the  figures  set  forth  below.  As  of  December  31,  1998,  the
Partnership's total capitalization was $22,938,154.
                                            December 31, 1998
                                                                 %
                                                              of Total
Market Sector                       Value at Risk           Capitalization

Currencies                             $ 89,101                 0.39%
Energy                                   84,000                 0.37%
Grains                                   22,300                 0.10%
Interest rates U.S                      115,800                 0.50%
Interest rates Non-U.S.                 517,604                 2.26%
Metals                                   81,000                 0.35%
Softs                                    69,854                 0.30%
                                       --------                ------

Total                                  $979,959                 4.27%
                                       ========                ======

Material Limitations on Value at Risk as an Assessment of Market Risk
         The face value of the market sector instruments held by the Partnership
is typically many times the applicable margin requirement  (margin  requirements
generally  range  between  2% and 15% of  contract  face  value)  as well as the
capitalization  of the  Partnership.  The  magnitude of the  Partnership'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
Partnership  to incur severe  losses over a short period of time.  The foregoing
Value at Risk table -- as well as the past  performance  of the  Partnership  --
give no indication of this "risk of ruin." 

                                       26
<PAGE>

Non-Trading Risk
         The  Partnership  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 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 Partnership's
market sensitive instruments.  
Qualitative Disclosures Regarding Primary Trading Risk Exposures
         The  following  qualitative  disclosures  regarding  the  Partnership's
market risk exposures - except for (i) those  disclosures that are statements of
historical fact and (ii) the  descriptions  of how the  Partnership  manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the  Securities  Act and Section 21E of the Securities
Exchange Act. The  Partnership's  primary  market risk  exposures as well as the
strategies  used and to be used by the  General  Partner  and the  Advisors  for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership's risk

                                       27
<PAGE>

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 Partnership.
There can be no assurance that the Partnership'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
Partnership as of December 31, 1998, by market sector.
         Interest Rates.  Interest rate risk is the principal market exposure of
the  Partnership.  Interest  rate  movements  directly  affect  the price of the
futures  positions held by the Partnership 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
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate  fluctuations in the United States and the other G-7 countries.
However,  the Partnership also takes futures positions on the government debt of
smaller nations -- e.g.,  Australia.  The General Partner  anticipates  that G-7

                                       28
<PAGE>

interest rates will remain the primary market  exposure of the  Partnership  for
the foreseeable future. The changes in interest rates which have the most effect
on the  Partnership are changes in long-term,  as opposed to short-term,  rates.
Consequently,  even a material  change in  short-term  rates  would have  little
effect on the Partnership were the medium- to long-term rates to remain steady.
         Currencies.  The  Partnership'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 Partnership's  currency sector will change  significantly in
the future,  although it is difficult at this point to predict the effect of the
introduction  of the Euro on the  Advisors'  currency  trading  strategies.  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  dollar-based  Partnership in expressing Value at Risk in a
functional currency other than dollars.
         Stock Indices.  The Partnership's  primary equity exposure is to equity
price  risk  in the  G-7  countries.  The  stock  index  futures  traded  by the
Partnership  are by law  limited  to futures on  broadly  based  indices.  As of
December 31, 1998,  the  Partnership's  primary  exposures  were in the S&P 500,
Financial  Times  (England),  Nikkei  (Japan)  and Hang Seng (Hong  Kong)  stock

                                       29
<PAGE>

indices.  The General Partner  anticipates  little,  if any,  trading in non-G-7
stock indices. The Partnership 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 Partnership to avoid being "whipsawed" into numerous small losses.)
         Metals.   The  Partnership's   primary  metal  market  exposure  is  to
fluctuations in the price of gold and silver.  Although  certain of the Advisors
will from time to time  trade base  metals  such as  aluminum  and  copper,  the
principal  market  exposures of the Partnership  have  consistently  been in the
precious  metals,   gold  and  silver.  The  Advisors'  gold  trading  has  been
increasingly  limited due to the long-lasting and mainly non-volatile decline in
the  price of gold  over the last  10-15  years.  However,  silver  prices  have
remained  volatile  over this period,  and the  Advisors  have from time to time
taken  substantial  positions as they have  perceived  market  opportunities  to
develop.  The General Partner  anticipates  that gold and silver will remain the
primary metals market exposure for the Partnership.
         Commodities.  The  Partnership's  primary  commodities  exposure  is to
agricultural  price  movements  which are often  directly  affected by severe or
unexpected weather conditions. Coffee, cocoa, cotton and sugar accounted for the
substantial  bulk of the  Partnership's  commodity  exposure as of December  31,
1998.

                                       30
<PAGE>

         Energy. The Partnership's  primary energy market exposure is to gas and
oil price movements,  often resulting from political  developments in the Middle
East.  Oil  prices  are  currently  depressed,  but  they  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
Partnership  as  of  December  31,  1998.   Foreign   Currency   Balances.   The
Partnership's  primary  foreign  currency  balances are in Japanese yen,  German
marks,  British pounds and French francs. The Advisor regularly converts foreign
currency  balances  to  dollars  in an  attempt  to  control  the  Partnership's
non-trading risk.
         Securities  Positions.   The  Partnership's  only  market  exposure  in
instruments  held other than for trading is in its  securitites  portfolio.  The
Partnership maintains a portion of its assets in principal amounts stripped from
U.S. Treasury Bonds under the Treasury's STRIPS program. Violent fluctuations in
prevailing  interest rates could cause immaterial  mark-to-market  losses on the
Partnership's securities.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
         The General  Partner  monitors the  Partnership's  performance  and the
concentration of its open positions,  and consults with the Advisors  concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require certain of the Advisors to close out
individual  positions  as  well  as  enter  programs  traded  on  behalf  of the
Partnership. However, any such intervention would be a highly unusual event. The
General  Partner  primarily  relies on the Advisors'  own risk control  policies
while maintaining a general  supervisory  overview of the  Partnership's  market
risk exposures.

                                       31
<PAGE>

         Each Advisor applies its own risk  management  policies to its trading.
The Advisors  often follow  diversification  guidelines,  margin limits and stop
loss points to exit a position.  The Advisors' research of risk management often
suggests ongoing modifications to their trading programs.
         As part of the General  Partner's risk management,  the General Partner
periodically  meets with the Advisors to discuss  their risk  management  and to
look for any material  changes to the  Advisors'  portfolio  balance and trading
techniques.  The  Advisors  are  required to notify the  General  Partner of any
material changes to their programs.
         In the unlikely event that the Partnership is required to meet a margin
call in excess of the cash balance in its trading accounts, SSBH will contribute
up to an amount  equal to the  maturity  value of the Zero  Coupons  held by the
Partnership at the time of such call to the capital of the Partnership to permit
it to meet its margin obligations in excess of its cash balance.









                                       32


<PAGE>


Item 8.    Financial Statements and Supplementary Data.




                SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II
                          INDEX TO FINANCIAL STATEMENTS


                                                                         Page
                                                                        Number

            Oath or Affirmation                                           F-2

            Report of Independent Accountants.                            F-3

            Financial Statements:
            Statement of Financial Condition at
            December 31, 1998 and 1997.                                   F-4

            Statement  of Income  and  Expenses  
            for the year  ended December  31,  1998
            and 1997  and for the  period  from
            August 9, 1996 (commencement of trading operations)
            to December 31, 1996.                                         F-5

            Statement of Partners' Capital for
            the years ended December 31, 1998, 1997
            and 1996    .                                                 F-6

            Notes to Financial Statements.                          F-7 -  F-11











                                       F-1

                                    Continued


<PAGE>

                               To The Limited Partners of
                              Smith Barney Principal PLUS
                                  Futures Fund L.P. II

To the best of the  knowledge  and belief of the  undersigned,  the  information
contained herein is accurate and complete.






By:  Daniel A. Dantuono, Chief Financial Officer
     Smith Barney Futures Management Inc.
     General Partner, Smith Barney Principal PLUS
        Futures Fund L.P. II

Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, N.Y.  10013
212-723-5424




                                         F-2
<PAGE>



                                    
                        Report of Independent Accountants

To the Partners of
   Smith Barney Principal PLUS Futures Fund L.P. II:

In our  opinion,  the  accompanying  statement of  financial  condition  and the
related  statements  of income and  expenses and of  partners'  capital  present
fairly,  in all  material  respects,  the  financial  position  of Smith  Barney
Principal  PLUS  Futures  Fund L.P.  II at December  31, 1998 and 1997,  and the
results  of its  operations  for each of the  three  years in the  period  ended
December 31, 1998, in conformity with generally accepted accounting  principles.
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  audits.  We  conducted  our audits of these  financial
statements  in accordance  with  generally  accepted  auditing  standards  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
audits provide a reasonable basis for the opinion expressed above.



                                                      PricewaterhouseCoopers LLP

New York, New York
February 26, 1999

                                   F-3
<PAGE>


                           Smith Barney Principal PLUS
                              Futures Fund L.P. II
                        Statement of Financial Condition
                           December 31, 1998 and 1997
<TABLE>
<CAPTION>

                                               1998            1997
<S>                                             <C>             <C>

Assets:   
Equity in commodity futures
    trading account:
   Cash (Note 3c)                         $ 8,835,664   $ 8,500,216
   Net unrealized appreciation on
    open futures contracts                    903,705       720,274
   Zero Coupons,  $16,838,000 and
    $18,968,000 principal amount
    in 1998 and 1997, respectively, due
    November 15, 2003, at fair value
    (amortized  cost $12,384,517 and
    $13,081,092 in 1998 and 1997,
    respectively) (Notes 1 and 2)          13,446,490    13,577,673
                                          -----------   -----------
                                           23,185,859    22,798,163
   Receivable from SSB on sale
    of Zero Coupons                           174,309       419,702
   Interest Income                             26,522          --
                                          -----------   -----------
                                          $23,386,690   $23,217,865
                                          ===========   ===========

Liabilities and Partners' Capital:
Liabilities:
  Accrued expenses:
   Commissions                            $    77,866   $    74,685
   Management fees                             35,086        34,365
   Incentive fees                                --           1,244
   Due to SSB (Note 6)                           --          77,269
   Other                                       37,245        30,223
  Redemptions payable                         298,339       693,875
                                          -----------   -----------
                                              448,536       911,661
                                          -----------   -----------
Partners' capital (Notes 1, 5, and 7):
  General Partner, 203 Unit equivalents
   outstanding in 1998 and 1997               276,543       238,726
  Limited Partners, 16,635 and
   18,765 Units of Limited Partnership
   Interest outstanding in 1998
   and 1997, respectively                  22,661,611    22,067,478
                                          -----------   -----------
                                           22,938,154    22,306,204
                                          $23,386,690   $23,217,865
                                          ===========   ===========
</TABLE>

See notes to financial statements.

                                            F-4
<PAGE>


                           Smith Barney Principal PLUS
                              Futures Fund L.P. II
                        Statement of Income and Expenses
               for the years ended December 31, 1998 and 1997 and
            from August 9, 1996 (commencement of trading operations)
                              to December 31, 1996

<TABLE>
<CAPTION>
                                                  1998           1997           1996
<S>                                               <C>              <C>         <C>
Income:
  Net gains on trading of
    commodity interests:
   Realized gains on closed positions       $ 2,741,433    $   852,313    $ 2,917,265
   Change in unrealized gains
    on open positions                           183,431        478,818        241,456
                                            -----------    -----------    -----------
                                              2,924,864      1,331,131      3,158,721
  Less, Brokerage commissions
   including clearing fees of
   $19,687, $16,092 and $6,901,
   respectively (Note 3c)                      (914,741)      (958,141)      (346,364)
                                            -----------    -----------    -----------
  Net realized and unrealized gains           2,010,123        372,990      2,812,357
  Gain on sale of Zero Coupons                   78,706         14,086           --
  Unrealized appreciation on Zero Coupons       565,392        415,817         80,764
  Interest income (Notes 2c, 3c and 6)        1,126,341      1,212,251        434,374
                                            -----------    -----------    -----------
                                              3,780,562      2,015,144      3,327,495
                                            -----------    -----------    -----------
Expenses:
  Management fees (Note 3b)                     384,863        404,339        146,507
  Incentive fees (Note 3b)                      167,031        191,624        421,541
  Other expenses                                 54,337         59,752         41,886
                                            -----------    -----------    -----------
                                                606,231        655,715        609,934
                                            -----------    -----------    -----------
Net income                                  $ 3,174,331    $ 1,359,429    $ 2,717,561
                                            ===========    ===========    ===========

Net income per Unit of Limited
  Partnership Interest and
  General Partner Unit
  equivalent (Notes 1 and 7)                $    186.29    $     68.65    $    135.20
                                            ===========    ===========    ===========
</TABLE>

See notes to financial statements.

                                       F-5
<PAGE>


                           Smith Barney Principal PLUS
                              Futures Fund L.P. II
               Statement of Partners' Capital for the years ended
                        December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                  Limited         General 
                                                 Partners         Partner           Total
<S>                                               <C>                 <C>             <C>
Partners' capital at December 31, 1995       $      1,000    $      1,000    $      2,000
Proceeds from offering of 19,896
 Units of Limited Partnership Interest
 and General Partner's
 contribution representing 202 Unit
 equivalents (Note 1)                          19,896,000         202,000      20,098,000
Offering and organization costs (Note 6)         (554,400)         (5,600)       (560,000)
                                             ------------    ------------    ------------
Opening Partnership capital for operations     19,342,600         197,400      19,540,000
Net income                                      2,690,171          27,390       2,717,561
                                             ------------    ------------    ------------
Partners' capital at December 31, 1996         22,032,771         224,790      22,257,561
Net income                                      1,345,493          13,936       1,359,429
Redemption of 1,132 Units of Limited
 Partnership Interest                          (1,310,786)           --        (1,310,786)
                                             ------------    ------------    ------------
Partners' capital at December 31, 1997         22,067,478         238,726      22,306,204
Net income                                      3,136,514          37,817       3,174,331
Redemption of 2,130 Units of Limited
 Partnership Interest                          (2,542,381)           --        (2,542,381)
                                             ------------    ------------    ------------
Partners' capital at December 31, 1998       $ 22,661,611    $    276,543    $ 22,938,154
                                             ============    ============    ============
</TABLE>

See notes to financial statements.

                                       F-6
<PAGE>


                           Smith Barney Principal PLUS
                              Futures Fund L.P. II
                          Notes to Financial Statements

1. Partnership Organization:
   Smith Barney  Principal  PLUS Futures Fund L.P. II (the  "Partnership")  is a
   limited  partnership  which was  organized  on  November  16,  1995 under the
   partnership  laws of the State of New York.  The  Partnership  engages in the
   speculative  trading  of a  diversified  portfolio  of  commodity  interests,
   including futures  contracts,  options and forward  contracts.  The commodity
   interests that are traded by the  Partnership are volatile and involve a high
   degree of market risk. The Partnership  will maintain a portion of its assets
   in principal  amounts stripped from U.S.  Treasury Bonds under the Treasury's
   STRIPS program which payments are due approximately seven years from the date
   trading  commenced ("Zero Coupons").  Between April 3, 1996  (commencement of
   offering  period)  and August 8, 1996,  19,896  Units of Limited  Partnership
   Interest ("Units") were sold at $1,000 per Unit. The proceeds of the offering
   were held in an escrow  account until August 9, 1996, at which time they were
   turned over to the Partnership for trading. The Partnership was authorized to
   sell 60,000 Units during the offering period of the Partnership. Smith Barney
   Futures  Management Inc. acts as the general partner (the "General  Partner")
   of the Partnership. On September 1, 1998, the Partnership's commodity broker,
   Smith Barney Inc.,  merged with Salomon  Brothers Inc and changed its name to
   Salomon  Smith  Barney  Inc.  ("SSB").  SSB is an  affiliate  of the  General
   Partner.  The  General  Partner  is  wholly  owned by  Salomon  Smith  Barney
   Holdings, Inc. ("SSBH"),  which is the sole owner of SSB. On October 8, 1998,
   Travelers  Group Inc.  merged  with  Citicorp  Inc.  and  changed its name to
   Citigroup  Inc.  SSBH is a wholly  owned  subsidiary  of  Citigroup  Inc. 

    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 his 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,  2015;  at the end of the  month  in which  the  Zero  Coupons
    purchased  come due  (November,  2003) ("First  Payment  Date"),  unless the
    General Partner elects  otherwise,  or under certain other  circumstances as
    defined in the Limited  Partnership  Agreement.  The General Partner, in its
    sole discretion,  may elect not to terminate the Partnership as of the First
    Payment Date. In the event that the General  Partner  elects to continue the
    Partnership,  each limited  partner shall have the opportunity to redeem all
    or some of his Units.

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 statement 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 commodity  interests 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 his  share of the  Partnership's  income  and
      expenses.
   c. The original  issue  discount on the Zero Coupons is being  amortized over
      their life using the interest method and is included in interest income.
   d. Zero Coupons are recorded in the statement of financial  condition at fair
      value.  Realized  gain (loss) on the sale of Zero Coupons is determined on
      the amortized cost basis of the Zero Coupons at the time of sale.
                                  F-7

<PAGE>


   e. The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions  that affect the reported amounts of 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.
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.
   b. Management Agreements:
      The  General  Partner,  on behalf of the  Partnership,  has  entered  into
      Management  Agreements  with John W. Henry &  Company,  Inc.  ("JWH")  and
      Willowbridge  Associates Inc.  ("Willowbridge")  (the  "Advisors"),  which
      provide  that  the  Advisors  have  sole  discretion  in  determining  the
      investment of the assets of the  Partnership  allocated to each Advisor by
      the General  Partner.  As  compensation  for services,  the Partnership is
      obligated to pay  Willowbridge  a monthly  management fee of 1/6 of 1% (2%
      per year) of  month-end  Net Assets  allocated to it and pay JWH a monthly
      management  fee of 1/3  of 1%  (4%  per  year)  of  month-end  Net  Assets
      allocated to it. The Partnership  will also pay  Willowbridge an incentive
      fee payable  quarterly  equal to 20% of New Trading  Profits,  as defined,
      earned by it for the  Partnership and JWH will receive an incentive fee of
      15% of the New Trading Profits.
   c. Customer Agreement:
      The Partnership has entered into a Customer  Agreement which provides that
      the Partnership  will pay SSB a monthly  brokerage fee equal to 7/12 of 1%
      of month-end Net Assets allocated to the Advisors (7% per year) in lieu of
      brokerage  commissions on a per trade basis. A portion of this fee is paid
      to employees of SSB who have sold Units of the Partnership.  This fee does
      not include exchange,  clearing,  user,  give-up,  floor brokerage and NFA
      fees  which  will be borne by the  Partnership.  All of the  Partnership's
      assets are deposited in the Partnership's  account at SSB. The Partnership
      maintains a portion of these assets in Zero Coupons and a portion in cash.
      The Partnership's cash is deposited by SSB in segregated bank accounts, to
      the extent required by Commodity Futures Trading  Commission  regulations.
      At  December  31,  1998 and  1997,  the  amount  of cash  held for  margin
      requirements was $1,083,052 and $2,469,749, respectively. SSB will pay 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 SSB  based on the  average  noncompetitive  yield on
      3-month  U.S.  Treasury  bills  maturing in 30 days from the date on which
      such  weekly  rate is  determined.  The  Customer  Agreement  between  the
      Partnership  and  SSB  gives  the  Partnership  the  legal  right  to  net
      unrealized gains and losses.  The Customer  Agreement may be terminated by
      either party.
4. Trading Activities:
   The Partnership was formed for the purpose of trading  contracts in a variety
   of  commodity  interests,  including  derivative  financial  instruments  and
   derivative commodity  instruments.  The results of the Partnership's  trading
   activity  are shown in the  statement  of  income  and  expenses.  All of the
   commodity  interests owned by the Partnership are held for trading  purposes.
   The fair value of these commodity  interests,  including options thereon,  if
   applicable,  at  December  31,  1998  and  1997 was  $903,705  and  $720,274,
   respectively,  and the average fair value during the period then ended, based
   on a monthly calculation, was $982,632 and $814,445, respectively.
5. Distributions and Redemptions:
   Distributions of profits,  if any, will be made at the sole discretion of the
   General  Partner.  Beginning with the end of the first full quarter ending at
   least six months after trading commences (March 31, 1997), on 10 days' notice
   to the General  Partner,  a limited  partner may require the  Partnership  to
   redeem his Units at their  Redemption Net Asset Value as of the last day of a
   quarter.  Redemption  fees equal to 2% of Redemption Net Asset Value per Unit

                                  F-8
<PAGE>

   redeemed will be charged to any limited  partner who redeems his Units on the
   first,  second or third  possible  redemption  date, and 1% on the fourth and
   fifth  possible  redemption  dates.  Thereafter,  no  redemption  fee will be
   charged.  During 1998 and 1997,  SSB received  redemption  fees of $8,992 and
   $19,277.  Redemption Net Asset Value differs from Net Asset Value  calculated
   for  financial   reporting   purposes  in  that  the  accrued  liability  for
   reimbursement of offering and  organization  expenses will not be included in
   the calculation of Redemption Net Asset Value.
6. Offering and Organization Costs:
   Offering and organization  expenses of $541,205  relating to the issuance and
   marketing of Units offered were initially paid by SSB. The accrued  liability
   for  reimbursement of offering and organization  expenses will not reduce Net
   Asset  Value  per Unit for any  purpose  (other  than  financial  reporting),
   including calculation of advisory and brokerage fees and the redemption value
   of Units.  Interest earned by the  Partnership  will be used to reimburse SSB
   for the offering and  organization  expenses of the Partnership plus interest
   at the prime rate quoted by the Chase  Manhattan Bank until such time as such
   expenses are fully reimbursed.  As of December  31,1998,  the Partnership had
   reimbursed  SSB for the offering and  organization  expenses plus interest at
   the prime rate quoted by Chase Manhattan Bank totaling  $38,261 from interest
   paid to the Partnership.
7. Net Asset Value Per Unit:
   Changes in the net asset value per Unit of Partnership interest for the years
   ended  December  31,  1998,  and 1997 and for the period  from August 9, 1996
   (commencement of trading operations) to December 31, 1996 were as follows:

<TABLE>
<CAPTION>
                                    1998          1997          1996
<S>                                 <C>           <C>        <C>  
Net realized and
 unrealized gains              $   120.90   $    18.91   $    139.92
Realized and unrealized
 gains on Zero Coupons              36.63        22.05          4.03
Interest income                     63.05        61.06         21.60
Expenses                           (34.29)      (33.37)       (30.35)
                                 ---------    ---------     ---------
Increase for period                186.29        68.65        135.20
Net asset value per Unit,
 beginning of period             1,175.99     1,107.34        972.14
                                ---------    ---------     ---------
Net asset value per Unit,
 end of period                 $ 1,362.28    $1,175.99   $  1,107.34
                                 =========    =========    =========
Redemption value per Unit,
 end of period*                $ 1,362.28    $1,180.06   $ 1,129.72
                                 =========    =========    =========
</TABLE>

------------------
   *For the purpose of a redemption,  any accrued liability for reimbursement of
   offering and organization expenses will not reduce redemption net asset value
   per Unit.
8. Guarantee:
   In the unlikely event that the  Partnership is required to meet a margin call
   in excess of the cash balance in its trading  accounts,  SSBH will contribute
   up to an amount equal to the  maturity  value of the Zero Coupons held by the
   Partnership  at the time of such call to the  capital of the  Partnership  to
   permit it to meet its margin  obligations in excess of its cash balance.  The
   guarantee can only be invoked once.  After the guarantee is invoked,  trading
   will cease and the General  Partner will either wait until the First  Payment
   Date or will distribute cash and Zero Coupons to the limited partners.
9. Financial Instrument Risks:
   The  Partnership is party to financial  instruments  with  off-balance  sheet
   risk,  including  derivative  financial  instruments and derivative commodity
   instruments,   in  the  normal  course  of  its  business.   These  financial

                                F-9
<PAGE>

   instruments may include forwards,  futures and options,  whose value is based
   upon an underlying asset,  index, or reference rate, and generally  represent
   future commitments to exchange  currencies or cash flows, to purchase or sell
   other financial  instruments at specific terms at specified future dates, or,
   in the  case  of  derivative  commodity  instruments,  to  have a  reasonable
   possibility to be settled in cash or with another financial instrument. These
   instruments  may  be  traded  on an  exchange  or  over-the-counter  ("OTC").
   Exchange traded  instruments are standardized and include futures and certain
   option contracts.  OTC contracts are negotiated between  contracting  parties
   and  include  forwards  and certain  options.  Each of these  instruments  is
   subject to various risks similar to those related to the underlying financial
   instruments   including  market  and  credit  risk.  In  general,  the  risks
   associated with OTC contracts are greater than those associated with exchange
   traded instruments because of the greater risk of default by the counterparty
   to an OTC contract.  

    Market  risk is the  potential  for  changes  in the value of the  financial
    instruments  traded  by the  Partnership  due to market  changes,  including
    interest and foreign  exchange rate movements and  fluctuations in commodity
    or security prices.  Market risk is directly  impacted by the volatility and
    liquidity in the markets in which the related  underlying assets are traded.
    Credit risk is the possibility that a loss may occur due to the failure of a
    counterparty to perform according to the terms of a contract.

    Credit risk with respect to exchange  traded  instruments  is reduced to the
    extent that an exchange or clearing  organization  acts as a counterparty to
    the  transactions.   The  Partnership's   risk  of  loss  in  the  event  of
    counterparty  default is typically limited to the amounts  recognized in the
    statement  of financial  condition  and not  represented  by the contract or
    notional amounts of the instruments.  The Partnership has concentration risk
    because the sole  counterparty  or broker with respect to the  Partnership's
    assets is SSB.

    The General Partner monitors and controls the Partnership's risk exposure on
    a daily  basis  through  financial,  credit and risk  management  monitoring
    systems,  and  accordingly  believes  that it has effective  procedures  for
    evaluating and limiting the credit and market risks to which the Partnership
    is  subject.   These  monitoring   systems  allow  the  General  Partner  to
    statistically  analyze actual trading results with risk adjusted performance
    indicators  and  correlation  statistics.  In addition,  on-line  monitoring
    systems provide account analysis of futures,  forwards and options positions
    by sector,  margin  requirements,  gain and loss transactions and collateral
    positions.

    The notional or contractual amounts of these instruments, while not recorded
    in the  financial  statements,  reflect  the  extent  of  the  Partnership's
    involvement in these  instruments.  At December 31, 1998, the  Partnership's
    commitment  to  purchase  and sell these  instruments  was  $57,847,242  and
    $52,605,224,  respectively,  as  detailed  below.  All of these  instruments
    mature within one year of December 31, 1998.  However,  due to the nature of
    the Partnership's  business,  these instruments may not be held to maturity.
    At  December  31,  1998,  the fair value of the  Partnership's  derivatives,
    including options thereon, if applicable,  was $903,705,  as detailed below.
    December 31, 1998 Notional or Contractual Amount of Commitments
<TABLE>
<CAPTION>

                               To Purchase       To Sell   Fair Value
<S>                                   <C>          <C>         <C> 
Currencies
  -Exchange Traded Contracts   $   558,900   $   552,600   $  (6,300)
  -OTC Contracts                 3,487,638     1,291,020      24,255
Energy                                --         812,280      27,010
Grains                                --         810,535      27,312
Interest Rates U.S.              7,605,156     8,066,963     (65,138)
Interest Rates Non-U.S          44,897,799    38,932,518     818,733
Softs                              918,411       742,768      44,210
Metals                             379,338     1,396,540      33,623
                               -----------   -----------   ---------
Total                          $57,847,242   $52,605,224   $ 903,705
                               ===========   ===========   =========
</TABLE>

                                               F-10
<PAGE>


   At December 31, 1997, the Partnership's commitment to purchase and sell these
   instruments was  $103,162,990  and  $65,919,874,  respectively,  and the fair
   value  of  the  Partnership's  derivatives,  including  options  thereon,  if
   applicable, was $720,274, as detailed below.

                                    December 31, 1997
                                Notional or Contractual
                                 Amount of Commitments
<TABLE>
<CAPTION>
                               To Purchase       To Sell   Fair Value
<S>                                  <C>            <C>           <C> 
Currencies
 -Exchange Traded Contracts   $       --     $ 4,026,713   $  62,013
 -OTC Contracts                  7,813,559    14,869,435     (37,009)
Energy                                --       2,381,490     165,550
Grains                           2,958,744       679,250    (102,587)
Interest Rates U.S.             27,054,925          --       163,819
Interest Rates Non-U.S          58,496,762    38,054,369     189,136
Softs                            3,987,204       842,675    (129,803)
Metals                           2,851,796     4,180,877     336,934
Indices                               --         885,065      72,221
                              ------------   -----------   ---------
Total                         $103,162,990   $65,919,874   $ 720,274
                              ============   ===========   =========

</TABLE>

10.   New Accounting Pronouncements:
     In June 1998,  the Financial  Accounting  Standards  Board issued SFAS 133,
     Accounting for Derivative  Instruments and Hedging Activities ("SFAS 133").
     SFAS 133 requires that an entity recognize all derivatives in the statement
     of financial  condition and measure those  instruments at fair value.  SFAS
     133 is effective for fiscal years  beginning  after June 15, 1999. SFAS 133
     is expected to have no material  impact on the financial  statements of the
     Partnership  as all commodity  interests  are recorded at fair value,  with
     changes therein reported in the statement of income and expenses.

                                    F-11



<PAGE>



Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.
                  During the last two fiscal  years and any  subsequent  interim
period, no independent accountant who was engaged as the principal accountant to
audit the Partnership's financial statements has resigned or was dismissed.
                                    PART III
Item 10.    Directors and Executive Officers of the Registrant.
         The  Partnership  has no  officers  or  directors  and its  affairs are
managed by its General Partner,  Smith Barney Futures Management Inc. Investment
decisions are made by the Advisors.
Item 11.    Executive Compensation.
         The Partnership  has no directors or officers.  Its affairs are managed
by Smith Barney Futures Management Inc., its General Partner.  SSB, an affiliate
of the General Partner, is the commodity broker for the Partnership and receives
brokerage  commissions for such services, as described under "Item 1. Business."
Brokerage commissions and clearing fees of $914,741 were paid for the year ended
December  31,  1998.  Management  fees of  $384,863  were paid or payable to the
Advisors for the year ended  December 31, 1998. In addition,  incentive  fees of
$167,031 were paid to the Advisors for the year ended December 31, 1998.

                                       33
<PAGE>


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 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 partnership  interest  equivalent to
203 (1.2%) Units of Limited Partnership Interest.
    (c). Changes in control. None.

Item 13.  Certain Relationships and Related Transactions.
         Smith Barney Inc. and Smith Barney  Futures  Management  Inc.  would be
considered  promoters for purposes of Item 404(d) of Regulation  S-K. The nature
and the amounts of compensation  each promoter will receive from the Partnership
are set forth under "Item 1. Business." and "Item 11. Executive Compensation."

                                     PART IV
Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
         (a)(1) Financial Statements:
                Statement of Financial  Condition at December 31, 1998 and 1997.
                Statement of Income and  Expenses  for the years ended  December
                31,   1998  and  1997  and  for  period   from  August  9,  1996
                (commencement  of trading  operations)  to  December  31,  1996.
                Statement of Partners'  Capital for the years ended December 31,
                1998, 1997 and 1996.

                                       34
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            (2) Financial Statement  Schedules:  Financial Data Schedule for the
                year ended December 31, 1998.

            (3)  Exhibits:

            3.1 - Limited  Partnership  Agreement  (filed as Exhibit  3.1 to the
                Registration  Statement  on Form S-1  (File  No.  33-80723)  and
                incorporated herein by reference).
            3.2 - Certificate of Limited Partnership of the Partnership as filed
                in the office of the Secretary of State of the State of New York
                (filed as Exhibit 3.2 to the Registration  Statement on Form S-1
                (File No. 33-80723) and incorporated herein by reference).
            10.1- Customer  Agreement  between the  Partnership and Smith Barney
                Shearson  Inc.  (filed  as  Exhibit  10.1  to  the  Registration
                Statement  on Form S-1  (File  No.  33-80723)  and  incorporated
                herein by reference).
            10.3- Escrow  Instructions  relating to escrow of subscription funds
                (filed as Exhibit 10.3 to the Registration Statement on Form S-1
                (File No. 33-80723) and incorporated herein by reference).

                                       35
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            10.5-  Management  Agreement  among  the  Partnership,  the  General
                Partner  and John W.  Henry &  Company,  Inc.  (JWH)  (filed  as
                Exhibit 10.5 to the Registration Statement on Form S-1 (File No.
                33-80723) and incorporated herein by reference).
            10.6-  Management  Agreement  among  the  Partnership,  the  General
                Partner and Willowbridge  Associates Inc. (filed as Exhibit 10.6
                to the  Registration  Statement on Form S-1 (File No.  33-80723)
                and incorporated herein by reference).
            10.7- Letters extending  Management  Agreements with John W. Henry &
                Company, Inc. and Willowbridge Associates Inc. (filed herein).

         (b)  Reports on 8-K:  None Filed.

                                       36
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         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

                                       37
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                                   SIGNATURES

          Pursuant  to the  requirements  of Section 13 or 15(d) the  Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
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 24th day of March 1999.


SMITH BARNEY PRINCIPAL PLUS FUTURES FUND L.P. II


By:       Smith Barney Futures Management Inc.
          (General Partner)



By        /s/        David J. Vogel
          David J. Vogel, President & Director


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  Registration  Statement has been signed below by the following  persons in
the capacities and on the date indicated.


/s/     David J. Vogel                        /s/ Jack H. Lehman III
David J. Vogel,                               Jack H. Lehman III
Director, Principal Executive                 Chairman and Director
                                              Officer and President



/s/      Michael Schaefer                     /s/ Daniel A. Dantuono
Michael Schaefer                              Daniel A. Dantuono
Director                                      Treasurer, Chief Financial
                                              Officer and Director



/s/ Daniel R. McAuliffe, Jr.                  /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr.                      Steve J. Keltz
Director                                      Secretary and Director



/s/   Shelley Ullman
Shelley Ullman
Director
                                       38