FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File Number 33-75056
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3729162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at
September 30, 1996 and December 31,
1995 3
Statements of Income and Expenses and
Partners' Capital for the three and
nine months ended September 30, 1996
and 1995. 4
Notes to Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9 - 10
PART II - Other Information 11
2
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PART I
Item 1. Financial Statements
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS (Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $146,166,616 $181,687,564
Net unrealized appreciation on open futures
contracts 15,372,094 18,951,546
Commodity options owned, at market
value (cost $622,086 and $5,360, respectively) 434,503 5,520
------------ ------------
161,973,213 200,644,630
Interest receivable 503,363 675,035
------------ ------------
$162,476,576 $201,319,665
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions $ 732,476 $ 940,399
Management fees 362,114 447,124
Other 103,118 107,357
Redemptions payable 5,510,534 5,631,797
Commodity options written, at market
value (premiums received $2,400) - 2,560
------------ ------------
6,708,242 7,129,237
------------ ------------
Partners' Capital
General Partner, 2,048.9308 Unit
equivalents outstanding in 1996 and 1995 2,229,607 2,236,736
Limited Partners, 141,096.4767 and
175,835.9644 Units of Limited Partnership
Interest outstanding in 1996 and 1995,
respectively 153,538,727 191,953,692
------------ ------------
155,768,334 194,190,428
------------ ------------
$162,476,576 $201,319,665
============ ============
See Notes to Financial Statements
3
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS THREE-MONTHS NINE-MONTHS NINE-MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Income:
Net gains (losses) on trading of commodity futures:
Realized gains (losses) on closed positions $ (1,262,655) $ (14,899,361) $ 8,914,707 $ 38,265,428
Change in unrealized gains /losses on open positions 7,325,730 (8,568,600) (3,767,035) (23,906,814)
------------- ------------- ------------- -------------
6,063,075 (23,467,961) 5,147,672 14,358,614
Less, brokerage commissions and clearing
fees ($94,466, $118,061, $314,109 and $342,238,
respectively) (2,477,914) (2,945,182) (8,052,478) (8,854,268)
------------- ------------- ------------- -------------
Net realized and unrealized gains (losses) 3,585,161 (26,413,143) (2,904,806) 5,504,346
Interest income 1,554,404 2,080,409 5,018,184 6,092,197
------------- ------------- ------------- -------------
5,139,565 (24,332,734) 2,113,378 11,596,543
------------- ------------- ------------- -------------
Expenses:
Management fees 1,086,149 1,227,600 3,462,193 3,826,162
Other expense 64,439 98,633 219,411 244,608
Incentive fees - 4,164 446,772 3,940,963
------------- ------------- ------------- -------------
1,150,588 1,330,397 4,128,376 8,011,733
------------- ------------- ------------- -------------
Net income (loss) 3,988,977 (25,663,131) (2,014,998) 3,584,810
Additions - 16,726,832 2,035,483 32,092,868
Redemptions (13,060,839) (6,145,518) (38,442,579) (34,692,769)
------------- ------------- ------------- -------------
Net increase (decrease) in Partners' capital (9,071,862) (15,081,817) (38,422,094) 984,909
Partners' capital, beginning of period 164,840,196 195,327,247 194,190,428 179,260,521
------------- ------------- ------------- -------------
Partners' capital, end of period $ 155,768,334 $ 180,245,430 $ 155,768,334 $ 180,245,430
============= ============= ============= =============
Net Asset Value per Unit
(143,145.4075 and 182,034.3026 Units outstanding
at September 30, 1996 and 1995, respectively) $ 1,088.18 $ 990.17 $ 1,088.18 $ 990.17
============= ============= ============= =============
Net income (loss) per Unit of Limited Partnership
Interest and General Partnership Unit equivalent $ 28.57 $ (141.33) $ (3.48) $ 23.11
============= ============= ============= =============
</TABLE>
4
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. General:
Smith Barney Diversified Futures Fund L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of New York, on August 13,
1993 to engage in the speculative trading of a diversified portfolio of
commodity interests including futures contracts, options and forward contracts.
The commodity interests that are traded by the Partnership are volatile and
involve a high degree of market risk. The Partnership commenced trading
operations on January 12, 1994.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner, acts as commodity broker for the Partnership. All trading
decisions are made for the Partnership by Campbell & Company, Inc., John W.
Henry & Company, Inc., Hyman Beck & Company Inc., Chesapeake Capital Corp.,
Abraham Trading Company and Rabar Market Research (collectively, the
"Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at September 30, 1996 and the results of its operations for the three
and nine months ended September 30, 1996 and 1995. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes included in the Partnership's annual report on Form 10-K filed with
Securities and Exchange Commission for the year ended December 31, 1995.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
5
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
(continued)
2. Net Asset Value Per Unit:
Changes in net asset value per Unit for the three and nine months ended
September 30, 1996 and 1995, were as follows:
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
Net realized and unrealized
gains (losses) $ 25.91 $ (145.45) $ (8.94) $ 33.99
Interest income 10.25 11.43 30.50 33.77
Expenses (7.59) (7.31) (25.04) (44.65)
--------- --------- --------- ---------
Increase (decrease) for
period 28.57 (141.33) (3.48) 23.11
Net Asset Value per Unit,
beginning of period 1,059.61 1,131.50 1,091.66 967.06
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $1,088.18 $ 990.17 $1,088.18 $ 990.17
========= ========= ========= =========
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activities are shown in the statements of income and expenses.
The Customer Agreement between the Partnership and SB gives the Partnership
the legal right to net unrealized gains and losses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The fair value of these commodity interests, including options
thereon, at September 30, 1996 was $15,806,597 and the average fair value during
the nine months then ended, based on monthly calculation, was $11,941,259.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its
6
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business. These financial instruments include forwards, futures and options,
whose value is based upon an underlying asset, index, or reference rate, and
generally represent future commitments to exchange currencies or cash flows, to
purchase or sell other financial instruments at specific terms at specified
future dates, or, in the case of derivative commodity instruments, to have a
reasonable possibility to be settled in cash or with another financial
instrument. These instruments may be traded on an exchange or over-the-counter
("OTC"). Exchange traded instruments are standardized and include futures and
certain option contracts. OTC contracts are negotiated between contracting
parties and include forwards and certain options. Each of these instruments is
subject to various risks similar to those related to the underlying financial
instruments including market and credit risk. In general, the risks associated
with OTC contracts are greater than those associated with exchange traded
instruments because of the greater risk of default by the counterparty to an OTC
contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as a counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has concentration risk because the sole counterparty or broker with
respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems and, accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership is
subject. These monitoring systems allow the General Partner to statistically
analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, on-line monitoring systems provide account
analysis of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not
recorded in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At September 30,
7
<PAGE>
1996, the notional or contractual amounts of the Partnership's commitment to
purchase and sell these instruments was $1,482,367,790 and $520,142,438,
respectively, as detailed below. All of these instruments mature within one year
of September 30, 1996. However, due to the nature of the Partnership's business,
these instruments may not be held to maturity. At September 30, 1996, the
Partnership had net unrealized trading gains of $15,184,511, as detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
Currencies:
- - Exchange Traded contracts $ 47,875,309 $ 70,260,622 $ 810,217
- - OTC Contracts 150,393,622 192,480,747 1,226,182
Energy 41,980,406 1,358,000 3,222,995
Interest Rates US 94,005,725 40,349,337 (661,994)
Interest Rates Non US 1,062,664,755 58,879,303 8,233,436
Grains 8,097,142 26,018,830 692,912
Metals 15,242,628 107,705,791 1,689,457
Indices 41,053,893 1,270,828 68,629
Softs 9,701,150 21,818,980 (343,163)
Livestock 11,353,160 0 245,840
------------- ------------ -----------
$1,482,367,790 $520,142,438 $15,184,511
============== ============ ===========
5. Subsequent Event:
Effective October 1, 1996, AIS Futures Management Inc. was added as an
Advisor to the Partnership and Hyman Beck & Company Inc. was terminated as an
Advisor.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and forward contracts and interest receivable. Because of the low margin
deposits normally required in commodity futures trading, relatively small price
movements may result in substantial losses to the Partnership. While substantial
losses could lead to a decrease in liquidity, no such losses occurred during the
third quarter of 1996.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on commodity futures
trading, expenses, interest income, additions and redemptions of Units and
distributions of profits, if any.
For the nine months ended September 30, 1996 Partnership capital decreased
19.8% from $194,190,428 to $155,768,334. This decrease was attributable to
redemptions of 36,664.7677 units totaling $38,442,579 and a net loss from
operations of $2,014,998 which was partially offset by additional sales of
1,905.2800 units totaling $2,035,483. Future redemptions can impact the amount
of funds available for investments in commodity contract positions in subsequent
periods.
Results of Operations
During the Partnership's third quarter of 1996, the net asset value per
Unit increased 2.7% from $1,059.61 to $1,088.18, as compared to a decrease of
12.5% in the third quarter of 1995. The Partnership experienced a net trading
gain before commissions and expenses in the third quarter of 1996 of $6,063,075.
Gains were recognized in the trading of commodity futures in interest rates,
energy products and metals. These gains were partially offset by losses
recognized in the trading of indices, currencies and agricultural products. The
Partnership experienced a net trading loss before commissions and expenses in
the third quarter of 1995 of $23,467,961. Losses were recognized in interest
rates, indices, metals, energy and agricultural products and were partially
offset by gains in currencies.
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.
9
<PAGE>
The profitability of the Partnership depends on the existence of major price
trends and the ability of the Advisors to identify correctly those price trends.
Price trends are influenced by, among 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.
Interest income on 80% of the Partnership's daily equity maintained in cash
was earned at the monthly average 30-day U.S. Treasury Bill Yield. Interest
income for the three and nine months ended September 30, 1996 decreased by
$526,005 and $1,074,013, respectively, as compared to the corresponding periods
in 1995. The decrease in interest income is primarily due to the decrease in
interest rates during the nine months ended September 30, 1996 as compared to
the corresponding period in 1995 in addition to the effect of redemptions on the
Partnership's equity maintained in cash.
Brokerage commissions are calculated on the Partnership's net asset value
as of the last day of each month and, therefore, vary according to trading
performance and redemptions. Commissions for the three and nine months ended
September 30, 1996 decreased by $467,268 and $801,790, respectively, as compared
to the corresponding periods in 1995.
Management fees are calculated on the portion of the Partnership's net
asset value allocated to each Advisor at the end of the month and, therefore,
are affected by trading performance and redemptions. Management fees for the
three and nine months ended September 30, 1996 decreased by $141,451 and
$363,969, respectively, as compared to the corresponding periods in 1995.
Incentive fees are based on the new trading profits generated by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the Partnership, the General Partner and each Advisor. Trading performance
resulted in a decrease in incentive fees for the three and nine months ended
September 30, 1996 of $4,164 and $3,494,191, respectively, as compared to the
corresponding periods in 1995.
10
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
David J. Vogel, President
Date: 11/11/96
By /s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Treasurer
Date: 11/11/96
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000911503
<NAME> SMITH BARNEY DIVERSIFIED FUTURES FUNDL.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 146,166,616
<SECURITIES> 15,806,597
<RECEIVABLES> 503,363
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 162,476,576
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 162,476,576
<CURRENT-LIABILITIES> 6,708,242
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 155,768,334
<TOTAL-LIABILITY-AND-EQUITY> 162,476,576
<SALES> 0
<TOTAL-REVENUES> 2,113,378
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,128,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,014,998)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,014,998)
<EPS-PRIMARY> (3.48)
<EPS-DILUTED> 0
</TABLE>
