<PAGE>
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 June 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
June 30, 1996 and December 31, 1995 3
Statements of Income and Expenses and
Partners' Capital for the three and
six months ended June 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
JUNE 30, DECEMBER 31,
1996 1995
ASSETS
--------------- --------------
(Unaudited)
Equity in commodity futures trading account:
Cash and cash equivalents $165,290,531 $181,687,564
Net unrealized appreciation on open futures
contracts 7,857,881 18,951,546
Commodity options owned, at market
value (cost $5,850 and 5,360, respectively) 6,750 5,520
------------ ------------
173,155,162 200,644,630
Interest receivable 530,925 675,035
------------ ------------
$173,686,087 $201,319,665
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions $ 749,381 $ 940,399
Management fees 366,248 447,124
Incentive fees 446,772 --
Other 89,123 107,357
Redemptions payable 7,194,367 5,631,797
Commodity options written, at market
value (premiums received $2,400) -- 2,560
------------ ------------
8,845,891 7,129,237
Partners' Capital
General Partner, 2,048.9308 Unit
equivalents outstanding in 1996 and 1995 2,171,068 2,236,736
Limited Partners, 153,517.9054 and
175,835.9644 Units of Limited Partnership
Interest outstanding in 1996 and 1995,
respectively 162,669,128 191,953,692
------------ ------------
164,840,196 194,190,428
------------ ------------
$173,686,087 $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 SIX-MONTHS SIX-MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income:
Net gains on trading of commodity futures:
Realized gains on closed positions $ 11,020,258 $ 35,253,771 $ 10,177,362 $ 53,164,721
Change in unrealized gains/losses on open positions (2,260,925) (16,874,635) (11,092,765) (15,338,146)
------------- ------------- ------------- -------------
8,759,333 18,379,136 (915,403) 37,826,575
Less, brokerage commissions and clearing fees
( $96,741, $101,857, $219,643 and $224,177, (2,677,183) (3,046,249) (5,574,564) (5,909,086)
respectively)
------------- ------------- ------------- -------------
Net realized and unrealized gains (losses) 6,082,150 15,332,887 (6,489,967) 31,917,489
Interest income 1,710,394 2,203,259 3,463,780 4,011,788
------------- ------------- ------------- -------------
7,792,544 17,536,146 (3,026,187) 35,929,277
------------- ------------- ------------- -------------
Expenses:
Management fees 1,158,733 1,305,593 2,376,044 2,598,562
Incentive fees 446,772 2,506,841 446,772 3,936,799
Other expense 66,353 88,998 154,972 145,975
------------- ------------- ------------- -------------
1,671,858 3,901,432 2,977,788 6,681,336
------------- ------------- ------------- -------------
Net income (loss) 6,120,686 13,634,714 (6,003,975) 29,247,941
Sale of Additional Limited Partnership Interest -- 8,824,041 2,035,483 15,366,036
Redemption of Limited Partnership Interest (13,674,871) (11,100,995) (25,381,740) (28,487,206)
Redemption of General Partner's Interest -- -- -- (60,045)
------------- ------------- ------------- -------------
Net increase (decrease) in Partners' capital (7,554,185) 11,357,760 (29,350,232) 16,066,726
Partners' capital, beginning of period 172,394,381 183,969,487 194,190,428 179,260,521
------------- ------------- ------------- -------------
Partners' capital, end of period $ 164,840,196 $ 195,327,247 $ 164,840,196 $ 195,327,247
============= ============= ============= =============
Net asset value per Unit
( 155,566.8362 and 172,626.2816 Units outstanding
at June 30, 1996 and 1995, respectively) $ 1,059.61 $ 1,131.50 $ 1,059.61 $ 1,131.50
============= ============= ============= =============
Net income (loss) per Unit of Limited Partnership
Interest and General Partnership Unit equivalent $ 36.37 $ 77.57 $ (32.05) $ 164.44
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
4
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
NOTES TO FINANCIAL STATEMENTS
June 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 & Co., 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 June 30, 1996 and the results of its operations for the three and
six months ended June 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 six months ended June
30, 1996 and 1995, were as follows:
THREE-MONTHS ENDED SIX-MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
Net realized and unrealized
gains (losses) $ 36.12 $ 87.23 $ (34.85) $ 179.45
Interest income 10.32 12.58 20.26 22.34
Expenses (10.07) (22.24) (17.46) (37.35)
--------- --------- --------- ---------
Increase (decrease) for
period 36.37 77.57 (32.05) 164.44
Net Asset Value per Unit,
beginning of period 1,023.24 1,053.93 1,091.66 967.06
--------- --------- --------- ---------
Net Asset Value per Unit,
end of period $1,059.61 $1,131.50 $1,059.61 $1,131.50
========= ========= ========= =========
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activity are shown in the 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 June 30, 1996 was $7,864,631 and the average fair value during the
six months then ended, based on monthly calculation, was $11,930,160.
4. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value
6
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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 June 30, 1996, the notional or contractual
amounts of the Partnership's commitment to purchase and sell these instruments
was $847,369,952 and $860,348,692, respectively, as detailed below. All of these
instruments mature within one year of June 30, 1996. However, due to the nature
of the
7
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Partnership's business, these instruments may not be held to maturity. At June
30, 1996, the Partnership had net unrealized trading gains of $7,864,631, as
detailed below.
NOTIONAL OR CONTRACTUAL NET
AMOUNT OF COMMITMENTS UNREALIZED
TO PURCHASE TO SELL GAIN/(LOSS)
Currencies:
- - Exchange Traded contracts $ 60,812,609 $ 71,999,361 $ 49,571
- - OTC Contracts 149,312,287 213,250,453 1,194,204
Energy 50,805,228 423,402 1,740,296
Interest Rates US 4,242,150 195,778,394 (601,612)
Interest Rates Non US 452,496,904 193,357,411 923,647
Grains 9,447,620 11,218,995 386,882
Metals 30,208,434 129,999,615 3,010,673
Indices 54,483,905 19,831,634 189,089
Softs 26,632,845 24,372,067 899,531
Livestock 8,927,970 117,360 72,350
----------- ------------ ---------
Totals $847,369,952 $860,348,692 $7,864,631
============ ============ ==========
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 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 second
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 six months ended June 30, 1996 Partnership capital decreased 15.1%
from $194,190,428 to $164,840,196. This decrease was attributable to net loss
from operations of $6,003,975 and net redemptions of 24,223.3390 units totaling
$25,381,740 which was partially offset by additional sales of 1,905.2800 units
totaling $2,035,483.
Results of Operations
During the Partnership's second quarter of 1996, the net asset value per
Unit increased 3.6% from $1,023.24 to $1,059.61, as compared to an increase of
7.4% in the second quarter of 1995. The Partnership experienced a net trading
gain before commissions and expenses in the second quarter of 1996 of
$8,759,333. Gains were recognized in the trading of commodity futures in metals,
currencies, agricultural products and energy products. These gains were
partially offset by losses recognized in the trading of indices and interest
rates. The Partnership experienced a net trading gain before commissions and
expenses in the second quarter of 1995 of $18,379,136. These gains were
primarily attributable to the trading of commodity futures interest rates,
indices and energy products. These gains were partially offset by losses
recognized in the trading of metals, currencies and agricultural products.
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
9
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major price trends and the ability of the Advisors to identify correctly those
price trends. These 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 on the monthly average 30-day U.S. Treasury Bill Yield. Interest
income for the three and six months ended June 30, 1996 decreased by $492,865
and $548,008, 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 six months ended June 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 six months ended June
30, 1996 decreased by $369,066 and $334,522, 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 six months ended June 30, 1996 decreased by $146,860 and $222,518,
respectively, as compared to the corresponding periods in 1995.
Incentive fees are based on the new appreciation 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 six months ended June 30, 1996
of $2,060,069 and $3,490,027, respectively, as compared to the corresponding
periods in 1995.
10
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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
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By: /s/ David J. Vogel, President
-----------------------------------
David J. Vogel, President
Date: 8/14/96
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: 8/14/96
By /s/ Daniel A. Dantuono
-----------------------------------
Daniel A. Dantuono
Chief Financial Officer and
Treasurer
Date: 8/14/96
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000911503
<NAME> SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 165,290,531
<SECURITIES> 7,864,631
<RECEIVABLES> 530,925
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 173,686,087
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 173,686,087
<CURRENT-LIABILITIES> 8,845,891
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 164,840,196
<TOTAL-LIABILITY-AND-EQUITY> 173,686,087
<SALES> 0
<TOTAL-REVENUES> (3,026,187)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,977,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,003,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,003,975)
<EPS-PRIMARY> (32.05)
<EPS-DILUTED> 0
</TABLE>
