<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1996
Commission File Number 33-79244
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3769020
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(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
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(Address and Zip Code of principal executive offices)
(212) 723-5424
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(Registrant's telephone number, including area code)
Consulting Group Managed Futures Fund L.P.
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(Former name, if changed since previous report)
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. II
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I - Financial Information:
Item 1. Financial Statements:
Statement of Financial Condition
at March 31, 1996 and December 31,
1995. 3
Statement of Income and Expenses
and Partners' Capital for the period
from January 17, 1995 (commencement
of operations) to March 31, 1996. 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
</TABLE>
2
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PART I
Item 1. Financial Statements
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS (Unaudited)
<S> <C> <C>
Equity in commodity futures trading account:
Cash and cash equivalents $15,248,601 2,000
Net unrealized appreciation open futures contracts 718,849
Commodity options owned, at market value
(premiums purchased $104,150) 97,345
----------- ------
16,064,795 2,000
=========== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses:
Commissions $81,455
Management fees 35,962
Other 27,031
Due to SB 425,849
----------- ------
570,297 0
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Partners' Capital
General Partner, 169.6125 and 1
Unit equivalents outstanding
in 1996 and 1995, respectively 155,779 1,000
Limited Partners, 16,700.7588 and 1
Units of Limited Partnership
Interest outstanding in 1996 and 1995,
respectively 15,338,719 1,000
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15,494,498 2,000
----------- ------
$16,064,795 $2,000
=========== ======
</TABLE>
See Notes to Financial Statements.
3
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 17, 1996
(COMMENCEMENT OF
TRADING OPERATIONS)
TO MARCH 31,
1996
---------------
<S> <C>
Income:
Net losses on trading of commodity futures:
Realized losses on closed positions $(1,032,239)
Change in unrealized gains/losses on open positions 712,044
-----------
(320,195)
Less, brokerage commissions and clearing fees
($5,501 ) (176,191)
-----------
Net realized and unrealized losses (496,386)
Interest income 99,151
-----------
(397,235)
-----------
Expenses:
Management fees 67,442
Other expenses 27,825
-----------
95,267
-----------
Net loss (492,502)
Proceeds from offering - Limited Partners 8,530,000
General Partner 87,000
Offering and organization expense (525,000)
Additions - Limited Partners 7,816,000
General Partner 79,000
-----------
Partners' capital, end of period $15,494,498
===========
Net asset value per Unit
(16,870.3713 Units outstanding at March 31, 1996) $918.44
===========
Net loss per Unit of Limited Partnership Interest
and General Partnership Unit equivalent $(20.63)
===========
Redemption net asset value per Unit $943.69
===========
</TABLE>
See Notes to Financial Statements.
4
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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
General
Smith Barney Diversified Futures Fund L.P. II (the "Partnership") was
formed under the laws of the State of New York, on May 10, 1994 with the name
Consulting Group Managed Futures Fund L.P. The Partnership engages in the
speculative trading of commodity interests including forward contracts on
foreign currencies, commodity options and commodity futures contracts on U.S.
Treasury Bills and other financial instruments, foreign currencies and stock
indices. The commodity interests that are traded by the Partnership are volatile
and involve a high degree of market risk.
Between August 21, 1995 (commencement of the offering period) and
January 16, 1996, 8,529 Units of limited partnership interest were sold at
$1,000 per unit. The proceeds of the offering were held in an escrow account
until January 17, 1996, at which time they were turned over to the Partnership
for trading.
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 John W. Henry & Co., Millburn
Ridgefield Corporation and Chesapeake Capital Corporation (collectively, the
"Advisors").
The Partnership's cash is deposited by SB in segregated bank accounts as
required by Commodity Futures Trading Commission regulations. At March 31, 1996,
the amount of cash held for margin requirements was $4,396,073.
The accompanying financial statements are unaudited but, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Partnership's financial
condition at March 31, 1996 and the results of its operations for the period
from January 17, 1996 (commencement of operations) to March 31, 1996. These
financial statements present the results of an interim period 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 the Securities and Exchange Commission for the year ended
December 31, 1995.
5
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Due to the nature of commodity trading, the results of operations for the
interim period presented should not be considered indicative of the results that
may be expected for the entire year.
Organization and Offering Costs
Offering and organization expenses of $525,000 relating to the issuance
and marketing of Units offered were initially paid by SB. 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 SB for the offering
and organization expenses of the Partnership until such time as such expenses
are fully reimbursed. As of March 31, 1996, the Partnership has reimbursed SB
for $99,151 of offering and organization expenses.
Net Asset Value Per Unit
Changes in net asset value per Unit for the period from January 17, 1996
(commencement of operations) to March 31, 1996 were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 17, 1996
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1996
----------------
<S> <C>
Net realized and unrealized
gains (losses) $(48.12)
Interest income 7.59
Expenses (8.19)
Other 28.09
-------
Increase (decrease) for period (20.63)
Net asset value per Unit,
beginning of period 939.07
-------
Net asset value per Unit,
end of period $918.44
=======
Redemption net asset
value per Unit * $943.69
=======
</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.
6
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Trading Activities and Financial Instrument Risk
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, at March 31, 1996 was $816,194 and the average fair value during the
quarter then ended, based on monthly calculation, was $587,683.
The Partnership is party to financial instruments with offbalance 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, 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 contracts.
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.
7
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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.
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 March 31, 1996, the notional or contractual
amounts of the Partnership's commitment to purchase and sell these instruments
was approximately $79,516,352 and $138,925,190, respectively.
8
<PAGE> 9
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 third
quarter of 1995.
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.
Results of Operations
During the period January 17, 1996 (commencement of operations) to March
31, 1996, the Partnership's net asset value per Unit decreased 2.2% from $939.07
to $918.44. The Partnership experienced a net trading loss before commissions
and expenses in the first quarter of 1996 of $320,195. Losses were recognized in
the trading of commodity futures in precious metals, interest rates, stock
indices, agricultural products and currencies. These losses were partially
offset by gains recognized in the trading of energy 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 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 a 30-day Treasury bill rate determined weekly by SB based on
the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30
days.
9
<PAGE> 10
Brokerage commissions are calculated on the Partnership's net asset
value as of the last day of each month and therefore, are affected by trading
performance, subscriptions and redemptions.
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, subscriptions and redemptions.
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.
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. II
By: Smith Barney Futures Management Inc.
-------------------------------------
(General Partner)
By: /s/ David J. Vogel, President
-------------------------------------
David J. Vogel, President
Date: 5/10/96
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: 5/10/96
By /s/ Daniel A. Dantuono
-------------------------------------
Daniel A. Dantuono
Chief Financial Officer and
Treasurer
Date: 5/10/96
12
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EXHIBIT INDEX
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Exhibit
No. Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000923660
<NAME> SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.II
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,248,601
<SECURITIES> 816,194
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,064,795
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,064,795
<CURRENT-LIABILITIES> 570,297
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,494,498
<TOTAL-LIABILITY-AND-EQUITY> 16,064,795
<SALES> 0
<TOTAL-REVENUES> (397,235)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 95,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (492,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (492,502)
<EPS-PRIMARY> (20.63)
<EPS-DILUTED> 0
</TABLE>
