<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-26004
DIVERSIFIED FUTURES TRUST I
- - --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3780260
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
One New York Plaza, 13th Floor, New York, New York 10292
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check CK 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 _CK_ No __
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
- - ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $52,780,717 $46,513,372
Net unrealized gain on open commodity positions 2,900,164 2,991,304
----------- ------------
Net equity 55,680,881 49,504,676
Other receivable 35,624 14,831
----------- ------------
Total assets $55,716,505 $49,519,507
----------- ------------
----------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 1,231,263 $ 2,658,946
Management fee payable 185,721 165,065
----------- ------------
Total liabilities 1,416,984 2,824,011
----------- ------------
Commitments
Trust capital
Limited interests (379,101.195 and 323,307.195 interests
outstanding) 53,685,395 46,119,407
General interests (4,336.741 and 4,038.530 interests outstanding) 614,126 576,089
----------- ------------
Total trust capital 54,299,521 46,695,496
----------- ------------
Total liabilities and trust capital $55,716,505 $49,519,507
----------- ------------
----------- ------------
Net asset value per limited and general interests (``Interests'') $ 141.61 $ 142.65
----------- ------------
----------- ------------
- - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the period from
January 5, 1995
(commencement of
Three months operations)
ended through
March 31, March 31,
1996 1995
<S> <C> <C>
- - -----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 475,619 $ 2,858,874
Change in net unrealized gain on commodity positions (91,140) 9,356,877
Interest income 649,153 380,915
------------ -------------------
1,033,632 12,596,666
------------ -------------------
EXPENSES
Commissions 1,026,931 521,436
Management fees 531,213 309,752
Incentive fees -- 1,707,684
------------ -------------------
1,558,144 2,538,872
------------ -------------------
Net income (loss) $ (524,512) $10,057,794
------------ -------------------
------------ -------------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (520,549) $ 9,911,867
------------ -------------------
------------ -------------------
General interests $ (3,963) $ 145,927
------------ -------------------
------------ -------------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL
INTEREST
Net income (loss) per weighted average limited and general
interest $ (1.43) $ 36.91
------------ -------------------
------------ -------------------
Weighted average number of limited and general interests
outstanding 367,222 272,529
------------ -------------------
------------ -------------------
- - -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1995 327,345.725 $46,119,407 $576,089 $46,695,496
Contributions 64,786.956 9,317,800 42,000 9,359,800
Net loss -- (520,549) (3,963) (524,512)
Redemptions (8,694.745) (1,231,263) -- (1,231,263)
------------ ----------- --------- -----------
Trust capital--March 31, 1996 383,437.936 $53,685,395 $614,126 $54,299,521
------------ ----------- --------- -----------
------------ ----------- --------- -----------
- - -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Diversified Futures Trust I (the ``Trust'') as of March 31, 1996 and
the results of its operations for the three months ended March 31, 1996 and
1995. However, the operating results for the interim periods may not be
indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the statements of financial condition and notes thereto
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 (the
``Annual Report'').
Certain balances for prior periods have been reclassified to conform with
current financial statement presentation.
B. Related Parties
Prudential Securities Futures Management Inc. (the ``Managing Owner'') and
its affiliates perform services for the Trust which include, but are not limited
to: brokerage services, accounting and financial management, registrar, transfer
and assignment functions, investor communications, printing and other
administrative services. The Managing Owner is a wholly-owned subsidiary of
Prudential Securities Incorporated (``PSI''). Except for costs related to
brokerage services, PSI or its affiliates pay the costs of these services in
addition to costs of organizing the Trust and offering its interests as well as
its routine operational, administrative, legal and auditing fees.
The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. A significant portion of the Trust's cash is utilized for
margin purposes for the Trust's commodity trading activities. PSI credits the
Trust monthly with 100% of the interest it earns on the equity in these
accounts. As described in the Annual Report, all commissions for brokerage
services are paid to PSI. The costs charged to the Trust for brokerage services
for the three months ended March 31, 1996 and 1995 were $1,026,931 and $521,436,
respectively.
When the Trust engages in forward foreign currency transactions, it trades
with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Trust's Prospectus, is obligated to charge a
competitive price.
As of March 31, 1996, a non-U.S. affiliate of the Managing Owner owns 1,596
limited interests of the Trust.
C. Credit and Market Risk
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Trust's unrealized
gain (loss) on open commodity positions reflected in the statements of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts,
because
4
<PAGE>
exchanges typically provide clearinghouse arrangements in which the collective
credit (subject to certain limitations) of the members of the exchanges is
pledged to support the financial integrity of the exchange. On the other hand,
the Trust must rely solely on the credit of its broker (PSI) with respect to
forward transactions. The Partnership presents unrealized gains and losses on
open forward positions as a net amount in the statements of financial condition
because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's trading manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the trading manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, is
required by Commodity Futures Trading Commission (``CFTC'') regulations to
separately account for and segregate as belonging to the Trust all assets of the
Trust relating to domestic futures and options trading and is not to commingle
such assets with other assets of PSI. At March 31, 1996 and December 31, 1995,
such segregated assets totalled $51,860,651 and $45,181,863, respectively. Part
30.7 of the CFTC regulations also requires PSI to secure assets of the Trust
related to foreign futures and options trading which totalled $3,546,776 and
$4,346,081 at March 31, 1996 and December 31, 1995, respectively. There are no
segregation requirements for assets related to forward trading.
As of March 31, 1996 and December 31, 1995, the Trust's open forward and
futures contracts mature within one year.
At March 31, 1996 and December 31, 1995, gross contract amounts of open
futures and forward contracts are:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
--------------------------- ----------------------------
Commitments Commitments Commitments Commitments
to Purchase to Sell to Purchase to Sell
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodites $19,971,175 $ 7,472,340 $ 9,454,717 $ 12,169,237
Financial -- 258,227,806 207,316,313 --
Foreign exchanges
Commodites -- 596,948 -- 500,569
Financial 55,193,856 205,075,449 148,065,286 43,243,625
Forward Contracts:
Currencies 47,803,734 133,890,557 25,807,405 89,326,634
</TABLE>
Included in the gross forward contract amounts are offsetting commitments to
purchase and to sell the same currency on the same date in the future. The
commitments are economically offsetting but are not, as a technical matter,
offset in the forward market until the settlement date.
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the ``fair value'' of its futures, forward and options contracts
to be the net unrealized gain or loss on the contracts (plus premiums on
options). Thus, the amount at risk associated with counterparty nonperformance
of all contracts is the net unrealized gain included in the statements of
financial condition. The market risk associated with the Trust's commitments to
sell is unlimited since the Trust's potential involvement is to make delivery of
an underlying commodity at the contract price; therefore, it must repurchase the
contract at prevailing market prices.
5
<PAGE>
At March 31, 1996 and December 31, 1995, the fair value of futures and
forward contracts were:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------------------- --------------------------
Fair Value Fair Value
-------------------------- --------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ 685,681 $ 143,308 $1,264,572 $ 5,200
Financial 1,467,394 -- 780,969 --
Foreign exchanges
Commodities -- 37,844 2,706 --
Financial 861,867 207,080 975,707 4,182
Forward Contracts:
Currencies 742,616 469,162 733,301 756,569
---------- ----------- ---------- -----------
$3,757,558 $ 857,394 $3,757,255 $ 765,951
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
The following table represents the average fair value of futures and forward
contracts during the three months ended March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1996 March 31, 1995
-------------------------------- --------------------------
Average Fair Value Average Fair Value
-------------------------------- --------------------------
Assets Liabilities Assets Liabilities
-------------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ 673,592 $ 208,091 $ 563,124 $ 77,445
Financial 957,488 6,581 370,138 13,617
Currencies -- -- 1,900,721 82,046
Foreign exchanges
Commodities 2,351 9,998 4,017 340
Financial 1,147,555 104,197 678,951 11,626
Forward Contracts:
Currencies 1,898,752 800,068 2,043,196 837,992
-------------- -------------- ---------- ------------
$4,679,738 $1,128,935 $5,560,147 $1,023,066
-------------- -------------- ---------- ------------
-------------- -------------- ---------- ------------
</TABLE>
The following table represents the net realized gains (losses) and the change
in unrealized gains/losses of futures and forward contracts during the three
months ended March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three months ended March 31, 1996 Three months ended March 31, 1995
--------------------------------------------------- ---------------------------------------------------
Change in Change in
Net Realized Unrealized Net Realized Unrealized
Gains (Losses) Gains/Losses Total Gains (Losses) Gains/Losses Total
-------------- -------------------- ----------- -------------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts:
Domestic exchanges
Commodities $ (841,214) $ (716,998) $(1,558,212) $ (988,488) $ 389,027 $ (599,461)
Financial 458,381 686,425 1,144,806 755,200 400,376 1,155,576
Currencies -- -- -- 1,044,957 3,986,163 5,031,120
Foreign exchanges
Commodities -- (40,550) (40,550) (36,341) (1,021) (37,362)
Financial (425,249) (316,738) (741,987) 2,001,935 531,181 2,533,116
Forward Contracts:
Currencies -- 296,721 296,721 81,611 4,051,151 4,132,762
Commodities 1,283,701 -- 1,283,701 -- -- --
-------------- ---------- ----------- -------------- -------------------- -----------
$ 475,619 $ (91,140) $ 384,479 $2,858,874 $9,356,877 $12,215,751
-------------- ---------- ----------- -------------- -------------------- -----------
-------------- ---------- ----------- -------------- -------------------- -----------
</TABLE>
6
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on January 5, 1995 with gross proceeds of
$25,262,800 allocated to commodities trading.
At March 31, 1996, 100% of the Trust's net assets were allocated to commodity
trading. A significant portion of the net assets was held in cash which is used
as margin for the Trust's trading in commodities. Inasmuch as the sole business
of the Trust is to trade in commodities, the Trust continues to own such liquid
assets to be used as margin. PSI credits the Trust monthly with 100% of the
interest it earns on the equity in these accounts.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain commodity futures contract
prices during a single day by regulations referred to as ``daily limits.''
During a single day, no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Trust from promptly liquidating its commodity
futures positions.
The Trust does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the three months ended March 31, 1996
were $1,231,263 and from the commencement of operations, January 5, 1995, to
March 31, 1996 were $9,849,456. Additional contributions raised through the
continuous offering resulted in additional gross proceeds to the Trust of
$9,359,800 for the three months ended March 31, 1996 and $26,980,200 from the
commencement of operations to March 31, 1996. Future redemptions and
contributions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
Results of Operations
The net asset value per Interest as of March 31, 1996 was $141.61, a decrease
of .73% from the December 31, 1995 net asset value per Interest of $142.65.
The Trust's performance was positive in January. Profits earned in the
currency, financial, stock indices, metal and softs sectors were partially
offset by losses incurred in the energy and grain sectors. The primary influence
in the markets was the U.S. dollar, which rose against most currencies and hit
its highest level in two years against the Japanese yen. Trading in foreign
exchange, particularly selling the Swiss franc, Japanese yen, British pound and
German mark, generated profits. Interest rate markets also provided profit
opportunities as European bonds rallied during the month. As a result, positions
in the Matif bond, German bund, Italian bond and Australian long bond were
profitable. Trading in stock indices was profitable overall, particularly in the
Nikkei. U.S. bonds were not profitable. In the non-financial sectors, crude oil
prices plummeted in January, reversing a lengthy uptrend that had fueled
performance for the past several months. As a result, crude oil positions were
negatively impacted and significant losses were incurred. Late in the month,
gold began to move up strongly from the increasingly narrow price range below
$400 where it had traded for several years. Buying gold reaped profits, but
these were offset by losses in silver. Coffee and sugar provided Trust profits,
whereas cotton was not profitable.
The Trust's performance was negative in the month of February. Losses
occurred in currencies, energies, metals, stock indices, financials, softs and
grains. After an impressive start to the year, the U.S. dollar slumped against
major currencies in February despite efforts by the Bank of Japan to support the
dollar against the yen, resulting in unprofitable currency positions. Prices in
the energies sector remained strong for most of February but weakened at month's
end as stronger than anticipated inventories and forecasts of warmer weather
took a toll. Crude oil prices recovered mid-February from a previous decline
only to tumble again at month end, which negatively impacted positions. The
price of gold fell back below the $400 level
7
<PAGE>
only one month after breaking that threshold for the first time in over two
years, producing trading losses in that area. Global bonds reversed a long-term
trend of declining interest rates, negatively impacting positions in the
European and Japanese bond markets; however, positions in U.S. bonds were
profitable. In the grains sector, gains were realized in corn where low grain
stocks worldwide continued to remain a factor in the market.
The Trust's performance was positive in the month of March. Profits were
earned in the currencies, energies, and financials sectors while losses occurred
in stock indices, metals, softs and grains. In the currency markets, trading in
the Japanese yen and Australian dollar was profitable for the Trust. Political
tensions between China and Taiwan provided a temporary flight to the U.S. dollar
as a safe haven. Trading was volatile in the financials sector, reflecting
investors' confusion over the state of the U.S. economy and uncertainty over the
direction of German and Japanese interest rates. Solid gains were posted in most
long-term bond positions, as interest rates advanced for the second consecutive
month, reversing a long-term decline. Profits were realized in heating and crude
oil as a late season cold snap in the Northeastern United States and snowstorms
in the Midwest heightened demand for heating oil.
Interest income is earned on the net assets held at PSI and, therefore,
varies monthly according to interest rates, trading performance, contributions
and redemptions. Interest income increased approximately $268,000 for the three
months ended March 31, 1996 compared to the corresponding period in 1995. This
increase was primarily due to a higher net equity in the Trust as a result of
additional contributions and strong trading performance in 1995.
Commissions are calculated on the Trust's net asset value at the beginning of
the month and, therefore, vary according to trading performance, contributions
and redemptions. Commissions for the three months ended March 31, 1996 increased
approximately $505,000 compared to the corresponding period in 1995. This
increase was primarily due to a higher monthly net asset values as a result of
additional contributions and strong trading performance in 1995.
All trading decisions for the Trust are made by John W. Henry & Co., Inc.
(the ``Trading Manager''). Management fees are calculated on the Trust's net
asset value at the end of each month and, therefore, are affected by trading
performance, contributions and redemptions. Management fees for the three months
ended March 31, 1996 increased approximately $221,000 compared to the
corresponding period in 1995. This increase was primarily due to a higher
monthly net asset values as a result of additional contributions and strong
trading performance in 1995.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement between the Trust, the
Managing Owner and the Trading Manager. Incentive fees of approximately
$1,708,000 generated during the three months ended March 31, 1995 were the
result of favorable trading performance during that period. No incentive fees
were generated during the three months ended March 31, 1996.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending
against the Registrant or the Managing Owner.
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--
3.1
and
4.1--Amended and Restated Declaration of Trust and Trust Agreement of
the Registrant dated as of August 25, 1994, as amended and
restated as of September 14, 1994 (incorporated by reference to
Exhibits 3.1 and 4.1 of the Registrant's Form 10-Q for the period
ended September 30, 1994)
4.2--Subscription Agreement (incorporated by reference to Exhibit C
to the Registrant's Registration Statement on Form S-1, File
No. 33-81534, dated as of September 13, 1994)
4.3--Request for Redemption (incorporated by reference to Exhibit D
to the Registrant's Registration Statement on Form S-1, File
No. 33-81534, dated as of September 13, 1994)
10.8--Form of Foreign Currency Addendum to Brokerage Agreement between
the Registrant and Prudential Securities Incorporated (filed
herewith)
27.1--Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
9
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<S> <C>
Diversified Futures Trust I
By: Prudential Securities Futures Management
Inc.
A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: May 15, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
</TABLE>
10
<PAGE>
FOREIGN CURRENCY ADDENDUM
This addendum ("Addendum) supplements the terms and conditions of
the Futures Account Client Agreement ("Agreement") entered into by and
between Diversified Futures Trust I ("Customer") and Prudential
Securities Incorporated ("PSI") as of ___________, 199__.
In consideration of PSI agreeing to enter into various forward and
spot foreign currency and foreign currency options transactions
(collectively "Forex Contracts") with Customer, the parties agree
as follows:
1. Relationship to Agreement. Except as otherwise provided in
this Addendum, the terms and conditions of the Agreement shall remain
in full force and effect, and shall apply to all Forex Contracts that
PSI may transact with Customer. If there are any conflicts between
the terms and conditions of the Agreement and this Addendum, the terms
and conditions of this Addendum will govern with respect to Forex
Contracts.
2. Forex Contracts. PSI and Customer will each act as principals
with respect to Forex Contracts. Forex Contracts will be transacted within
the non-regulated portion of Customer's PSI futures account. Customer
acknowledges that Forex Contracts are not traded on or guaranteed by a
regulated exchange or its clearing house and accordingly, acknowledges
that trading in Forex Contracts is not subject to the same regulatory
or financial protections as is trading in futures contracts. Customer
represents and warrants that (a) it is authorized to enter into Forex
Contracts, (b) it understands that as principal opposite PSI the parties
will each be relying on the creditworthiness of the other, (c) each
Forex Contract will be individually negotiated as to its material
economic terms, and (d) PSI will be entitled to rely on any instructions,
notices and communications that it reasonably believes to have originated
with any authorized representative of Customer, including a person with
a Power of Attorney over trading decisions, and Customer shall be
bound thereby.
3. Limits. This Addendum does not evidence a commitment of PSI
or Customer to enter into Forex Contracts generally or to enter into
any specific Forex Contract. PSI shall have the right to set limits
on the number of Forex Contracts that PSI will transact with Customer.
PSI reserves the right to increase or decrease such limits as, in PSI's
good faith judgment, market and economic conditions warrant, including
but not limited to the material change in Customer's credit rating or
Customer's country or sovereign rating by an internationally recognized
rating agency. Additionally, PSI reserves the right, exercisable at
any time when warranted by market conditions in PSI's sole discretion,
to refuse acceptance of Customer's orders.
4. Confirmations. Upon entering into a Forex Contract with
Customer, PSI shall verbally confirm the economic terms to Customer
followed by a written confirmation (via letter, telex, facsimile or
telecopier at PSI's election) (the "Confirmation) specifying the
amount of
<PAGE>
foreign currency bought or sold by Customer against U.S.
dollars or another foreign currency, the exchange rate, and the date
on which, and the location where, the currency is to be delivered.
Confirmations shall be conclusive and binding on Customer unless
Customer promptly notifies PSI of any objection within three (3) days
of receipt by Customer of the Confirmation.
5. Collateral; Settlement. PSI reserves the right to require
customer to deposit collateral with respect to Forex Contract
transactions. All Forex Contracts will be transacted pursuant
to a line of credit or will be otherwise collateralized at PSI's
option, and will be subject to the netting provisions set forth in
Section 8 below. All payments due under a Forex Contract shall be
made by wire transfer on the delivery date specified in the Confirmation
in immediately available funds in the designated currency. In the
event that either party's performance of its payment obligations
shall be interrupted or delayed by reason of war, riot, civil
commotion, sovereign conduct or other acts of state, the time of
performance of such party's obligations shall be extended for the
period of such interruption.
6. Dispute Resolution. Any dispute between Customer and PSI
relating to Customer's Forex Contracts shall be settled and determined
by an arbitration panel of either the New York Stock Exchange, the
National Association of Securities Dealers Inc., or the National
Futures Association as Customer may elect, or if the foregoing qualified
forums decline to arbitrate such dispute, before such forum as may be
agreed upon between the parties. At such time that PSI notifies Customer
of its intent to submit a claim to arbitration Customer will have seven
business days to elect a qualified forum for conducting the proceeding.
If Customer fails to notify PSI of its selection within seven business
days, PSI shall have the absolute right to make such selection.
7. Governing Law. The interpretation and enforcement of this
Addendum (and the Forex Contracts covered hereunder) and the rights,
obligations and remedies of the parties shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to principles of choice of law.
8. Netting Provisions.
(a) Netting by Novation. Unless separately agreed and set out
in the Confirmation regarding a specific Forex Contract, each Forex
Contract made between Customer and PSI will immediately, upon its
being entered into, be netted with all then existing Forex Contracts
between Customer and PSI for the same paired currencies having the
same delivery date. Each Forex Contract containing an obligation to
deliver that has been netted pursuant to the foregoing shall immediately
be deemed cancelled and simultaneously replaced by a single transaction.
For purposes hereof, each Forex Contract shall be deemed a Forex
Contract from and after its inception for all purposes.
(b) Payment Netting. If on any delivery date more than one
delivery of a particular currency is to be made between Customer and
PSI pursuant to a Forex Contract,
2
<PAGE>
each party shall aggregate the amounts deliverable by it and only
the difference, if any, between these aggregate amounts shall be
delivered by the party owing the larger amount to the other party.
(c) Discharge and Termination of Options. Any call option or
any put option written by a party will automatically be terminated and
discharged, in whole or in part, as applicable, against a call option
or a put option, respectively, written by the other party, such
termination and discharge to occur automatically upon the payment
in full of the premium payable in respect of such options; provided
that such termination and discharge may occur only in respect of
options:
(i) each being with respect to the same put currency and
the same call currency;
(ii) each having the same expiration date and expiration time;
(iii) each being of the same style, i.e. both being
America Style options or both being European Style options;
(iv) each having the same strike price; and
(v) neither of which shall have been exercised by delivery
of a notice of exercise;
and, upon the occurrence of such termination and discharge,
neither party shall have any further obligation to the other party in
respect of the relevant options or, as the case may be, parts thereof
so terminated and discharged. In the case of a partial termination and
discharge (i.e., where the relevant options are for different amounts
of the currency), the remaining portion of the option that is partially
discharged shall continue to be a Forex Contract for all purposes of
this Addendum.
(d) The occurrence at any time with respect to a party of any of
the following events constitutes an event of default (an Event of
Default ) with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make,
when due, any payment under this Addendum or delivery required to be
made by it if such failure is not remedied on or before the third
business day after notice of such failure is given to such party;
(ii) Breach of Agreement. Failure by the party to comply
with or perform any agreement or obligation under this Addendum if
such failure is not remedied on or before the third business day after
notice of such failure is given to the Defaulting Party:
3
<PAGE>
(iii) Failure to Provide Adequate Assurances. Failure
by Customer to provide adequate assurances of its ability to perform
any of its obligations under this Addendum within three business days
of a written request from PSI to do so when PSI has reasonable grounds
for insecurity;
(iv) Bankruptcy. The Party - (A) is dissolved (other than
pursuant to a consolidation, amalgamation or merger); (B) becomes
insolvent or is unable to pay its debts or fails or admits in writing
its inability generally to pay its debts as they become due; (C) makes
a general assignment, arrangement or composition with or for the
benefit of its creditors; (D) institutes or has instituted against
it a proceeding seeking a judgment of insolvency or bankruptcy or
any other relief under any bankruptcy or insolvency law or other
similar law affecting creditors rights, or a petition is presented
for its winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it, such
proceeding or petition (1) results in a judgment or insolvency or
bankruptcy or the entry of an order for relief or the making of an
order for its winding-up or liquidation or (2) is not dismissed,
discharged, stayed or restrained in each case within 30 days of the
institution or presentation thereof; (E) has a resolution passed for
its winding-up, official management or liquidation (other than pursuant
to a consolidation, amalgamation or merger); (F) seeks or becomes
subject to the appoint of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all of its assets; (G) has a secured
party take possession of all or substantially all of its assets or has
a distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all of its
assets and such secured party maintains possession, or any such process
is not dismissed, discharged, stayed or restrained, in each case within
30 days thereafter; (H) causes or is subject to any event with respect
to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (A) to
(G) (inclusive); or (i) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any
of the foregoing acts.
(e) Close-Out Netting. If an Event of Default has occurred and
is continuing in respect of a party ("Defaulting Party"), the other
party ("Non-Defaulting Party") shall be entitled in its reasonable
discretion, immediately and at any time and upon notice (unless such
notice cannot practicably be provided in the circumstances) to close-out
all Defaulting Party's Forex Contracts, and may in its reasonable
discretion at any time or from time to time upon notice (unless such
notice cannot practicably be provided in the circumstances) liquidate
all or some of Defaulting Party's collateral in Non-Defaulting Party's
possession or control on any commercially reasonable basis and apply the
proceeds of such collateral to any
4
<PAGE>
amounts owing by Defaulting Party to Non-Defaulting Party resulting
from the close-out of such Forex Contracts. Any such close-out of
Forex Contracts shall be accomplished by the Non-Defaulting Party:
(i) closing-out each such Forex Contract so that each such
Forex Contract is cancelled and calculating settlement amounts
equal to the difference between the market value (as determined by PSI
in good faith) and contract value of the Forex Contract or, in the case
of options, settlement amounts equal to the current market premium for
a comparable option (as determined by PSI in good faith); (ii) discounting
each settlement amount then due to present value at the time of close-out
(to take into account the period between the date of close-out and the
maturity date of the relevant liquidated Forex Contract using an interest
rate equal to PSI's cost of funds as determined by PSI in good faith);
(iii) calculating an aggregate settlement payment in an amount equal
to the net amount of such discounted settlement amounts as is then due
from one party to the other; and (iv) setting off the settlement payments,
if any, that Non-Defaulting Party owes Defaulting Party as a result of
such liquidation and all collateral held by or for Non-Defaulting Party
against the settlement payments, if any, that Defaulting Party owes to
Non-Defaulting Party as a result of such close-out; so that all such
amounts are netted to a single liquidated amount payable by one party
to the other party, as appropriate, on the business day following the
close-out.
Notwithstanding anything to the contrary set forth above
regarding the Non- Defaulting Party's rights to close-out and value
Forex Contracts, if an event specified in clause (iv) of this sub-section
(d) has occurred, then upon the occurrence of such event, all outstanding
Forex Contracts will be deemed to have been automatically terminated as
of the time immediately preceding the institution of the relevant
proceeding, or the presentation of the relevant petition upon the
occurrence with respect to the party to such specified event.
The rights of PSI under this sub-section (e) shall be in
addition to, and not in limitation or exclusion of any other rights
that PSI may have (whether by agreement, operation of law or otherwise).
9. Liquidated Damages. The parties agree that the amount owing
by one party to the other party hereunder is a reasonable computation
of the loss or gain it would have incurred or received on the obligations
between the parties governed by this Addendum and is not a penalty.
Such amount is payable as liquidated damages to the other party for
the loss of the benefit of its bargains and neither party shall be
entitled to recover additional damages in respect of such loss of
the bargain. The determination of such amount shall be conclusive,
absent manifest error.
10. Understanding of Risks. Each party will be deemed to represent
to the other party on the date on which it enters into a Forex Contract
that it has the capability to evaluate and understand (on its own behalf
or through independent professional advice), and does understand, the
terms, conditions and risks of that Forex Contract and is willing to
accept those terms and conditions and to assume (financially and
otherwise) those risks.
5
<PAGE>
11. Termination. Each party may terminate this Addendum at
any time on three (3) business days prior written notice. No such
termination shall affect any Forex Contracts entered into prior to
such termination and this Addendum shall continue to govern any such
Forex Contract.
__________________________ ___________________________________
Date Name of Customer
By:_______________________________
Title: ___________________________
Signature:________________________
Accepted By Prudential Securities Incorporated
By:_____________________________ Date: ____________________________
Title:__________________________
Signature: _____________________
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Diversified Futures Trust I
and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000926805
<NAME> Diversified Futures Trust I
<MULTIPLIER> 1
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 3-Mos
<CASH> 52,780,717
<SECURITIES> 2,900,164
<RECEIVABLES> 35,624
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,716,505
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,716,505
<CURRENT-LIABILITIES> 1,416,984
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,299,521
<TOTAL-LIABILITY-AND-EQUITY> 55,716,505
<SALES> 0
<TOTAL-REVENUES> 1,033,632
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,558,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (524,512)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> 0
</TABLE>
