Item 1. Business.
(a) General development of business. Smith Barney Diversified Futures Fund L.P. ("Partnership") is a limited partnership organized under the laws of the State of New York, on August 13, 1993 to engage in speculative trading of a diversified portfolio of commodity interests, including futures contracts, options and forwards. 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. A total of 150,000 Units of Limited Partnership Interest in the Partnership ("Units") were offered to the public. A Registration Statement on Form S-1 relating to the public offering became effective on October 29, 1993. Between October 29, 1993 and January 11, 1994, 75,615 Units were sold to the public at $1,000 per Unit. Proceeds of the offering were held in an escrow account and were transferred, along with the General Partner's contribution of $781,000 to the Partnership's trading account on January 12, 1994 when the Partnership commenced trading. An additional 150,000 Units were registered on a Registration Statement on Form S-1 effective February 17, 1994. Sales of additional Units and additional General Partner's contributions and redemptions of Units for the year ended December 31, 1996 are reported in the Statement of Partners' Capital on page under "Item 8. Financial Statements and Supplementary Data."
The General Partner has agreed to make capital contributions, if necessary, so that its general partnership interest will be equal to the greater of (i) an amount to entitle it to 1% of each material item of Partnership income, loss, deduction or credit and (ii) the greater of (a) 1% of the partners' contributions to the Partnership or (b) $25,000. The Partnership will be liquidated upon the first of the following to occur: December 31, 2013; the net asset value of a Unit decreases to less than $400 as of the close of any business day; or under certain circumstances as defined in the Limited Partnership Agreement of the Partnership (the "Limited Partnership Agreement"). The Partnership's trading of futures contracts on commodities is done on United States and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with its commodity broker, Smith Barney Inc. ("SB"). Smith Barney Futures Management Inc., acts as the general partner of the Partnership (the "General Partner"). SB is an affiliate of the General Partner. Under the Limited Partnership Agreement, the General Partner administers the business and affairs of the Partnership. As of December 31, 1996, all commodity trading decisions are made for the Partnership by Campbell & Company, Inc., John W. Henry & Company, Inc. ("JWH"), Chesapeake Capital Corporation, Abraham Trading Co., Rabar Market Research, Inc. and AIS Futures Management, Inc. (collectively, the "Advisors"). None of the Advisors is affiliated with one another, the General Partner or SB. The Advisors are not responsible for the organization or
operation of the Partnership. Pursuant to the terms of the Management Agreements (the "Management Agreement"), the Partnership is obligated to pay each Advisor: (i) a monthly management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets (except that JWH will receive a monthly management fee equal to 1/3 of 1% (4% per year)) of the Partnership allocated to each Advisor as of the end of each month and (ii) an incentive fee payable quarterly, equal to 20% of the New Trading Profits (except JWH, which will receive an incentive fee of 15% of New Trading Profits) of the Partnership. The Partnership has entered into a Customer Agreement with SB (the "Customer Agreement") which provides that the Partnership will pay SB a monthly brokerage fee equal to 11/24 of 1% of month-end Net Assets allocated to the Advisors (5.5% per year) in lieu of brokerage commissions on a per trade basis. SB pays a portion of its brokerage fees to its financial consultants who have sold Units and who are registered as associated persons with the Commodity Futures Trading Commission (the "CFTC"). The Partnership pays for National Futures Association ("NFA") fees, exchange and clearing fees, give-up and user fees and floor brokerage fees. The Customer Agreement between the Partnership and SB gives the Partnership the legal right to net unrealized gains and losses. Brokerage fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. In addition, SB pays the Partnership interest on 80% of the average daily equity maintained in cash in its account during each
month at a 30-day U.S. Treasury bill rate determined weekly by SB based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days from the date on which such weekly rate is determined. (b) Financial information about industry segments. The Partnership's business consists of only one segment, speculative trading of commodity interests. The Partnership does not engage in sales of goods or services. The Partnership's net income (loss) from operations for the year ended December 31, 1996, 1995 and for the period from January 12, 1994 (commencement of trading operations) to December 31, 1994 is set forth under "Item 6. Select Financial Data". The Partnership capital as of December 31, 1996 was $171,587,261. (c) Narrative description of business. See Paragraphs (a) and (b) above. (i) through (x) - Not applicable. (xi) through (xii) - Not applicable. (xiii) - The Partnership has no employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales. The Partnership does not engage in sales of goods or services, and therefore this item is not applicable. Item 2.

Item 2. Properties. The Partnership does not own or lease any properties. The General Partner operates out of facilities provided by its affiliate, SB.
Item 3.

Item 3. Legal Proceedings. There are no pending legal proceedings to which the Partnership is a party or to which any of its assets is subject. No material legal proceedings affecting the Partnership were terminated during the fiscal year. Item 4.

Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to the security holders for a vote during the last fiscal year covered by this report. PART II Item 5.

Item 5. Market for Registrant's Common Equity and Related Security Holder Matters. (a) Market Information. The Partnership has issued no stock. There is no established public market for the Units of Limited Partnership Interest. (b) Holders. The number of holders of Units of Limited Partnership Interest as of December 31, 1996 was 7,706. (c) Distribution. The Partnership did not declare a distribution in 1996.
Item 6.

Item 6. Select Financial Data. The Partnership commenced trading operations on January 12, 1994. Realized and unrealized trading gains (losses), interest income, net income (loss) and increase (decrease) in net asset value per Unit for the years ended December 31, 1996, 1995 and for the period from January 12, 1994 (commencement of trading operations) to December 31, 1994 and total assets at December 31, 1996, 1995, 1994 and 1993 were as follows:
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (a) Liquidity. The Partnership does not engage in sales of goods or services. Its only assets are its equity in its commodity futures trading account, consisting of cash and cash equivalents, net unrealized appreciation (depreciation) on open futures contracts and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. Such substantial losses could lead to a material decrease in liquidity. To minimize this risk, the Partnership will follow certain policies including: (1) Partnership funds are invested only in futures contracts which are traded in sufficient volume to permit, in the opinion of the Advisors, ease of taking and liquidating positions. (2) The Partnership diversifies its positions among various commodities. (3) No Advisor initiates additional positions in any commodity if such additional positions would result in aggregate positions for all commodities requiring as margin more than 66-2/3% of the Partnership's assets allocated to the Advisor. (4) The Partnership may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearing house, the physical commodity position will be fully hedged.
(5) The Partnership does not employ the trading technique commonly known as "pyramiding", in which the speculator uses unrealized profits on existing positions as margin for the purchase or sale of additional positions in the same or related commodities. (6) The Partnership does not utilize borrowings except short-term borrowings if the Partnership takes delivery of any cash commodities. (7) The Advisor may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership. The term "spread" or straddle" describes a commodity futures trading strategy involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets and in which the trader expects to earn a profit from a widening or narrowing of the difference between the prices of the two contracts. The Partnership is party to financial instruments with off- balance sheet risk, including derivative financial instruments and derivative commodity instruments, in the normal course of its business. These financial instruments include forwards, futures and options, whose value is based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash flows, or to purchase or sell other financial instruments at specified terms at specified future dates. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments including market and credit risk. The General Partner monitors and controls the Partnership's risk exposure on a daily basis through financial,
credit and risk management monitoring systems and, accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership is subject. (See also Item 8.

Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
Page Number
Report of Independent Accountants.
Financial Statements: Statement of Financial Condition at December 31, 1996 and 1995.
Statement of Income and Expenses for the years ended December 31, 1996 and 1995 and for the period January 12, 1994 (commencement of trading operations) to December 31, 1994.
Statement of Partner's Capital for the years ended December 31, 1996, 1995 and 1994.
Notes to Financial Statements. -
Report of Independent Accountants
To the Partners of Smith Barney Diversified Futures Fund L.P.:
We have audited the accompanying statement of financial condition of SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. (a New York Limited Partnership) as of December 31, 1996 and 1995, and the related statements of income and expenses for the years ended December 31, 1996 and 1995 and for the period from January 12, 1994 (commencement of trading operations) to December 31, 1994, and of partners' capital for the years ended December 31, 1996, 1995, and 1994. These financial statements are the responsibility of the management of the General Partner. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management of the General Partner, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. as of December 31, 1996 and 1995, and the results of its operations for the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York February 28, 1997
Smith Barney Diversified Futures Fund L.P. Statement of Financial Condition December 31, 1996 and 1995
Assets: 1996 1995 Equity in commodity futures trading account: Cash and cash equivalents (Note 3c) $170,574,018 $181,687,559 Net unrealized appreciation on open futures contracts 6,887,203 18,951,551 Commodity options owned, at market value (cost $607,539 and $5,360, in 1996 and 1995, respectively) 442,696 5,520 ------------ ------------ 177,903,917 200,644,630 Interest receivable 558,298 675,035 ------------ ------------ $178,462,215 $201,319,665 ============ ============ Liabilities and Partners' Capital: Liabilities: Accrued expenses: Commissions $ 831,169 $ 940,399 Management fees 412,599 447,124 Incentive fees 3,476,717 Other 108,043 107,357 Redemptions payable (Note 5) 2,005,213 5,631,797 Commodity options written, at market value (premiums received $83,070 and $2,400, in 1996 and 1995, respectively) 41,213 2,560 ------------ ------------ 6,874,954 7,129,237 ------------ ------------ Partners' capital (Notes 1, 5, and 7): General Partner, 2,048.9308 Unit equivalents outstanding in 1996 and 1995 2,561,901 2,236,736 Limited Partners, 135,181.6379 and 175,835.9644 Units of Limited Partnership Interest outstanding in 1996 and 1995, respectively 169,025,360 191,953,692 ------------ ------------ 171,587,261 194,190,428 ------------ ------------ $178,462,215 $201,319,665 ============ ============
See notes to financial statements.
Smith Barney Diversified Futures Fund L.P. Statement of Income and Expenses for the years ended December 31, 1996 and 1995 and for the period from January 12, 1994 (commencement of trading operations) to December 31, 1994
1996 1995 1994 Income: Net gains (losses) on trading of commodity interests: Realized gains (losses) on closed positions $ 46,225,371 $ 39,663,772 $(12,300,678) Change in unrealized gains/ losses on open positions (12,187,334) (4,383,357) 23,334,908 ------------ ------------ ------------ 34,038,037 35,280,415 11,034,230 Less, Brokerage commissions and clearing fees ($393,877, $433,213 and $273,864, respectively) (Note 3c) (10,754,060) (11,751,508) (9,866,501) ------------ ------------ ------------ Net realized and unrealized gains 23,283,977 23,528,907 1,167,729 Interest income 6,631,110 8,077,695 5,227,466 ------------ ------------ ------------ 29,915,087 31,606,602 6,395,195 ------------ ------------ ------------ Expenses: Management fees (Note 3b) 4,682,124 4,940,353 4,285,947 Incentive fees (Note 3b) 3,923,488 4,073,071 3,023,294 Other 252,861 415,960 170,003 Organization expense (Note 6) 1,145,322 ------------ ------------ ------------ 8,858,473 9,429,384 8,624,566 ------------ ------------ ------------ Net income (loss) $ 21,056,614 $ 22,177,218 $ (2,229,371) ============ ============ ============ Net income (loss) per Unit of Limited Partnership Interest and General Partner Unit equivalent (Notes 1 and 7) $ 158.70 $ 124.60 $ (32.94) ============ ============ ============
See notes to financial statements.
Smith Barney Diversified Futures Fund L.P. Statement of Partners' Capital for the years ended December 31, 1996, 1995 and 1994
Limited General Partners Partner Total Partners' capital at December 31, 1993 $ 1,000 $ 1,000 $ 2,000 Proceeds from offering of 75,614 Units of Limited Partnership Interest and General Partner's contribution representing 780 Unit equivalents (Note 1) 75,614,000 780,000 76,394,000 ------------- ------------- ------------- Opening Partnership capital for operations 75,615,000 781,000 76,396,000 Net loss (2,202,957) (26,414) (2,229,371) Sale of 141,214.7500 Units of Limited Partnership Interest and General Partner's contribution representing 1,316.6838 Unit equivalents 136,109,323 1,274,000 137,383,323 Redemption of 33,561.8122 Units of Limited Partnership Interest (32,289,431) 0 (32,289,431) ------------- ------------- ------------- Partners' capital at December 31, 1994 177,231,935 2,028,586 179,260,521 Net income 21,909,023 268,195 22,177,218 Sale of 38,919.4389 Units of Limited Partnership Interest 40,580,354 0 40,580,354 Redemption of 46,351.4123 Units of Limited Partnership Interest and General Partner's redemption representing 48.7530 Unit equivalents (47,767,620) (60,045) (47,827,665) ------------- ------------- ------------- Partners' capital at December 31, 1995 191,953,692 2,236,736 194,190,428 Net income 20,731,449 325,165 21,056,614 Sale of 1,905.2800 Units of Limited Partnership Interest 2,035,483 0 2,035,483 Redemption of 42,559.6065 Units of Limited Partnership Interest (45,695,264) 0 (45,695,264) ------------- ------------- ------------- Partners' capital at December 31, 1996 $ 169,025,360 $ 2,561,901 $ 171,587,261 ============= ============= =============
See notes to financial statements.
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
1. Partnership Organization:
Smith Barney Diversified Futures Fund L.P. (the "Partnership") is a limited partnership which was organized on August 13, 1993 under the partnership laws of the State of New York 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.
Between October 29, 1993 and January 11, 1994, 75,615 Units of Limited Partnership Interest ("Units") were sold at $1,000.00 per Unit. The proceeds of the offering were held in an escrow account until January 12, 1994, at which time they were turned over to the Partnership for trading. The Partnership was authorized to sell 300,000 Units during its offering period.
Smith Barney Futures Management Inc. is 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 (see Note 3c). The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of his initial capital contribution and profits, if any, net of distributions.
The Partnership will be liquidated upon the first of the following to occur: December 31, 2013; the net asset value of a Unit decreases to less than $400 as of the close of any business day; or under certain circumstances as defined in the Limited Partnership Agreement.
2. Accounting Policies:
a.All commodity interests (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statement of financial condition at market value for those commodity interests for which market quotations are readily available or at fair value on the last business day of the year. Investments in commodity interests denominated in foreign currency are translated into U.S. dollars at the exchange rates prevailing on the last business day of the year. Realized gain (loss) and changes in unrealized values on commodity interests are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses) on trading of commodity interests.
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
b.Income taxes have not been provided as each partner is individually liable for the taxes, if any, on his share of the Partnership's income and expenses.
c.The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
3. Agreements:
a.Limited Partnership Agreement:
The Limited Partnership Agreement provides that the General Partner shall manage the business of the Partnership and may make all trading decisions for the Partnership.
b.Management Agreements:
The General Partner has entered into Management Agreements with Campbell & Co., Inc., Chesapeake Capital Corporation, John W. Henry & Company, Inc. ("JWH"), AIS Futures Management, Inc., Abraham Trading Co. and Rabar Market Research Inc. (collectively, the "Advisors"), registered commodity trading advisors. The Advisors are not affiliated with one another and none is affiliated with the General Partner or SB and are not responsible for the organization or operation of the Partnership. The Partnership will pay each Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of Net Assets allocated to the Advisor as of the end of each month (except JWH, which will receive a monthly management fee equal to 1/3 of 1% (4% per year) of month-end Net Assets). In addition, the Partnership is obligated to pay each Advisor 20% of the New Trading Profits earned by each Advisor for the Partnership in each calendar quarter (except JWH, which will receive an incentive fee of 15% of New Trading Profits). AIS Futures Management, Inc. was added as an Advisor to the Partnership effective October 1, 1996 and Hyman Beck & Co., Inc., was terminated on the same date.
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
c.Customer Agreement
The Partnership has entered into a Customer Agreement which provides that the Partnership will pay SB a monthly brokerage fee equal up to 11/24 of 1% (5.5% per year) of month-end Net Assets in lieu of brokerage commissions on a per trade basis. Persons investing $1,000,000 or more will pay a reduced brokerage fee of 7/24 of 1% of month-end Net Assets (3.5% per year), receiving the differential between this reduced fee and 5.5% per year in the form of additional Units. SB will pay a portion of brokerage fees to its financial consultants who have sold Units in this offering. Brokerage fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. The Partnership will pay for National Futures Association ("NFA") fees, exchange, clearing, user, give-up and floor brokerage fees. All of the Partnership's assets are deposited in the Partnership's account at SB. The Partnership's cash is deposited by SB in segregated bank accounts as required by Commodity Futures Trading Commission regulations. At December 31, 1996 and 1995, the amount of cash held for margin requirements was $17,906,764 and $37,366,691, respectively. SB has agreed to pay the Partnership interest on 80% of the average daily equity maintained in cash in its account during each month at 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 from the date on which such weekly rate is determined. The Customer Agreement between the Partnership and SB gives the Partnership the legal right to net unrealized gains and losses. The Customer Agreement may be terminated upon notice by either party.
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership's trading activities are shown in the statements 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 December 31, 1996 and 1995 was $7,288,686 and $18,954,511, respectively and the average fair value during the years then ended, based on monthly calculation, was $14,427,778 and $12,694,190, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the General Partner and at such times as the General Partner may decide. Beginning on April 1, 1994, a limited partner may require the Partnership to redeem his Units at their Net Asset Value as of the last day of each month 10 days' notice to the General Partner. No fee will be charged for redemptions.
6. Organization and Offering Costs:
Offering and organization expenses of $1,145,322 relating to the issuance and marketing of units offered were initially paid by SB. The Partnership has reimbursed SB for all such expenses from interest paid to the Partnership and has recorded such reimbursement amounts as organization expense in 1994.
7. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 Net realized and unrealized gains/losses $ 175.18 $ 132.42 $ (11.88) Interest income 41.97 44.48 29.36 Expenses (58.45) (52.30) (50.42) --------- --------- --------- Increase(decrease) for period 158.70 124.60 (32.94) Net asset value per Unit, beginning of period 1,091.66 967.06 1,000.00 --------- --------- --------- Net asset value per Unit, end of period $1,250.36 $1,091.66 $ 967.06 ========= ========= =========
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
8. 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 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.
Smith Barney Diversified Futures Fund L.P. Notes to Financial Statements
The General Partner monitors and controls the Partnership's risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership is subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
The notional or contractual amounts of these instruments, while not recorded in the financial statements, reflect the extent of the Partnership's involvement in these instruments. At December 31, 1996, the notional or contractual amounts of the Partnership's commitment to purchase and sell these instruments was $852,011,994 and $465,891,579, respectively. All of these instruments mature within one year of December 31, 1996. However, due to the nature of the Partnership's business, these instruments may not be held to maturity. At December 31, 1996, the fair value of the Partnership's derivatives, including options thereon, was $7,288,686, as detailed below.
Notional or Contractual Amount of Commitments To Purchase To Sell Fair Value Currencies -Exchange Traded Contracts $ 45,531,748 $ 99,346,984 $ 2,104,939 -OTC Contracts 81,321,969 94,859,240 893,020 Energy 39,406,151 0 2,582,805 Interest Rate U.S. 128,723,410 20,658,535 (57,409) Interest Rate Non-U.S. 494,435,015 117,300,683 (389,818) Grains 3,521,825 31,295,014 694,742 Metals 22,575,658 72,077,301 1,126,558 Indices 24,509,712 15,044,568 453,162 Softs 5,868,966 15,302,854 (141,817) Livestock 6,117,540 6,400 22,504 ------------- ------------- ------------- Total $ 852,011,994 $ 465,891,579 $ 7,288,686 ============= ============= =============
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. During the last two fiscal years and any subsequent interim period, no independent accountant who was engaged as the principal accountant to audit the Partnership's financial statements has resigned or was dismissed. PART III Item 10.

Item 10.Directors and Executive Officers of the Registrant. The Partnership has no officers or directors and its affairs are managed by its General Partner, Smith Barney Futures Management Inc. Investment decisions will be made by Campbell & Company, Inc., Chesapeake Capital Corporation, John W. Henry & Company, Inc., Abraham Trading Co., Rabar Market Research, Inc. and AIS Futures Management, Inc. (collectively the "Advisors"). Item 11.

Item 11.Executive Compensation. The Partnership has no directors or officers. Its affairs are managed by Smith Barney Futures Management Inc., its General Partner, which receives compensation for its services, as set forth under "Item 1. Business." SB, an affiliate of the General Partner, is the commodity broker for the Partnership and receives brokerage commissions for such services, as described under "Item 1. Business." Brokerage commissions and clearing fees of $10,754,060 were paid for the year ended December 31, 1996. Management fees and incentive fees of $4,682,124 and $3,923,488, respectively, were paid or payable to the Advisors for the year ended December 31, 1996.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management. (a). Security ownership of certain beneficial owners. The Partnership knows of no person who beneficially owns more than 5% of the Units outstanding. (b). Security ownership of management. Under the terms of the Limited Partnership Agreement, the Partnership's affairs are managed by the General Partner. The General Partner owns Units of general partnership interest equivalent to 2,048.9308 Units (1.5%) of Limited Partnership Interest as of December 31, 1996. (c). Changes in control. None. Item 13.

Item 13. Certain Relationship and Related Transactions. Smith Barney Inc. and Smith Barney Futures Management Inc. would be considered promoters for purposes of item 404 (d) of Regulation S-K. The nature and the amounts of compensation each promoter will receive from the Partnership are set forth under "Item 1. Business" and "Item 11. Executive Compensation."
PART IV Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) Financial Statements: Statement of Financial Condition at December 31, 1996 and 1995. Statement of Income and Expenses for the years ended December 31, 1996, 1995 and for the period from January 12, 1994 (commencement of trading
operations) to December 31, 1994. Statement of Partner's Capital for the years ended December 31, 1996, 1995, and 1994. (2) Financial Statement Schedules: None. (3) Exhibits: 3.1 - Limited Partnership Agreement (filed as Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 33-75056 and incorporated herein by reference). 3.2 - Certificate of Limited Partnership of the Partnership as filed in the office of the County Clerk of New York County on October 13, 1993 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein by reference). 10.1- Customer Agreement between the Partnership and Smith Barney (filed as Exhibit 10.1 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein by reference). 10.3- Escrow Instructions relating to escrow of subscription funds (filed as Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 33- 75056) and incorporated herein by reference). 10.5- Management Agreement among the Partnership, the General Partner and Campbell & Company, Inc. (filed as Exhibit 10.5 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein
by reference). 10.6- Management Agreement among the Partnership, the General Partner and Colorado Commodity Management Corp. (filed as Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein by reference). 10.7- Management Agreement among the Partnership, the General Partner and John W. Henry & Company, Inc. (filed as Exhibit 10.7 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein by reference). 10.8- Management Agreement among the Partnership, the General Partner and Hyman Beck & Company (filed as Exhibit 10.8 to the Registration Statement on Form S-1 (File No. 33-75056) and incorporated herein by reference). 10.9- Letter dated May 19, 1994 from the General Partner to Colorado Commodities Management Corp. terminating the Management Agreement (previously filed). 10.10- Management Agreement among the Partnership, the General Partner and Chesapeake Capital Corp. (previously filed). 10.11- Letters extending Management Agreements with John W. Henry & Company, Inc., Hyman Beck & Company, Campbell & Co., Inc. and Chesapeake Capital Corp. (previously filed).
10.12- Management Agreement among the Partnership, the General Partner and Abraham Trading Co. (previously filed). 10.13- Management Agreement among the Partnership, the General Partner and Rabar Market Research Inc. (previously filed). 10.14- Management Agreement among the Partnership, the General Partner and AIS Futures Management, Inc. (filed herein). 10.15- Letter dated October 1, 1996 from the General Partner to Hyman Beck & Company terminating the Management Agreement (filed herein). (b) Reports on 8-K: None Filed.
Supplemental Information To Be Furnished With Reports Filed Pursuant To Section 15(d) Of The Act by Registrants Which Have Not Registered Securities Pursuant To Section 12 Of the Act.
Annual Report to Limited Partners
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 24th day of March 1997.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management Inc. (General Partner)
By /s/ David J. Vogel David J. Vogel, President & Director
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
/s/ David J. Vogel /s/ Jack H. Lehman III David J. Vogel, Jack H. Lehman III Director, Principal Executive Chairman and Director Officer and President
/s/ Michael Schaefer /s/ Daniel A. Dantuono Michael Schaefer Daniel A. Dantuono Director Treasurer, Chief Financial Officer and Director
/s/ Philip M. Waterman, Jr. /s/ Daniel R. McAuliffe, Jr. Philip M. Waterman, Jr. Daniel R. McAuliffe, Jr. Director and Vice-Chairman Director
/s/ Steve J. Keltz /s/ Shelley Ullman Steve J. Keltz Shelley Ullman Secretary and Director Director


ITEM 1. Business
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The managing general partner is Parker & Parsley Development L.P. ("PPDLP"). PPDLP's general partner is Parker & Parsley Petroleum USA, Inc. ("PPUSA").
A Registration Statement, as amended, filed pursuant to the Securities Act of 1933, registering limited partnership interests aggregating $70,000,000 in a series of Delaware limited partnerships formed under the Parker & Parsley 89-90 Development Drilling Program, was declared effective by the Securities and Exchange Commission on August 1, 1989. On October 5, 1990, the offering of limited partnership interests in the Partnership, the fourth partnership formed under such statement, was closed, with interests aggregating $32,264,000 being sold to 2,248 subscribers.
The Partnership engages primarily in oil and gas development and production and is not involved in any industry segment other than oil and gas. See "Item 6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary Data" of this report for a summary of the Partnership's operating information and identifiable assets.
The principal markets during 1996 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. The principal markets for the Partnership's gas were companies that have pipelines located near the Partnership's gas producing properties. Of the Partnership's total oil and gas revenues for 1996, approximately 63% and 13% were attributable to sales made to Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe that the termination of the sales of its products to any one customer would have a material adverse impact on its operations.
The loss of a particular customer for gas may have an effect if that particular customer has the only gas pipeline located in the areas of the Partnership's gas producing properties. The Partnership believes, however, that the effect would be temporary, until alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes the fixing of maximum prices for regulated categories of natural gas, the imposition of maximum allowable production rates, the taxation of income and other items, and the protection of the environment. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. PPUSA employs 659 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this report is filed. The Partnership's managing general partner, PPDLP through PPUSA, supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves.
No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations.
ITEM 2.

ITEM 2. Properties
The Partnership's properties consist primarily of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests.
Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 104 oil and gas wells. One well was plugged and abandoned in 1995 due to uneconomical operations. At December 31, 1996, the Partnership had 103 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 1996, 1995 and 1994 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been estimated by the engineering staff of PPUSA with a review by an independent petroleum consultant.
ITEM 3.

ITEM 3. Legal Proceedings
The Partnership is not aware of any material legal proceedings (other than routine litigation in the ordinary course of the Partnership's business) to which it is a party or to which its properties are subject.
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 1996.
PART II
ITEM 5.

ITEM 5. Market for Partnership's Common Equity and Related Stockholder Matters
At March 8, 1997, the Partnership had 32,264 outstanding limited partnership interests held of record by 2,263 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, PPDLP has made certain commit ments to purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 1996 and 1995, $1,814,872 and $1,576,695, respectively, of such revenue-related distributions were made to the limited partners.
ITEM 6.

ITEM 6. Selected Financial Data
The following table sets forth selected financial data for the years ended December 31:
ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
1996 compared to 1995
The Partnership's 1996 oil and gas revenues increased to $3,748,608 from $3,147,004 in 1995, a 19% increase. The increase in revenues resulted from a 27% increase in the average price received per barrel of oil and a 46% increase in the average price received per mcf of gas, offset by a 9% decline in barrels of oil produced and sold and a 10% decline in mcf of gas produced and sold. In 1996, 130,683 barrels of oil were sold compared to 143,136 in 1995, a decrease of 12,453 barrels. In 1996, 353,616 mcf of gas were sold compared to 394,179 in 1995, a decrease of 40,563 mcf. The decrease in production volumes was due to the decline characteristics of the Partnership's oil and gas properties. Management expects a certain amount of decline in production to continue in the future until the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $4.59 from $17.16 in 1995 to $21.75 in 1996, while the average price received per mcf of gas increased from $1.75 in 1995 to $2.56 in 1996. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to continue in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received in 1996.
Salvage income totaling $8,529 was received during 1996 attributable to credits received from the disposal of oil and gas equipment on one well that was plugged and abandoned in a prior year and to credits received from the disposal of oil and gas equipment on five fully depleted wells.
A gain on sale of property of $2,326 was recognized during 1995. This gain was the result of proceeds received from the sale of mineral rights on an undeveloped property.
Total costs and expenses decreased in 1996 to $2,299,612 as compared to $2,674,896 in 1995, a decrease of $375,284, or 14%. The decrease was due to declines in production costs, depletion, abandoned property costs, the impairment of oil and gas properties and amortization of organization costs, offset by increases in general and administrative expenses ("G&A") and loss on abandoned property.
Production costs were $1,420,416 in 1996 and $1,424,543 in 1995, resulting in a $4,127 decrease. The decrease was due to less well repair and maintenance costs, offset by an increase in workover costs incurred in an effort to stimulate well production.
G&A's components are independent accounting and engineering fees, computer services, postage and managing general partner personnel costs. During this period, G&A increased, in aggregate, 3% from $109,252 in 1995 to $112,892 in
1996. The Partnership paid the managing general partner $101,293 in 1996 and $93,693 in 1995 for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the Partnership by the managing general partner. Such allocated expenses are determined by the managing general partner based upon its judgement of the level of activity of the Partnership relative to the managing general partner's activities and other entities it manages. The method of allocation has varied in certain years and may do so again depending on the activities of the managed entities.
The Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") effective as of October 1, 1995 (see Notes 2 and 3 of Notes to Financial Statements included in "Item 8.

ITEM 8. Financial Statements and Supplementary Data
The Partnership's audited financial statements are included elsewhere herein.
ITEM 9.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
ITEM 10.

ITEM 10. Directors and Executive Officers of the Partnership
The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, PPDLP, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. PPUSA, the sole general partner of PPDLP, is a wholly-owned subsidiary of Parker & Parsley Petroleum Company (the "Company"), a publicly-traded corporation on the New York Stock Exchange.
Set forth below are the names, ages and positions of the directors and executive officers of PPUSA. Directors of PPUSA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 1996 Position ---- ------------ --------
Scott D. Sheffield 44 President, Chairman of the Board, Chief Executive Officer and Director
Timothy A. Leach 37 Executive Vice President and Director
Steven L. Beal 37 Senior Vice President, Chief Financial Officer and Director
Mark L. Withrow 49 Senior Vice President, Secretary and Director
David A. Chroback 41 Senior Vice President and Director
Scott D. Sheffield. Mr. Sheffield, a graduate of The University of Texas with a Bachelor of Science degree in Petroleum Engineering, has been the President and a Director of the Company since May 1990 and has been the Chairman of the Board and Chief Executive Officer since October 1990. Mr. Sheffield joined the Company as a petroleum engineer in 1979. Mr. Sheffield served as Vice President - Engineering of the Company from September 1981 until April 1985 when he was elected President and a Director of the Company. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of the Company. On January 1, 1995, Mr. Sheffield resigned as President and Chief Executive Officer of PPUSA, but remained Chairman of the Board and a Director of PPUSA. On January 1, 1996, Mr. Sheffield reassumed the positions of President and Chief Executive Officer of PPUSA. Before joining the Company, Mr. Sheffield was principally occupied for more than three years as a production and reservoir engineer for Amoco Production Company.
Timothy A. Leach. Mr. Leach, a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering and the University of Texas of the Permian Basin with a Master of Business Administration degree, was elected Executive Vice President - Engineering of the Company on March 21, 1995.
Mr. Leach had been serving as Senior Vice President Engineering since March 1993 and served as Vice President - Engineering of the Company from October 1990 to March 1993. Mr. Leach was elected Executive Vice President and Director of PPUSA on December 1, 1995. He had joined the Company as Vice President - Engineering in September 1989. Prior to joining the Company, Mr. Leach was employed as Senior Vice President and Director of First City Texas - Midland, N.A.
Steven L. Beal. Mr. Beal, a graduate of the University of Texas with a Bachelor of Business Administration degree in Accounting and a certified public accountant, was elected Senior Vice President - Finance of the Company in January 1995 and Chief Financial Officer of the Company on March 21, 1995. Mr. Beal was elected Senior Vice President and Chief Financial Officer of PPUSA on January 1, 1995 and was elected a Director of PPUSA on January 2, 1996. He served as Treasurer of PPUSA from January 1, 1995 to June 12, 1996. Mr. Beal joined the Company as Treasurer in March 1988 and was elected Vice President - Finance in October 1991. Prior to joining the Company, Mr. Beal was employed as an audit manager for Price Waterhouse.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a Bachelor of Science degree in Accounting and Texas Tech University with a Juris Doctorate degree, was Vice President - General Counsel of the Company from February 1991 to January 1995, when he was appointed Senior Vice President - General Counsel, and has been the Company's Secretary since August 1992. On January 1, 1995, Mr. Withrow was elected Senior Vice President and Secretary of PPUSA and was elected a Director of PPUSA on January 2, 1996. Mr. Withrow joined the Company in January 1991. Prior to joining the Company, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
David A. Chroback. Mr. Chroback, a graduate of Hanover College with a Bachelor of Science degree in Geology, and a graduate of Southern Illinois University at Carbondale with a Master of Science degree in Geology, was elected Senior Vice President of the Company and PPUSA on October 7, 1996. On January 2, 1996, Mr. Chroback was elected Director of PPUSA. He had served as Vice President - Geology of the Company since February 1993. Mr. Chroback has been the Geological Manager since June 1992, and prior to that has been a Senior Geologist with the Company since January 1988. Before joining the Company, he was a project geologist with Indian Wells Oil Company. Mr. Chroback was previously employed by Amoco Production Company as a petroleum geologist from 1980 through 1984.
ITEM 11.

ITEM 11. Executive Compensation
The Partnership does not have any directors or officers. Management of the Partnership is vested in PPDLP, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, PPDLP and Parker & Parsley Employees 90-B Conv., L.P. ("EMPL") pay approximately 10% of the Partnership's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they
are allocated approximately 15% during the first three years and approximately 20% after three years of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below for information regarding fees and reimbursements paid to the managing general partner or its affiliates by the Partnership.
PPUSA's current executive officers and other employees are general partners of EMPL which serves as a co-general partner of the Program. Under this arrangement, EMPL pays approximately 2-1/2% of the Partnership's acquisition, drilling and completion costs and approximately 3.75% during the first three years and approximately 5% after three years of its operating and general and administrative expenses. In return, EMPL is allocated approximately 3.75% during the first three years and approximately 5% after three years of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of PPUSA, but does pay a portion of PPUSA's general and administrative expenses of which these salaries are a part. See Note 6 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below.
ITEM 12.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. PPDLP owned 83 limited partnership interests at January 1, 1997.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general partner of the Partnership, PPDLP, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of PPUSA who beneficially owns limited partnership interests in the Partnership.
ITEM 13.

ITEM 13. Certain Relationships and Related Transactions
Transactions with the managing general or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner or its affiliates during the years ended December 31:
1996 1995 1994 -------- -------- --------
Payment of lease operating and supervision charges in accordance with standard industry operating agreements $558,348 $532,393 $542,879
Reimbursement of general and administrative expenses $101,293 $ 93,693 $ 87,605
Purchase of oil and gas properties and related equipment, at predecessor cost $ - $ 13,189 $ 20,802
Receipts of proceeds for the salvage value of retired oil and gas equipment $ 5,624 $ - $ -
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below, regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program.
PART IV
ITEM 14.

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report
Balance sheets as of December 31, 1996 and 1995
Statements of operations for the years ended December 31, 1996, 1995 and 1994
Statements of partners' capital for the years ended December 31, 1996, 1995 and 1994
Statements of cash flows for the years ended December 31, 1996, 1995 and 1994
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this annual report.
S I G N A T U R E S
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.
PARKER & PARSLEY 90-B, L.P.
Dated: March 24, 1997 By: Parker & Parsley Development L.P., Managing General Partner
By: Parker & Parsley Petroleum USA, Inc. ("PPUSA"), General Partner
By: /s/ Scott D. Sheffield ----------------------------- Scott D. Sheffield, President
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 date indicated.
/s/ Scott D. Sheffield President, Chairman of the Board, March 24, 1997 - ----------------------- Chief Executive Officer and Scott D. Sheffield Director of PPUSA
/s/ Timothy A. Leach Executive Vice President and March 24, 1997 - ----------------------- Director of PPUSA Timothy A. Leach
/s/ Steven L. Beal Senior Vice President, Chief March 24, 1997 - ----------------------- Financial Officer and Director Steven L. Beal of PPUSA
/s/ Mark L. Withrow Senior Vice President, Secretary March 24, 1997 - ----------------------- and Director of PPUSA Mark L. Withrow
/s/ David A. Chroback Senior Vice President and March 24, 1997 - ----------------------- Director of PPUSA David A. Chroback
INDEPENDENT AUDITORS' REPORT
The Partners Parker & Parsley 90-B, L.P. (A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-B, L.P. as listed in the accompanying index under Item 14(a). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-B, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 3 to the financial statements, the Partnership adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1995.
KPMG Peat Marwick LLP
Midland, Texas March 21, 1997
PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership)
BALANCE SHEETS December 31
1996 1995 ------------ ------------ ASSETS
Current assets: Cash and cash equivalents, including interest bearing deposits of $332,819 in 1996 and $288,853 in 1995 $ 333,006 $ 289,053 Accounts receivable - oil and gas sales 564,298 305,505 ----------- -----------
Total current assets 897,304 594,558 ----------- -----------
Oil and gas properties - at cost, based on the successful efforts accounting method 25,934,794 25,958,413 Accumulated depletion (17,601,394) (16,839,804) ----------- -----------
Net oil and gas properties 8,333,400 9,118,609 ----------- -----------
$ 9,230,704 $ 9,713,167 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities: Accounts payable - affiliate $ 68,524 $ 196,847
Partners' capital: Limited partners (32,264 interests) 9,070,554 9,421,164 Managing general partner 91,626 95,156 ----------- -----------
9,162,180 9,516,320 ----------- -----------
$ 9,230,704 $ 9,713,167 =========== ===========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31
1996 1995 1994 ---------- ---------- ----------
Revenues: Oil and gas $3,748,608 $3,147,004 $3,434,740 Interest 21,527 18,842 14,326 Salvage income from equipment disposals 8,529 - - Gain on sale of property - 2,326 - --------- --------- ---------
3,778,664 3,168,172 3,449,066 --------- --------- ---------
Costs and expenses: Oil and gas production 1,420,416 1,424,543 1,618,843 General and administrative 112,892 109,252 106,021 Impairment of oil and gas properties 61,080 312,969 - Depletion 703,207 819,927 1,090,667 Abandoned property - 6,974 - Amortization of organization - 10,195 13,596 (Gain) loss on abandoned property 2,017 (8,964) - --------- --------- ---------
2,299,612 2,674,896 2,829,127 --------- --------- ---------
Net income $1,479,052 $ 493,276 $ 619,939 ========= ========= =========
Allocation of net income: Managing general partner $ 14,790 $ 5,035 $ 6,335 ========= ========= =========
Limited partners $1,464,262 $ 488,241 $ 613,604 ========= ========= =========
Net income per limited partnership interest $ 45.38 $ 15.13 $ 19.02 ========= ========= =========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- ----------- -----------
Partners' capital at January 1, 1994 $ 117,276 $11,634,836 $11,752,112
Distributions (17,564) (1,738,822) (1,756,386)
Net income 6,335 613,604 619,939 -------- ---------- ----------
Partners' capital at December 31, 1994 106,047 10,509,618 10,615,665
Distributions (15,926) (1,576,695) (1,592,621)
Net income 5,035 488,241 493,276 -------- ---------- ----------
Partners' capital at December 31, 1995 95,156 9,421,164 9,516,320
Distributions (18,320) (1,814,872) (1,833,192)
Net income 14,790 1,464,262 1,479,052 -------- ---------- ----------
Partners' capital at December 31, 1996 $ 91,626 $ 9,070,554 $ 9,162,180 ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS For the years ended December 31
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 1,479,052 $ 493,276 $ 619,939 Adjustments to reconcile net income to net cash provided by operating activities: Impairment of oil and gas properties 61,080 312,969 - Depletion and amortization 703,207 830,122 1,104,263 (Gain) loss on abandoned property 2,017 (8,964) - Gain on sale of property - (2,326) - Salvage income from equipment disposals (8,529) - - Changes in assets and liabilities: (Increase) decrease in accounts receivable (258,793) 8,866 41,874 Increase (decrease) in accounts payable (99,423) 76,294 (30,134) ---------- ---------- ---------- Net cash provided by operating activities 1,878,611 1,710,237 1,735,942 ---------- ---------- ---------- Cash flows from investing activities: Additions to oil and gas properties (9,995) (20,743) (33,472) Proceeds from salvage income on equipment disposals 8,529 - - Proceeds from equipment salvage on abandoned property - 8,964 - Proceeds from sale of property - 2,326 - ---------- ---------- ---------- Net cash used in investing activities (1,466) (9,453) (33,472) ---------- ---------- ---------- Cash flows from financing activities: Cash distributions to partners (1,833,192) (1,592,621) (1,756,386) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 43,953 108,163 (53,916) Cash and cash equivalents at beginning of year 289,053 180,890 234,806 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 333,006 $ 289,053 $ 180,890 ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994
Note 1. Organization and nature of operations
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware.
The Partnership engages primarily in oil and gas development and production in Texas and is not involved in any industry segment other than oil and gas.
Note 2. Summary of significant accounting policies
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
Impairment of long-lived assets - Commencing in 1995, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived to be Disposed Of" ("SFAS 121"), the Partnership reviews its long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Partnership accounts for long-lived assets to be disposed of at the lower of their carrying amount or fair value less costs to sell once management has committed to a plan to dispose of the assets.
Prior to the adoption of SFAS 121 in the fourth quarter of 1995, the Partnership's aggregate oil and gas properties were stated at cost not in excess of total estimated future net revenues and the estimated fair value of oil and gas assets not being depleted.
Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as determined by the engineering staff of Parker & Parsley Petroleum USA, Inc. ("PPUSA"), the sole general partner of Parker & Parsley Development L.P. ("PPDLP"), the Partnership's managing general partner, and reviewed by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in operations.
Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Organization costs - Organization costs are capitalized and amortized on the straight-line method over 60 months.
Net income per limited partnership interest - The net income per limited partnership interest is calculated by using the number of outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash and cash equivalents include depository accounts held by banks.
General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner or its affiliates. Such allocated expenses are determined by the managing general partner based upon its judgement of the level of activity of the Partnership relative to the managing general partner's activities and other entities it manages. The method of allocation has varied in certain years and may do so again depending on the activities of the managed entities.
Reclassifications - Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 financial statement presentation.
Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environ mental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.
Note 3. Impairment of long-lived assets
The Partnership adopted SFAS 121 effective October 1, 1995. In order to determine whether an impairment had occurred, the Partnership estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For those oil and gas properties for which the carrying amount exceeded the estimated future cash flows, an impairment was determined to exist; therefore, the Partnership
adjusted the carrying amount of those oil and gas properties to their fair value as determined by discounting their expected future cash flows at a discount rate commensurate with the risks involved in the industry. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $61,080 and $312,969 related to its oil and gas properties during 1996 and 1995, respectively.
Note 4. Income taxes
The financial statement basis of the Partnership's net assets and liabilities was $3,468,567 greater than the tax basis at December 31, 1996.
The following is a reconciliation of net income per statements of operations with the net income per Federal income tax returns for the years ended December 31: 1996 1995 1994 ---------- ---------- ---------- Net income per statements of operations $1,479,052 $ 493,276 $ 619,939 Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes - (24,498) - Depletion and depreciation provisions for tax reporting purposes over amounts for financial reporting purposes (305,568) (200,211) (285,731) Impairment of oil and gas properties for financial reporting purposes 61,080 312,969 - Other 32,451 (27,905) 2,168 --------- --------- --------- Net income per Federal income tax returns $1,267,015 $ 553,631 $ 336,376 ========= ========= =========
Note 5. Oil and gas producing activities
The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31: 1996 1995 1994 ---------- ---------- ---------- Development costs $ 27,435 $ 47,653 $ 33,472 ========= ========= =========
Capitalized oil and gas properties consist of the following:
1996 1995 1994 ------------ ------------ ------------ Proved properties: Property acquisition costs $ 1,002,057 $ 1,002,057 $ 1,012,975 Completed wells and equipment 24,932,737 24,956,356 25,084,033 ---------- ----------- ----------- 25,934,794 25,958,413 26,097,008 Accumulated depletion (17,601,394) (16,839,804) (15,895,146) ----------- ----------- ----------- Net capitalized costs $ 8,333,400 $ 9,118,609 $ 10,201,862 =========== =========== -==========
During 1996 and 1995, respectively, the Partnership recognized non-cash charges against oil and gas properties of $61,080 and $312,969 in accordance with SFAS 121. See Note 3.
Note 6. Related party transactions
Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner or its affiliates during the years ended December 31: 1996 1995 1994 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $558,348 $532,393 $542,879
Reimbursement of general and administrative expenses $101,293 $ 93,693 $ 87,605
Purchase of oil and gas properties and related equipment, at predecessor cost $ - $ 13,189 $ 20,802
Receipt of proceeds for the salvage value of retired oil and gas equipment $ 5,624 $ - $ -
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. PPDLP and P&P Employees 90-B Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley 90-B Conv., L.P. and the Partnership (the "Partner ships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of PPUSA.
The costs and revenues of the Program are allocated to the Entities and the Partnerships as follows: Entities(1) Partnerships(2) ----------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes PPDLP's 1% general partner ownership which is allocated at the Partnership level and 83 limited partner interests owned by PPDLP. (2) The allocation between the Partnership and Parker & Parsley 90-B Conv., L.P. is 73.05994% and 26.94006%, respectively.
Note 7. Oil and gas information (unaudited)
The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 1996, 1995 and 1994 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved and located within the United States. The Partnership's reserves are based on an evaluation prepared by the engineering staff of PPUSA and reviewed by an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. Reserve value information is available to limited partners pursuant to the Partnership agreement and, therefore, is not presented. Oil (bbls) Gas (mcf) ---------- ---------- Net proved reserves at January 1, 1994 2,041,461 5,711,332 Revisions 155,105 991,058 Production (163,591) (466,258) --------- --------- Net proved reserves at December 31, 1994 2,032,975 6,236,132 Revisions (213,660) (840,843) Production (143,136) (394,179) --------- --------- Net proved reserves at December 31, 1995 1,676,179 5,001,110 Revisions 347,453 1,227,075 Production (130,683) (353,616) --------- --------- Net proved reserves at December 31, 1996 1,892,949 5,874,569 ========= ========= The estimated present value of future net revenues of proved reserves, calculated using December 31, 1996 prices of $24.75 per barrel of oil and $3.71 per mcf of gas, discounted at 10% was approximately $16,437,000 and undiscounted was $33,657,000 at December 31, 1996.
The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available.
Note 8. Major customers
The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
1996 1995 1994 ------ ------ ------ Genesis Crude Oil, L.P. 63% 65% 63% Western Gas Resources, Inc. 13% 10% - GPM Gas Corporation - 10% 17%
The above customers represent 70% of total accounts receivable at December 31, 1996.
PPDLP is party to a long-term agreement pursuant to which PPDLP and affiliates are to sell to Basis Petroleum, Inc. (formerly Phibro Energy, Inc.) substantially all crude oil (including condensate) which any of such entities have the right to market from time to time. On September 23, 1996, PPDLP and Basis Petroleum, Inc. entered into an agreement that supersedes the prior crude oil purchase agreement between the parties and provides for adjusted terms effective December 1, 1995. On November 25, 1996, the Company consented to the assignment of the agreement to Genesis Crude Oil, L.P. ("Genesis"), a limited partnership formed by Basis Petroleum, Inc. and Howell Corporation. The price to be paid by Genesis for oil purchased under the agreement ("Genesis Agreement") is to be competitive with prices paid by other substantial purchasers in the same areas who are significant competitors of Genesis. The price to be paid for oil purchased under the Genesis Agreement includes a market-related bonus that may vary from month to month based upon spot oil prices at various commodity trade points. The term of the Genesis Agreement is through June 30, 1998, and it may continue thereafter subject to termination rights afforded each party. Salomon, Inc., the parent company of Basis Petroleum, Inc. and a subordinated limited partner in Genesis, secures the payment obligations under the Genesis Agreement with a $25 million payment guarantee. Accounts receivable-oil and gas sales included $297,718 due from Genesis at December 31, 1996.
Note 9. Organization and operations
The Partnership was organized October 5, 1990 as a limited partnership under the Delaware Act for the purpose of acquiring and developing oil and gas properties. The following is a brief summary of the more significant provisions of the limited partnership agreement:
Managing general partner - The managing general partner of the Partnership is PPDLP. PPDLP has the power and authority to manage, control and administer all Program and Partnership affairs. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits.
Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $32,264,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organiza tion and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs.
PARKER & PARSLEY 90-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ----
3(a) Amended and Restated Certificate and - Agreement of Limited Partnership of Parker & Parsley 90-B, L.P.
4(b) Form of Subscription Agreement and - Power of Attorney
4(c) Specimen Certificate of Limited - Partnership Interest
10(a) Operating Agreement -
10(b) Exploration and Development Program - Agreement