SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 2005
--------------
Commission File Number 0-16898
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PROFUTURES DIVERSIFIED FUND, L.P.
-------------------------------------------------
(Exact name of Partnership)
Delaware 75-2197831
- --------------------------- --------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
ProFutures, Inc.
11719 Bee Cave Road
Suite 200
Austin, Texas 78738
-------------------------
(Address of principal executive offices)
Partnership's telephone number
(800) 348-3601
-----------------
Indicate by check mark whether the Partnership (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
Partnership was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X
No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes
No X
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
March 31, 2005 (Unaudited) and December 31, 2004 (Audited)
March 31, December 31,
2005 2004
---- ----
ASSETS
Equity in broker trading accounts
Cash $ 22,272,248 $ 23,446,968
Net option premiums paid 752,951 0
Unrealized gain on open contracts 1,248,031 513,916
-------------------- --------------------
Deposits with broker 24,273,230 23,960,884
Cash 1,464 13,007
Cash deposits in forward trading collateral accounts 8,409,590 9,084,727
Unrealized (loss) on open forward currency contracts (173,334) (279,320)
-------------------- --------------------
Total assets $ 32,510,950 $ 32,779,298
==================== ====================
LIABILITIES
Accounts payable $ 44,296 $ 32,176
Commissions and other trading fees
on open contracts 45,656 18,294
Incentive fees payable 243,537 114,258
Management fees payable 294,704 285,660
Redemptions payable 485,248 247,257
-------------------- --------------------
Total liabilities 1,113,441 697,645
-------------------- --------------------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 225 units outstanding
at March 31, 2005 and December 31, 2004 610,401 607,384
Limited Partners - 11,347 and 11,657 units outstanding
at March 31, 2005 and December 31, 2004 30,787,108 31,474,269
-------------------- --------------------
Total partners' capital
(Net Asset Value) 31,397,509 32,081,653
-------------------- --------------------
$ 32,510,950 $ 32,779,298
==================== ====================
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS
March 31, 2005 (Unaudited) and December 31, 2004 (Audited)
March 31, 2005 December 31, 2004
--------------- ------------------
% of Net % of Net
LONG FUTURES CONTRACTS Value Asset Value Value Asset Value
- ---------------------- ----- ----------- ----- -----------
Agricultural $(18,324) (0.06)% $7,095 0.02%
Currency (132,906) (0.42)% 58,110 0.18%
Energy 413,106 1.32% (26,157) (0.08)%
Interest rate 449,567 1.43% 95,860 0.30%
Metal 5,686,895 18.11% 112,468 0.35%
Stock index (115,724) (0.37)% 349,027 1.09%
------------- -------- ----------- -------
Total long futures contracts $ 6,282,614 20.01% $ 596,403 1.86%
------------- -------- ----------- -------
SHORT FUTURES CONTRACTS
- -----------------------
Agricultural $9,252 0.03% $(39,719) (0.12)%
Currency 120,839 0.39% (13,726) (0.04)%
Energy (30,110) (0.10)% 20,802 0.06%
Interest rate 208,260 0.66% 26,762 0.08%
Metal (5,590,696) (17.81)% (76,877) (0.24)%
Stock index 17,248 0.06% 271 0.00%
------------- -------- ----------- -------
Total short futures contracts $ (5,265,207) (16.77)% $ (82,487) (0.26)%
------------- -------- ----------- -------
Total futures contracts $ 1,017,407 3.24% $ 513,916 1.60%
============= ======== =========== =======
PURCHASED OPTIONS ON FUTURES CONTRACTS
- --------------------------------------
Agricultural options $150 0.00% $ 0 0.00%
Energy options 121,800 0.39% 0 0.00%
Metals options 980,024 3.12% 0 0.00%
------------- -------- ----------- -------
Total purchased options on futures
contracts (premiums paid - $853,054 and
$0, respectively) $ 1,101,974 3.51% $ 0 0.00%
============= ======== =========== =======
WRITTEN OPTIONS ON FUTURES CONTRACTS
- ------------------------------------
Energy options $ (50,100) (0.16)% $ 0 0.00%
Metals options (68,299) (0.22)% 0 0.00%
------------- -------- ----------- -------
Total written options on futures
contracts (premiums received - $100,103
and $0, respectively) $ (118,399) (0.38)% $ 0 0.00%
============= ======== =========== =======
FORWARD CURRENCY CONTRACTS
- --------------------------
Long forward currency contracts $ (494,262) (1.57)% $ 495,257 1.54%
Short forward currency contracts 320,928 1.02% (774,577) (2.41)%
-------- ----- --------- - -------
Total forward currency contracts $ (173,334) (0.55)% $ (279,320) (0.87)%
============= ======= =========== =======
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
Three Months Ended
March 31,
2005 2004
---- ----
TRADING GAINS (LOSSES)
Gain (loss) from futures and option trading
Realized $ 973,851 $ 5,311,933
Change in unrealized 734,115 (985,294)
Brokerage commissions (280,900) (225,335)
-------------------- --------------------------
Gain from futures and option trading 1,427,066 4,101,304
-------------------- --------------------------
Gain (loss) from forward currency trading
Realized (725,866) 1,881,813
Change in unrealized 105,986 (662,562)
-------------------- --------------------------
Gain (loss) from forward currency trading (619,880) 1,219,251
-------------------- --------------------------
Total trading gains 807,186 5,320,555
-------------------- --------------------------
NET INVESTMENT INCOME (LOSS)
Income
Interest income 181,358 80,781
-------------------- --------------------------
Expenses
Incentive fees 243,537 1,023,860
Management fees 524,820 594,642
Operating expenses 73,123 55,798
-------------------- --------------------------
Total expenses 841,480 1,674,300
-------------------- --------------------------
Net investment (loss) (660,122) (1,593,519)
-------------------- --------------------------
NET INCOME $ 147,064 $ 3,727,036
===================== ==========================
NET INCOME PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
11,818 and 12,851, respectively) $ 12.44 $ 290.01
===================== ==========================
INCREASE IN NET ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ 13.41 $ 290.36
==================== ============================
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Three Months Ended March 31, 2005 and 2004 (Unaudited)
Total Partners' Capital
Number of --------------------------------------------------------------------
Units General Limited Total
-------------------- ------------------- -------------------- -------------------
Balances at
December 31,
2004 11,882 $ 607,384 $ 31,474,269 $ 32,081,653
Net income for the three
months ended March 31,
2005 3,017 144,047 147,064
Redemptions (310) 0 (831,208) (831,208)
-------------------- ------------------- -------------------- -------------------
Balances at
March 31, 2005 11,572 $ 610,401 $ 30,787,108 $ 31,397,509
==================== =================== ==================== ===================
Balances at
December 31,
2003 12,941 $ 584,564 $ 33,041,117 $ 33,625,681
Net income for the three
months ended March 31,
2004 65,320 3,661,716 3,727,036
Redemptions (298) 0 (828,207) (828,207)
-------------------- ------------------- -------------------- -------------------
Balances at
March 31, 2004 12,643 $ 649,884 $ 35,874,626 $ 36,524,510
==================== =================== ==================== ===================
Net Asset Value Per Unit
---------------------------------------------------------------------------------------------
March 31, December 31, March 31, December 31,
2005 2004 2004 2003
-------------------- ------------------- -------------------- -------------------
$ 2,713.33 $ 2,699.92 $ 2,888.84 $ 2,598.48
==================== =================== ==================== ===================
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
--------------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
ProFutures Diversified Fund, L.P. (the Partnership) is a Delaware
limited partnership which operates as a commodity investment pool. The
Partnership engages in the speculative trading of futures contracts,
options on futures contracts and interbank forward currency contracts.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Partnership is subject to the regulatory requirements under the
Securities Act of 1933 and the Securities Exchange Act of 1934. As a
commodity investment pool, the Partnership is subject to the regulations
of the Commodity Futures Trading Commission, an agency of the United
States (U.S.) government which regulates most aspects of the commodity
futures industry; rules of the National Futures Association, an industry
self-regulatory organization; and the requirements of commodity
exchanges, Futures Commission Merchants (brokers), and interbank market
makers through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in accordance with
accounting principles generally accepted in the United States of
America, which require the use of certain estimates made by the
Partnership's management. Transactions are accounted for on the trade
date. Gains or losses are realized when contracts are liquidated.
Unrealized gains or losses on open contracts (the difference between
contract trade price and market price) are reflected in the
statement of financial condition as a net gain or loss, as there exists
a right of offset of unrealized gains or losses in accordance with
Financial Accounting Standards Board Interpretation No. 39 - "Offsetting
of Amounts Related to Certain Contracts." Any change in net unrealized
gain or loss from the preceding period is reported in the statement of
operations.
For purposes of both financial reporting and calculation of redemption
value, Net Asset Value per Unit is calculated by dividing Net Asset
Value by the total number of units outstanding.
D. Brokerage Commissions
Brokerage commissions include other trading fees and are charged to
expense when contracts are opened.
E. Income Taxes
The Partnership prepares calendar year U.S. and applicable state
information tax returns and reports to the partners their allocable
shares of the Partnership's income, expenses and trading gains or
losses.
F. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets and
liabilities denominated in currencies other than the U.S. dollar are
translated into U.S. dollars at the rates in effect at the date of the
statement of financial condition. Income and expense items denominated
in currencies other than the U.S. dollar are translated into U.S.
dollars at the rates in effect during the period. Gains and losses
resulting from the translation to U.S. dollars are reported in income
currently.
G. Statements of Cash Flows
The Partnership has elected not to provide statements of cash flows as
permitted by Statement of Financial Accounting Standards No. 102 -
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
H. Interim Financial Statements
In the opinion of management, the unaudited interim financial statements
reflect all adjustments, which were of a normal and recurring nature,
necessary for a fair presentation of financial position as of March 31,
2005, and the results of operations for the three months ended March 31,
2005 and 2004.
Note 2. GENERAL PARTNER
---------------
The General Partner of the Partnership is ProFutures, Inc., which
conducts and manages the business of the Partnership. The Agreement of
Limited Partnership requires the General Partner to contribute to the
Partnership an amount in the aggregate equal to at least the greater of
(i) 3% of the aggregate initial capital contributions of all partners or
$100,000, whichever is less, or (ii) 1% of the aggregate initial capital
contributions of all partners.
The Agreement of Limited Partnership also requires that the General
Partner maintain in the aggregate a net worth at least equal to (i) the
lesser of $250,000 or 15% of the aggregate initial capital contributions
of any limited partnerships for which it acts as general partner and
which are capitalized at less than $2,500,000; and (ii) 10% of the
aggregate initial capital contributions of any limited partnerships for
which it acts as general partner and which are capitalized at greater
than $2,500,000.
Effective October 22, 2004, ProFutures, Inc. has a callable stock
subscription agreement with Man Financial Inc. (MFI), the Partnership's
broker, whereby MFI has subscribed to purchase (up to $7,000,000,
subject to conditions set forth in the stock subscription agreement
dated October 22, 2004) the number of shares of common stock of
ProFutures, Inc. necessary to maintain the General Partner's net worth
requirements. Prior to October 22, 2004, ProFutures, Inc. had a callable
stock subscription agreement with ABN AMRO Incorporated (ABN), the
Partnership's prior broker, whereby ABN had subscribed to purchase (up
to $7,000,000, subject to the conditions set forth in the stock
subscription agreement as amended effective May 20, 2002) the number of
shares of common stock of ProFutures, Inc. necessary to maintain the
General Partner's net worth requirements.
The Partnership pays the General Partner a monthly management fee of 1/4
of 1% (3% annually) of month-end Net Asset Value. Effective October 16,
2004, the Partnership pays the General Partner an additional monthly
management fee of .0625% (.75% annually) of the Partnership's month-end
Net Asset Value for consulting services rendered to the Partnership.
Total management fees earned by ProFutures, Inc. for the three months
ended March 31, 2005 and 2004 were $295,998 and $273,827, respectively.
Management fees payable to ProFutures, Inc. as of March 31, 2005 and
December 31, 2004 were $100,842 and $101,471, respectively.
Note 3. CONSULTANTS
-----------
On October 25, 2004, the Partnership entered into a consulting agreement
effective November 1, 2004, with Altegris Investments, Inc. (Altegris),
whereby Altegris will recommend the selection and termination of the
Partnership's trading advisors and the allocation and reallocation of
the Partnership's assets. Pursuant
to the consulting agreement, Altegris receives a monthly consulting fee
equal to .0208% (.25% annually) of the Partnership's month-end Net Asset
Value. The consulting fee (included in management fees in the statement
of operations) earned by Altegris totaled $19,733 for the three months
ended March 31, 2005.
Prior to October 15, 2004, Kenmar Global Strategies Inc. (Kenmar)
assisted the General Partner in making decisions about which commodity
trading advisors to hire, the allocations among the advisors and the
day-to-day monitoring and risk management of the Partnership's trading
activities. Kenmar received a monthly management fee of 1/12 of 1% (1%
annually) of month-end Net Asset Value. Effective October 15, 2004,
ProFutures, Inc. terminated the consulting agreement between Kenmar and
the Partnership. Accordingly, Kenmar was paid a pro rated monthly
management fee for the period October 1, 2004 through October 15, 2004.
Management fees earned by Kenmar totaled $91,276 for the three months
ended March 31, 2004.
Note 4. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has trading advisory contracts with several commodity
trading advisors to furnish investment management services to the
Partnership. The trading advisors receive management fees ranging from
1% to 2% annually of Allocated Net Asset Value (as defined in each
respective trading advisory contract). In addition, the trading advisors
receive quarterly incentive fees ranging from 20% to 25% of Trading
Profits (as defined). Total management fees earned by the trading
advisors amounted to $209,089 and $229,539 for the three months ended
March 31, 2005 and 2004, respectively.
Note 5. DEPOSITS WITH BROKER
--------------------
The Partnership deposits funds with MFI (ABN prior to October 2004) to
act as broker, subject to Commodity Futures Trading Commission
regulations and various exchange and broker requirements. Margin
requirements are satisfied by the deposit of cash with such broker. The
Partnership earns interest income on its assets deposited with the
broker.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership were made by subscription agreement,
subject to acceptance by the General Partner. The Partnership's most
recent offering of Units of Limited Partnership Interest terminated on
April 30, 1995.
The Partnership is not required to make distributions, but may do so at
the sole discretion of the General Partner. A Limited Partner may
request and receive redemption of units owned, subject to restrictions
in the Agreement of Limited Partnership.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts and
forward currency contracts (collectively, "derivatives"). The
Partnership is exposed to both market risk, the risk arising from
changes in the market value of the contracts, and credit risk, the risk
of failure by another party to perform according to the terms of a
contract.
Purchase and sale of futures and options on futures contracts requires
margin deposits with the broker. Additional deposits may be necessary
for any loss on contract value. The Commodity Exchange Act requires a
broker to segregate all customer transactions and assets from such
broker's proprietary activities. A customer's cash and other property
(for example, U.S. Treasury bills) deposited with a broker are
considered commingled with all other customer funds subject to the
broker's segregation requirements. In the event of a broker's
insolvency, recovery may be limited to a pro rata share of segregated
funds available. It is possible that the recovered amount could be less
than total cash and other property deposited.
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market risk
equal to the notional contract value of futures and forward currency
contracts purchased and unlimited liability on such contracts sold
short. As both a buyer and seller of options, the Partnership pays or
receives a premium at the outset and then bears the risk of unfavorable
changes in the price of the contract underlying the option. Written
options expose the Partnership to potentially unlimited liability, and
purchased options expose the Partnership to a risk of loss limited to
the premiums paid.
The Partnership has a portion of its assets on deposit with a financial
institution in connection with its trading of forward currency contracts
and its cash management activities. In the event of a financial
institution's insolvency, recovery of Partnership assets on deposit may
be limited to account insurance or other protection afforded such
deposits. Since forward currency contracts are traded in unregulated
markets between principals, the Partnership also assumes the risk of
loss from counterparty nonperformance.
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no assurance
that it will, in fact, succeed in doing so. The General Partner's basic
market risk control procedures consist of continuously monitoring the
trading activity of the various commodity trading advisors, with the
actual market risk controls being applied by Altegris (Kenmar prior to
October 15, 2004), as a consultant, and the advisors themselves. The
General Partner seeks to minimize credit risk primarily by depositing
and maintaining the Partnership's assets at financial institutions and
brokers which the General Partner believes to be creditworthy. The
Limited Partners bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
Note 8. GUARANTEES
----------
In the normal course of business, the Partnership enters into contracts
and agreements that contain a variety of representations and warranties
and which provide general indemnifications. The Partnership's maximum
exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Partnership that have not yet
occurred. The Partnership expects the risk of any future obligation
under these indemnifications to be remote.
Note 9. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the three months ended March
31, 2005 and 2004. This information has been derived from information
presented in the financial statements.
Three months ended
March 31,
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
Net asset value per unit at beginning of period $2,699.92 $2,598.48
----------- -----------
Income (loss) from operations:
Total trading gains (1) 69.27 414.35
Net investment (loss) (1) (55.86) (123.99)
----------- -----------
Total income from operations 13.41 290.36
----------- -----------
Net asset value per unit at end of period $2,713.33 $2,888.84
=========== ===========
Total Return (3) 0.50 % 11.17 %
=========== ===========
Supplemental Data
Ratios to average net asset value:
Expenses prior to incentive fees (4) 7.71 % 7.29 %
Incentive fees (3) 0.78 % 2.87 %
----------- -----------
Total expenses 8.49 % 10.16 %
=========== ===========
Net investment (loss) (2), (4) (5.37)% (6.38)%
=========== ===========
Total returns are calculated based on the change in value of a unit
during the period. An individual partner's total returns and ratios
may vary from the above total returns and ratios based on the timing
of redemptions.
_________________
(1) The net investment (loss) per unit is calculated by dividing the
net investment (loss) by the average number of units outstanding
during the period. Total trading gains is a balancing amount necessary
to reconcile
the change in net asset value per unit with the other per unit
information. Such balancing amount may differ from the calculation of
total trading gains per unit due to the timing of trading gains and
losses during the period relative to the number of units outstanding.
(2) Excludes incentive fees.
(3) Not annualized.
(4) Annualized.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Reference is made to Item 1, "Financial Statements." The information
contained therein is essential to, and should be read in conjunction
with, the following analysis.
Critical Accounting Policies
----------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Management
believes that the estimates utilized in preparing the financial
statements are reasonable and prudent; however, actual results could
differ from those estimates. The Partnership's significant accounting
policies are described in detail in Note 1 to the Financial
Statements.
The Partnership records all investments at fair value in its financial
statements, with changes in fair value reported as a component of
realized and change in unrealized trading gain (loss) in the
Statements of Operations. Generally, fair values are based on market
prices; however, in certain circumstances, estimates are involved in
determining fair value in the absence of an active market closing
price (e.g., swap and forward contracts which are traded in the
inter-bank market).
A. LIQUIDITY: Substantially all of the Partnership's assets are highly
liquid, such as cash and open futures contracts. It is possible that
extreme market conditions or daily price fluctuation limits at certain
exchanges could adversely affect the liquidity of open futures
contracts. There are no restrictions on the liquidity of these assets
except for amounts on deposit with the brokers needed to meet margin
requirements on open futures contracts.
B. CAPITAL RESOURCES: Since the Partnership's business is the purchase
and sale of various commodity interests, it will make few, if any,
capital expenditures.
The Partnership's offering of Units of Limited Partnership Interest
terminated in 1995.
C. RESULTS OF OPERATIONS: The Partnership's net income for the
three months ended March 31, 2005 and 2004 totaled $147,064 and
$3,727,036, respectively.
As of March 31, 2005, 11,572 Units are outstanding, including 225
General Partner Units, with an aggregate Net Asset Value of $31,397,509
($2,713.33 per Unit). This represents a decrease in Net Asset Value of
$(684,144) compared with December 31, 2004. The decrease is caused by
redemptions of limited partner units exceeding net income for the
three months ended March 31, 2005.
As of March 31, 2004, 12,643 Units were outstanding, including 225
General Partner Units, with an aggregate Net Asset Value of
$36,524,510 ($2,888.84 per Unit). This represented an increase in Net
Asset Value of $2,898,829 compared with December 31, 2003, due to net
income exceeding redemptions of limited partner units for the three
months ended March 31, 2004.
First Quarter 2005
-----------------------
The first quarter was an especially volatile one for oil prices and
for interest rates. Oil prices continue to climb, and then drop.
Short-term interest rates climbed as the Fed continued its policy of
raising short-term rates.
The Partnership had a loss of 4.0% in January. The Partnership had
some gains in interest rates and certain agricultural commodities.
There were large losses in foreign currencies, with smaller losses in
stock indices, metals and energy.
The Partnership had a gain of 2.07% in February. The Partnership had
large gains in stock indices, with smaller gains in short-term
interest rates, metals and energy. There were losses, mainly in bonds
and agricultural commodities.
The Partnership had a gain of 2.57% in March. The Partnership had
large gains in energy and interest rates, with smaller gains in base
metals and certain agricultural commodities. Losses were in foreign
currencies, stock indices and certain other agricultural commodities.
The Partnership ended the quarter with a modest gain.
First Quarter 2004
------------------
The economy continued to improve in the first quarter of 2004, and
most economic news was positive. The futures markets continued to be
volatile, especially energy and currencies.
The Partnership had a gain of 1.55% in January 2004. There were gains
in foreign currencies, stock indexes and base metals, with smaller
gains in energy and interest rates. There were some losses in
agriculture and precious metals.
In February 2004, the Partnership had a gain of 8.80%. The largest
gains were in foreign currencies and interest rates, with smaller
gains in energy, agricultural commodities, metals and stock indexes.
In March 2004, the Partnership had a gain of 0.62%. There were gains
in interest rates, agricultural commodities and metals. Most of these
gains were offset by losses in foreign currencies and equities.
Overall, the Partnership ended the quarter with a total return of
11.17%. The largest trading gains were in the foreign currencies,
interest rate and metal sectors.
Market and Credit Risk
----------------------
The means by which the General Partner and the Advisors attempt to
manage the risk of the Partnership's open positions is essentially the
same in all market categories traded. The General Partner attempts to
manage market exposure by (i) diversifying the Partnership's assets
among different Advisors whose strategies focus on different market
sectors and trading approaches, and (ii) monitoring the Partnership's
actual market exposures on a daily basis and reallocating assets away
from Advisors, as necessary, if an over-concentration develops and
persists in any one market sector or market sensitive commodity
interest. Each Advisor applies its own risk management policies to its
trading. These Advisor policies generally limit the total exposure
that may be taken per "risk unit" of assets under management. In
addition, many Advisors follow diversification guidelines (often
formulated in terms of the maximum margin which they will commit to
positions in any one contract or group of related contracts), as well
as imposing "stop-loss" points at which open positions must be closed
out. Certain Advisors treat their risk control policies as strict
rules; others only as general guidelines for controlling risk.
Due to the speculative nature of trading commodity interests, the
Partnership's income or loss from operations may vary widely from
period to period. Management cannot predict whether the Partnership's
future Net Asset Value per Unit will increase or experience a decline.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
D. POSSIBLE CHANGES: The General Partner reserves the right to
terminate certain and/or engage additional trading advisors or change
any of the Partnership's clearing arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is a speculative commodity pool. Unlike an operating
company, the risk of market sensitive instruments is integral, not
incidential, to the Partnership's main line of business.
Market movements result in frequent changes in the fair market value
of the Partnership's open positions and, consequently, in its earnings
and cash flow. The Partnership's market risk is influenced by a wide
variety of factors, including commodity price levels, the level and
volatility of interest rates, foreign currency exchange rates, equity
price levels, the market value of financial instruments and contracts,
the diversification effects among the Partnership's open positions and
the liquidity of the markets in which it trades.
The Partnership can rapidly acquire and/or liquidate both long and
short positions in a wide range of different markets. Consequently, it
is not possible to predict how a particular future market scenario
will affect performance, and the Partnership's performance is not
necessarily indicative of its futures results.
At March 31, 2005, the Partnership has allocated notional funds to its
trading advisors equal to approximately 48% of the Partnership's net
assets, as compared to 35% at December 31, 2004. The relationship of
the total Value at Risk as a percentage of total capitalization
changed from 15% at December 31, 2004 to 18% at March 31, 2005.
There have been no material changes in market risk exposure from those
disclosed in the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004.
Item 4. Controls and Procedures.
ProFutures, Inc., as General Partner of ProFutures Diversified Fund,
L.P., with the participation of the General Partner's President and
Chief Financial Officer, has evaluated the effectiveness of the design
and operation of its disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with
respect to the Partnership as of the end of the period covered by this
quarterly report. Based on their evaluation, the President and Chief
Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no changes in the General
Partner's internal control over financial reporting applicable to the
Partnership identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred
during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, internal control over
financial reporting applicable to the Partnership.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Pursuant to the Partnership's Agreement of Limited Partnership,
partners may redeem their Limited Partnership Units at the end of each
calendar month at the then current Net Asset Value per Unit. The
redemption of Units has no impact on the value of Units that remain
outstanding, and Units are not reissued once redeemed.
The following table summarizes the redemptions by partners during the
three months ended March 31, 2005:
MONTH UNITS REDEEMED NAV PER UNIT
----- -------------- ------------
January 31, 2005 61.9174 2,591.89
February 28, 2005 70.1124 2,645.42
March 31, 2005 178.8387 2,713.33
--------
TOTAL 310.8685
========
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits filed herewith:
31.01 Certification of Gary D. Halbert, President, pursuant to Rules
13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.02 Certification of Debi B. Halbert, Chief Financial Officer,
pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act
of 1934.
32.01 Certification of Gary D. Halbert, President, pursuant to 18 U.S.C.
Section 1350 as enacted by Section 906 of The Sarbanes- Oxley Act
of 2002.
32.02 Certification of Debi B. Halbert, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350 as enacted by Section 906 of
The Sarbanes-Oxley Act of 2002.
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.
PROFUTURES DIVERSIFIED FUND, L.P.
(Registrant)
May 13, 2005 By /s/ GARY D. HALBERT
- ----------------- ------------------------------------------------
Date Gary D. Halbert, President and Director
ProFutures, Inc.
General Partner
May 13, 2005 By /s/ DEBI B. HALBERT
- ----------------- ------------------------------------------------
Date Debi B. Halbert, Chief Financial Officer,
Treasurer and Director
ProFutures, Inc.
General Partner