Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: ProFutures Diversified Fund, L.P.
Commission File Number 0-16898
Dear Sirs:
This filing contains Form 10-Q for the quarter ended September 30, 2002.
Very truly yours,
PROFUTURES DIVERSIFIED FUND, L.P.
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 September 30, 2002
--------------
Commission File Number 0-16898
-------
PROFUTURES DIVERSIFIED FUND, L.P.
---------------------------------
(Exact name of Partnership)
Delaware 75-2197831
- ----------------------- ------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
ProFutures, Inc.
11612 Bee Cave Road
Suite 100
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
September 30, 2002 (Unaudited) and December 31, 2001 (Audited)
-----------
September 30, December 31,
2002 2001
---- ----
ASSETS
Equity in broker trading accounts
Cash $32,494,103 $33,194,404
Unrealized gain on open contracts 2,232,342 1,673,933
----------- -----------
Deposits with broker 34,726,445 34,868,337
Cash 3,058 1,115
----------- -----------
Total assets $34,729,503 $34,869,452
=========== ===========
LIABILITIES
Accounts payable $ 23,066 $ 22,660
Commissions and other trading fees
on open contracts 45,425 57,380
Incentive fees payable 925,453 0
Management fees payable 327,011 355,932
Redemptions payable 91,101 649,685
----------- -----------
Total liabilities 1,412,056 1,085,657
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 225 units
outstanding at September 30, 2002
and December 31, 2001 519,630 458,665
Limited Partners - 14,199 and
16,345 units outstanding
at September 30, 2002 and
December 31, 2001 32,797,817 33,325,130
----------- -----------
Total partners' capital
(Net Asset Value) 33,317,447 33,783,795
----------- -----------
$34,729,503 $34,869,452
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
September 30, 2002
(Unaudited)
-----------
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 262,047 0.79 %
Currency 180,950 0.54 %
Energy 249,336 0.75 %
Interest rate 1,365,208 4.10 %
Metal 5,138 0.01 %
Stock index (7,227) (0.02)%
---------- -------
Total long futures contracts $2,055,452 6.17 %
---------- -------
SHORT FUTURES CONTRACTS
- -----------------------
Agricultural $ 7,738 0.02 %
Currency (77,680) (0.23)%
Interest rate (19,331) (0.06)%
Metal 31,912 0.10 %
Stock index 234,251 0.70 %
---------- -------
Total short futures contracts $ 176,890 0.53 %
---------- -------
Total futures contracts $2,232,342 6.70 %
========== =======
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2002 and 2001
(Unaudited)
-----------
Three Months Ended
September 30,
2002 2001
---- ----
INCOME
Trading gains (losses)
Realized $ 6,438,226 $ 2,298,532
Change in unrealized (61,791) 1,503,733
------------ ------------
Gain from trading 6,376,435 3,802,265
Interest income 139,621 297,712
------------ ------------
Total income 6,516,056 4,099,977
------------ ------------
EXPENSES
Brokerage commissions 223,250 368,295
Incentive fees 925,452 257,298
Management fees 541,120 595,530
Operating expenses 44,335 40,025
------------ ------------
Total expenses 1,734,157 1,261,148
------------ ------------
NET INCOME $ 4,781,899 $ 2,838,829
============ ============
NET INCOME PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 14,597 and 17,508,
respectively) $ 327.60 $ 162.14
============ ============
INCREASE IN NET ASSET VALUE
PER GENERAL AND LIMITED
PARTNER UNIT $ 327.39 $ 164.26
============ ============
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
-----------
Nine Months Ended
September 30,
2002 2001
---- ----
INCOME
Trading gains
Realized $ 6,113,994 $ 2,913,476
Change in unrealized 558,409 999,105
------------ ------------
Gain from trading 6,672,403 3,912,581
Interest income 394,249 1,121,922
------------ ------------
Total income 7,066,652 5,034,503
------------ ------------
EXPENSES
Brokerage commissions 829,034 748,052
Incentive fees 981,268 656,539
Management fees 1,529,818 1,779,477
Operating expenses 123,380 127,613
------------ ------------
Total expenses 3,463,500 3,311,681
------------ ------------
NET INCOME $ 3,603,152 $ 1,722,822
============ ============
NET INCOME PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 15,406 and 18,631,
respectively) $ 233.89 $ 92.47
============ ============
INCREASE IN NET ASSET VALUE
PER GENERAL AND LIMITED
PARTNER UNIT $ 271.00 $ 103.34
============ ============
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
-----------
Total Partners' Capital
Number of --------------------------------------
Units General Limited Total
--------- ---------- ------------ ------------
Balances at
December 31, 2001 16,570 $ 458,665 $ 33,325,130 $ 33,783,795
Net income for the
nine months ended
September 30, 2002 60,965 3,542,187 3,603,152
Redemptions (2,146) 0 (4,069,500) (4,069,500)
------ ---------- ------------ ------------
Balances at
September 30, 2002 14,424 $ 519,630 $ 32,797,817 $ 33,317,447
====== ========== ============ ============
Balances at
December 31, 2000 19,974 $ 455,817 $ 40,014,820 $ 40,470,637
Net income for the
nine months ended
September 30, 2001 23,248 1,699,574 1,722,822
Redemptions (2,920) 0 (5,876,945) (5,876,945)
------ ---------- ------------ ------------
Balances at
September 30, 2001 17,054 $ 479,065 $ 35,837,449 $ 36,316,514
====== ========== ============ ============
Net asset value
per unit at
December 31, 2000 $ 2,026.18
===========
September 30, 2001 $ 2,129.52
===========
December 31, 2001 $ 2,038.84
===========
September 30, 2002 $ 2,309.84
===========
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 and other financial instruments.
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 and Futures Commission Merchants
(brokers) 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 quoted 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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------------------------------------------------------
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. 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 September 30, 2002, and the results of operations for
the three and nine months ended September 30, 2002 and 2001.
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 they act 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.
ProFutures, Inc. has callable subscription agreements with ABN AMRO
Incorporated (ABN), the Partnership's primary broker, whereby ABN has
subscribed to purchase (up to $7,000,000 subject to conditions set
forth in the 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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
The Partnership pays the General Partner a monthly management fee of
1/4 of 1% (3% annually) of month-end Net Asset Value.
Total management fees earned by ProFutures, Inc. for the nine months
ended September 30, 2002 and 2001 were $689,384 and $853,673,
respectively. Such management fees earned for the three months ended
September 30, 2002 and 2001 were $245,543 and $269,980, respectively.
Management fees payable to ProFutures, Inc. as of September 30, 2002
and December 31, 2001 were $84,961 and $86,255, respectively.
Note 3. CONSULTANT
----------
Kenmar Global Strategies Inc. (Kenmar) serves as a consultant and
assists 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 receives a monthly management fee of 1/12 of 1% of
month-end Net Asset Value (approximately 1% annually).
Note 4. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has trading advisory contracts with several commodity
trading advisors to furnish investment management services to the
Partnership. Certain 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 23% of
Trading Profits (as defined).
Note 5. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with ABN 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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts and options on U.S. and foreign futures 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 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 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.
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 trading advisors, with
the actual market risk controls being applied by 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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 8. FINANCIAL HIGHLIGHTS
--------------------
The following information presents per unit operating performance data
and other supplemental financial data for the three months and nine
months ended September 30, 2002 and 2001. This information has been
derived from information presented in the financial statements.
Three months ended
September 30,
2002 2001
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at
beginning of period $1,982.45 $1,965.26
--------- ---------
Income (loss) from operations:
Net investment (loss) (1), (3) (93.95) (33.99)
Net realized and change in
unrealized gain from
trading (2), (3) 421.34 198.25
--------- ---------
Total income from operations 327.39 164.26
--------- ---------
Net asset value per unit at
end of period $2,309.84 $2,129.52
========= =========
Total Return (4) 16.51 % 8.36 %
======= =======
Supplemental Data
Ratios to average net asset value: (5)
Expenses prior to incentive fees (1) 7.48 % 7.23 %
Incentive fees 11.82 % 2.93 %
------- -------
Total expenses (1) 19.30 % 10.16 %
======= =======
Net investment (loss) (1) (17.51)% (6.77)%
======= =======
Nine months ended
September 30,
2002 2001
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at
beginning of period $2,038.84 $2,026.18
--------- ---------
Income (loss) from operations:
Net investment (loss) (1), (3) (145.42) (77.38)
Net realized and change in unrealized
gain from trading (2), (3) 416.42 180.72
--------- ---------
Total income from operations 271.00 103.34
--------- ---------
Net asset value per unit at
end of period $2,309.84 $2,129.52
========= =========
Total Return (4) 13.29 % 5.10 %
======= =======
Supplemental Data
Ratios to average net asset value: (5)
Expenses prior to incentive fees (1) 7.27 % 6.81 %
Incentive fees 4.32 % 2.34 %
------- -------
Total expenses (1) 11.59 % 9.15 %
======= =======
Net investment (loss) (1) (9.86)% (5.14)%
======= =======
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 additions and redemptions.
-------------------
(1) Excludes brokerage commissions and other trading fees.
(2) Includes brokerage commissions and other trading fees.
(3) The net investment (loss) per unit is calculated by dividing the
net investment (loss) by the average number of units outstanding
during the period. The net realized and change in unrealized
gain from trading is a balancing amount necessary to reconcile
the change in net asset value per unit with the other per unit
information. Such balancing amount for the nine months ended
September 30, 2002 differs from the calculation of net trading
gain per unit due to the timing of trading gains and losses
during the period relative to the number of units outstanding.
(4) Not annualized.
(5) Annualized.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
A. LIQUIDITY: Substantially all of the Partnership's assets are highly
liquid, such as cash and open futures and option contracts. It is
possible that extreme market conditions or daily price fluctuation
limits at certain exchanges could adversely affect the liquidity of
open futures and option 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 (loss) for the
nine months ended September 30, 2002 and 2001 consisted of the
following:
2002 2001
---- ----
Three months ended March 31 $(2,720,355) $ 1,346,582
Three months ended June 30 1,541,608 (2,462,589)
Three months ended September 30 4,781,899 2,838,829
----------- -----------
Nine months ended September 30 $ 3,603,152 $ 1,722,822
=========== ===========
As of September 30, 2002, 14,424 Units are outstanding, including
225 General Partner Units, with an aggregate Net Asset Value of
$33,317,447 ($2,309.84 per Unit). This represents a decrease in
Net Asset Value of $466,348 compared with December 31, 2001. The
decrease is caused by redemptions of limited partner units offset by
net income.
As of September 30, 2001, 17,054 Units are outstanding, including
225 General Partner Units, with an aggregate Net Asset Value of
$36,316,514 ($2,129.52 per Unit). This represents a decrease in
Net Asset Value of $4,154,123 compared with December 31, 2000.
The decrease is caused by redemptions of limited partner units
offset by net income.
Third Quarter 2002
------------------
The futures markets continued to be volatile in the third quarter
of 2002. The equity markets suffered losses during the quarter,
which significantly impacted the commodities markets. The looming
threat of war with Iraq also had an impact on the markets,
especially oil and gas futures.
In July, the Partnership gained 6.89%. There were gains in interest
rates and stock indexes along with gains in certain agricultural
commodities. These gains were partially offset by losses in the
energy complex and metals.
In August, the Partnership gained another 3.87%. Again, there were
gains in interest rate markets. There were also gains in energy,
precious metals, grains and livestock. There were losses in foreign
currencies, stock index futures, and base metals.
In September, the Partnership had yet another gain of 4.94%. There
were gains in interest rates along with gains in stock indexes and
energy. There were losses in precious metals.
The had a total return of 16.51% for the quarter and 13.29% for the
nine months ended September 30, 2002. For the third quarter 2002, the
majority of the Partnership's trading gains were in interest rate
futures and stock index futures and the largest loss was in foreign
currencies.
Second Quarter 2002
-------------------
The futures markets continued to be volatile in the second quarter of
2002, though there was a surge at the end of the quarter. The extreme
volatility of the equity markets, mainly on the downside, had a major
impact on the commodities markets. Many of the US and overseas stock
indexes and foreign currencies were very active. Some of this was the
result of the corporate scandals that continue to rock the markets.
In April, the Partnership lost 4.43%. Although there were gains in
Swiss Francs, natural gas, and Euros, they were more than offset by
losses in the German Stock Index, the Canadian Dollar, the NASDAQ 100,
and various bond futures.
In May, the Partnership was essentially flat, with a gain of .26%.
There were gains in foreign currencies due to the drop of the U.S.
dollar. There were also gains in precious metals and agricultural
commodities. The gains were offset by losses in the energy complex,
interest rates and some metals.
In June, the Partnership had a gain of 10.26%. There were gains in
Euro futures, and a gain in EuroDollar futures. There were also gains
in various stock indexes. There were losses in British Pounds, the
Nikkei Stock Index, and Gold, but these were more than offset by the
gains.
The Partnership had a total return of 5.65% for the quarter and
(2.77)% for the six months ended June 30, 2002. For the second
quarter 2002, the majority of the Partnership's trading gains were in
foreign currencies and the largest loss was in the energy markets.
First Quarter 2002
------------------
The futures markets remained choppy in the first quarter of 2002.
While the economy was showing some signs of improvement, there were
also some negative signs that caused uncertainty. The troubles in the
Middle East lead to large increases in oil and gas prices. Gold
prices also moved higher early in the quarter, but gave back some of
their gains at the end of the quarter.
In January 2002, the Partnership lost 6.25%. There were large losses
in stock indexes and agricultural commodities. Large losses were also
incurred in interest rates and metals. Many of the other sectors were
essentially flat.
In February 2002, the Partnership lost 5.58%. The Partnership once
again experienced losses in stock indexes and interest rates. In
addition, there were also losses in the energy complex and foreign
currencies. There were some gains in agricultural commodities and
precious metals. These however, were not enough to offset the losses.
In March 2002, the Partnership managed to gain 3.97%. There were
gains in the energy complex, including Brent Crude Oil and Unleaded
Gas. There were also some gains in bonds and stock indexes. There
were losses in currencies, including the Japanese Yen and the Swiss
Franc. There were also some small losses in cotton and aluminum.
These losses however were not enough to offset the gains.
Third Quarter 2001
------------------
The quarter ended September 30, 2001 started out with gains in
July in base metals, precious metals, stock index futures and
short-term interest rates. The Fed's continuing loose monetary
policy kept both short-term and long-term interest rates somewhat
volatile. August brought large gains in interest rates and
smaller gains in the base metals.
September 2001 was a very volatile month for the Fund due to the
events of September 11th. Although the US markets were closed for
the remainder of the week, most overseas markets remained open,
and significant gains were made during this period. The Fund had
significant profits in short-term interest rate futures (mostly
overseas). There were also large gains made in medium-term interest
rates, which were partially offset by losses in long-term interest
rates. There were also some significant gains in base metals and
losses in energy, which was especially volatile after the attacks on
the World Trade Center and the Pentagon. The Fund was able to end
the quarter with a profit of 8.36% and 5.10% for the nine months
ended September 30, 2001.
Second Quarter 2001
-------------------
Those sectors which gained in March of 2001 showed losses of similar
magnitude in April 2001. A large part of the loss was a direct result
of a sudden and unexpected cut in U.S. interest rates by the Federal
Reserve on April 18th. This caused stock indexes as well as other
markets to sharply reverse their previous trends. May brought a small
gain from a variety of markets.
As of June 1, 2001, the General Partner made two significant changes
to the Fund. First, Gamma Capital Management was terminated as a
Trading Advisor and replaced with Winton Capital Management, Ltd.
Second, the Fund's leverage was increased through the use of notional
funds to approximately 150% of assets. The General Partner instructed
Winton to move into the market in stages during the month of June
rather than establish all positions at once. The Fund ended the
second quarter 2001 with a loss of 6.25% and the first half of 2001
was a loss of 3.01%.
First Quarter 2001
------------------
The Partnership's Trading Advisors had small losses during January and
February 2001. March 2001 was a much more active month, and the
Advisors were able to show gains in almost all market sectors,
particularly foreign currencies, stock indexes, and interest rates.
The only negative sector in March was energy. For the first quarter
of 2001, the Partnership's net result was a gain of 3.45%.
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
There has been no material change during the three and nine months
ended September 30, 2002, in the sources of the Partnership's exposure
to market risk. The relationship of the total Value at Risk as a
percentage of total capitalization changed in the first quarter from
12.8% at December 31, 2001 to 19.2% at March 31, 2002, to 16.1% at
June 30, 2002 and in the third quarter to 12.04% at September 30,
2002.
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.
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 with respect to the Partnership within 90
days of the filing date of this quarterly report, and, based on their
evaluation, have concluded that these disclosure controls and procedures are
effective. There were no significant changes in the general partner's internal
controls with respect to the Partnership or in other factors applicable to the
Partnership that could significantly affect these controls subsequent to the
date of their evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
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 and Reports on Form 8-K.
There were no reports filed on Form 8-K.
Exhibits filed herewith:
99.1 Form of Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code.
99.2 Form of Certification Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code.
CERTIFICATIONS
- --------------
I, Gary D. Halbert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ProFutures
Diversified Fund, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
----------------------------------
/s/ Gary D. Halbert
- -----------------------------------------
Gary D. Halbert, President
ProFutures, Inc., General Partner
I, Debi B. Halbert, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ProFutures
Diversified Fund, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
----------------------------------
/s/ Debi B. Halbert
- -----------------------------------------
Debi B. Halbert, Chief Financial Officer
ProFutures, Inc., General Partner
SIGNATURE
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)
/s/ Gary D. Halbert
---------------------------------
Gary D. Halbert, President
ProFutures, Inc., General Partner
ProFutures Diversified Fund, L.P.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
------------------------------------------------
I, Gary D. Halbert, the President of ProFutures, Inc. as general partner of
ProFutures Diversified Fund, L.P., certify that (i) the Form 10-Q for the
quarter ended September 30, 2002 of ProFutures Diversified Fund, L.P. fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and (ii) the information contained in the Form 10-Q for
the quarter ended September 30, 2002 fairly presents, in all material respects,
the financial condition and results of operations of ProFutures Diversified
Fund, L.P.
PROFUTURES DIVERSIFIED FUND, L.P.
By: ProFutures, Inc., general partner
By: /s/ Gary D. Halbert
---------------------------------
Gary D. Halbert
President
November 13, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
------------------------------------------------
I, Debi B. Halbert, the Chief Financial Officer of ProFutures, Inc. as general
partner of ProFutures Diversified Fund, L.P., certify that (i) the Form 10-Q
for the quarter ended September 30, 2002 of ProFutures Diversified Fund, L.P.
fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and (ii) the information contained in the Form
10-Q for the quarter ended September 30, 2002 fairly presents, in all material
respects, the financial condition and results of operations of ProFutures
Diversified Fund, L.P.
PROFUTURES DIVERSIFIED FUND, L.P.
By: ProFutures, Inc., general partner
By: /s/ Debi B. Halbert
---------------------------------
Debi B. Halbert
Chief Financial Officer
November 13, 2002