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, 2003.
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, 2003
--------------
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, 2003 (Unaudited) and December 31, 2002 (Audited)
-----------
September 30, December 31,
2003 2002
---- ----
ASSETS
Equity in broker trading accounts
Cash $20,310,653 $30,570,988
Unrealized gain on open futures contracts 1,375,989 2,332,972
----------- -----------
Deposits with broker 21,686,642 32,903,960
Cash and cash equivalents 11,553,505 2,461
Unrealized gain (loss) on open forward
contracts (168,016) 0
----------- -----------
Total assets $33,072,131 $32,906,421
=========== ===========
LIABILITIES
Accounts payable $ 27,658 $ 22,197
Commissions and other trading fees
on open contracts 32,597 49,856
Incentive fees payable 43,271 123,003
Management fees payable 290,280 329,890
Redemptions payable 276,840 251,134
----------- -----------
Total liabilities 670,646 776,080
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 225 units outstanding at
September 30, 2003 and December 31, 2002 544,883 511,577
Limited Partners - 13,152 and 13,904 units
outstanding at September 30, 2003 and
December 31, 2002 31,856,602 31,618,764
----------- -----------
Total partners' capital
(Net Asset Value) 32,401,485 32,130,341
----------- -----------
$33,072,131 $32,906,421
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
September 30, 2003
(Unaudited)
-----------
LONG FUTURES CONTRACTS
- ----------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Agricultural $ 386,416 1.19 %
Currency 1,681,361 5.19 %
Energy 7,151 0.02 %
Interest rate 674,116 2.08 %
Metal 96,898 0.30 %
Stock index (617,524) (1.90)%
---------- -------
Total long futures contracts $2,228,418 6.88 %
---------- -------
SHORT FUTURES CONTRACTS
- -----------------------
Agricultural $ (11,231) (0.03)%
Currency (645,681) (1.99)%
Energy (201,583) (0.62)%
Interest rate (43,383) (0.14)%
Metal (9,011) (0.03)%
Stock index 58,460 0.18 %
---------- -------
Total short futures contracts $ (852,429) (2.63)%
---------- -------
Total futures contracts $1,375,989 4.25 %
========== =======
FORWARD CURRENCY CONTRACTS
- -------------------------------
% of Net
Description Value Asset Value
----------- ----- -----------
Long forward currency contracts $ (84,143) (0.26)%
Short forward currency contracts (83,873) (0.26)%
---------- -------
Total forward currency contracts $ (168,016) (0.52)%
========== =======
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2003 and 2002
(Unaudited)
-----------
Three Months Ended
September 30,
2003 2002
---- ----
INCOME
Futures trading gains (losses)
Realized $(1,974,786) $ 6,438,226
Change in unrealized 2,037,514 (61,791)
----------- -----------
Gain from futures trading 62,728 6,376,435
----------- -----------
Forward trading gains (losses)
Realized 116,910 0
Change in unrealized (168,016) 0
----------- -----------
Gain (loss) from forward trading (51,106) 0
----------- -----------
Interest income 77,833 139,621
----------- -----------
Total income 89,455 6,516,056
----------- -----------
EXPENSES
Brokerage commissions 223,557 223,250
Incentive fees 43,271 925,452
Management fees 509,648 541,120
Operating expenses 54,722 44,335
----------- -----------
Total expenses 831,198 1,734,157
----------- -----------
NET INCOME (LOSS) $ (741,743) $ 4,781,899
=========== ===========
NET INCOME (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 13,571 and 14,597,
respectively) $ (54.65) $ 327.60
=========== ===========
INCREASE (DECREASE) IN NET ASSET
VALUE PER GENERAL AND LIMITED
PARTNER UNIT $ (53.94) $ 327.39
=========== ===========
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
-----------
Nine Months Ended
September 30,
2003 2002
---- ----
INCOME
Futures trading gains (losses)
Realized $ 6,048,182 $ 6,113,994
Change in unrealized (956,983) 558,409
----------- -----------
Gain from futures trading 5,091,199 6,672,403
----------- -----------
Forward trading gains (losses)
Realized 116,910 0
Change in unrealized (168,016) 0
----------- -----------
Gain (loss) from forward trading (51,106) 0
----------- -----------
Interest income 276,446 394,249
----------- -----------
Total income 5,316,539 7,066,652
----------- -----------
EXPENSES
Brokerage commissions 630,048 829,034
Incentive fees 847,626 981,268
Management fees 1,584,189 1,529,818
Operating expenses 131,284 123,380
----------- -----------
Total expenses 3,193,147 3,463,500
----------- -----------
NET INCOME (LOSS) $ 2,123,392 $ 3,603,152
=========== ===========
NET INCOME (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 13,794 and 15,406,
respectively) $ 153.93 $ 233.89
=========== ===========
INCREASE (DECREASE) IN NET ASSET
VALUE PER GENERAL AND LIMITED
PARTNER UNIT $ 148.05 $ 271.00
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)
-----------
Total Partners' Capital
Number of --------------------------------------
Units General Limited Total
--------- ---------- ------------ ------------
Balances at
December 31, 2002 14,129 $ 511,577 $ 31,618,764 $ 32,130,341
Net income for the
nine months ended
September 30, 2003 33,306 2,090,086 2,123,392
Redemptions (752) 0 (1,852,248) (1,852,248)
------ ---------- ------------ ------------
Balances at
September 30, 2003 13,377 $ 544,883 $ 31,856,602 $ 32,401,485
====== ========== ============ ============
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
====== ========== ============ ============
Net asset value
per unit at
December 31, 2001 $ 2,038.84
===========
September 30, 2002 $ 2,309.84
===========
December 31, 2002 $ 2,274.04
===========
September 30, 2003 $ 2,422.09
===========
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 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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------------------------------------------------------
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 September 30, 2003, and the results of operations
for the three and nine months ended September 30, 2003 and 2002.
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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
ProFutures, Inc. has callable subscription agreements with ABN AMRO
Incorporated (ABN), the Partnership's 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.
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, 2003 and 2002 were $772,196 and $689,384,
respectively. Such management fees earned for the three months ended
September 30, 2003 and 2002 were $246,753 and $245,543, respectively.
Management fees payable to ProFutures, Inc. as of September 30, 2003
and December 31, 2002 were $82,227 and $81,720, respectively.
Note 3. CONSULTANT
----------
Kenmar Global Strategies Inc. (Kenmar) 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% (1% annually) of month-end Net
Asset Value.
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 25% of
Trading Profits (as defined).
Note 5. DEPOSITS WITH BROKER
--------------------
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.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
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 and forward 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 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 contracts
purchased and unlimited liability on such contracts sold short.
The Partnership has a portion of its assets on deposit with a
financial institution in connection with its trading of forward
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 these forward contracts are traded in
unregulated markets between principals, the Partnership also assumes
the risk of loss from counterparty nonperformance.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
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
Kenmar, 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.
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, 2003 and 2002. This information has been
derived from information presented in the financial statements.
Three months ended
September 30,
2003 2002
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at
beginning of period $2,476.03 $1,982.45
--------- ---------
Income (loss) from operations:
Net investment (loss) (1), (3) (39.04) (93.95)
Net realized and change in unrealized
gain (loss) from trading (2), (3) (14.90) 421.34
--------- ---------
Total income (loss) from operations (53.94) 327.39
--------- ---------
Net asset value per unit at
end of period $2,422.09 $2,309.84
========= =========
Total Return (5) (2.18)% 16.51 %
======= =======
Supplemental Data
Ratios to average net asset value: (6)
Expenses prior to incentive fees (4) 6.95 % 7.48 %
Incentive fees 0.53 % 11.82 %
------- -------
Total expenses (1) 7.48 % 19.30 %
======= =======
Net investment (loss) (4) (5.99)% (5.69)%
======= =======
Nine months ended
September 30,
2003 2002
(Unaudited) (Unaudited)
Net asset value per unit at
beginning of period $2,274.04 $2,038.84
--------- ---------
Income (loss) from operations:
Net investment (loss) (1), (3) (165.77) (145.42)
Net realized and change in unrealized
gain from trading (2), (3) 313.82 416.42
--------- ---------
Total income from operations 148.05 271.00
--------- ---------
Net asset value per unit at
end of period $2,422.09 $2,309.84
========= =========
Total Return (5) 6.51 % 13.29 %
======= =======
Supplemental Data
Ratios to average net asset value: (6)
Expenses prior to incentive fees (4) 6.76 % 7.27 %
Incentive fees 3.34 % 4.32 %
------- -------
Total expenses (1) 10.10 % 11.59 %
======= =======
Net investment (loss) (4) (5.67)% (5.54)%
======= =======
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) 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 (loss) 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 may
differ from the calculation of net trading gain (loss) per unit
due to the timing of trading gains and losses during the period
relative to the number of units outstanding.
(4) Excludes brokerage commissions, other trading fees and incentive
fees.
(5) Not annualized.
(6) 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 forward 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 forward 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 and
forward 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 nine
months ended September 30, 2003 and 2002 totaled:
2003 2002
---- ----
Three months ended March 31 $ 2,685,023 $(2,720,355)
Three months ended June 30 180,112 1,541,608
Three months ended September 30 (741,743) 4,781,899
=========== ===========
Nine months ended September 30 $ 2,123,392 $ 3,603,152
=========== ===========
As of September 30, 2003, 13,377 Units are outstanding, including 225
General Partner Units, with an aggregate Net Asset Value of
$32,401,485 ($2,422.09 per Unit). This represents an increase in
Net Asset Value of $271,144 compared with December 31, 2002, due
to net income exceeding redemptions of limited partner units for
the nine months ended September 30, 2003.
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.
Third Quarter 2003
------------------
The economy continued to improve in the third quarter. The equity
markets were mostly up. Most analysts expect the economy to continue
to improve for the remainder of the year.
The Partnership had a loss of 3.46% in July. The Partnership had
losses in bonds and other interest rate contracts and foreign
currencies. There were gains in stock indexes, metals, energy and
certain agricultural commodities.
In August 2003, the Partnership had a gain of 1.22%. The Partnership
had gains in foreign currencies, energy, stock indexes and metals.
There were losses in bonds and certain agricultural commodities.
In September 2003, the Partnership had a small gain of 0.10%. The
Partnership had gains in foreign currencies, which were offset by
losses in energy. The other sectors were generally flat.
The Partnership had a total return of (2.18)% for the quarter and 6.51%
for the nine months ended September 30, 2003. For the third quarter
2003, the majority of the Partnership's trading gains were in stock
indexes and the largest loss was in energy. In September 2003, two
new traders, Rhicon Currency and Conquest Capital, were added to the
Partnership.
Second Quarter 2003
-------------------
Futures were somewhat more stable in the second quarter as compared to
the first. The war with Iraq ended, and the stock markets began a
steady climb that lasted through the end of the quarter.
In April 2003, the Partnership had a gain of 0.11%. There were gains
in currencies, primarily because of the falling dollar. However,
these gains were mostly offset by losses in nearly all of the other
sectors.
In May 2003, the Partnership gained 4.95%. The Partnership had gains
in interest rates, especially bonds. There were also gains in
currencies, metals, and stock indexes. There were some losses in
energy and certain agricultural commodities.
In June 2003, the Partnership has a loss of 4.34%. There were losses
in interest rates, especially bonds. There were also losses in
energy, metals and certain agricultural commodities. Most other
sectors were basically flat.
At the beginning of June 2003, notional funds were added back to
trading, as the leverage was increased back to 150%. This is about
the same level as before the notional funds were temporarily
eliminated several months ago.
The Partnership had a total return of 0.51% for the quarter and 8.88%
for the six months ended June 30, 2003. For the second quarter 2003,
the majority of the Partnership's trading gains were in foreign
currencies and the largest loss was in energy futures.
First Quarter 2003
------------------
The futures markets were quite volatile in the first quarter of 2003.
The looming war with Iraq caused energy prices to skyrocket. Many
other markets were choppy due to this uncertainty. Consumer
confidence dropped dramatically. The traders were able to capitalize
on the volatility in the markets.
In January 2003, the Partnership gained 5.32%. There were large gains
in foreign currencies and energy, with smaller gains in interest
rates, precious and base metals and stock indexes. There were some
small losses in grains.
In February 2003 , the Partnership gained 8.19%. There were large
gains in energy, with smaller gains in interest rates and currencies.
There were some small losses in stock indexes and metals. Most other
sectors were basically flat.
In February 2003, the Partnership eliminated most of its notional
funding and traded at near 100% of assets, rather than 150% of assets
(with notional funding). One advisor, Campbell & Company, also scaled
back their open positions. These changes were made due to the
uncertainty of the pending war with Iraq.
In March 2003, the Partnership lost 4.93%. There were large losses in
most sectors, especially energy, after oil prices dropped. Some of
the gains from the previous two months were reversed in March 2003.
Also in March 2003, Quay Capital Management had a change of its top
management, resulting in the departure of one of the principals
responsible for trading the account. As a result, they were
terminated as one of the Advisors in the Fund. No replacement Advisor
was selected by month-end.
Overall, the Partnership had a total return of 8.33% for the three
months ended March 31, 2003. The majority of the Partnership's
trading gains were in energy and foreign currencies and the largest
loss was in stock index futures.
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.
For the first quarter 2002, the Partnership's losses overall were
primarily due to currencies and stock index futures.
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, 2003, in the sources of the Partnership's exposure
to market risk. In anticipation of a looming war with Iraq and in an
effort to minimize market risk, the General Partner reduced the
notional funding allocations to its trading advisors by $13,686,700
or 37.9% of the Partnership's Net Asset Value of $36,076,750 at
February 28, 2003. In June 2003, the General Partner returned
$10,900,000 to notional funding allocations or 30.7% of the
Partnership's Net Asset Value of $35,489,466 at May 31, 2003. At
September 30, 2003, the Partnership has allocated notional funds to
its trading advisors equal to approximately 37.12% of the Partnership's
net assets, as compared to 49.9% at December 31, 2002. As a result,
the relationship of the total Value at Risk as a percentage of total
capitalization changed from 13.3% at December 31, 2002 to 12.07% at
September 30, 2003.
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:
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.
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 31.01
CERTIFICATION
-------------
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 10, 2003
----------------------------------
/s/ Gary D. Halbert
- -----------------------------------------
Gary D. Halbert, President
ProFutures, Inc., General Partner
EXHIBIT 31.02
CERTIFICATION
-------------
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 10, 2003
----------------------------------
/s/ Debi B. Halbert
- -----------------------------------------
Debi B. Halbert, Chief Financial Officer
ProFutures, Inc., General Partner
EXHIBIT 32.01
CERTIFICATION
-------------
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, 2003 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, 2003 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 10, 2003
EXHIBIT 32.02
CERTIFICATION
-------------
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, 2003 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, 2003 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 10, 2003