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 June 30, 2004.
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 June 30, 2004
--------------
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
June 30, 2004 (Unaudited) and December 31, 2003 (Audited)
-----------
June 30, December 31,
2004 2003
---- ----
ASSETS
Equity in broker trading accounts
Cash $17,510,046 $19,912,171
Unrealized gain (loss) on open
futures contracts (20,140) 2,016,022
----------- -----------
Deposits with broker 17,489,906 21,928,193
Cash 3,102 2,693
Cash deposits in forward trading
collateral accounts 14,992,359 12,770,126
Unrealized gain (loss) on open
forward contracts (363,539) 602,882
----------- -----------
Total assets $32,121,828 $35,303,894
=========== ===========
LIABILITIES
Accounts payable $ 16,882 $ 16,615
Commissions and other trading fees
on open contracts 19,456 42,749
Incentive fees payable 0 609,264
Management fees payable 322,682 324,421
Redemptions payable 293,933 685,164
----------- -----------
Total liabilities 652,953 1,678,213
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partner - 225 units outstanding
at June 30, 2004 and December 31, 2003 568,785 584,564
Limited Partners - 12,221 and 12,716 units
outstanding at June 30, 2004 and
December 31, 2003 30,900,090 33,041,117
----------- -----------
Total partners' capital
(Net Asset Value) 31,468,875 33,625,681
----------- -----------
$32,121,828 $35,303,894
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
June 30, 2003 (Unaudited) and December 31, 2003 (Audited)
-----------
June 30, 2004 December 31, 2003
-------------------- ---------------------
% of % of
Net Asset Net Asset
Description Value Value Value Value
----------- ----- --------- ----- ---------
LONG FUTURES CONTRACTS
- ----------------------
Agricultural $ (1,339) 0.00 % $ 21,471 0.06 %
Currency (29,366) (0.09)% 208,492 0.62 %
Energy (2,395) (0.01)% 116,904 0.35 %
Interest rate 26,977 0.09 % 234,248 0.70 %
Metal 10,924 0.03 % 877,367 2.61 %
Stock index 131,192 0.41 % 558,645 1.66 %
---------- ------- ---------- -------
Total long futures contracts $ 135,993 0.43 % $2,017,127 6.00 %
---------- ------- ---------- -------
SHORT FUTURES CONTRACTS
- -----------------------
Agricultural $ 48,440 0.15 % $ 13,648 0.04 %
Currency (23,089) (0.07)% (13,476) (0.04)%
Energy (2,770) (0.01)% 0 0.00 %
Interest rate (140,605) (0.45)% (9,156) (0.03)%
Metal (35,889) (0.11)% (1,161) 0.00 %
Stock index (2,220) 0.00 % 9,040 0.03 %
---------- ------- ---------- -------
Total short futures contracts $ (156,133) (0.49)% $ (1,105) 0.00 %
---------- ------- ---------- -------
Total futures contracts $ (20,140) (0.06)% $2,016,022 6.00 %
========== ======= ========== =======
FORWARD CURRENCY CONTRACTS
- --------------------------
Long forward currency contracts $ (329,883) (1.05)% $ (666,790) (1.98)%
Short forward currency contracts (33,656) (0.11)% 1,269,672 3.77 %
---------- ------- ---------- -------
Total forward currency contracts $ (363,539) (1.16)% $ 602,882 1.79 %
========== ======= ========== =======
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2004 and 2003
(Unaudited)
-----------
Three Months Ended
June 30,
2004 2003
--------- ---------
TRADING GAINS (LOSSES)
Gain (loss) from futures trading
Realized $(1,762,883) $ 1,677,884
Change in unrealized (1,050,868) (731,375)
Brokerage commissions (222,937) (187,553)
----------- -----------
Gain (loss) from futures trading (3,036,688) 758,956
----------- -----------
Gain (loss) from forward trading
Realized (702,260) 0
Change in unrealized (303,859) 0
----------- -----------
Gain (loss) from forward trading (1,006,119) 0
----------- -----------
Total trading gains (losses) (4,042,807) 758,956
----------- -----------
NET INVESTMENT INCOME (LOSS)
Income
Interest income 91,496 94,737
----------- -----------
Expenses
Incentive fees 0 130,968
Management fees 548,981 505,687
Operating expenses 45,791 36,926
----------- -----------
Total expenses 594,772 673,581
----------- -----------
Net investment (loss) (503,276) (578,844)
----------- -----------
NET INCOME (LOSS) $(4,546,083) $ 180,112
=========== ===========
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period
of 12,603 and 13,784, respectively) $ (360.71) $ 13.07
=========== ===========
INCREASE (DECREASE) IN NET ASSET VALUE
PER GENERAL AND LIMITED PARTNER UNIT $ (360.50) $ 12.46
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
-----------
Six Months Ended
June 30,
2004 2003
--------- ---------
TRADING GAINS (LOSSES)
Gain (loss) from futures trading
Realized $ 3,549,050 $ 8,022,967
Change in unrealized (2,036,162) (2,994,497)
Brokerage commissions (448,272) (406,491)
----------- -----------
Gain (loss) from futures trading 1,064,616 4,621,979
----------- -----------
Gain (loss) from forward trading
Realized 1,179,553 0
Change in unrealized (966,421) 0
----------- -----------
Gain (loss) from forward trading 213,132 0
----------- -----------
Total trading gains (losses) 1,277,748 4,621,979
----------- -----------
NET INVESTMENT INCOME (LOSS)
Income
Interest income 172,277 198,614
----------- -----------
Expenses
Incentive fees 1,023,860 804,355
Management fees 1,143,623 1,074,541
Operating expenses 101,589 76,562
----------- -----------
Total expenses 2,269,072 1,955,458
----------- -----------
Net investment (loss) (2,096,795) (1,756,844)
----------- -----------
NET INCOME (LOSS) $ (819,047) $ 2,865,135
=========== ===========
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period
of 12,727 and 13,906, respectively) $ (64.35) $ 206.04
=========== ===========
INCREASE (DECREASE) IN NET ASSET VALUE
PER GENERAL AND LIMITED PARTNER UNIT $ (70.14) $ 201.99
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
-----------
Total Partners' Capital
Number of --------------------------------------
Units General Limited Total
--------- ---------- ------------ ------------
Balances at
December 31, 2003 12,941 $ 584,564 $ 33,041,117 $ 33,625,681
Net (loss) for the
six months ended
June 30, 2004 (15,779) (803,268) (819,047)
Redemptions (495) 0 (1,337,759) (1,337,759)
------ ---------- ------------ ------------
Balances at
June 30, 2004 12,446 $ 568,785 $ 30,900,090 $ 31,468,875
====== ========== ============ ============
Balances at
December 31, 2002 14,129 $ 511,577 $ 31,618,764 $ 32,130,341
Net income for the
six months ended
June 30, 2003 45,440 2,819,695 2,865,135
Redemptions (454) 0 (1,135,620) (1,135,620)
------ ---------- ------------ ------------
Balances at
June 30, 2003 13,675 $ 557,017 $ 33,302,839 $ 33,859,856
====== ========== ============ ============
Net asset value
per unit at
December 31, 2002 $ 2,274.04
===========
June 30, 2003 $ 2,476.03
===========
December 31, 2003 $ 2,598.48
===========
June 30, 2004 $ 2,528.34
===========
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 June 30, 2004, and the results of operations for
the three and six months ended June 30, 2004 and 2003.
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, 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.
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 six months
ended June 30, 2004 and 2003 were $523,400 and $525,443, respectively.
Such management fees earned for the three months ended June 30, 2004
and 2003 were $249,573 and $261,094, respectively. Management fees
payable to ProFutures, Inc. as of June 30, 2004 and December 31, 2003
were $79,849 and $87,415, 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.
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 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.
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 six
months ended June 30, 2004 and 2003. This information has been
derived from information presented in the financial statements.
Three months ended
June 30,
2004 2003
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at
beginning of period $2,888.84 $2,463.57
--------- ---------
Income (loss) from operations:
Total trading gains (losses) (1) (320.57) 54.45
Net investment (loss) (1) (39.93) (41.99)
--------- ---------
Total income (loss) from operations (360.50) 12.46
--------- ---------
Net asset value per unit at
end of period $2,528.34 $2,476.03
========= =========
Total Return (3) (12.48)% 0.51 %
======= =======
Supplemental Data
Ratios to average net asset value:
Expenses prior to incentive fees (4) 7.23 % 6.30 %
Incentive fees (3) 0.00 % 0.38 %
------- -------
Total expenses 7.23 % 6.68 %
======= =======
Net investment (loss) (2), (4) (6.11)% (5.20)%
======= =======
Six months ended
June 30,
2004 2003
(Unaudited) (Unaudited)
----------- -----------
Per Unit Performance
(for a unit outstanding throughout the entire period)
-----------------------------------------------------
Net asset value per unit at
beginning of period $2,598.48 $2,274.04
--------- ---------
Income (loss) from operations:
Total trading gains (1) 94.61 328.33
Net investment (loss) (1) (164.75) (126.34)
--------- ---------
Total income (loss) from operations (70.14) 201.99
--------- ---------
Net asset value per unit at
end of period $2,528.34 $2,476.03
========= =========
Total Return (3) (2.70)% 8.88 %
======= =======
Supplemental Data
Ratios to average net asset value:
Expenses prior to incentive fees (4) 7.26 % 6.67 %
Incentive fees (3) 2.98 % 2.33 %
------- -------
Total expenses 10.24 % 9.00 %
======= =======
Net investment (loss) (2), (4) (6.25)% (5.52)%
======= =======
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 (losses) 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 (losses) 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.
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 (loss) for the
six months ended June 30, 2004 and 2003 totaled:
2004 2003
---- ----
Three months ended March 31 $ 3,727,036 $ 2,685,023
Three months ended June 30 (4,546,083) 180,112
=========== ===========
Six months ended June 30 $ (819,047) $ 2,865,135
=========== ===========
As of June 30, 2004, 12,446 Units are outstanding, including 225
General Partner Units, with an aggregate Net Asset Value of
$31,468,875 ($2,528.34 per Unit). This represents a decrease in Net
Asset Value of $2,156,806 compared with December 31, 2003. The
decrease is caused by redemptions of limited partner units and
a net loss for the six months ended June 30, 2004.
As of June 30, 2003, 13,675 Units are outstanding, including 225
General Partner Units, with an aggregate Net Asset Value of
$33,859,856 ($2,476.03 per Unit). This represents an increase in
Net Asset Value of $1,729,515 compared with December 31, 2002, due
to net income exceeding redemptions of limited partner units for
the six months ended June 30, 2003.
Second Quarter 2004
-------------------
The economic recovery continued in the second quarter of 2004, and
most economic news was positive, though there was a little slowdown in
June. The futures markets were again volatile, especially in energy,
interest rates and currencies.
The Partnership had a loss of 7.27% in April. The Partnership had
large losses in metals, interest rates, equities and foreign
currencies, as well as smaller losses in agriculture. The only bright
spot was energy, where there were some modest gains.
The Partnership had a loss of 0.33% in May. The Partnership had
large gains in energy, with smaller gains in foreign currencies and
base metals. There were losses in equities, agriculture, interest
rates and precious metals. Campbell and Winton, our main trend-
followers were essentially flat in May.
The Partnership had a loss of 5.30% in June, which was another very
volatile and difficult month in the markets. The Partnership had
losses in nearly all sectors. Losses were especially large in foreign
currencies and energy.
Overall, the Partnership had a total return of (12.48)% for the
quarter and (2.70)% for the six months ended June 30, 2004. For the
second quarter 2004, the majority of the Partnership's trading gains
were in the energy sector and the largest loss was in foreign
currencies.
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.
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.
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
At June 30, 2004, the Partnership has allocated notional funds to its
trading advisors equal to approximately 45.97% of the Partnership's
net assets, as compared to 36.69% at December 31, 2003. As a result,
the relationship of the total Value at Risk as a percentage of total
capitalization changed from 17.10% at December 31, 2003 to 10.86% at
June 30, 2004.
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 (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. 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.
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)
August 11, 2004 By /s/ GARY D. HALBERT
- ------------------------ -----------------------------------------
Date Gary D. Halbert, President and Director
ProFutures, Inc.
General Partner
August 11, 2004 By /s/ DEBI B. HALBERT
- ------------------------ -----------------------------------------
Date Debi B. Halbert, Chief Financial Officer,
Treasurer and Director
ProFutures, Inc.
General Partner
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 11, 2004
----------------------------------
/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 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: August 11, 2004
----------------------------------
/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 June 30, 2004 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 June 30, 2004 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
August 11, 2004
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 June 30, 2004 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 June 30, 2004 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
August 11, 2004