UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2003
Commission File Number 333-110076
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
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(Exact name of registrant as specified in its charter)
New York 13-4224248
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Citigroup Managed Futures LLC
399 Park Avenue - 7th Fl.
New York, New York 10022
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(Address and Zip Code of principal executive offices)
(212) 559-2011
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Redeemable Units of
Limited Partnership
Interest
(Title of Class)
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
Limited Partnership Redeemable Units with an aggregate value of $76,553,682 were
outstanding and held by non-affiliates as of the last business day of the
registrants most recently completed second fiscal quarter.
As of February 29, 2004, 396,370.5181 Limited Partnership Redeemable Units were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
(a) General development of business. Citigroup Diversified Futures Fund
L.P. (the "Partnership") is a limited partnership organized under the
partnership laws of the State of New York on December 3, 2002 to engage in
the speculative trading of a diversified portfolio of commodity interests
including futures contracts, options and forwards. The commodity interests
that are traded by the Partnership are volatile and involve a high degree
of market risk.
A Registration Statement on Form S-1 relating to the pubic offering of
300,000 redeemable units ("Redeemable Units") became effective March 27,
2003. Between March 27, 2003 (commencement of the offering period) and
April 30, 2003, 36,616 Redeemable Units of Limited Partnership Interest
were sold at $1,000 per Redeemable Unit. The proceeds of the initial
offering were held in an escrow account until April 30, 2003, at which time
they were turned over to the Partnership for trading.
A second Registration Statement on Form S-1 relating to the public offering
of 1,000,000 Redeemable Units (including the 300,000 Redeemable Units that
had been previously registered) became effective on December 4, 2003. As of
that date 260,732.3028 Redeemable Units had been sold. The Partnership
continues to offer Redeemable Units.
Sales of additional Redeemable Units and additional general partner
contributions and redemptions of Redeemable Units for the period from May
1, 2003 (commencement of trading operations) through December 31, 2003 are
reported in the Statement of Partners' Capital on page F-7 under "Item 8.
Financial Statements and Supplementary Data."
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the general partner (the "General Partner") of the
Partnership. The Partnership's commodity broker is Citigroup Global Markets
Inc. ("CGM"), formerly Salomon Smith Barney Inc. CGM is an affiliate of the
General Partner. The General Partner is wholly owned by Citigroup Global
Markets Holdings Inc. ("CGMHI"), formerly Salomon Smith Barney Holdings
Inc., which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of
Citigroup Inc ("Citigroup").
The General Partner and each limited partner share in the profits and
losses of the Partnership in proportion to the amount of partnership
interest owned by each except that no limited partner shall be liable for
obligations of the Partnership in excess of their initial capital
contribution and profit, if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2022; the net asset value of a Redeemable Unit
decreases to less than $400 per Redeemable Unit as of the close of any
trading day; or under certain other circumstances as defined in the limited
partnership agreement of the Partnership (the "Limited Partnership
Agreement").
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The Partnership's trading of futures, forwards and options contracts, if
applicable, on commodities is done primarily on United States of America
and foreign commodity exchanges. It engages in such trading through a
commodity brokerage account maintained with CGM.
The General Partner, on behalf of the Partnership, has entered into
management agreements (the "Management Agreements") with Drury Capital,
Inc. ("Drury"), Graham Capital Management L.P. ("Graham"), John W. Henry &
Company, Inc. ("JWH"), and Willowbridge Associates Inc. ("Willowbridge")
(collectively, the "Advisors"), each of which are registered commodity
trading advisors. During 2003, the General Partner entered into Management
Agreements with Aspect Capital Limited ("Aspect") and Capital Fund
Management S.A. ("CFM"). Aspect and CFM commenced trading on January 1,
2004. The Advisors are not affiliated with one another, are not affiliated
with the General Partner or CGM and are not responsible for the
organization or operation of the Partnership. The Partnership will pay each
Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of
month-end Net Assets allocated to the Advisor. Month-end Net Assets, for
the purpose of calculating management fees are Net Assets, as defined in
the Limited Partnership Agreement, prior to the reduction of redemptions
and incentive fees. In addition, the Partnership is obligated to pay each
Advisor an incentive fee payable quarterly equal to 20% of the New Trading
Profits, as defined in the Management Agreements, earned by each Advisor
for the Partnership.
The Partnership has entered into a Customer Agreement (the "Customer
Agreement") which provides that the Partnership will pay CGM a brokerage
fee equal to 5.5% per year calculated and paid monthly based on .46% of
month-end Net Assets, in lieu of brokerage commissions on a per trade
basis. Month-end Net Assets, for the purpose of calculating commissions are
Net Assets, as defined in the Limited Partnership Agreement, prior to the
reduction of accrued expenses and redemptions payable. CGM will pay a
portion of brokerage fees to its financial consultants who have sold
Redeemable Units in the Partnership. Brokerage fees will be paid for the
life of the Partnership, although the rate at which such fees are paid may
be changed. The Partnership will pay for National Futures Association fees
as well as exchange, clearing, user, give-up and floor brokerage fees. In
addition, CGM has agreed to pay the Partnership interest on 80% of the
average daily equity maintained in cash in the Partnership's account during
each month. The interest is earned at a 30-day U.S. Treasury bill rate
determined weekly by CGM based on the average noncompetitive yield on
3-month U.S. Treasury bills maturing in 30 days from the date on which such
weekly rate is determined. The Customer Agreement between the Partnership
and CGM gives the Partnership the legal right to net unrealized gains and
losses. The Customer Agreement may be terminated upon notice by either
party.
(b) Financial information about industry segments. The Partnership's business
consists of only one segment, speculative trading of commodity interests
(including, but not limited to, futures contracts, options and forward
contracts on U.S. Treasury Bills, other financial instruments, foreign
currencies, stock indices and physical commodities). The Partnership does
not engage in sales of goods or services. The Partnership's net income
(loss) from operations for the period from May 1, 2003 (commencement of
trading operations) to December 31, 2003 is set forth under "Item 6.
Selected Financial Data." The Partnership's capital as of December 31, 2003
was $284,539,258.
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(c) Narrative description of business.
See Paragraphs (a) and (b) above.
(i) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership does not
engage in sales of goods or services or own any long lived assets, and
therefore this item is not applicable.
e) Available Information. The Partnership does not have an Internet address.
The Partnership will provide paper copies of its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to these reports free of charge upon request.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner
operates out of facilities provided by its affiliate, CGM.
Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which Citigroup Global Markets
Holdings Inc. ("CGMHI") or its subsidiaries is a party or to which any of their
property is subject. There are no material legal proceedings pending against the
Partnership or the General Partner.
Citigroup Global Markets Inc. ("CGM") is a New York corporation with its
principal place of business at 388 Greenwich St., New York, New York 10013. CGM
is registered as a broker-dealer and futures commission merchant ("FCM"), and
provides futures brokerage and clearing services for institutional and retail
participants in the futures markets. CGM and its affiliates also provide
investment banking and other financial services for clients worldwide.
There have been no material administrative, civil or criminal actions within the
past five years against CGM or any of its individual principals and no such
actions are currently pending, except as follows.
In December 1996, a complaint seeking unspecified monetary damages was filed by
Orange County, California against numerous brokerage firms, including Salomon
Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California. (County of Orange et al. v. Bear Stearns & Co. Inc. et al.) The
complaint alleged, among other things, that the brokerage firms recommended and
sold unsuitable securities to Orange County. Salomon Smith Barney and the
remaining brokerage firms settled with Orange County in mid 1999. Salomon Smith
Barney paid $1,333,333 to settle this matter.
In June 1998, complaints were filed in the U.S. District Court for the Eastern
District of Louisiana in two actions (Board of Liquidations, City Debt of the
City of New Orleans v. Smith Barney Inc. et ano. and The City of New Orleans v.
Smith Barney Inc. et ano.), in which the City of New Orleans sought a
determination that Smith Barney Inc. and another underwriter would be
responsible for any damages that the City may incur in the event the Internal
Revenue Service ("IRS") denies tax exempt status to the City's General
Obligation Refunding Bonds Series 1991. The complaints were subsequently
amended. Salomon Smith Barney has asked the court to dismiss the amended
complaints. The court denied the motion but stayed the case. Subsequently, the
City withdrew its lawsuit.
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In November 1998, a class action complaint was filed in the U.S. District Court
for the Middle District of Florida (Dwight Brock as Clerk for Collier County v.
Merrill Lynch, et al.). The complaint alleged that, pursuant to a nationwide
conspiracy, 17 broker-dealer defendants, including Salomon Smith Barney, charged
excessive mark-ups in connection with advanced refunding transactions. Among
other relief, plaintiffs sought compensatory and punitive damages, restitution
and/or rescission of the transactions and disgorgement of alleged excessive
profits. In October 1999, the plaintiffs filed a second amended complaint. In
November 1999, Salomon Smith Barney moved to dismiss the amended complaint. In
May 2001, the parties reached and the court preliminarily approved a tentative
settlement. Salomon Smith Barney paid $1,063,457 to settle this matter and in
September 2001, the court approved the settlement.
In connection with the Louisiana and Florida matters, the IRS and the SEC
conducted an industry-wide investigation into the pricing of Treasury securities
in advanced refunding transactions. In April 2000, Salomon Smith Barney and
several other broker-dealers entered into a settlement with the IRS and the SEC.
Thereafter, the plaintiffs filed voluntary discontinuances.
In December 1998, Salomon Smith Barney was one of 28 market making firms that
reached a settlement with the SEC in the matter titled In the Matter of Certain
Market Making Activities on NASDAQ. As part of the settlement of that matter,
Salomon Smith Barney, without admitting or denying the factual allegations,
agreed to an order that required that it: (i) cease and desist from committing
or causing any violations of Sections 15(c)(1) and (2) of the Securities
Exchange Act of 1934 and SEC Rules 15c1-2, 15c2-7 and 17a-3 thereunder, (ii) pay
penalties totaling approximately $760,000 and (iii) submit certain policies and
procedures to an independent consultant for review.
In April 2002, numerous class action complaints were filed against Salomon Smith
Barney and other investment banks in the U.S. District Court for the Southern
District of New York alleging violations of certain federal securities laws
(including Section 11 of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934) with respect to the allocation of shares for
certain initial public offerings and related aftermarket transactions and damage
to investors caused by allegedly biased research analyst reports. On February
19, 2003, the court issued an opinion denying the defendants' motion to dismiss
the complaints.
In April 2002, Citigroup and, in one case, Salomon Smith Barney were named as
defendants along with, among others, commercial and/or investment banks, certain
current and former Enron officers and directors, lawyers and accountants in two
alleged consolidated class action complaints that were filed in the U.S.
District Court for the Southern District of Texas seeking unspecified damages.
One action, brought on behalf of individuals who purchased Enron securities
(Newby, et al. v. Enron Corp., et al.), alleges violations of Sections 11 and 15
of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities
5
Exchange Act of 1934 and the other action, brought on behalf of current and
former Enron employees (Tittle, et al. v. Enron Corp., et al.), alleges
violations of ERISA and the Racketeer Influenced and Corrupt Organizations Act,
as well as negligence and civil conspiracy. On May 8, 2002, Citigroup and
Salomon Smith Barney filed motions to dismiss the complaints. On December 19,
2002, the motions to dismiss the Newby complaint were denied. On September 30,
2003, all of the claims against Citigroup in the Tittle litigation were
dismissed.
Several additional actions, previously identified, have been consolidated with
the Newby action and are stayed, except with respect to certain discovery, until
after the Court's decision on class certification. In addition, on April 17,
2003, an action was brought by two investment firms in connection with purchases
of Osprey Trust certificates for alleged violations of federal securities laws
and state securities and other laws. Also, in July 2003, an action was brought
by purchasers in the secondary market of Enron bank debt against Citigroup,
Citibank, Citigroup Global Markets, and others, alleging claims for common law
fraud, conspiracy, gross negligence, negligence and breach of fiduciary duty.
Since April 2002, Salomon Smith Barney and several other broker dealers have
received subpoenas and/or requests for information from various governmental and
self-regulatory agencies and Congressional committees, including the NASD Inc.
which has raised issues about Salomon Smith Barney's internal e-mail retention
practices and research on Winstar Communications, Inc. With respect to Winstar,
Salomon Smith Barney has entered into a settlement agreement. Salomon Smith
Barney agreed to pay a penalty in the amount of $5 million and did not admit to
any wrongdoing. With respect to other such matters, on December 20, 2002,
Salomon Smith Barney and a number of other broker/dealers reached a
settlement-in-principle with the SEC, the NASD, the New York Stock Exchange (the
"NYSE") and the Attorney General of New York of all issues raised in their
research, initial public offerings allocation and spinning-related inquiries. In
addition, with respect to issues raised by the NASD, the NYSE and the SEC about
Salomon Smith Barney's and other firms' e-mail retention practices, Salomon
Smith Barney and several other broker/dealers and the NASD, the NYSE and the SEC
entered into a settlement agreement in December 2002. Salomon Smith Barney
agreed to pay a penalty in the amount of $1.65 million and did not admit any
wrongdoing.
Since May 2002, Citigroup, Salomon Smith Barney and certain principals and
current and former employees have been named as defendants in a number of
alleged class action complaints filed by purchasers of various securities
alleging they violated federal securities law, including Sections 10 and 20 of
the Securities Exchange Act of 1934 by issuing research reports without
reasonable basis and failing to disclose conflicts of interest in connection
with published investment research, including Global Crossing, WorldCom, Inc.,
AT&T, Winstar, Rhythm Net Connections, Level 3 Communications, MetroMedia Fiber
Network, XO Communications and Williams Communications Group Inc. Nearly all of
these actions are pending before a single judge in the U.S. District Court for
the Southern District of New York for coordinated proceedings. The court has
consolidated these actions into nine separate categories corresponding to the
companies named above.
Additional actions have been filed against Citigroup and certain of its
affiliates, including Salomon Smith Barney, and certain of their current and
former directors, officers and employees, along with other parties, including:
(1) three alleged class actions filed in state courts and federal courts on
behalf of persons who maintained accounts with Salomon Smith Barney asserting,
among other things, common law claims, claims under state statutes, and claims
under the Investment Advisers Act of 1940, for allegedly failing to provide
objective and unbiased investment research and investment management, seeking,
6
among other things, return of fees and commissions; (2) approximately fifteen
actions filed in different state courts by individuals asserting, among other
claims, common law claims and claims under state securities laws, for allegedly
issuing research reports without a reasonable basis in fact and for allegedly
failing to disclose conflicts of interest with companies in connection with
published investment research, including Global Crossing and WorldCom, Inc.; (3)
approximately five actions filed in different state courts by pension and other
funds asserting common law claims and statutory claims under, among other
things, state and federal securities laws, for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with companies in connection with published investment
research, including WorldCom, Inc. and Qwest Communications International Inc.;
and (4) more than two hundred arbitrations asserting common law claims and
statutory claims under, among other things, state and federal securities laws,
for allegedly issuing research reports without a reasonable basis in fact and
for allegedly failing to disclose conflicts of interest with companies in
connection with published investment research.
In July 2002, Citigroup, Salomon Smith Barney and various of its affiliates and
certain of their officers and other employees were named as defendants, along
with, among others, commercial and/or investment banks, certain current and
former Enron officers and directors, lawyers and accountants in an alleged class
action filed in the U.S. District Court for the Southern District of New York on
behalf of purchasers of the Yosemite Notes and Enron Credit-Linked Notes, among
other securities (Hudson Soft Co., Ltd v. Credit Suisse First Boston
Corporation, et al.). The complaint alleges violations of RICO and of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks unspecified
damages.
Additional actions have been filed against Citigroup and certain of its
affiliates, along with other parties, including (i) three actions brought in
state courts by state pension plans for alleged violations of state securities
law and common law fraud and unjust enrichment; (ii) an action by banks that
participated in two Enron revolving credit facilities, alleging fraud, gross
negligence and breach of implied duties in connection with the defendants'
administration of a credit facility with Enron; (iii) an action brought by
several funds in connection with secondary market purchases of Enron Corp. debt
securities alleging violations of federal securities law, including Section 11
of the Securities Act of 1933, and claims for fraud and misrepresentation; (iv)
a series of alleged class actions by purchasers of New Power Holdings common
stock alleging violations of federal securities law, including Section 11 of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934;
(v) an action brought by two investment funds in connection with purchases of
Enron-related securities for alleged violations of state securities and unfair
competition statutes; (vi) an action brought by several investment funds and
fund owners in connection with purchases of notes of the Osprey I and Osprey II
Trusts for alleged violation of state and federal securities laws and claims for
common law fraud, misrepresentation and conspiracy; (vii) an action brought by
several investment funds and fund owners in connection with purchases of notes
of the Osprey I and Osprey II Trusts for alleged violation of state and federal
securities laws and state unfair competition laws and claims for common law
7
fraud and misrepresentation; (viii) an action brought by the Attorney General of
Connecticut in connection with various commercial and investment banking
services provided to Enron; (ix) an alleged class action brought by clients of
Salomon Smith Barney in connection with research reports concerning Enron,
alleging breach of contract; (x) actions brought by several investment funds in
connection with the purchase of notes and/or certificates of the Osprey Trusts,
the Marlin Trust, and the Marlin Water trust, as well as the purchase of other
Enron or Enron-related securities, alleging violation of state and federal
securities laws, and common law civil conspiracy and fraud; (xi) an action
brought by a retirement and health benefits plan in connection with the purchase
of certain Enron notes, alleging violation of federal securities law, including
Section 11 of the Securities Act of 1933, violations of state securities and
unfair competition law, and common law fraud and breach of fiduciary duty; and
(xii) an action brought by two broker/dealers in connection with the purchase of
certain notes, alleging violation of federal and state securities laws. Several
of these cases have been consolidated with the Newby action and stayed pending
the Court's decision on the pending motions of certain defendants to dismiss
Newby. On April 17, 2003, the motion to dismiss the complaints in the putative
class actions relating to the New Power Holdings common stock was denied.
Additionally, Citigroup and certain of its affiliates, including Salomon Smith
Barney, have provided substantial information to, and have entered into
substantive discussions with, the SEC regarding certain of their transactions
with Enron and a transaction with Dynegy Inc. Citigroup and certain of its
affiliates, including Salomon Smith Barney, also have received subpoenas and
requests for information from various other regulatory and governmental agencies
and Congressional committees, as well as from the Special Examiner in the Enron
bankruptcy, regarding certain transactions and business relationships with Enron
and its affiliates. Citigroup and its affiliates, including Salomon Smith
Barney, are cooperating fully with all such requests.
On July 28, 2003, Citigroup entered into a final settlement agreement with the
SEC to resolve the SEC's outstanding investigations into Citigroup transactions
with Enron and Dynegy. Pursuant to the settlement, Citigroup has, among other
terms, (1) consented to the entry of an administrative cease and desist order,
which bars Citigroup from committing or causing violations of provisions of the
federal securities laws, and (2) agreed to pay $120 million ($101.25 million
allocable to Enron and $18.75 million allocable to Dynegy). Citigroup entered
into this settlement without admitting or denying any wrongdoing or liability,
and the settlement does not establish wrongdoing or liability for purposes of
any other proceeding. On July 28, 2003, Citibank, N.A. entered into an agreement
with the Office of the Comptroller of the Currency ("OCC") and Citigroup entered
into an agreement with the Federal Reserve Bank of New York ("FED") to resolve
their inquiries into certain of Citigroup's transactions with Enron. Pursuant to
the agreements, Citibank and Citigroup have agreed to submit plans to the OCC
and FED, respectively, regarding the handling of complex structured finance
transactions. Also on July 28, 2003, Citigroup entered into a settlement
agreement with the Manhattan District Attorney's Office to resolve its
investigation into certain of Citigroup's transactions with Enron; pursuant to
the settlement, Citigroup has agreed to pay $25.5 million and to abide by its
agreements with the SEC, OCC and FED.
Citigroup and Salomon Smith Barney are involved in a number of lawsuits arising
out of the underwriting of debt securities of WorldCom, Inc. These lawsuits
include alleged class actions filed in July 2002 by alleged purchasers of
WorldCom debt securities in the United States District Court for the Southern
District of New York (Above Paradise Investments Ltd. V. Worldcom, Inc., et al.;
Municipal Police Employees Retirement System Of Louisiana V. Worldcom, Inc., et
al.), and in the United States District Court for the Southern District of
Mississippi (Longacre Master Fund V. Worldcom, Inc., et al.). These alleged
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class action complaints assert violations of federal securities law, including
Sections 11 and 12 of the Securities Act of 1933, and seek unspecified damages
from the underwriters.
On October 11, 2002, the Above Paradise and Municipal Police Employees lawsuits
filed in the United States District Court for the Southern District of New York
were superseded by the filing of a consolidated alleged class action complaint
in the United States District Court for the Southern District of New York (In Re
Worldcom, Inc. Securities Litigation). In the consolidated complaint, in
addition to the claims of violations by the underwriters of the federal
securities law, including Sections 11 and 12 of the Securities Act of 1933, the
plaintiffs allege violations of Section 10(b) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated thereunder, by Salomon Smith Barney arising out
of alleged conflicts of interest of Salomon Smith Barney and certain of its
principals. The plaintiffs continue to seek unspecified compensatory damages. In
addition to the consolidated class action complaint, the Southern District of
Mississippi class action has been transferred by the Judicial Panel on
MultiDistrict Litigation to the Southern District of New York for centralized
pre-trial proceedings with other WorldCom-related actions. On May 19, 2003, the
motion to dismiss the amended complaint in the WorldCom, Inc. Securities
Litigation was denied.
In addition to the several alleged class actions that have been commenced,
certain individual actions have been filed in various federal and state courts
against Citigroup and Salomon Smith Barney, along with other parties, concerning
WorldCom debt securities including individual state court actions brought by
approximately 18 pension funds and other institutional investors in connection
with the underwriting of debt securities of WorldCom alleging violations of
Section 11 of the Securities Act of 1933 and, in one case, violations of various
state securities laws and common law fraud. Citigroup and/or Salomon Smith
Barney are now named in approximately 35 of these individual state court
actions. Most of these actions have been removed to federal court and have been
transferred to the Southern District of New York for centralized pre-trial
proceedings with other WorldCom-related actions. On October 24, 2003, the court
granted plaintiffs' motion to have this matter certified as a class action.
An alleged class action on behalf of participants in WorldCom's 401(k) salary
savings plan and those WorldCom benefit plans covered by ERISA alleging
violations of ERISA and common law fraud, which was commenced in the United
States District Court for the District of Columbia, also has been transferred by
the Judicial Panel on MultiDistrict Litigation to the Southern District of New
York for centralized pre-trial proceedings with other WorldCom-related actions.
In December 2002, the claims against Salomon Smith Barney and the other
underwriters were dismissed without prejudice.
On or about January 27, 2003, the lead plaintiff in a consolidated alleged class
action in the United States District Court for the District of New Jersey (In Re
AT&T Corporation Securities Litigation) sought permission to amend its complaint
on behalf of purchasers of AT&T common stock asserting claims against, among
others, AT&T Corporation, to add as named defendants Citigroup, Salomon Smith
Barney and certain executive officers and current and former employees,
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asserting claims under federal securities laws for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with AT&T in connection with published investment
research. By order dated March 27, 2003, the court denied plaintiffs' request to
amend their complaint to add as defendants Citigroup, Salomon Smith Barney and
certain of their executive officers and current and former employees.
On or about January 28, 2003, the lead plaintiff in a consolidated alleged class
action in the United States District Court for the Southern District of New York
(In Re Global Crossing, Ltd. Securities Litigation) filed a consolidated
complaint on behalf of purchasers of the securities of Global Crossing and its
subsidiaries, which names as defendants, among others, Citigroup, Salomon Smith
Barney and certain executive officers and current and former employees,
asserting claims under federal securities laws for allegedly issuing research
reports without a reasonable basis in fact and for allegedly failing to disclose
conflicts of interest with Global Crossing in connection with published
investment research.
On March 5, 2003, an action was brought on behalf of the purchasers of the
Yosemite Notes and Enron Credit Linked Notes, alleging violation of federal
securities laws.
On April 9, 2003, an action was brought by a group of related mutual funds that
purchased certain Yosemite Notes, alleging violations of state securities laws
and common law claims.
On April 28, 2003, Citigroup Global Markets (formerly known as Salomon Smith
Barney) announced final agreements with the SEC, the NASD, the NYSE and the New
York Attorney General (as lead state among the 50 states, the District of
Columbia and Puerto Rico) to resolve on a civil basis all of their outstanding
investigations into its research and IPO allocation and distribution practices.
As part of the settlements, Salomon Smith Barney has consented to the entry of
(1) an injunction under the federal securities laws to be entered in the United
States District Court for the Southern District of New York, barring Salomon
Smith Barney from violating provisions of the federal securities laws and
related NASD and NYSE rules relating to research, certain IPO allocation
practices, the safeguarding of material nonpublic information and the
maintenance of required books and records, and requiring Salomon Smith Barney to
adopt and enforce new restrictions on the operation of research; (2) an NASD
Acceptance Waiver and Consent requiring Salomon Smith Barney to cease and desist
from violations of corresponding NASD rules and requiring Salomon Smith Barney
to adopt and enforce the same new restrictions; (3) an NYSE Stipulation and
Consent requiring Salomon Smith Barney to cease and desist from violations of
corresponding NYSE rules and requiring Salomon Smith Barney to adopt and enforce
the same new restrictions; and (4) an Assurance of Discontinuance with the New
York Attorney General containing substantially the same or similar restrictions.
As required by the settlements, Salomon Smith Barney expects to enter into
related settlements with each of the other states, the District of Columbia and
Puerto Rico. Consistent with the settlement-in-principle announced in December
2002, these settlements require Salomon Smith Barney to pay $300 million for
retrospective relief, plus $25 million for investor education, and commit to
spend $75 million to provide independent third-party research to its clients at
no charge. Salomon Smith Barney reached these final settlement agreements
without admitting or denying any wrongdoing or liability. The settlements do not
establish wrongdoing or liability for purposes of any other proceeding. The $300
million was accrued during the fourth quarter of 2002.
On June 23, 2003, the West Virginia Attorney General filed an action against
Citigroup Global Markets Holdings Inc. and nine other firms that were parties to
the April 28, 2003 settlement with the SEC, the NASD, the NYSE and the New York
10
Attorney General (the "Research Settlement"). The West Virginia Attorney General
alleges that the firms violated the West Virginia Consumer Credit and Protection
Act in connection with their research activities and seeks monetary penalties.
In May 2003, the SEC, NYSE and NASD issued a subpoena and letters to Citigroup
Global Markets Holdings Inc. requesting documents and information with respect
to their continuing investigation of individuals in connection with the
supervision of the research and investment banking departments of Citigroup
Global Markets Holdings Inc. Other parties to the Research Settlement have
received similar subpoena and letters.
In April 2003, to effectuate the Research Settlement, the SEC filed a Complaint
and Final Judgment in the United States District Court for the Southern District
of New York. Also in April 2003, the NASD accepted the Letter of Acceptance,
Waiver and Consent entered into with Citigroup Global Markets Holdings Inc. in
connection with the Research Settlement; and in May 2003, the NYSE advised
Citigroup Global Markets Holdings Inc. that the Hearing Panel's Decision, in
which it accepted the Research Settlement, had become final. Citigroup Global
Markets Holdings Inc. is currently in discussion with various of the states with
respect to completion of the state components of the Research Settlement.
Payment will be made in conformance with the payment provisions of the Final
Judgment. On October 31, 2003, the Final Judgment was entered against Salomon
Smith Barney and nine other investment banks. In addition, Salomon Smith Barney
has entered into separate settlement agreements with numerous states and certain
U.S. territories.
On June 6, 2003, the complaint in a pre-existing putative class action pending
in the United States District Court for the Southern District of Texas, brought
by purchasers of publicly traded debt and equity securities of Dynegy, Inc., was
amended to add Citigroup, Citibank and Citigroup Global Markets Holdings Inc.,
as well as other banks, as defendants. The plaintiffs allege violations of the
federal securities laws against the Citigroup defendants.
On July 6, 2003, an adversary proceeding was filed by the Official Committee of
Unsecured Creditors on behalf of Adelphia against certain lenders and investment
banks, including Citigroup Global Markets Holdings Inc., Citibank, N.A.,
Citicorp USA, Inc., and Citigroup Financial Products, Inc. (together, the
Citigroup Parties). The Complaint alleges that the Citigroup Parties and
numerous other defendants committed acts in violation of the Bank Company
Holding Act and the common law. The complaint seeks equitable relief and an
unspecified amount of compensatory and punitive damages.
In addition, Salomon Smith Barney Inc. (predecessor of Citigroup Global Markets
Inc.) is among the underwriters named in numerous civil actions brought to date
by investors in Adelphia debt securities in connection with Adelphia securities
offerings between September 1997 and October 2001. Three of the complaints also
assert claims against Citigroup Inc. and Citibank, N.A. All of the complaints
allege violations of federal securities laws, and certain of the complaints also
allege violations of state securities laws and the common law. The complaints
seek unspecified damages.
On August 15, 2003, a purported class action was brought by purchasers of Enron
stock alleging state law claims of negligent misrepresentation, fraud, breach of
fiduciary duty and aiding and abetting a breach of fiduciary duty.
On August 29, 2003, an investment company filed a lawsuit alleging that
Citigroup, Citigroup Global Markets and several other defendants (including,
11
among others, Enron's auditor, financial institutions, outside law firms and
rating agencies) engaged in a conspiracy, which purportedly caused plaintiff to
lose credit (in the form of a commodity sales contract) it extended to an Enron
subsidiary in purported reliance on Enron's financial statements. On September
24, 2003, Enron filed a preferential proceeding in its Chapter 11 bankruptcy
proceedings to recover alleged preferential payments and fraudulent transfers
involving Citigroup, Citigroup Global Markets and other entities, and to
disallow or to subordinate bankruptcy claims that Citigroup, Citigroup Global
Markets and other entities have filed against Enron.
In the course of its business, Citigroup Global Markets, as a major futures
commission merchant and broker-dealer, is a party to various claims and routine
regulatory investigations and proceedings that the general partner believes do
not have a material effect on the business of Citigroup Global Markets.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote during the
last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
(a) Market Information. The Partnership has issued no stock. There is no
public market for the Redeemable Units of Limited Partnership
Interest.
(b) Holders. The number of holders of Redeemable Units of Limited
Partnership Interest as of December 31, 2003 was 10,886.
(c) Distribution. The Partnership did not declare a distribution in 2003.
(d) Use of Proceeds. The effective dates of the Securities Act
registration statements for which the use of proceeds information is
being disclosed are March 27, 2003 and December 4, 2003, and the
Securities and Exchange Commission file numbers assigned to such
registration statements are 333-102038 and 333-110076, respectively.
On March 27, 2003, 300,000 Redeemable Units became effective for sale.
Between March 27, 2003 (commencement of the offering period) and April
30, 2003, 36,616 Redeemable Units were sold at $1,000 per Redeemable
Unit. After April 30, 2003, Redeemable Units were sold at Net Asset
Value per Redeemable Unit. On December 4, 2003, an additional 700,000
Redeemable Units became effective for sale at a price equal to the Net
Asset Value per Redeemable Unit.
Note:Pursuant to Item 701(f)(4)(v), for the period from March 27, 2003 to
December 31, 2003, Partnership must disclose the expenses paid to any party
in connection with the offering and provide a total amount of expenses. If
actual numbers are unavailable, you can include a reasonable estimate
provided that you indicate you are just providing an estimate. Please add
the information accordingly.
12
For the period from May 1, 2003 (commencement of trading operations) to
December 31, 2003 there were additional sales of 260,808.2644 Redeemable
Units of limited partnership totaling $247,398,000 and General Partner
contributions representing 2,582.5938 Unit equivalents totaling $2,451,000.
Proceeds from the sale of additional Redeemable Units are used in the
trading of commodity interests including futures contracts, options and
forward contracts.
13
Item 6. Selected Financial Data. Net realized and unrealized trading gains,
interest income, net income and increase (decrease) in Net Asset Value per
Redeemable Unit for the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003 and total assets at December 31, 2003 were as
follows:
Period from May 1, 2003
(commencement
of trading operations)
to December 31, 2003
------------------
Net realized and unrealized trading gains
net of brokerage commissions and clearing
fees of $6,933,408 $ 10,056,819
Interest income 783,265
------------
$ 10,840,084
Net income $ 4,144,757
==============
Decrease in Net Asset
Value per Redeemable ($15.76)*
------------
Total assets $305,912,725
==============
* The amount shown per Redeemable Unit does not correspond with the net
income presented above for the period from May 1, 2003 (commencement of
trading operations) to December 31, 2003 because of the timing of additions
of the Partnership's Redeemable Units in relation to the fluctuating values
of the Partnership's commodity interest.
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Partnership aims to achieve substantial capital appreciation and permit
investors to diversify a traditionally structured stock and bond portfolio. The
Partnership attempts to accomplish its objectives through speculative trading in
U.S. and international markets for currencies, interest rates, stock indices,
agricultural and energy products and precious and base metals. The Partnership
may employ futures, options on futures, and forward contracts in those markets.
The General Partner manages all business of the Partnership. The General Partner
has delegated its responsibility for the investment of the Partnership's assets
to Drury Capital, Inc. ("Drury"), Graham Capital Management, L.P. ("Graham"),
John W. Henry and Company, Inc. ("JWH"), and Willowbridge Associates Inc.
("Willowbridge"), (collectively, the "Advisors"). The General Partner employs a
team of approximately 15 professionals whose primary emphasis is on attempting
to maintain quality control among the Advisors to the Partnerships operated or
managed by the General Partner. A full-time staff of due diligence professionals
use state-of-the-art technology and on-site evaluations to monitor new and
existing futures money managers. The accounting and operations staff provide
processing of trading activity and reporting to limited partners and regulatory
authorities. In selecting the Advisors for the Partnership, the General Partner
considered past performance, trading style, volatility of markets traded and fee
requirements.
Responsibilities of the General Partner include:
o due diligence examinations of the Advisors;
o selection, appointment and termination of the Advisors;
o negotiation of the management agreements; and
o monitoring the activity of the Advisors.
In addition, the General Partner prepares the books and records and provides the
administrative and compliance services that are required by law or regulation
from time to time in connection with operation of the Partnership. These
services include the preparation of required books and records and reports to
limited partners, government agencies and regulators; computation of net asset
value; calculation of fees; effecting subscriptions, redemptions and limited
partner communications; and preparation of offering documents and sales
literature.
The General Partner shall seek the best prices and services available in its
commodity futures brokerage transactions. The General Partner reviews at least
annually, the brokerage rates charged to commodity pools similar to the
Partnership to determine that the brokerage fee the Partnership pays is
competitive with other rates.
The programs traded by each Advisor on behalf of the Partnership are: Drury -
Diversified Trend-Following Program ("Diversified"), Graham - K4 Program at 150
% Leverage ("K4"), JWH - GlobalAnalytics Program ("Global Analytics"), and
Willowbridge - Argo Trading System ("Argo"). As of December 31, 2003, the
Partnership's assets were allocated among the trading Advisors in the following
approximate percentages: Drury, 28%, Graham, 27%, JWH 23%, and Willowbridge 22%.
15
Drury Capital, Inc.
Drury trades its Diversified Trend-Following Program on behalf of the
Partnership. The Diversified program is systematic and technical. Drury may
exercise judgment regarding liquidity issues. Systematic traders rely primarily
on trading programs or models that generate trading signals. The systems
utilized to generate trading signals are changed from time to time (although
generally infrequently), but the trading instructions generated by the system
being used are followed without significant additional analysis or
interpretation.
The Diversified Program is built on elements of trend-following and
diversification. The Program emphasizes diversification by trading metals,
agricultural products, foreign exchange, stock indices, energy products,
financial instruments and tropical products (softs).
The Diversified Program trades 30 portfolio instruments and is generally
positioned in 18 of these instruments on average. Positions can be short as well
as long. The Diversified Program has no market or sector bias, as Drury believes
that each instrument can produce long-term profits through the application of
independent technical analysis and risk management.
Graham Capital Management, L.P.
Graham trades the Partnership's assets allocated to it in accordance with its K4
program. K4 uses a mathematical model to identify certain price patterns that
have very specific characteristics indicating that there is a high probability
that a significant directional move will occur. K4 will normally enter or exit a
position only when a significant price and volatility spike takes place and is
designed to have a high percentage of winning trades. K4 trades approximately 65
markets.
Graham trades actively in both U.S. and foreign markets, primarily in futures
contracts, forward contracts, spot contracts and associated derivative
instruments such as options and swaps. Graham engages in exchange for physical
transactions, which involve the exchange of a futures position for the
underlying physical commodity without making an open competitive trade on an
exchange. Graham at times will trade certain instruments, such as forward
foreign currency contracts, as a substitute for futures or options traded on
futures exchanges.
Graham's trading systems rely primarily on technical rather than fundamental
information as the basis for their trading decisions. Graham's systems are based
on the expectation that they can over time successfully anticipate market events
using quantitative mathematical models to determine their trading activities, as
opposed to attempting properly to forecast price trends using subjective
analysis of supply and demand.
16
John W. Henry & Company, Inc.
JWH trades its JWH GlobalAnalytics Family of Programs on behalf of the
Partnership. Since the firm's inception, the JWH investment philosophy has been
based on the premise that market prices, rather than market fundamentals, are
the key aggregators of information necessary to make investment decisions and
that market prices, which may at first seem random, are actually related through
time in complex, but discernable ways.
GlobalAnalytics invests in both long- and short-term price movements. The
program invests in a broad spectrum of worldwide financial and non-financial
markets, including interest rate, non-U.S. stock index, currency, metals, energy
and agricultural contracts. GlobalAnalytics uses JWH's five phase investment
style (a position is maintained, long or short, in a market at all times) and
JWH's three phase style (positions are taken when trends are identified, but the
program may take a neutral stance or liquidate open positions in non-trending
markets).
Willowbridge Associates Inc.
Willowbridge trades the Partnership's assets allocated to it in accordance with
its Select Investment Program using the Argo Trading System. Argo is a
computerized technical trading system. It is not a trend-following system, but
does ride a trend when the opportunity arises. Argo uses the concepts of pattern
recognition, support/resistance levels and counter trend liquidations in making
trading decisions. Argo determines, on a daily basis, whether to be long, short
or flat the various commodities in its portfolio.
Pattern recognition, support/resistance levels and counter-trend liquidations
are defined as follows:
Pattern recognition is the ability to identify patterns that appear to have
acted as precursors of price advances or declines in the past.
A support level is a previous low--a price level under the current market price
at which point buying interest is expected to be sufficiently strong to overcome
selling pressure.
A resistance level is a previous high--a price level over the current market
price at which point selling pressure is expected to overcome buying pressure
and a price advance is expected to be turned back.
A counter-trend liquidation is the closing out of a position after a significant
price move on the assumption that the market is due for a correction.
(a) Liquidity.
The Partnership does not engage in sales of goods or services. Its only assets
are its (i) equity in its commodity futures trading account, consisting of cash
and cash equivalents, net unrealized appreciation (depreciation) on open futures
positions, unrealized appreciation on open forward contracts and interest
receivable. Because of the low margin deposits normally required in commodity
futures trading, relatively small price movements may result in substantial
losses to the Partnership. Such substantial losses could lead to a material loss
in liquidity.
17
To minimize this risk relating to low margin deposits, the Partnership follows
certain trading policies, including:
(i) The Partnership invests its assets only in commodity interests that an
Advisor believes are traded in sufficient volume to permit ease of taking
and liquidating positions. Sufficient volume, in this context, refers to a
level of liquidity that the Advisor believes will permit it to enter and
exit trades without noticeably moving the market.
(ii) An Advisor will not initiate additional positions in any commodity if these
positions would result in aggregate positions requiring a margin of more
than 66 2/3% of the Partnership's net assets allocated to that Advisor.
(iii)The Partnership may occasionally accept delivery of a commodity. Unless
such delivery is disposed of promptly by retendering the warehouse receipt
representing the delivery to the appropriate clearinghouse, the physical
commodity position is fully hedged.
(iv) The Partnership does not employ the trading technique commonly known as
"pyramiding", in which the speculator uses unrealized profits on existing
positions as margin for the purchases or sale of additional positions in
the same or related commodities.
(v) The Partnership does not utilize borrowings except short-term borrowings if
the Partnership takes delivery of any cash commodities.
(vi) The Advisors may, from time to time, employ trading strategies such as
spreads or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity
but involving different delivery dates or markets and in which the trader
expects to earn a profit from a widening or narrowing of the difference
between the prices of the two contracts.
(vii)The Partnership will not permit the churning of its commodity trading
account. The term "churning" refers to the practice of entering and exiting
trades with a frequency unwarranted by legitimate efforts to profit from
the trades, driven by the desire to generate commission income.
In the normal course of business, the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments
include forwards, futures, options and swaps, whose values are based upon an
underlying asset, index or reference rate, and generally represent future
commitments to exchange currencies or cash flows, or to purchase or sell other
financial instruments at specified terms at specified future dates, or, in the
case of derivative commodity interests, to have a reasonable possibility to be
settled in cash, through physical delivery or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties and
include forwards, swaps and certain options. Each of these instruments is
18
subject to various risks similar to those relating to the underlying financial
instruments including market and credit risk. In general, the risks associated
with OTC contracts are greater than those associated with exchange traded
instruments because of the greater risk of default by the counterparty to an OTC
contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including interest
and foreign exchange rate movements and fluctuations in commodity or security
prices. Market risk is directly impacted by the volatility and liquidity in the
markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk with
respect to exchange traded instruments is reduced to the extent that an exchange
or clearing organization acts as counterparty to the transactions. The
Partnership's risk of loss in the event of counterparty default is typically
limited to the amounts recognized in the statement of financial condition and
not represented by the contract or notional amounts of the instruments. The
Partnership has credit risk and concentration risk because the sole counterparty
or broker with respect to the Partnership's assets is CGM.
The General Partner monitors and controls the Partnership's risk exposure on a
daily basis through financial, credit and risk management monitoring systems,
and accordingly believes that it has effective procedures for evaluating and
limiting the credit and market risks to which the Partnership is subject. These
monitoring systems allow the General Partner to statistically analyze actual
trading results with risk adjusted performance indicators and correlation
statistics. In addition, on-line monitoring systems provide account analysis of
futures, forwards and options positions by sector, margin requirements, gain and
loss transactions and collateral positions. (See also "Item 8. Financial
Statements and Supplementary Data" for further information on financial
instrument risk included in the notes to financial statements.)
Other than the risks inherent in commodity futures and swaps trading, the
Partnership knows of no trends, demands, commitments, events or uncertainties
which will result in or which are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, in its
discretion, cause the Partnership to cease trading operations and liquidate all
open positions under certain circumstances including a decrease in Net Asset
Value per Redeemable Unit to less than $400 as of the close of business on any
trading day.
(b) Capital Resources.
(i) The Partnership has made no material commitments for capital expenditures.
(ii) The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by gains or losses on trading and by
expenses, interest income, redemptions of Redeemable Units and
distributions of profits, if any. Gains or losses on trading cannot be
predicted. Market moves in commodities are dependent upon fundamental and
technical factors which the Advisors may or may not be able to identify,
such as changing supply and demand relationships, weather, government,
19
agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates.
Partnership expenses consist of, among other things, commissions, advisory
fees and administrative fees. The level of these expenses is dependent upon
the level of trading and the ability of the Advisors to identify and take
advantage of price movements in the commodity markets, in addition to the
level of Net Assets maintained. In addition, the amount of interest income
payable by CGM is dependent upon interest rates over which the Partnership
has no control.
No forecast can be made as to the level of redemptions in any given period. A
limited partner may require the Partnership to redeem their Redeemable Units at
their Net Asset Value as of the last day of a month on 10 days' notice to the
General Partner. For the purpose of a redemption, any accrued liability for
reimbursement of offering and organization expenses for the Initial Offering
Period will not reduce Net Asset Value per Redeemable Unit. There is no fee
charged to limited partners in connection with redemptions. For the period from
May 1, 2003 (commencement of trading operations) to December 31, 2003,
6,310.1334 Redeemable Units were redeemed totaling $5,808,589.
Offering and organization costs of $650,000 relating to the issuance and
marketing of the Partnership's Redeemable Units offered were initially paid by
CGM. These costs have been recorded as due to CGM in the statement of financial
condition. These costs are being reimbursed to CGM by the Partnership in 36
monthly installments (together with interest at the prime rate quoted by
JPMorgan Chase & Co.).
As of December 31, 2003, $145,318 of these costs have been reimbursed to CGM by
the Partnership. In addition, the Partnership has recorded interest expense of
$16,464 through December 31, 2003, which is included in other expenses.
The remaining liability for these costs due to CGM of $504,682 (exclusive of
interest charges) will not reduce Net Asset Value per Redeemable Unit for any
purpose, including calculation of advisory and brokerage fees and the redemption
value of Redeemable Units.
For the period from May 1, 2003 (commencement of trading operations) to December
31, 2003 there were additional sales of 260,808.2644 Redeemable Units totaling
$247,398,000 and General Partner contributions representing 2,582.5938 Unit
equivalents totaling $2,451,000.
(c) Results of Operations.
For the period from May 1, 2003 (commencement of trading operations) to December
31, 2003 the Net Asset Value per Redeemable Unit decreased 3.2% from $1,000.00
to $967.61.
The Partnership experienced net trading gains of $16,990,227 before commissions
and expenses for the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003. Gains were primarily attributable to the
trading in currencies, grains, metals and indices and were partially offset by
losses recognized in the trading of energy, U.S. and non-U.S. interest rates,
livestock and softs.
The decrease per Redeemable Unit does not correspond with the net trading gains
presented above for the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003 because of the timing of additions of the
Partnership's Redeemable Units in relation to the fluctuating values of the
Partnership's commodity interest.
20
The year 2003 for this new Partnership may be viewed broadly in three segments:
the first month of initial trading in May, 2003, the June through September
period and finally the fourth quarter. Each of these periods had market
characteristics which affected the Advisors' trading and hence the performance
of the Partnership.
At the inception of trading in May, 2003, the Partnership initially participated
profitably in several long term trends across many financial markets. This
resulted in an approximately 7% return in the first month. The trends powering
this first month had been developing and maturing over the prior 12 months,
interrupted by the Iraqi war in the first quarter.
The month of June, however, witnessed a refocus by the global marketplace on
macro-economic issues and the budding global recovery. The strong trends of
lower interest rates and decline of the dollar were upset by the unexpected
announcement of no further easing actions by the European Central Bank and the
U.S. Federal Reserve. The Advisors, similar to the experience throughout the
managed futures industry, experienced a giveback of open trade profits as the
markets reversed and searched for new trends. Most significant losses occurred
in currencies as the dollar regained some strength in fixed income contracts as
rates trended higher and in precious metals which declined from 10 year highs.
This volatility continued throughout the summer and into the early fall as
monthly returns alternated between positive and negative. The Partnership's
structure employing multiple Advisors provided exposure in a broad range of
markets employing a range of trading styles which ultimately contributed to a
smoother monthly performance record. For instance, the energy markets often
played an important role contributing profits when other markets were losing
through this period and conversely losses in months when the financial markets
were profitable.
The fourth quarter of 2003 saw the renewed dollar decline beginning in late
November. In spite of the strong growth exhibited in the United States in the
third quarter, the dollar began a new significant slide against both the euro
and yen. This led to significant fourth quarter profits, which boosted
performance for many of the Partnership's Advisors' programs. The year ended
with a 7% return in the fourth quarter.
In the General Partner's opinion, the Advisors continue to employ trading
methods and produce results consistent with their expected performance given
market conditions and the objectives of the Partnership. The General Partner
continues to monitor the Advisors' performance on a daily, weekly, monthly and
annual basis to assure these objectives are met.
It should be noted that commodity markets are highly volatile. Broad price
fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
Partnership depends on the existence of major price trends and the ability of
the Advisors to identify those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisors are able to
identify them, the Partnership expects to increase capital through operations.
21
(d) Operational Risk.
The Partnership is directly exposed to market risk and credit risk, which arise
in the normal course of its business activities. Slightly less direct, but of
critical importance, are risks pertaining to operational and back office
support. This is particularly the case in a rapidly changing and increasingly
global environment with increasing transaction volumes and an expansion in the
number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk - the risk of financial and opportunity loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions, untimely trade execution, clearance and/or settlement, or the
inability to process large volumes of transactions. The Partnership is subject
to increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater
than in more established markets.
Technological Risk - the risk of loss attributable to technological limitations
or hardware failure that constrain the Partnership's ability to gather, process,
and communicate information efficiently and securely, without interruption, to
customers, among Redeemable Units within the Partnership, and in the markets
where the Partnership participates.
Legal/Documentation Risk - the risk of loss attributable to deficiencies in the
documentation of transactions (such as trade confirmations) and customer
relationships (such as master netting agreements) or errors that result in
noncompliance with applicable legal and regulatory requirements.
Financial Control Risk - the risk of loss attributable to limitations in
financial systems and controls. Strong financial systems and controls ensure
that assets are safeguarded, that transactions are executed in accordance with
management's authorization, and that financial information utilized by
management and communicated to external parties, including the Partnership's
unit holders, creditors, and regulators, is free of material errors.
(e) Critical Accounting Policies.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires estimates and
assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities in
the financial statements and accompanying notes.
All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The commodity
interests are recorded on trade date and open contracts are recorded in the
statement of financial condition at fair value on the last business day of the
22
period, which represents market value for those commodity interests for which
market quotations are readily available or other measures of fair value deemed
appropriate by management of the General Partner for those commodity interests
and foreign currencies for which market quotations are not readily available,
including dealer quotes for swaps and certain option contracts. Investments in
commodity interests denominated in foreign currencies are translated into U.S.
dollars at the exchange rates prevailing on the last business day of the period.
Realized gains (losses) and changes in unrealized values on commodity interests
and foreign currencies are recognized in the period in which the contract is
closed or the changes occur and are included in net gains (losses) on trading of
commodity interests.
Foreign currency contracts are those contracts where the Partnership agrees to
receive or deliver a fixed quantity of foreign currency for an agreed-upon price
on an agreed future date. Foreign currency contracts are valued daily, and the
Partnership's net equity therein, representing unrealized gain or loss on the
contracts as measured by the difference between the forward foreign exchange
rates at the dates of entry into the contracts and the forward rates at the
reporting dates, is included in the statement of financial condition. Realized
gains (losses) and changes in unrealized values on foreign currency contracts
are recognized in the period in which the contract is closed or the changes
occur and are included in the statement of income and expenses and partners'
capital.
The General Partner believes that the accounting policies that will be most
critical to the Partnership's financial condition and results of operations
relate to the valuation of the Partnership's positions. The majority of the
Partnership's positions will be exchange-traded futures contracts, which will be
valued daily at settlement prices published by the exchanges. Swap contracts
generally will be valued by reference to published settlement prices or dealers'
quotes in related markets or other measures of fair value deemed appropriate by
the General Partner. The General Partner expects that under normal circumstances
substantially all of the Partnership's assets will be valued by objective
measures and without difficulty.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Introduction
The Partnership is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and
all or substantially all of the Partnership's assets are subject to the
risk of trading loss. Unlike an operating company, the risk of market
sensitive instruments is integral, not incidental, to the Partnership's
main line of business.
The risk to the limited partners that have purchased interests in the
Partnership is limited to the amount of their capital contributions to the
Partnership and their share of Partnership assets and undistributed
profits. This limited liability is a consequence of the organization of the
Partnership as a limited partnership under applicable law.
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 the level and volatility of interest rates, 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.
23
The Partnership rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it is not
possible to predict how a particular future market scenario will affect
performance, and the Partnership's past performance is not necessarily
indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership
could reasonably be expected to lose in a given market sector. However, the
inherent uncertainty of the Partnership's speculative trading and the
recurrence in the markets traded by the Partnership of market movements far
exceeding expectations could result in actual trading or non-trading losses
far beyond the indicated Value at Risk or the Partnership's experience to
date (i.e., "risk of ruin"). In light of the foregoing as well as the risks
and uncertainties intrinsic to all future projections, the inclusion of the
quantification in this section should not be considered to constitute any
assurance or representation that the Partnership's losses in any market
sector will be limited to Value at Risk or by the Partnership's attempts to
manage its market risk.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's market
risk exposures contain "forward-looking statements" within the meaning of
the safe harbor from civil liability provided for such statements by the
Private Securities Litigation Reform Act of 1995 (set forth in Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). All quantitative disclosures in this section are deemed to be
forward-looking statements for purposes of the safe harbor except for
statements of historical fact (such as the terms of particular contracts
and the number of market risk sensitive instruments held during or at the
end of the reporting period).
The Partnership's risk exposure in the various market sectors traded by the
Advisors is quantified below in terms of Value at Risk. Due to the
Partnership's mark-to-market accounting, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's
earnings (realized and unrealized). Exchange maintenance margin
requirements have been used by the Partnership as the measure of its Value
at Risk. Maintenance margin requirements are set by exchanges to equal or
exceed the maximum losses reasonably expected to be incurred in the fair
value of any given contract in 95%-99% of any one-day intervals. The
maintenance margin levels are established by dealers and exchanges using
historical price studies as well as an assessment of current market
volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic
estimate of the maximum expected near-term one-day price fluctuation.
Maintenance margin has been used rather than the more generally available
initial margin, because initial margin includes a credit risk component
which is not relevant to Value at Risk.
24
In the case of market sensitive instruments which are not exchange traded
(almost exclusively currencies in the case of the Partnership), the margin
requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
The fair value of the Partnership's futures and forward positions does not
have any optionality component. However, the Advisors may trade commodity
options. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option. Where this instrument is a futures contract, the
futures margin, and where this instrument is a physical commodity, the
futures-equivalent maintenance margin has been used. This calculation is
conservative in that it assumes that the fair value of an option will
decline by the same amount as the fair value of the underlying instrument,
whereas, in fact, the fair values of the options traded by the Partnership
in almost all cases fluctuate to a lesser extent than those of the
underlying instruments.
In quantifying the Partnership's Value at Risk, 100% positive correlation
in the different positions held in each market risk category has been
assumed. Consequently, the margin requirements applicable to the open
contracts have simply been added to determine each trading category's
aggregate Value at Risk. The diversification effects resulting from the
fact that the Partnership's positions are rarely, if ever, 100% positively
correlated have not been reflected.
25
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of December 31, 2003, the
highest and lowest value at any point and the average value during the period
from May 1, 2003 (commencement of trading operations) to December 31, 2003. All
open position trading risk exposures of the Partnership have been included in
calculating the figures set forth below. As of December 31, 2003, the
Partnership's total capitalization was $284,539,258.
December 31, 2003
At Year End Year to Date
-------------------------------- ----------------------------------------------
% of Total High Low
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Average*
------------- ------------- -------------- ------------- ------------- --------
Currencies
- - Exchange Traded Contracts $ 5,491,778 1.93% $7,161,607 $445,637 $3,623,172
- - OTC Contracts 4,614,866 1.62% 4,870,376 270,818 2,196,015
Energy 8,067,500 2.83% 9,060,060 1,261,300 4,183,719
Grains 2,495,800 0.88% 4,036,343 750,500 1,952,956
Interest rates U.S. 3,486,000 1.23% 3,970,450 775,900 2,260,313
Interest rates Non-U.S. 4,317,374 1.52% 9,180,759 1,354,865 4,356,006
Livestock 138,400 0.05% 768,000 85,600 202,275
Metals
- - Exchange 2,143,500 0.75% 2,447,500 298,000 1,437,475
- - OTC Contracts 3,137,885 1.10% 3,225,685 653,625 1,571,827
Softs 908,575 0.32% 3,035,912 522,728 1,274,643
Indices 8,330,436 2.93% 9,505,051 3,045,919 5,952,274
--------- -----
Total $43,132,114 15.16%
=========== ======
*monthly average of month-end value at risk
26
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership is
typically many times the applicable maintenance margin requirement (margin
requirements generally range between 2% and 15% of contract face value) as well
as many times the capitalization of the Partnership. The magnitude of the
Partnership's open positions creates a "risk of ruin" not typically found in
most other investment vehicles. Because of the size of its positions, certain
market conditions -- unusual, but historically recurring from time to time --
could cause the Partnership to incur severe losses over a short period of time.
The foregoing Value at Risk table -- as well as the past performance of the
Partnership -- give no indication of this "risk of ruin."
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
Materiality as used in this section, "Qualitative and Quantitative Disclosures
About Market Risk," is based on an assessment of reasonably possible market
movements and the potential losses caused by such movements, taking into account
the leverage, optionality and multiplier features of the Partnership's market
sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market risk
exposures - except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Partnership manages its primary market
risk exposures - constitute forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. The Partnership's primary market risk exposures as well as the strategies
used and to be used by the General Partner and the Advisors for managing such
exposures are subject to numerous uncertainties, contingencies and risks, any
one of which could cause the actual results of the Partnership's risk controls
to differ materially from the objectives of such strategies. Government
interventions, defaults and expropriations, illiquid markets, the emergence of
dominant fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the management strategies of the Partnership.
There can be no assurance that the Partnership's current market exposure and/or
risk management strategies will not change materially or that any such
strategies will be effective in either the short- or long- term. Investors must
be prepared to lose all or substantially all of their investment in the
Partnership.
The following were the primary trading risk exposures of the Partnership as of
December 31, 2003 by market sector.
Interest Rates. Interest rate movements directly affect the price of the futures
positions held by the Partnership and indirectly the value of its stock index
27
and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-8 countries.
However, the Partnership also takes futures positions on the government debt of
smaller nations -- e.g., Australia.
Currencies. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The General Partner does not anticipate that the
risk profile of the Partnership's currency sector will change significantly in
the future. The currency trading Value at Risk figure includes foreign margin
amounts converted into U.S. dollars with an incremental adjustment to reflect
the exchange rate risk inherent to the dollar-based Partnership in expressing
Value at Risk in a functional currency other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity price risk
in the G-8 countries. The stock index futures traded by the Partnership are
limited to futures on broadly based indices. As of December 31, 2003 the
Partnership's primary exposures were in the EUREX and Chicago Mercantile
Exchange (CME) stock indices. The General Partner anticipates little, if any,
trading in non-G-8 stock indices. The Partnership is primarily exposed to the
risk of adverse price trends or static markets in the major U.S., European and
Japanese indices. (Static markets would not cause major market changes but would
make it difficult for the Partnership to avoid being "whipsawed" into numerous
small losses.)
Metals. The Partnership's primary metal market exposure is to fluctuations in
the price of gold and silver. Although the Advisor will from time to time trade
base metals such as copper, the principal market exposures of the Partnership
have consistently been in the precious metals, gold and silver. The General
Partner anticipates that gold and silver will remain the primary metals market
exposure for the Partnership.
Softs. The Partnership's primary commodities exposure is to agricultural price
movements which are often directly affected by severe or unexpected weather
conditions. Cocoa, cotton and sugar accounted for the substantial bulk of the
Partnership's commodity exposure as of December 31, 2003.
Energy. The Partnership's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East. Oil
prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
28
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of
December 31, 2003.
Foreign Currency Balances. The Partnership's primary foreign currency balances
are in Japanese yen, Euro dollar and Swiss francs. The Advisor regularly
converts foreign currency balances to dollars in an attempt to control the
Partnership's non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partner monitors and controls the Partnership's risk exposure on a
daily basis through financial, credit and risk management monitoring systems and
accordingly believes that it has effective procedures for evaluating and
limiting the credit and market risks to which the Partnership is subject.
The General Partner monitors the Partnership's performance and the concentration
of its open positions, and consults with the Advisors concerning the
Partnership's overall risk profile. If the General Partner felt it necessary to
do so, the General Partner could require the Advisors to close out individual
positions as well as enter certain positions traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partner primarily relies on the Advisors' own risk control policies
while maintaining a general supervisory overview of the Partnership's market
risk exposures.
The Advisors apply their own risk management policies to their trading. The
Advisors often follow diversification guidelines, margin limits and stop loss
points to exit a position. The Advisors' research of risk management often
suggests ongoing modifications to their trading programs.
As part of the General Partner's risk management, the General Partner
periodically meets with the Advisors to discuss their risk management and to
look for any material changes to the Advisors' portfolio balance and trading
techniques. The Advisors are required to notify the General Partner of any
material changes to their programs.
29
Item 8. Financial Statements and Supplementary Data.
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page Number
Oath or Affirmation. F-2
Independent Auditors' Report. F-3
Financial Statements:
Statement of Financial Condition at
December 31, 2003. F-4
Condensed Schedule of Investments at
December 31, 2003. F-5
Statement of Income and Expenses for
the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003. F-6
Statement of Partners' Capital for
the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003. F-7
Statement of Cash Flows for
the period from May 1, 2003 (commencement of trading
operations) to December 31, 2003. F-8
Notes to Financial Statements. F-9 - F-13
Selected Unaudited Quarterly Financial Data. F-14
F-1
To the Limited Partners of
Citigroup Diversified Futures Fund L.P.
To the best of the knowledge and belief of the undersigned, the information
contained herein is accurate and complete.
/s/ Daniel R. McAuliffe, Jr.
By: Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Citigroup Managed Futures LLC
General Partner, Citigroup Diversified Futures Fund L.P.
Citigroup Managed Futures LLC
399 Park Avenue
7th Floor
New York, N.Y. 10022
212-559-2011
F-2
Independent Auditors' Report
To the Partners of
Citigroup Diversified Futures Fund L.P.:
We have audited the accompanying statement of financial condition of
Citigroup Diversified Futures Fund L.P. (the Partnership), including the
condensed schedule of investments, as of December 31, 2003, and the related
statements of income and expenses, partners' capital, and cash flows for
the period from May 1, 2003 (commencement of trading operations) through
December 31, 2003. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Citigroup Diversified
Futures Fund L.P., as of December 31, 2003, and the results of its
operations, partners' capital, and cash flows for the period from May 1,
2003 through December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 27, 2004
F-3
Citigroup Diversified Futures Fund L.P.
Statement of Financial Condition
December 31, 2003
2003
------------
Assets:
Equity in commodity futures trading account:
Cash (restricted $51,477,101) (Note 3c) $257,578,919
Net unrealized appreciation on open futures positions 17,800,021
Unrealized appreciation on open forward contracts 30,377,162
------------
305,756,102
Interest receivable (Note 3c) 156,623
------------
$305,912,725
------------
Liabilities and Partners' Capital:
Liabilities:
Unrealized depreciation on open forward contracts $14,015,116
Accrued expenses:
Commissions (Note 3c) 1,363,440
Management fees (Note 3b) 492,603
Incentive fees (Note 3b) 3,882,573
Professional fees 315,490
Other 203,188
Due to CGM for offering costs (Note 6) 504,682
Redemptions payable (Note 5) 596,375
------------
21,373,467
------------
Partners' capital: (Notes 1 and 5)
General Partner, 2,948.5938 Unit equivalents outstanding in 2003 2,853,089
Limited Partners, 291,114.1310 Redeemable Units of Limited Partnership
Interest outstanding in 2003 281,686,169
------------
284,539,258
------------
$305,912,725
------------
See accompanying notes to financial statements.
F-4
Citigroup Diversified Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2003
Sector Contract Fair Value
- ---------- ---------- ----------
Currencies Futures contracts purchased 2.51% $7,150,913
Unrealized appreciation on forward contracts 3.53% 10,050,285
Unrealized depreciation on forward contracts (1.18)% (3,361,363)
----------
Total forward contracts 2.35% 6,688,922
----------
Total Currencies 4.86% 13,839,835
----------
Total Energy 0.32% Futures contracts purchased 0.32% 918,336
----------
Grains Futures contracts purchased 1.48% 4,215,187
Futures contracts sold (0.04)% (121,489)
----------
Total Grains 1.44% 4,093,698
----------
Total Interest Rates U.S. (0.28)% Futures contracts purchased (0.28)% (804,802)
----------
Total Interest Rates Non-U.S. 0.04% Futures contracts purchased 0.04% 112,457
----------
Total Livestock 0.02% Futures contracts sold 0.02% 63,740
----------
Metals Futures contracts purchased 1.16% 3,300,370
Unrealized appreciation on forward contracts 7.14% 20,326,877
Unrealized depreciation on forward contracts (3.74)% (10,653,753)
-----------
Total forward contracts 3.40% 9,673,124
----------
Total Metals 4.56% 12,973,494
----------
Softs Futures contracts purchased (0.17)% (496,910)
Futures contracts sold (0.03)% (99,097)
----------
Total Softs (0.20)% (596,007)
----------
Indices Futures contracts purchased 1.31% 3,720,687
Futures contracts sold (0.06)% (159,371)
----------
Total Indices 1.25% 3,561,316
----------
Total Fair Value 12.01% $34,162,067
===========
Investments % of Investments
Country Composition at Fair Value at Fair Value
- -------------------------- -------------------------- --------------------------
Australia $ 50,709 0.15%
France 57,661 0.17
Germany 822,316 2.41
Hong Kong 7,677 0.02
Japan 29,424 0.09
Spain 124,523 0.36
United Kingdom 10,395,703 30.43
United States 22,674,054 66.37
-------------------------- --------------------------
$34,162,067 100.00%
========================== ==========================
Percentages are based on Partners' capital unless otherwise indicated
See accompanying notes to financial statements.
F-5
Citigroup Diversified Futures Fund L.P.
Statements of Income and Expenses
for the period May 1, 2003
(commencement of trading operations)
to December 31, 2003
2003
------------
Income:
Net gains (losses) on trading of commodity interests:
Realized losses on closed positions and foreign currencies $(17,171,840)
Net unrealized gains on open positions 34,162,067
------------
16,990,227
Interest income (Note 3c) 783,265
------------
17,773,492
------------
Expenses:
Brokerage commissions including clearing fees
of $234,658 (Note 3c) 6,933,408
Management fees (Note 3b) 2,250,400
Incentive fees (Note 3b) 3,882,573
Organizational costs 22,090
Professional fees 315,800
Other expenses 224,464
------------
13,628,735
------------
Net income $ 4,144,757
------------
Net loss per Redeemable Unit of Limited Partnership
Interest and General Partner Unit equivalent (Notes 1 and 7) $ (15.76)*
------------
* The amount shown per Redeemable Unit does not correspond with the net
income presented above for the period from May 1, 2003 (commencement of
trading operations) to December 31, 2003 because of the timing of additions
of the Partnership's Redeemable Units in relation to the fluctuating values
of the partnership's commodity interest.
See accompanying notes to financial statements.
F-6
Citigroup Diversified Futures Fund L.P.
Statements of Partners' Capital
for the period May 1, 2003
(commencement of trading operations)
to December 31, 2003
Limited General
Partners Partner Total
------------- ----------- -------------
Partners' capital at May 1, 2003 (commencement of
trading operations) $36,000,631 353,459 36,354,090
Net income 4,096,127 48,630 4,144,757
Sale of 260,808.2644 Redeemable Units of Limited
Partnership Interest and General Partner's
contribution representing 2,582.5938 Unit
equivalents 247,398,000 2,451,000 249,849,000
Redemption of 6,310.1334 Redeemable Units of
Limited Partnership Interest (5,808,589) -- (5,808,589)
------------- ----------- -------------
Partners' capital at December 31, 2003 $281,686,169 $2,853,089 $284,539,258
------------- ----------- -------------
See accompanying notes to financial statements.
F-7
Citigroup Diversified Futures Fund L.P.
Statement of Cash Flows
for the period May 1, 2003
(commencement of trading operations)
to December 31, 2003
Cash flows from operating activities:
Net Income $ 4,144,757
Adjustments to reconcile net income to net cash used in
operating activities:
Changes in operating assets and liabilities:
Net unrealized appreciation on open futures positions (17,800,021)
Unrealized appreciation on open forward contracts (30,377,162)
Increase in interest receivable (156,623)
Unrealized depreciation on open forward contracts 14,015,116
Accrued expenses:
Increase in commissions 1,363,440
Increase in incentive fees 3,882,573
Increase in management fees 492,603
Increase in professional fees 315,490
Increase in other 203,188
Increase in redemptions payable 596,375
-------------
Net cash used in operating activities (23,320,264)
Cash flows from financing activities:
Proceeds from additions 249,849,000
Payment for offering costs (123,228)
Payments for redemptions (5,808,589)
-------------
Net cash provided by financing activities 243,917,183
-------------
Net change in cash 220,596,919
Cash, at beginning of period 36,982,000
-------------
Cash, at end of period $ 257,578,919
-------------
See accompanying notes to financial statements.
F-8
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Citigroup Diversified Futures Fund L.P. (the "Partnership") is a limited
partnership which was organized under the partnership laws of the State of
New York on December 3, 2002 to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk.
Between March 27, 2003 (commencement of the offering period) and April 30,
2003, 36,616 redeemable units of Limited Partnership Interest ("Redeemable
Units") were sold at $1,000 per Redeemable Unit. The proceeds of the
initial offering were held in an escrow account until April 30, 2003, at
which time they were turned over to the Partnership for trading. The
Partnership was authorized to sell 300,000 Redeemable Units of Limited
Partnership Interest during its initial offering period. As of December 4,
2003, the Partnership was authorized to sell an additional 700,000
Redeemable Units of Limited Partnership Interest. The Partnership continues
to offer Redeemable Units.
Citigroup Managed Futures LLC, formerly Smith Barney Futures Management
LLC, acts as the general partner (the "General Partner") of the
Partnership. The Partnership's commodity broker is Citigroup Global Markets
Inc. ("CGM"), formerly Salomon Smith Barney Inc. CGM is an affiliate of the
General Partner. The General Partner is wholly owned by Citigroup Global
Markets Holdings Inc. ("CGMHI"), formerly Salomon Smith Barney Holdings
Inc., which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of
Citigroup Inc.
The General Partner and each limited partner share in the profits and
losses of the Partnership in proportion to the amount of partnership
interest owned by each except that no limited partner shall be liable for
obligations of the Partnership in excess of their initial capital
contribution and profits, if any, net of distributions.
The Partnership will be liquidated upon the first to occur of the
following: December 31, 2022; the net asset value of a Redeemable Unit
decreases to less than $400 per Redeemable Unit as of the close of any
business day; or under certain other circumstances as defined in the
Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments
and derivative commodity instruments) are used for trading purposes.
The commodity interests are recorded on trade date and open contracts
are recorded in the statement of financial condition at fair value on
the last business day of the year, which represents market value for
those commodity interests for which market quotations are readily
available. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates
prevailing on the last business day of the year. Realized gains
(losses) and changes in unrealized gains (losses) on open positions
are recognized in the period in which the contract is closed or the
changes occur and are included in net gains (losses) on trading of
commodity interests.
F-9
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on their share of the Partnership's
income and expenses.
c. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
3. Agreements:
a. Limited Partnership Agreement:
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make trading
decisions for the Partnership.
b. Management Agreement:
The General Partner, on behalf of the Partnership, has entered into
Management Agreements with Drury Capital, Inc. ("Drury"), Graham
Capital Management L.P. ("Graham"), John W. Henry & Company, Inc.
("JWH"), and Willowbridge Associates Inc. ("Willowbridge")
(collectively, the "Advisors"), each of which are registered commodity
trading advisors. During 2003, the General Partner entered into
Management Agreements with Aspect Capital Limited ("Aspect") and
Capital Fund Management S.A. ("CFM"). Aspect and CFM commenced trading
on January 1, 2004. The Advisors are not affiliated with one another,
are not affiliated with the General Partner or CGM and are not
responsible for the organization or operation of the Partnership. The
Partnership will pay each Advisor a monthly management fee equal to
1/6 of 1% (2% per year) of month-end Net Assets allocated to the
Advisor. Month-end Net Assets, for the purpose of calculating
management fees are Net Assets, as defined in the Limited Partnership
Agreement, prior to the reduction of redemptions and incentive fees.
In addition, the Partnership is obligated to pay each Advisor an
incentive fee payable quarterly equal to 20% of the New Trading
Profits, as defined in the Management Agreements, earned by each
Advisor for the Partnership.
c. Customer Agreement:
The Partnership has entered into a Customer Agreement which provides
that the Partnership will pay CGM a brokerage fee equal to 5.5% per
year calculated and paid monthly based on .46% of month-end Net
Assets, in lieu of brokerage commissions on a per trade basis.
Month-end Net Assets, for the purpose of calculating commissions are
Net Assets, as defined in the Limited Partnership Agreement, prior to
the reduction of accrued expenses and redemptions payable. CGM will
pay a portion of brokerage fees to its financial consultants who have
sold Redeemable Units in the Partnership. Brokerage fees will be paid
for the life of the Partnership, although the rate at which such fees
are paid may be changed. The Partnership will pay for National Futures
Association fees, as well as exchange, clearing, user, give-up and
floor brokerage fees. All of the Partnership's assets are deposited in
the Partnership's account at CGM. The Partnership's cash is deposited
by CGM in segregated bank accounts to the extent required by Commodity
Futures Trading Commission regulations. At December 31, 2003, the
amount of cash held for margin requirements was $51,477,101. CGM has
agreed to pay the Partnership interest on 80% of the average daily
equity
F-10
maintained in cash in the Partnership's account during each month. The
interest is earned at a 30-day U.S. Treasury bill rate determined
weekly by CGM based on the average noncompetitive yield on 3-month
U.S. Treasury bills maturing in 30 days from the date on which such
weekly rate is determined. The Customer Agreement between the
Partnership and CGM gives the Partnership the legal right to net
unrealized gains and losses. The Customer Agreement may be terminated
upon notice by either party.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial instruments
and derivative commodity instruments. The results of the Partnership's
trading activities are shown in the statement of income and expenses.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value during the period from May 1, 2003
through December 31, 2003, based on a monthly calculation, was $15,744,707.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of
the General Partner and at such times as the General Partner may decide. A
limited partner may require the Partnership to redeem their Redeemable
Units at their redemption value per Redeemable Unit as of the last day of
each month ending at least three months after their issuance on ten days
notice to the General Partner. For the purpose of a redemption, any accrued
liability for reimbursement of offering and organization expenses for the
initial offering period will not reduce redemption value per Redeemable
Unit. There is no fee charged to limited partners in connection with
redemptions.
6. Offering and Organization Costs:
Offering and organization costs of $650,000 relating to the issuance and
marketing of the Partnership's Redeemable Units offered were initially paid
by CGM. These costs have been recorded as due to CGM in the statement of
financial condition. These costs are being reimbursed to CGM by the
Partnership in 36 monthly installments (together with interest at the prime
rate quoted by JPMorgan Chase & Co.).
As of December 31, 2003, $145,318 of these costs have been reimbursed to
CGM by the Partnership. In addition, the Partnership has recorded interest
expense of $16,464 through December 31, 2003, which is included in other
expenses.
The remaining liability for these costs due to CGM of $504,682 (exclusive
of interest charges) will not reduce Net Asset Value per Redeemable Unit
for any purpose, including calculation of advisory and brokerage fees and
the redemption value of Redeemable Units.
F-11
7. Financial Highlights:
Changes in the Net Asset Value per Redeemable Unit of Partnership interest
for the period from May 1, 2003 (commencement of trading operations) to
December 31, 2003 were as follows:
2003
---------
Net realized and unrealized gains (losses) * $ 19.70
Interest income 4.66
Expenses ** (40.12)
---------
Decrease for the period (15.76)
Net asset value per Redeemable Unit, beginning of period 1,000.00
Offering cost adjustment (16.63)
---------
Net asset value per Redeemable Unit, end of period $ 967.61
---------
Redemption/subscription value per Redeemable Unit
versus net asset value per Redeemable Unit 1.67
---------
Redemption/subscription value per Redeemable Unit,
end of period *** $ 969.28
---------
* Includes brokerage commissions
** Excludes brokerage commissions
***For the purpose of a redemption/subscription, any remaining accrued
liability for reimbursement of offering costs will not reduce
redemption/subscription net asset value per redeemable unit.
Ratios to average net assets:****
Net investment loss before incentive fees ***** (8.9)%
----
Operating expenses 9.6%
Incentive fees 2.6%
----
Total expenses 12.2%
----
Total return:
Total return before incentive fees 1.6%
Incentive fees (3.2)%
----
Total return after incentive fees (1.6)%
----
**** Ratios to average net assets other than incentive fees are annualized.
***** Interest income less total expenses (exclusive of incentive fees)
The above ratios may vary for individual investors based on the timing of
capital transactions during the year. Additionally, these ratios are
calculated for the Limited Partner class using the Limited Partners' share
of income, expenses and average net assets.
F-12
8. Financial Instrument Risks:
In the normal course of its business, the Partnership is party to financial
instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial
instruments may include forwards, futures and options, whose values are
based upon an underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash flows, to
purchase or sell other financial instruments at specific terms at specified
future dates, or, in the case of derivative commodity instruments, to have
a reasonable possibility to be settled in cash, through physical delivery
or with another financial instrument. These instruments may be traded on an
exchange or over-the-counter ("OTC"). Exchange traded instruments are
standardized and include futures and certain option contracts. OTC
contracts are negotiated between contracting parties and include forwards
and certain options. Each of these instruments is subject to various risks
similar to those related to the underlying financial instruments including
market and credit risk. In general, the risks associated with OTC contracts
are greater than those associated with exchange traded instruments because
of the greater risk of default by the counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
Credit risk is the possibility that a loss may occur due to the failure of
a counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that
an exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has credit risk and concentration risk
because the sole counterparty or broker with respect to the Partnership's
assets is CGM.
The General Partner monitors and controls the Partnership's risk exposure
on a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the
Partnership is subject. These monitoring systems allow the General Partner
to statistically analyze actual trading results with risk adjusted
performance indicators and correlation statistics. In addition, on-line
monitoring systems provide account analysis of futures, forwards and
options positions by sector, margin requirements, gain and loss
transactions and collateral positions.
The majority of these instruments mature within one year of December 31,
2003. However, due to the nature of the Partnership's business, these
instruments may not be held to maturity.
F-13
Selected unaudited quarterly financial data for the years ended December 31,
2003 and 2002 are summarized below:
For the period from
For the period from For the period from May 1, 2003
October 1, 2003 to July 1, 2003 to (commencement of operations)
December 31, 2003 September 30, 2003 to June 30, 2003
Net realized and unrealized trading
gains (losses) net of brokerage
commissions and clearing fees
including interest income $ 24,853,076 $ (8,478,384) $ (5,534,608)
Net Income (loss) $ 19,356,579 $ (9,405,415) $ (5,806,407)
Increase (decrease) in Net Asset
Value per Redeemable Unit $ 77.57 $ (56.44) $ (36.89)
F-14
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of year end the Chief Executive Officer and Chief Financial
Officer have concluded that such controls and procedures are effective.
There were no significant changes in the Partnership's internal controls or in
other factors that could significantly affect such controls subsequent to the
date of their evaluation as of year end.
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are managed by its
General Partner, Citigroup Managed Futures LLC. Investment decisions are made by
the Advisors.
The Partnership has not adopted a code of ethics that applies to officers
because it has no officers.
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are managed by
Citigroup Managed Futures LLC, its General Partner. CGM, an affiliate of the
General Partner, is the commodity broker for the Partnership and receives
brokerage commissions for such services, as described under "Item 1. Business."
Brokerage commissions and clearing fees of $6,933,408 were earned by CGM for the
period from May 1, 2003 (commencement of trading operations) through December
31, 2003. Management fees and incentive fees of $2,250,400 and $3,882,573,
respectively, were earned by the Advisors for the period form May, 1, 2003
(commencement of trading operations) through December 31, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners. As of March 1, 2004,
the Partnership knows of no person who beneficially owns more than 5%
of the Redeemable Units outstanding.
(b) Security ownership of management. Under the terms of the Limited
Partnership Agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns Units of general partnership
interest equivalent to 2,948.5938 Redeemable Units (1.0%) of Limited
Partnership Interest as of December 31, 2003.
Principals who own Redeemable Units of the Partnership:
David J. Vogel 1.0000 Redeemable Unit
(c) Changes in control. None.
30
Item 13. Certain Relationship and Related Transactions.
Citigroup Global Markets Inc. and Citigroup Managed Futures LLC would be
considered promoters for purposes of item 404 (d) of Regulation S-K. The nature
and the amounts of compensation each promoter will receive, if any, from the
Partnership are set forth under "Item 1. Business" , "Item 8. Financial
Statements and Supplementary Data." and "Item 11. Executive Compensation."
Item 14. Principal Accountant Fees and Services
(1) Audit Fees. The aggregate fees billed for each of the last two fiscal years
for professional services rendered by KPMG for the audit of the
Partnership's annual financial statements, review of financial statements
included in the Partnership's Forms 10-Q and other services normally
provided in connection with regulatory filings or engagements are as
follows:
2002 $0
2003 $21,500
(2) Audit-Related Fees. None
(3) Tax Fees. The aggregate fees billed for each of the last two fiscal years
for professional services rendered by KPMG for tax compliance and tax
advice given in the preparation of the Partnership's Schedule K1s, the
preparation of the Partnership's Form 1065 and preparation of all State Tax
Returns are as follows:
2002 $0
2003 $4,809
(4) All Other Fees. None.
(5) Not Applicable.
(6) Not Applicable.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 2003.
Condensed Schedules of Investments at December 31, 2003
Statement of Income and Expenses for the period from May 1, 2003
(commencement of trading operations) through December 31, 2003.
Statements of Partners' Capital for the period from May 1, 2003
(commencement of trading operations) through December 31, 2003.
Statement of Cash Flows for the period from May 1, 2003 (commencement
of trading operations) through December 31, 2003.
Notes to Financial Statements
Selected Unaudited Quarterly Financial Data.
31
(2) Financial Statement Schedules: Financial Data Schedule for the period
from May 1, 2003 (commencement of trading operations) through December
31, 2003.
(3) Exhibits:
The exhibits required to be filed by Item 601 of regulation S-K are
incorporated herein by reference
31.1 - Rule 13a-14(a)/15d-15(a) Certification (Certification of
President and Director)
31.2 - Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief
Financial Officer and Director)
32.1 - Section 1350 Certification (Certification of President and
Director)
32.2 - Section 1350 Certification (Certification of Chief Financial
Officer and Director)
(b) Reports on Form 8-K: None Filed.
32
Supplemental Information To Be Furnished With Reports Filed Pursuant To
Section 15(d) Of The Act by Registrants Which Have Not Registered Securities
Pursuant To Section 12 Of the Act.
(1) Annual Report to Limited Partners
(2) No proxy material has been sent to Limited Partners.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of New York and State of New York on the 15th day of March 2004.
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
By: Citigroup Managed Futures LLC
(General Partner)
By /s/ David J. Vogel
-------------------------------------
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual
report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Shelley Ullman
- ---------------------- -------------------
David J. Vogel Shelley Ullman
President and Director Director
/s/ Maureen O'Toole /s/ Steve J. Keltz
- ---------------------- -------------------
Maureen O'Toole Steve J. Keltz
Director Secretary and Director
/s/ Daniel R. McAuliffe, Jr.
- ----------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and
Director
34
Exhibit 31.1
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this annual report on Form 10-K of Citigroup Diversified
Futures Fund L.P. (the "registrant");
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 and results of operations 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 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 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: March 15, 2004 /s/ David J. Vogel
-----------------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
35
Exhibit 31.2
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Citigroup Diversified
Futures Fund L.P. (the "registrant");
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 and results of operations 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 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 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: March 15, 2004 /s/ Daniel R. McAuliffe, Jr.
-----------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
36
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Citigroup Diversified Futures Fund L.P.
(the "Partnership") on Form 10-K for the period ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David J. Vogel, President and Director of Citigroup Managed
Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Partnership.
/s/ David J. Vogel
- --------------------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
March 15, 2004
- --------------------------
Date
37
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Citigroup Diversified Futures Fund L.P.
(the "Partnership") on Form 10-K for the period ending December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Daniel R. McAuliffe, Jr., Chief Financial Officer and Director of
Citigroup Managed Futures LLC, certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Partnership.
/s/ Daniel R. McAuliffe, Jr.
- --------------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
March 15,2004
- --------------------------
Date
38