` FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended March 31, 2004
--------------
Commission File Number 333-110076
---------
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-4224248
(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
(Address and Zip Code of principal executive offices)
(212) 559-2011
(Registrant's telephone number, including area code)
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
--- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- ------
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
FORM 10-Q
INDEX
Page
Number
PART I - Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition
at March 31, 2004 and December 31, 2003
(unaudited). 3
Condensed Schedules of Investments
at March 31, 2004 and December 31, 2003
(unaudited). 4 - 5
Statement of Income and Expenses
and Partners' Capital for the three months ended
March 31, 2004 (unaudited). 6
Statement of Cash Flows for the
three months ended March 31, 2004 (unaudited). 7
Notes to Financial Statements
(unaudited). 8 - 13
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. 14 - 16
Item 3. Quantitative and Qualitative
Disclosures about Market Risk. 17 - 18
Item 4. Controls and Procedures. 19
PART II - Other Information 20
2
PART I
Item 1. Financial Statements
Citigroup Diversified Futures Fund L.P.
Statements of Financial Condition
(Unaudited)
March 31, December 31,
2004 2003
------------- --------------
Assets:
Equity in commodity futures trading account:
Cash (restricted $72,757,549 and $51,477,101 in 2004 $445,979,365 $257,578,919
and 2003, respectively)
Net unrealized appreciation on open future positions 41,069,938 17,800,021
Unrealized appreciation on open forward contracts 16,754,356 30,377,162
------------ ------------
503,803,659 305,756,102
Interest receivable 308,442 156,623
------------ ------------
$504,112,101 $305,912,725
============ ============
Liabilities and Partners' Capital:
Liabilities:
Unrealized depreciation on open forward contracts $15,131,880 $14,015,116
Accrued expenses:
Commissions 2,277,817 1,363,440
Management fees 791,351 492,603
Incentive fees 6,625,747 3,882,573
Other 519,670 518,678
Due to CGM 457,234 504,682
Redemptions payable 2,434,991 596,375
------------ ------------
28,238,690 21,373,467
------------ ------------
Partners' Capital:
General Partner, 4,515.4941 and 2,948.5938 Unit
equivalents outstanding in 2004 and 2003,respectively 4,776,715 2,853,089
Limited Partners, 445,335.3404 and 291,114.1310 Redeemable
Units of Limited Partnership Interest outstanding in 2004
and 2003, respectively 471,096,696 281,686,169
------------ ------------
475,873,411 284,539,258
------------ ------------
$504,112,101 $305,912,725
============ ============
See Accompanying Notes to Unaudited Financial Statements.
3
Citigroup Diversified Futures Fund L.P.
Condensed Schedule of Investments
March 31, 2004
(Unaudited)
Sector Contract Fair Value
- ----------------------------------- ---------------------------------- -----------
Currencies
Futures contracts purchased 0.22% $1,046,984
Futures contracts sold 0.03% 148,390
----------
Total futures contracts 0.25% 1,195,374
Unrealized appreciation on forward
contracts 0.89% 4,247,363
Unrealized depreciation on forward
contracts (1.48)% (7,060,957)
----------
Total forward contracts (0.59)% (2,813,594)
----------
Total Currencies (0.34)% (1,618,220)
----------
Energy
Futures contracts purchased 0.53% 2,508,237
Futures contracts sold (0.01)% (15,692)
-----------
Total Energy 0.52% 2,492,545
----------
Total Grains 4.16% Futures contracts purchased 4.16% 19,808,383
-----------
Interest Rates U.S.
Futures contracts purchased 1.18% 5,616,186
Futures contracts sold (0.00)%* (1,000)
----------
Total Interest Rates U.S. 1.18% 5,615,186
----------
Interest Rates Non-U.S.
Futures contracts purchased 1.16% 5,528,546
Futures contracts sold 0.02% 88,139
----------
Total Interest Rates Non-U.S. 1.18% 5,616,685
----------
Total Livestock 0.03% Futures contracts purchased 0.03% 152,110
-----------
Metals
Futures contracts purchased 0.96% 4,543,743
----------
Unrealized appreciation on forward
contracts 2.63% 12,506,993
Unrealized depreciation on forward
contracts (1.70)% (8,070,923)
-----------
Total forward contracts 0.93% 4,436,070
----------
Total Metals 1.89% 8,979,813
----------
Softs
Futures contracts purchased (0.10)% (496,972)
Futures contracts sold 0.29% 1,372,633
---------
Total Softs 0.19% 875,661
----------
Indices
Futures contracts purchased 0.17% 829,981
Futures contracts sold (0.01)% (59,730)
----------
Total Indices 0.16% 770,251
----------
Total Fair Value 8.97% $42,692,414
==========
% of Investments
Country Composition Investments at Fair Value at Fair Value
- ----------------------------------- ------------------------------------------- --------------------
Australia $ (210,653) (0.49)%
Canada 121,525 0.28
Germany 5,018,637 11.76
France (10,765) (0.03)
Hong Kong 32,248 0.08
Italy (18,925) (0.04)
Netherlands 25 0.00*
Japan 335,654 0.78
Spain 132,960 0.31
United Kingdom 5,273,247 12.35
United States 32,018,461 75.00
------------------------------------------- --------------------
$ 42,692,414 100.00%
=========================================== ====================
Percentages are based on Partners' capital unless otherwise indicated
* Due to rounding
See Accompanying Notes to Unaudited Financial Statements.
4
Citigroup Diversified Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2003
(Unaudited)
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 unaudited financial statements.
5
Citigroup Diversified Futures Fund L.P.
Statement of Income and Expenses and Partners' Capital
(Unaudited)
Three Months
Ended
March 31, 2004
-----------------
Income:
Net gains on trading of commodity futures:
Realized gains on closed positions $ 41,431,936
Change in unrealized gains on open positions 8,530,347
-----------------
Net realized and unrealized gains 49,962,283
Interest income 714,769
-----------------
50,677,052
-----------------
Expenses:
Brokerage commissions and clearing fees of $319,273 6,516,785
Management fees 1,986,778
Incentive fees 6,625,747
Other 36,620
-----------------
15,165,930
-----------------
Net income 35,511,122
Additions - Limited Partners 159,787,000
- General Partner 1,570,000
Redemptions - Limited Partners (5,533,969)
-----------------
Net increase in Partners' capital 191,334,153
Partners' capital, beginning of period 284,539,258
-----------------
Partners' capital, end of period $475,873,411
=================
Net asset value per Redeemable Unit (449,850.8345
Redeemable Units outstanding at March 31, 2004) $ 1,057.85
=================
Net income per Redeemable Unit of Limited
Partnership Interest and General Partner Unit
equivalent $ 90.24
=================
Redemption Net asset value per Redeemable Unit $ 1,058.83
=================
See Accompanying Notes to Unaudited Financial Statements
6
Citigroup Diversified Futures Fund L.P.
Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31, 2004
---------------
Cash flows from operating activities:
Net Income $35,511,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Net unrealized depreciation on open futures positions (23,269,917)
Unrealized appreciation on open forward contracts 13,622,806
Increase in interest receivable (151,819)
Unrealized depreciation on open forward contracts 1,116,764
Accrued expenses:
Increase in commissions 914,377
Increase in management fees 298,748
Increase in incentive fees 2,743,174
Increase in other 992
Increase in redemptions payable 1,838,616
-------------
Net cash provided by operating activities 32,624,863
-------------
Cash flows from financing activities:
Proceeds from additions 161,357,000
Payment for offering costs (47,448)
Payments for redemptions (5,533,969)
-------------
Net cash provided by financing activities 155,775,583
-------------
Net change in cash 188,400,446
Cash, at beginning of period 257,578,919
-------------
Cash, at end of period $445,979,365
=============
See Accompanying Notes to Unaudited Financial Statements
7
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
1. General:
Citigroup Diversified Futures Fund L.P. (the "Partnership") is a limited
partnership organized under the 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. The Partnership commenced trading
operations on May 1, 2003.
Between March 27, 2003 (commencement of the offering period) and April 30,
2003, 36,616 Redeemable Units of limited partnership interest and 366 Redeemable
Unit equivalents representing the general partner's contribution were sold at
$1,000 per Redeemable Unit. The proceeds of the offering were held in an escrow
account until May 1, 2003, at which time they were turned over to the
Partnership for trading.
On April 7, 2003, Smith Barney Futures Management LLC changed its name to
Citigroup Managed Futures LLC. Citigroup Managed Futures 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"). As of March 31, 2004, all
trading decisions are made for the Partnership by Drury Capital Inc., ("Drury"),
Graham Capital Management, L.P., ("Graham"), John W. Henry & Company, Inc.,
("JWH"), Willowbridge Associates Inc. ("Willowbridge"), Aspect Capital Limited
("Aspect") and Capital Fund Management S.A. ("CFM") (each an Advisor and
collectively, the "Advisors").
The accompanying financial statements are unaudited but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Partnership's financial
condition at March 31, 2004 and December 31, 2003, the results of operations and
cash flows for the three months ended March 31, 2004. These financial statements
present the results of interim periods and do not include all disclosures
normally provided in annual financial statements.
Due to the nature of commodity trading, the results of operations for the
interim periods presented should not be considered indicative of the results
that may be expected for the entire year.
8
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
(Continued)
2. Financial Highlights:
Changes in Net Asset Value per Redeemable Unit of Partnership Interest for
the three months ended March 31, 2004 were as follows:
Three Months Ended
March 31, 2004
--------------------
Net realized and unrealized
gains * $ 110.18
Interest income 1.78
Expenses ** (21.72)
--------------
Increase for the period 90.24
Net Asset Value per Redeemable Unit, beginning of period 967.61
-------------
Net Asset Value per Redeemable Unit, end of period $ 1,057.85
==============
Redemption/subscription value per Redeemable Unit versus Net
Asset Value per Redeemable Unit 0.98
--------------
Redemption/subscription value per Redeemable Unit end of
period *** $ 1,058.83
===============
* Includes brokerage commissions.
** Excludes brokerage commissions.
*** For the purpose of a redemption/subscription, any remaining deferred
liability for reimbursement of offering costs will not reduce
redemption/subscription net asset value.
9
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
(Continued)
Three Months
Ended
March 31, 2004
--------------
Ratios to average net assets: ****
Net investment loss before
incentive fees ***** (8.3)%
====
Operating expenses 9.1%
Incentive fees 1.8%
----
Total expenses 10.9%
====
Total return:
Total return before incentive fees 10.8%
Incentive fees (1.5)%
----
Total return after incentive fees 9.3%
====
**** Annualized (other than incentive fees)
***** 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 period. Additionally, these ratios are
calculated for the Limited Partner class using the Limited Partners' share of
income, expenses and average net assets.
10
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
(Continued)
3. Offering 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
equal monthly installments (together with interest at the prime rate quoted by
the JP Morgan Chase & Co.).
As of March 31, 2004, $192,766 of these costs have been reimbursed to CGM,
by the Partnership.
In addition, the Partnership has recorded interest expense of $21,422,
through March 31, 2004 which is included in other expenses.
The remaining deferred liability for these costs due to CGM of $457,234
(exclusive of interest charges) will not reduce Net Asset Value per Redeemable
Unit for any purpose (other than financial reporting), including calculation of
advisory and brokerage fees and the redemption value of Redeemable Units.
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 statements of income and expenses and partners'
capital.
The Customer Agreement between the Partnership and CGM gives the
Partnership the legal right to net unrealized gains and losses on open futures
positions.
All of the commodity interests owned by the Partnership are held for
trading purposes. The average fair value of these interests during the three
months ended March 31, 2004 and during the period from May 1, 2003 through
December 31, 2003 based on a monthly calculation, were $42,214,889 and
$15,744,707, respectively. The fair value of these commodity interests,
including options thereon, if applicable, at March 31, 2004 and December 31,
2003 were $42,692,414 and $34,162,067, respectively. Fair values for exchange
traded commodity futures and options are based on quoted market prices for those
futures and options.
11
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
(Continued)
5. Financial Instrument Risk:
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 as unrealized appreciation in the statements
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.
12
Citigroup Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2004
(Unaudited)
(Continued)
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 March 31, 2004.
However, due to the nature of the Partnership's business, these instruments may
not be held to maturity.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity futures trading account, consisting of
cash, net unrealized appreciation (depreciation) on open futures and forward
contracts, commodity options, if applicable, 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. While substantial losses could lead to a decrease in liquidity, no
such losses occurred during the first quarter of 2004.
The Partnership's capital consists of the capital contributions of the
partners as increased or decreased by realized and/or unrealized gains or losses
on commodity futures trading, expenses, interest income, additions and
redemptions of Redeemable Units and distributions of profits, if any.
For the three months ended March 31, 2004, Partnership capital increased
67.2% from $284,539,258 to $475,873,411. This increase was attributable to net
income from operations of $35,511,122, coupled with additional sales of
159,603.8158 Redeemable Units of limited partnership totaling $159,787,000 and
1,566.9003 General Partner Unit equivalents totaling $1,570,000, which was
partially offset by the redemption of 5,382.6064 Redeemable Units of Limited
Partnership totaling $5,533,969. Future redemptions could impact the amount of
funds available for investment in commodity contract positions in subsequent
months.
Critical Accounting Policies
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, disclosures of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
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
statements of financial condition at fair value on the last business day of the
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.
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 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.
Foreign currency contracts are those contracts where the Partnership agrees
14
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 date 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 statements of income and expenses and partners'
capital.
Results of Operations
During the three months ended March 31, 2004, the Partnership Net Asset
Value per Redeemable Unit increased 9.3% from $967.61 to $1,057.85. The
Partnership experienced a net trading gain before brokerage commissions and
related fees during the three months ended March 31, 2004 of $49,962,283. Gains
were primarily attributable to the trading of commodity contracts in energy,
grains, livestock, U.S. and non-U.S. interest rates and metals and were
partially offset by losses in currencies, softs and indices.
The Partnership had a strong first quarter as the financial and commodity
trends that had carried performance in 2003 continued into the first quarter
provided the primary basis for profits. The major contributors to performance
were lower interest rates both in the U.S. and internationally and continued
upward trends in commodity prices, particularly for base metals, energy, and
grains.
The commodity markets, particularly grains and related contracts, produced
nearly half the profits for the quarter. The demand for foodstocks from
developing countries generated profits for positions in grains, specifically
soybeans, corn and wheat. Increased global demand for the raw materials of
economic development, namely base metals, like copper, nickel and aluminum, also
produced profitable trading. Silver and gold also were profitable for the
quarter. Energy trading was also highly profitable for the quarter as prices of
crude oil moved to the high $30s range and natural gas prices followed their
normal volatile seasonal patterns with mixed trading results for the advisors.
Additional profits were earned for positions in U.S. and international
interest rate contracts in February and March. Lower U.S. interest rates
combined with rising fiscal and trade deficits pushed the U.S. dollar lower
through mid-February producing profits for the Fund's advisors but then began a
sharp correction that led to losses in March as the dollar regained nearly 10%
against the euro and other major currencies. Overall for the quarter, currency
trading resulted in losses. Trading in stock market indices was unprofitable as
the U.S. and global stock markets were directionless for the first quarter.
Commodity futures markets are highly volatile. The potential for broad and
rapid price fluctuations increases the risks involved in commodity trading, but
also increases the possibility of profit. The profitability of the Partnership
depends on the existence of major price trends and the ability of the Advisors
to correctly identify those price trends. 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.
15
Interest income on 80% of the Partnership's daily equity maintained in cash
was earned at the monthly average 30-day U.S. Treasury bill yield. CGM may
continue to maintain the Partnership's assets in cash and/or place all of the
Partnership's assets in 90-day Treasury bills and pay the Partnership 80% of the
interest earned on the Treasury bills purchased. CGM will retain 20% of any
interest earned on Treasury bills. Interest income for the three months ended
March 31, 2004 was $714,769.
Brokerage commissions are calculated on the Partnership's adjusted net
asset value on the last day of each month and are affected by trading
performance, additions and redemptions. Accordingly, they must be compared in
relation to the fluctuations in the monthly net asset values. Commissions and
fees for the three months ended March 31, 2004 were $6,516,785.
Management fees are calculated as a percentage of the Partnership's net
asset value as of the end of each month and are affected by trading performance,
additions and redemptions. Management fees for the three months ended March 31,
2004 were $1,986,778.
Incentive fees paid quarterly are based on the new trading profits
generated by each Advisor as defined in the management agreements between the
Partnership, the General Partner and each Advisor. Trading performance for the
three months ended March 31, 2004 resulted in incentive fees of $6,625,747.
16
Item 3. 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.
Market movements result in frequent changes in the fair 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 value of financial instruments and contracts, the
diversification effects of the Partnership's open positions and the liquidity of
the markets in which it trades.
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.
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
interval. 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.
17
The following table indicates the trading Value at Risk associated with the
Partnership's open positions by market category as of March 31, 2004 and the
highest, lowest and average value at any point during three months ended March
31, 2004. All open position trading risk exposures of the Partnership have been
included in calculating the figures set forth below. As of March 31, 2004, the
Partnership's total capitalization was $475,873,411. There has been no material
changes in the trading Value at Risk information previously disclosed in the
Form 10-K for the year ended December 31, 2003.
March 31, 2004
Year to Date
----------------------------------------------------
% of Total High Low Average
Market Sector Value at Risk Capitalization Value at Risk Value at Risk Value at Risk
- ------------------ ------------ -------------- ------------- ------------- -------------
Currencies:
- - Exchange Traded
Contracts $ 2,342,467 0.49% $6,776,046 $2,342,467 $3,675,961
- - OTC Contracts 2,804,651 0.59% 4,714,654 1,193,312 3,436,978
Energy 10,106,110 2.12% 10,566,950 5,005,454 8,631,670
Grains 5,690,172 1.19% 5,690,172 2,376,496 4,602,184
Interest Rates U.S. 7,721,750 1.62% 8,686,020 2,427,725 7,102,800
Interest Rates Non-U.S. 15,159,432 3.19% 18,722,479 5,748,772 15,108,458
Metals:
- - Exchange Traded
Contracts 3,984,700 0.84% 3,984,700 1,334,500 2,646,900
- - OTC Contracts 611,625 0.13% 3,198,200 536,875 1,432,237
Softs 3,228,480 0.68% 3,851,204 802,515 2,525,954
Indices 8,458,847 1.78% 20,048,293 6,303,012 11,377,738
Livestock 502,200 0.11% 502,200 138,400 305,533
------------ ----
Total $60,610,434 12.74%
============ ======
18
Item 4. Controls and Procedures
Based on their evaluation of the Partnership's disclosure controls and
procedures as of March 31, 2004, 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 during the first
quarter of 2004.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The following information supplements and amends our discussion set forth
under Part I, Item 3 "Legal Proceedings" in the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 2003.
Regulatory Matters.
Both the Department of Labor and the IRS have advised CGM that they were or
are reviewing transactions in which Ameritech Pension Trust purchased from CGM
and certain affiliates approximately $20.9 million in participations in a
portfolio of motels owned by Motels of America, Inc. and Best Inns, Inc. With
respect to the IRS review, CGM and certain affiliated entities have consented to
extensions of time for the assessment of excise taxes that may be claimed to be
due with respect to the transactions for the years 1987, 1988 and 1989.
ENRON CORP.
In July 2002, Citigroup, CGM and certain officers were named as defendants
in an alleged class action filed in the United States District Court for the
Southern District of New York, brought on behalf of purchasers of Citigroup
common stock between July 24, 1999 and July 23, 2002. The complaint seeks
unspecified compensatory and punitive damages for alleged violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, and for common law
fraud. Fourteen virtually identical complaints have been filed and consolidated.
The complaints allege that Citigroup misstated the extent of its Enron-related
exposure, and that Citigroup's stock price fell once the true extent of the
company's Enron involvements became known. Plaintiffs filed an amended complaint
on March 10, 2003, which incorporated the allegations in the 15 separate actions
and added new material as well. The amended complaint focuses on certain
transaction Citigroup did with Enron and alleged analyst conflicts of interest.
The class period for the consolidated amended complaint is July 24, 1999 to
December 11, 2002. On June 2, 2003, Citigroup filed a motion to dismiss the
consolidated amended complaint. Plaintiffs' response was filed on July 30, and
Citigroup's reply was filed on October 3, 2003. Oral argument before Judge Swain
was held on November 20, 2003.
Mutual Funds.
In 2003, several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The Company has received subpoenas and
other requests for information from various government regulators regarding
market timing, fees, sales practices and other mutual fund issues in connection
with various investigations, including an investigation by the SEC and a United
States Attorney into the arrangements under which CGMH became the transfer agent
for many of the mutual funds in the Smith Barney fund complex. CGMH is
cooperating fully with all such reviews.
20
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
For the period ended March 31, 2004, there were additional sales of
159,603.8158 Redeemable Units of Limited Partnership totaling
$159,787,000 and contributions by the General Partner representing
1,566.9003 Units equivalents totaling $1,570,000.
Proceeds from the sale of additional Redeemable Units are used in the
trading of commodity interests including futures contracts, options
and forward contracts.
The following chart sets forth the purchases of Redeemable Units by the
Partnership.
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
Period (a) Total Number of (b) Average Price (c) Total Number of (d) Maximum Number
Shares (or Units) Paid per Share (or Shares (or Units) (or Approximate
Purchased* Unit)** Purchased as Part of Dollar Value) of
Publicly Announced Shares (or Units)
Plans or Programs that May Yet Be
Purchased Under the
Plans or Programs
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
January 1, 2004 - January 31, 2,009.2388 $ 975.68 N/A N/A
2004
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
February 1, 2004 - February 1,073.6682 $1,060.48 N/A N/A
29, 2004
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
March 1, 2004 - March 31, 2004 2,299.6994 $1,058.83 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
Total 5,382.6064 $1,031.66 N/A N/A
- ------------------------------- ----------------------- ----------------------- ---------------------- -----------------------
* Generally, Limited Partners are permitted to redeem their Redeemable Units as
of the end of each month on 10 days' notice to the General Partner. Under
certain circumstances, the General Partner can compel redemption but to date the
General Partner has not exercised this right. Purchases of Redeemable Units by
the Partnership reflected in the chart above were made in the ordinary course of
the Partnership's business in connection with effecting redemptions for Limited
Partners.
** Redemptions of Redeemable Units are effected as of the last day of each month
at the Net Asset Value per Redeemable Unit as of that day.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed by Item 601 of Regulation S-1 are
incorporated herein by reference to the exhibit index of the
Partnership's Annual Report on Form 10-K for the period ended December
31, 2003.
21
Exhibit - 31.1 - Rule 13a-14(a)/15d-14(a) Certification
(Certification of President and Director)
Exhibit - 31.2 - Rule 13a-14(a)/15d-14(a) Certification
(Certification of Chief Financial Officer and Director)
Exhibit - 32.1 - Section 1350 Certification (Certification of
President and Director).
Exhibit - 32.2 - Section 1350 Certification (Certification of Chief
Financial Officer and Director).
(b) Reports on Form 8-K - None
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIGROUP DIVERSIFIED FUTURES FUND L.P.
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
-----------------------------
David J. Vogel, President and Director
Date: 5/10/04
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: Citigroup Managed Futures LLC
(General Partner)
By: /s/ David J. Vogel
---------------------
David J. Vogel
President and Director
Date: 5/10/04
---------
By: /s/ Daniel R. McAuliffe, Jr.
-------------------------------------
Daniel R. McAuliffe, Jr.
Chief Financial Officer and Director
Date: 5/10/04
23
Exhibit 31.1
CERTIFICATION
I, David J. Vogel, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and 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 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: May 10, 2004
/s/ David J. Vogel
--------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
24
Exhibit 31.2
CERTIFICATION
I, Daniel R. McAuliffe, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q 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, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and 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 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: May 10, 2004
/s/ Daniel R. McAuliffe, Jr.
------------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
25
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 Quarterly Report of Citigroup Diversified Futures
Fund L.P. (the "Partnership") on Form 10-Q for the period ending March 31, 2004
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, results of operations and cash flows
of the Partnership.
/s/ David J. Vogel
--------------
David J. Vogel
Citigroup Managed Futures LLC
President and Director
May 10, 2004
26
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 Quarterly Report of Citigroup Diversified Futures
Fund L.P. (the "Partnership") on Form 10-Q for the period ending March 31, 2004
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, results of operations and cash flows
of the Partnership.
/s/Daniel R. McAuliffe, Jr.
------------------------
Daniel R. McAuliffe, Jr.
Citigroup Managed Futures LLC
Chief Financial Officer and Director
May 10, 2004
27