SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000
------------------
Commission File Number 0-16898
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PROFUTURES DIVERSIFIED FUND, L.P.
---------------------------------
(Exact name of registrant)
Delaware 75-2197831
----------------------- -----------------------------------
(State of Organization) (I.R.S.Employer Identification No.)
ProFutures, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78738
--------------------
(Address of principal executive office)
Registrant's telephone number
(800) 348-3601
--------------
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 (Unaudited) and December 31, 1999 (Audited)
-----------
September 30, December 31,
2000 1999
---- ----
ASSETS
Equity in broker trading accounts
Cash $46,084,883 $69,288,791
Net option premiums paid 0 177,987
Unrealized gain (loss) on open contracts (624,887) 3,397,872
----------- -----------
Deposits with brokers 45,459,996 72,864,650
Cash 2,502 0
----------- -----------
Total assets $45,462,498 $72,864,650
=========== ===========
LIABILITIES
Cash overdraft $ 0 $ 12,509
Accounts payable 13,465 3,226
Commissions and other trading fees
on open contracts 18,680 45,053
Incentive fees payable 58,460 529,684
Management fees payable 361,322 491,897
Redemptions payable 1,107,826 1,358,905
----------- -----------
Total liabilities 1,559,753 2,441,274
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partners - 225 and 427 units
outstanding at September 30, 2000
and December 31, 1999 438,250 1,075,348
Limited Partners - 22,311 and
27,573 units outstanding
at September 30, 2000 and
December 31, 1999 43,464,495 69,348,028
----------- -----------
Total partners' capital
(Net Asset Value) 43,902,745 70,423,376
----------- -----------
$45,462,498 $72,864,650
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
Nine Months Ended
September 30,
2000 1999
---- ----
INCOME
Trading gains (losses)
Realized $ (8,565,516) $ (1,885,175)
Change in unrealized (4,022,761) 5,930,189
------------ ------------
Gain (loss) from trading (12,588,277) 4,045,014
Interest income 2,378,083 2,673,650
------------ ------------
Total income (loss) (10,210,194) 6,718,664
------------ ------------
EXPENSES
Brokerage commissions 1,761,912 1,956,622
Incentive fees 684,465 1,235,526
Management fees 2,266,187 3,176,581
Operating expenses 164,352 157,888
------------ ------------
Total expenses 4,876,916 6,526,617
------------ ------------
NET INCOME (LOSS) $(15,087,110) $ 192,047
============ ============
NET INCOME (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 25,442 and 31,662,
respectively) $ (593.01) $ 6.07
============ ============
INCREASE (DECREASE) IN NET ASSET
VALUE PER GENERAL AND LIMITED
PARTNER UNIT $ (566.98) $ 6.51
============ ============
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
Three Months Ended
September 30,
2000 1999
---- ----
INCOME
Trading gains (losses)
Realized $ (145,364) $ (4,532,879)
Change in unrealized (766,628) 3,174,877
------------ ------------
(Loss) from trading (911,992) (1,358,002)
Interest income 742,400 866,753
------------ ------------
Total (loss) (169,592) (491,249)
------------ ------------
EXPENSES
Brokerage commissions 503,602 613,276
Incentive fees 58,460 231,620
Management fees 679,119 1,008,165
Operating expenses 49,915 35,758
------------ ------------
Total expenses 1,291,096 1,888,819
------------ ------------
NET (LOSS) $ (1,460,688) $ (2,380,068)
============ ============
NET (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 23,491 and 30,306,
respectively) $ (62.18) $ (78.53)
============ ============
(DECREASE) IN NET ASSET VALUE PER
GENERAL AND LIMITED PARTNER UNIT $ (62.87) $ (76.37)
============ ============
See accompanying notes.
<TABLE>
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
-----------
<CAPTION>
Total Partners' Capital
Number of --------------------------------------
Units General Limited Total
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at
December 31, 1999 28,000 $1,075,348 $ 69,348,028 $ 70,423,376
Net (loss) for the
nine months ended
September 30, 2000 (220,431) (14,866,679) (15,087,110)
Redemptions (5,464) (416,667) (11,016,854) (11,433,521)
------ ---------- ------------ ------------
Balances at
September 30, 2000 22,536 $ 438,250 $ 43,464,495 $ 43,902,745
====== ========== ============ ============
Balances at
December 31, 1998 33,427 $1,111,029 $ 84,445,470 $ 85,556,499
Net income for the
nine months ended
September 30, 1999 2,206 189,841 192,047
Redemptions (3,752) (16,111) (9,586,998) (9,603,109)
------ ---------- ------------ ------------
Balances at
September 30, 1999 29,675 $1,097,124 $ 75,048,313 $ 76,145,437
====== ========== ============ ============
Net asset value
per unit at
December 31, 1998 $ 2,559.49
===========
September 30, 1999 $ 2,566.00
===========
December 31, 1999 $ 2,515.07
===========
September 30, 2000 $ 1,948.09
===========
</TABLE>
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
A. General Description of the Partnership
ProFutures Diversified Fund, L.P. (the Partnership) is a Delaware
limited partnership which operates as a commodity investment pool.
The Partnership engages in the speculative trading of futures
contracts and other financial instruments.
As of June 1, 2000, the name of the Partnership changed from ATA
Research/ProFutures Diversified Fund, L.P. to ProFutures Diversified
Fund, L.P.
B. Regulation
As a registrant with the Securities and Exchange Commission, the
Partnership is subject to the regulatory requirements under the
Securities Act of 1933 and Securities Exchange Act of 1934.
As a commodity investment pool, the Partnership is subject to the
regulations of the Commodity Futures Trading Commission, an agency of
the United States (U.S.) government which regulates most aspects of
the commodity futures industry; rules of the National Futures
Association, an industry self-regulatory organization; and the
requirements of commodity exchanges and Futures Commission Merchants
(brokers) through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in accordance
with generally accepted accounting principles, which require the use
of certain estimates made by the Partnership's management.
Transactions are accounted for on the trade date. Gains or losses
are realized when contracts are liquidated. Net unrealized gains or
losses on open contracts (the difference between contract purchase
price and quoted market price) are reflected in the statement of
financial condition as a net gain or loss, as there exists a right
of offset of unrealized gains or losses in accordance with Financial
Accounting Standards Board Interpretation No. 39 - "Offsetting of
Amounts Related to Certain Contracts." Any change in net unrealized
gain or loss from the preceding period is reported in the statement
of operations.
For purposes of both financial reporting and calculation of
redemption value, Net Asset Value per Unit is calculated by dividing
Net Asset Value by the number of outstanding Units.
D. Brokerage Commissions
Brokerage commissions include other trading fees and are charged to
expense when contracts are opened.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
-----------------------------------------------------------
E. Income Taxes
The Partnership prepares calendar year U.S. and state information tax
returns and reports to the partners their allocable shares of the
Partnership's income, expenses and trading gains or losses.
F. Foreign Currency Transactions
The Partnership's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar. Assets
and liabilities denominated in currencies other than the U.S. dollar
are translated into U.S. dollars at the rates in effect at the date
of the statement of financial condition. Income and expense items
denominated in currencies other than the U.S. dollar are translated
into U.S. dollars at the rates in effect during the period. Gains
and losses resulting from the translation to U.S. dollars are
reported in income currently.
G. Interim Financial Statements
In the opinion of management, the unaudited interim financial
statements reflect all adjustments, which were of a normal and
recurring nature, necessary for a fair presentation of financial
position as of September 30, 2000, and the results of operations for
the nine and three months ended September 30, 2000 and 1999.
Note 2. GENERAL PARTNER
----------------
The General Partner of the Partnership is ProFutures, Inc., which
conducts and manages the business of the Partnership. The Agreement
of Limited Partnership requires the General Partner to maintain an
investment in the Partnership equal to at least the greater of (i) 3%
of the aggregate initial capital contributions of all partners or
$100,000, whichever is less, or (ii) 1% of the aggregate initial
capital contributions of all partners.
The Agreement of Limited Partnership also requires that the General
Partner maintains in the aggregate a net worth at least equal to
(i) the lesser of $250,000 or 15% of the aggregate initial capital
contributions of any limited partnerships for which it acts as
general partner and which are capitalized at less than $2,500,000;
and (ii) 10% of the aggregate initial capital contributions of any
limited partnerships for which it acts as general partner and which
are capitalized at greater than $2,500,000.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 2. GENERAL PARTNER (CONTINUED)
---------------------------
ProFutures, Inc. has callable subscription agreements with
Internationale Nederlanden (U.S.) Securities, Futures & Options, Inc.
(ING), the Partnership's primary broker, whereby ING has subscribed
to purchase (up to $14,000,017) the number of shares of common stock
of ProFutures, Inc. necessary to maintain the General Partner's net
worth requirements.
A monthly management fee is paid by the Partnership to each General
Partner. ATA Research, Inc. (ATA) received 1/12 of 1% of month-end
Net Asset Value (approximately 1% annually) through May 30, 2000, and
ProFutures, Inc. receives 1/4 of 1% of month-end Net Asset Value
(approximately 3% annually).
Total management fees earned by ATA for the nine months ended
September 30, 2000 and 1999 were $245,830 and $609,924, respectively,
and for the three months ended September 30, 2000 and 1999 were $0 and
$192,230, respectively. Total management fees earned by ProFutures,
Inc. for the nine months ended September 30, 2000 and 1999 were
$1,213,238 and $1,829,771, respectively, and for the three months
ended September 30, 2000 and 1999 were $351,464 and $576,691,
respectively.
As of June 1, 2000, ATA has given notice of its intent to withdraw as
Co-General Partner effective October 1, 2000. ProFutures, Inc. will
remain as the sole General Partner.
Note 3. CONSULTANT
----------
Kenmar Global Strategies Inc. (Kenmar) has been engaged to serve as a
consultant effective June 1, 2000 to replace similar functions
previously performed by ATA. Kenmar assists the General Partner
in making decisions about which trading advisors to hire, the
allocations among the advisors and the day-to-day monitoring and risk
management of the trading accounts. Kenmar receives the same fee
as ATA was previously paid for providing these services, 1/12 of 1% of
month-end Net Asset Value (approximately 1% annually). Total
consulting fees earned by Kenmar for the four month period ended
September 30, 2000 were $158,583, and for the three months ended
September 30, 2000 were $117,155.
Note 4. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has trading advisory contracts with several unrelated
commodity trading advisors to furnish investment management services
to the Partnership. Certain advisors receive management fees ranging
from 1% to 2% annually of Allocated Net Asset Value (as defined in
the trading advisory contracts). In addition, the trading advisors
receive quarterly incentive fees ranging from 20% to 27.5% of Trading
Profits (as defined).
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 5. DEPOSITS WITH BROKERS
---------------------
The Partnership deposits funds with brokers subject to Commodity
Futures Trading Commission regulations and various exchange and
broker requirements. Margin requirements are satisfied by the
deposit of cash with such brokers. The Partnership earns interest
income on its assets deposited with the brokers.
Note 6. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
--------------------------------------------
Investments in the Partnership were made by subscription agreement,
subject to acceptance by the General Partner. The Partnership's
most recent offering of Units of Limited Partnership Interest
terminated on April 30, 1995.
The Partnership is not required to make distributions, but may do so
at the sole discretion of the General Partner. A Limited Partner
may request and receive redemption of units owned, subject to
restrictions in the Agreement of Limited Partnership.
Note 7. TRADING ACTIVITIES AND RELATED RISKS
------------------------------------
The Partnership engages in the speculative trading of U.S. and
foreign futures contracts and options on U.S. and foreign futures
contracts (collectively, "derivatives"). The Partnership is exposed
to both market risk, the risk arising from changes in the market value
of the contracts, and credit risk, the risk of failure by another
party to perform according to the terms of a contract.
Purchase and sale of futures and options on futures contracts
requires margin deposits with the brokers. Additional deposits may
be necessary for any loss on contract value. The Commodity Exchange
Act requires a broker to segregate all customer transactions and
assets from such broker's proprietary activities. A customer's cash
and other property (for example, U.S. Treasury bills) deposited with
a broker are considered commingled with all other customer funds
subject to the broker's segregation requirements. In the event of a
broker's insolvency, recovery may be limited to a pro rata share of
segregated funds available. It is possible that the recovered amount
could be less than total cash and other property deposited.
The Partnership has a portion of its assets on deposit with a
financial institution in connection with its cash management
activities. In the event of a financial institution's insolvency,
recovery of Partnership assets on deposit may be limited to account
insurance or other protection afforded such deposits.
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
-----------
Note 7. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
------------------------------------------------
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Partnership is exposed to a market
risk equal to the value of futures contracts purchased and unlimited
liability on such contracts sold short. As both a buyer and seller
of options, the Partnership pays or receives a premium at the outset
and then bears the risk of unfavorable changes in the price of the
contract underlying the option. Written options expose the
Partnership to potentially unlimited liability, and purchased options
expose the Partnership to a risk of loss limited to the premiums paid.
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. The General
Partner's basic market risk control procedures consist of
continuously monitoring the trading activity of the various trading
advisors, with the actual market risk controls being applied by the
advisors themselves. The General Partner seeks to minimize credit
risk primarily by depositing and maintaining the Partnership's assets
at financial institutions and brokers which the General Partner
believes to be creditworthy. The Limited Partners bear the risk of
loss only to the extent of the market value of their respective
investments and, in certain specific circumstances, distributions and
redemptions received.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
A. LIQUIDITY: Substantially all of the Partnership's assets are highly
liquid, such as cash and open futures and option contracts. It is
possible that extreme market conditions or daily price fluctuation
limits at certain exchanges could adversely affect the liquidity of
open futures and option contracts. There are no restrictions on the
liquidity of these assets except for amounts on deposit with the
brokers needed to meet margin requirements on open futures contracts.
B. CAPITAL RESOURCES: Since the Partnership's business is the purchase
and sale of various commodity interests, it will make few, if any,
capital expenditures.
The Partnership's offering of Units of Limited Partnership Interest
terminated in 1995.
C. RESULTS OF OPERATIONS:
The Partnership's net income (loss) for the nine months ended
September 30, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Three months ended March 31 $(11,669,245) $ 452,250
Three months ended June 30 (1,957,177) 2,119,865
Three months ended September 30 (1,460,688) (2,380,068)
------------ ------------
Nine months ended September 30 $(15,087,110) $ 192,047
============ ============
The Partnership's net trading losses for the three months ended
September 30, 2000 resulted primarily from losses in the interest
rate, equity indices and metals markets and were reduced by gains in
the foreign currency and energy markets.
For the nine months ended September 30, 2000, the Partnership's
trading losses resulted from losses in all market sectors, except for
gains in the energy markets.
The Partnership's trading losses for the three months ended
September 30, 1999 resulted from losses in the agricultural, equity
indices, foreign currency and interest rate markets and were reduced
by gains in the energy and metals markets.
For the nine months ended September 30, 1999, the net trading gains
resulted primarily from gains in the energy, interest rate and metals
markets and were reduced by losses in the agricultural and foreign
currency markets.
The means by which the General Partner and the Advisors attempt to
manage the risk of the Partnership's open positions is essentially
the same in all market categories traded. The General Partner
attempts to manage market exposure by (i) diversifying the
Partnership's assets among different Advisors whose strategies focus
on different market sectors and trading approaches, and (ii)
monitoring the Partnership's actual market exposures on a daily
basis and reallocating assets away from Advisors, as necessary, if
an over-concentration develops and persists in any one market sector
or market sensitive commodity interest. Each Advisor applies its
own risk management policies to its trading. These Advisor policies
generally limit the total exposure that may be taken per "risk unit"
of assets under management. In addition, many Advisors follow
diversification guidelines (often formulated in terms of the maximum
margin which they will commit to positions in any one contract or
group of related contracts), as well as imposing "stop-loss" points
at which open positions must be closed out. Certain Advisors treat
their risk control policies as strict rules; others only as general
guidelines for controlling risk.
Due to the speculative nature of trading commodity interests,
the Partnership's income or loss from operations may vary widely
from period to period. Management cannot predict whether the
Partnership's future Net Asset Value per Unit will increase or
experience a decline.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
D. POSSIBLE CHANGES: The General Partner reserves the right to
terminate certain and/or engage additional trading advisors or change
any of the Partnership's clearing arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change during the nine and three months
ended September 30, 2000, in the sources of the Partnership's
exposure to market risk. The relationship of the total Value at Risk
as a percentage of total capitalization changed in the first quarter
from 8.8% at December 31, 1999 to 13.1% at March 31, 2000, in the
second quarter to 5.6% at June 30, 2000, and in the third quarter to
5.8% at September 30, 2000.
Market movements result in frequent changes in the fair market value
of the Partnership's open positions and, consequently, in its
earnings and cash flow. The Partnership's market risk is influenced
by a wide variety of factors, including commodity price levels, the
level and volatility of interest rates, foreign currency exchange
rates, equity price levels, the market value of financial
instruments and contracts, the diversification effects among the
Partnership's open positions and the liquidity of the markets in
which it trades.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
There were no reports filed on Form 8-K.
Exhibits filed herewith:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROFUTURES DIVERSIFIED FUND, L.P.
(Registrant)
/s/ Gary D. Halbert
Gary D. Halbert, President
ProFutures, Inc., General Partner
ProFutures Diversified Fund, L.P.
