SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000
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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
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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
June 30, 2000 (Unaudited) and December 31, 1999 (Audited)
-----------
June 30, December 31,
2000 1999
---- ----
ASSETS
Equity in broker trading accounts
Cash $49,926,983 $69,288,791
Net option premiums paid 99,755 177,987
Unrealized gain on open contracts 141,741 3,397,872
----------- -----------
Deposits with brokers 50,168,479 72,864,650
Cash 4,191 0
----------- -----------
Total assets $50,172,670 $72,864,650
=========== ===========
LIABILITIES
Cash overdraft $ 0 $ 12,509
Accounts payable 16,636 3,226
Commissions and other trading fees
on open contracts 27,158 45,053
Incentive fees payable 411,929 529,684
Management fees payable 378,018 491,897
Redemptions payable 985,490 1,358,905
----------- -----------
Total liabilities 1,819,231 2,441,274
----------- -----------
PARTNERS' CAPITAL (Net Asset Value)
General Partners - 225 and 427 units
outstanding at June 30, 2000
and December 31, 1999 452,393 1,075,348
Limited Partners - 23,820 and
27,573 units outstanding
at June 30, 2000 and
December 31, 1999 47,901,046 69,348,028
----------- -----------
Total partners' capital
(Net Asset Value) 48,353,439 70,423,376
----------- -----------
$50,172,670 $72,864,650
=========== ===========
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
-----------
Six Months Ended
June 30,
2000 1999
---- ----
INCOME
Trading gains (losses)
Realized $ (8,420,152) $ 2,647,704
Change in unrealized (3,256,133) 2,755,312
------------ ------------
Gain (loss) from trading (11,676,285) 5,403,016
Interest income 1,635,683 1,806,897
------------ ------------
Total income (loss) (10,040,602) 7,209,913
------------ ------------
EXPENSES
Brokerage commissions 1,258,310 1,343,346
Incentive fees 626,005 1,003,906
Management fees 1,587,068 2,168,416
Operating expenses 114,437 122,130
------------ ------------
Total expenses 3,585,820 4,637,798
------------ ------------
NET INCOME (LOSS) $(13,626,422) $ 2,572,115
============ ============
NET INCOME (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 26,417 and 32,339,
respectively) $ (515.83) $ 79.53
============ ============
INCREASE (DECREASE) IN NET ASSET
VALUE PER GENERAL AND LIMITED
PARTNER UNIT $ (504.11) $ 82.88
============ ============
See accompanying notes.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
-----------
Three Months Ended
June 30,
2000 1999
---- ----
INCOME
Trading gains (losses)
Realized $ 109,332 $ 1,468,642
Change in unrealized (1,063,192) 2,272,656
------------ ------------
Gain (loss) from trading (953,860) 3,741,298
Interest income 753,136 871,319
------------ ------------
Total income (loss) (200,724) 4,612,617
------------ ------------
EXPENSES
Brokerage commissions 564,197 733,397
Incentive fees 411,929 659,611
Management fees 733,725 1,062,289
Operating expenses 46,602 37,455
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Total expenses 1,756,453 2,492,752
------------ ------------
NET INCOME (LOSS) $ (1,957,177) $ 2,119,865
============ ============
NET INCOME (LOSS) PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the
period of 25,345 and 31,535,
respectively) $ (77.22) $ 67.22
============ ============
INCREASE (DECREASE) IN NET ASSET
VALUE PER GENERAL AND LIMITED
PARTNER UNIT $ (77.83) $ 69.02
============ ============
See accompanying notes.
<TABLE>
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 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
six months ended
June 30, 2000 (206,288) (13,420,134) (13,626,422)
Redemptions (3,955) (416,667) (8,026,848) (8,443,515)
------ ---------- ------------ ------------
Balances at
June 30, 2000 24,045 $ 452,393 $ 47,901,046 $ 48,353,439
====== ========== ============ ============
Balances at
December 31, 1998 33,427 $1,111,029 $ 84,445,470 $ 85,556,499
Net income for the
six months ended
June 30, 1999 34,859 2,537,256 2,572,115
Redemptions (2,795) (16,111) (7,171,519) (7,187,630)
------ ---------- ------------ ------------
Balances at
June 30, 1999 30,632 $1,129,777 $ 79,811,207 $ 80,940,984
====== ========== ============ ============
Net asset value
per unit at
December 31, 1998 $ 2,559.49
===========
June 30, 1999 $ 2,642.37
===========
December 31, 1999 $ 2,515.07
===========
June 30, 2000 $ 2,010.96
===========
</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 and 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. 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 June 30, 2000, and the results of operations for the
six and three months ended June 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. received 1/12 of 1% of month-end Net
Asset Value (approximately 1% annually), and ProFutures, Inc. receives
1/4 of 1% of month-end Net Asset Value (approximately 3% annually).
Total management fees earned by ATA Research, Inc. for the six months
ended June 30, 2000 and 1999 were $245,830 and $417,693, respectively,
and for the three months ended June 30, 2000 and 1999 were $88,927 and
$204,003, respectively. Total management fees earned by ProFutures,
Inc. for the six months ended June 30, 2000 and 1999 were $861,774 and
$1,253,080, respectively, and for the three months ended June 30, 2000
and 1999 were $391,067 and $612,010, respectively.
As of June 1, 2000, ATA Research, Inc. (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 will assist 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 will be paid 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). During a
transition period, Kenmar will share a portion of its fee with ATA.
Total consulting fees earned by Kenmar as of June 30, 2000 were
$41,429.
Note 4. COMMODITY TRADING ADVISORS
--------------------------
The Partnership has trading advisory contracts with several unrelated
commodity trading advisors to furnish management investment 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"). These derivatives include
both financial and non-financial contracts held as part of a
diversified trading strategy. 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 substantial 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. In the normal
course of business, the Partnership does not require collateral from
such financial institution.
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: For the three months ended June 30, 2000,
the Partnership had a net loss of $(1,957,177), as compared to net
income of $2,119,865 for the three months ended June 30, 1999.
The Partnership's net trading losses for the quarter ended June 30,
2000 resulted primarily from losses in the interest rate and foreign
currency markets and were partly offset by gains in the energy and
equity indices markets.
The Partnership's net trading gains for the quarter ended June 30,
1999 resulted primarily from gains in the interest rate and equity
indices markets offset by losses in the agricultural markets.
For the six months ended June 30, 2000, the Partnership had a net
loss of $(13,626,422) as compared to net income of $2,572,115 for
the six months ended June 30, 1999.
The Partnership's trading losses for the six months ended June 30,
2000 resulted from losses in all market sectors, except for gains in
the energy markets. The net trading gains for the six months ended
June 30, 1999 resulted primarily from gains in the interest rate,
equity indices and energy markets offset by losses in the
agricultural and foreign currency markets.
As of June 30, 2000, 24,044.8941 Units are outstanding, including
224.9638 General Partner Units, with an aggregate Net Asset Value of
$48,353,439 ($2,010.96 per Unit). This represents a decrease in
Net Asset Value of $22,069,937 compared with December 31, 1999. The
decrease relates to net losses and redemptions of general and limited
partner units.
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 six and three months
ended June 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 significantly in the first
quarter from 8.8% at December 31, 1999 to 13.1% at March 31, 2000
and in the second quarter to 5.6% at June 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.
On June 19, 2000, the Partnership filed a Current Report on Form
8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
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.
