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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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Commission File number 0-16898
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ATA Research/ProFutures Diversified Fund, L.P.
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(Exact name of registrant as specified in charter)
Delaware 75-2197831
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(State of organization) (I.R.S. Employer Identification No.)
ATA Research, Inc. ProFutures, Inc.
8144 Walnut Hill Lane 1310 Highway 620
Suite 300 Suite 200
Dallas, Texas 75231 Austin, Texas 78734
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(Address of principal executive offices)
Registrant's telephone numbers
(214) 346-4900 (800) 348-3601
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Securities registered pursuant to Section 12(b) of the Act
Title of each class. Name of each exchange on which registered.
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Securities registered pursuant to Section 12(g) of the Act
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X
No
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference
to the price at which the stock was sold, or the average bid and asked prices
of such stock, as of a specified date within 60 days prior to the date of
filing. (See definition of affiliate in Rule 405, 17 CFR 230.405.)
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Prospectus dated August 30, 1993,
Pre effective Amendment No. 1 dated August 16, 1993 to
Registration Statement dated July 2, 1993
and Supplement dated December 3, 1993,
Post-Effective Amendment No. 2 dated
June 30, 1994, Prospectus dated July 31, 1994 and
Supplement dated January 31, 1995
Post-Effective Amendment No. 3 dated June 23, 1995
are incorporated by reference in
Part I, Part II, Part III and Part IV of this Form 10-K
PART I
Item 1. Business.
General
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ATA Research/ProFutures Diversified Fund, L.P. (the "Registrant") is a
limited partnership organized on March 10, 1987, under the laws of the
State of Delaware. The business of the Registrant is the speculative
trading of futures contracts on U.S. and non-U.S. exchanges and option
contracts, forward contracts on foreign currencies and other commodity
interests. The Registrant commenced its business operation in August,
1987.
The Registrant maintains offices at those of its respective co-General
Partners. Specifically, the office of ProFutures, Inc. and an office of
the Registrant is located at 1310 Highway 620, Suite 200, Austin, Texas
78734; the telephone number is (800) 348-3601. The office of ATA Research,
Inc. and the other office of the Registrant is located at 8144 Walnut Hill
Lane, Suite 300, Dallas, Texas 75231; the telephone number is
(214) 346-4900.
Trading Activity
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ATA Research, Inc. and ProFutures, Inc. are the General Partners of the
Registrant. The General Partners administer the business and affairs of
the Registrant (exclusive of its trading operations). Trading decisions are
made by independent Commodity Trading Advisors chosen by the General
Partners. At December 31, 1997 there are nine Commodity Trading
Advisors: Fundamental Futures, Inc.; Wizard Trading, Inc.; Willowbridge
Associates, Inc.; Atlas Capital Management, Inc.; Rabar Market Research,
Inc.; Dominion Capital Management, Inc.; Hyman Beck & Co., Inc.;
Hampton Investors Inc.; Rainbow Trading Corporation; (collectively,
the "Advisors"). All advisory fees are paid by the Registrant. Advisors
may be changed from time to time by the General Partners.
ATA Research, Inc. is a Texas corporation whose sole Director and
stockholder is Aladin T. Abughazaleh. Organized in 1985 to perform research
and consulting services associated with monitoring performance of commodity
trading advisors, ATA Research, Inc. now monitors, for its own use and that
of its clients, performance data for more than 100 trading advisors. ATA
Research, Inc. also acts as General Partner of the Registrant and one other
commodity pool and as Trading Manager of other commodity pools. ATA
Research, Inc. is registered with the Commodity Futures Trading Commission
(CFTC) as a Commodity Pool Operator and Commodity Trading Advisor; it is
also a member of the National Futures Association (NFA).
ProFutures, Inc., a Texas corporation, is a guaranteed Introducing Broker of
Internationale Nederlanden (U.S.) Securities, Futures & Options Inc. (ING).
It is also registered with the CFTC as a Commodity Trading Advisor and
Commodity Pool Operator and is a member of the NFA. Gary D. Halbert is the
Chairman and President and principal stockholder of ProFutures, Inc., which
was incorporated and began operation in December, 1984, and specializes in
speculative managed futures accounts.
The objective of the Registrant is to achieve appreciation of its assets
through speculative trading in futures and option contracts, forward
contracts on foreign currencies and other commodity interests. It ordinarily
maintains open positions for a relatively short period of time. The
Registrant's ability to make a profit depends largely on the success of the
Advisors in identifying market trends and price movements and buying or
selling accordingly.
The Registrant's Trading Policies are set forth on Page 133 of Registrant's
Prospectus dated August 30, 1993, which is incorporated herein by reference.
Material changes in the Trading Policies described in the Prospectus must be
approved by a vote of a majority of the outstanding Units of Limited
Partnership Interest. A change in contracts traded, however, will not be
deemed to be a material change in the Trading Policies.
Trading Methods and Advisors
- ----------------------------
Futures traders basically rely on either or both of two types of analysis
for their trading decisions, "technical" or "fundamental". Technical
analysis uses the theory that a study of the markets will provide a means
of anticipating price changes. Technical analysis generally will include a
study of actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest, utilizing charts and/or computers
for analysis of these items. Fundamental analysis, on the other hand,
relies on a study and evaluation of external factors which affect the price
of a futures contract in order to predict prices. These include political
and economic events, weather, supply and demand and changes in interest
rates.
The respective Advisors' trading strategies attempt to detect trends in
price movements for the commodities monitored by them. They normally seek
to establish positions and maintain such positions while the particular
market moves in favor of the position and to exit the particular market
and/or establish reverse positions when the favorable trend either reverses
or does not materialize. These trading strategies are not normally
successful if a particular market is moving in an erratic and non-trending
manner.
Because of the nature of the commodities markets, prices frequently appear
to be trending when a particular market is, in fact, without a trend. In
addition, the trading strategies may identify a particular market as
trending favorably to a position even though actual market performance
thereafter is the reverse of the trend identified.
None of the Advisors or their respective principals own any Units of the
Fund. The Fund's Advisors are independent Commodity Trading Advisors and
are not affiliated with the General Partners; however, all are also
Advisors to other commodity pools with which the General Partners are
currently associated. Each Advisor is registered with the CFTC and is a
member in such capacity with the NFA. Because of their confidential nature,
proprietary trading records of the Advisors and their respective principals
are not available for inspection by the Limited Partners of the Fund.
The current Advisors are the following:
Fundamental Futures, Inc. ("FFI")
FFI is an Oregon corporation organized in April 1984 whose principal office
is located at 9669 Jourdan Way, Dallas, Texas 75230. FFI has established a
branch office located at 8950 Northwest 62nd Street, Johnston, Iowa 50131.
The books and records for FFI are kept at the principal office in Dallas.
Steve DeCook has been the President and a principal shareholder of FFI
since its inception. Malinda Goldsmith has been the Vice President/
Secretary and a principal shareholder of FFI since its inception.
Rabar Market Research, Inc. ("RMR")
RMR's offices are located at 10 Bank Street, Suite 830, White Plains, New
York 10606-1933. Paul Rabar is the President.
Wizard Trading, Inc. ("WTI")
WTI is an Indiana corporation, the mailing address for which is 201 North
Illinois, Suite 2100, Indianapolis, Indiana 46204. Jack Schwager and
Louis Lukac are equal shareholders of WTI.
Willowbridge Associates Inc. ("WAI")
WAI is a Delaware corporation organized on January 29, 1988. WAI's main
business address is 315 Enterprise Drive, Suite 102, Plainsboro, New Jersey
08536. Philip L. Yang is the sole shareholder, Director and President;
Michael Y. Gan the Executive Vice President and Theresa C. Morris the Vice
President.
Atlas Capital Management, Inc. ("ACM")
ACM is a New Jersey corporation. Its offices are located at 17 Canoe Brook
Drive, Princeton, New Jersey 08550. Michael Tepper is the President.
Dominion Capital Management, Inc. ("DCM")
DCM is an Illinois corporation organized in May 1994. Its offices are
located at 555 West Jackson Boulevard, Chicago, Illinois 60661. Scott
Foster is President and Tracey Wills-Zapata is Executive-Vice President.
Hyman Beck & Co., Inc. ("HBC")
HBC is an international investment management corporation. Its offices
are located at 6 Campus Drive, Parsippany, New Jersey 07054. Alexander
Hyman is President and Carl Beck is Vice President.
Hampton Investors Inc. ("HII")
HII's offices are located at 2519 Avenue U., Brooklyn, New York 11229 and
Charles Mizrahi is its President.
Rainbow Trading Corporation ("RTC")
RTC is a Texas corporation organized in November 1990; Stanford C.
Finney, Jr. is its President. Its main business office is located at
8201 Preston Road, Suite 520, Dallas, Texas 75225.
Fees, Compensation and Expenses
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The General Partners receive monthly management fees paid by the
Registrant. ATA Research, Inc. receives 1/12 of 1% of month-end Net Asset
Value (approximately 1% annually). ProFutures, Inc. receives 1/4 of 1% of
month-end Net Asset Value (approximately 3% annually).
Six of the nine Trading Advisors receive monthly management fees ranging
from .0833 to .1667 of 1% (approximately 1 to 2% annually) of month-end
Allocated Net Asset Value (paid quarterly). Each of the nine Advisors
receives a quarterly incentive fee ranging from 20% to 27.5% of Trading
Profits (as defined). The quarterly incentive fees are payable only on
cumulative profits achieved by each Advisor. For example, if one of the
Advisors to the Registrant experiences a loss after an incentive fee
payment is made, that Advisor retains such payments but receives no further
incentive fees until such Advisor has recovered the loss and then generated
subsequent Trading Profits since the last incentive fee was paid such
Advisor. An incentive fee may be paid to one Advisor but the Registrant
may experience no change or a decline in its Net Asset Value because of the
performance of another Advisor. The General Partners may allocate or
reallocate the Registrant's assets at any time among the current Advisors
or any others that may be selected. Upon termination of an Advisor's
contract, the Registrant may employ other advisory services whose
compensation may be calculated without regard to the losses which may be
incurred by the present Advisors. Similarly, the Registrant may renew its
relationship with each Advisor on the same or different terms.
Notional Funding Note: As of December 31, 1997, the Fund has allocated
notional funds to Advisors equal to approximately 14.9% of the Fund's cash
and/or other margin - qualified assets. Of course, this percentage may be
higher or lower over any given 12 month period. The management fees paid
to an Advisor, if any, are a percentage of the nominal account size of the
account if an account had been notionally funded. The nominal account size
is equal to a specific amount of funds initially allocated to an Advisor
which increases by profits and decreases by losses in the account, but not
by additions to or withdrawals of actual funds from the account. Some, but
not all, Advisors are expected to be allocated notional funds, and not all
of the Advisors allocated notional funds are expected to be paid management
fees. Further, the amount of cash and/or other margin-qualified assets in
an account managed by an Advisor will vary greatly at various times in the
course of the Fund's business, depending on the General Partners general
allocation strategy and pertinent margin requirements for the trading
strategies undertaken by an Advisor.
The Registrant is obligated to pay its periodic operating expenses,
consisting substantially of preparation of the limited partners' tax return
information, filing and recording charges, legal, printing, accounting and
auditing fees plus non-recurring expenses. Those periodic recurring
expenses are estimated at approximately .5% of the Registrant's average
annual Net Asset Value. Non-recurring expenses, not included within these
estimates, include expenses associated with significant litigation
including, but not limited to, class action suits, suits involving the
indemnification provisions of the Agreement of the Limited Partnership or
any other agreement to which the Registrant is a party; by their nature,
the dollar amount of non-recurring expenses cannot be estimated.
Additional descriptions and definitions are set forth in "Fees,
Compensation and Expenses" on Pages 38-42 of Registrant's Prospectus dated
August 30, 1993, which is incorporated herein by reference.
Brokerage Arrangements
- ----------------------
Registrant's brokerage arrangements with ING (formerly Quantum Financial
Services, Inc.) are set forth in "Brokerage Arrangements" on Page 134 of
Registrant's Prospectus dated August 30, 1993, which is incorporated
herein by reference.
Regulation
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The U.S. futures markets are regulated under the Commodity Exchange Act
(CEA), which is administered by the Commodity Futures Trading Commission
(CFTC), a federal agency created in 1974. The CFTC licenses and regulates
commodity exchanges, commodity brokerage firms (referred to in the industry
as "Futures Commission Merchants"), Commodity Pool Operators, Commodity
Trading Advisors and others. The General Partners are registered by the
CFTC as Commodity Pool Operators and each Advisor is registered as a
Commodity Trading Advisor.
Futures professionals such as the General Partners and the Advisors are
also regulated by the National Futures Association (NFA), a self-regulatory
organization for the futures industry that supervises the dealings between
futures professionals and their customers. If the pertinent CFTC
registrations or NFA memberships were to lapse, be suspended or be revoked,
the General Partners would be unable to act as the Registrant's Commodity
Pool Operators, and the respective Advisors as Commodity Trading Advisors,
to the Registrant.
The CFTC has adopted disclosure, reporting and recordkeeping requirements
for Commodity Pool Operators (such as the General Partners) and disclosure
and recordkeeping requirements for Commodity Trading Advisors. The
reporting rules require pool operators to furnish to the participants in
their pools a monthly statement of account, showing the pool's income or
loss and change in Net Asset Value and an annual financial report, audited
by an independent certified public accountant.
The CFTC and the exchanges have pervasive powers over the futures markets,
including the emergency power to suspend trading and order trading for
liquidation only (i.e., traders may liquidate existing positions but not
establish new positions). The exercise of such powers could adversely
affect the Fund's trading.
Competition
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The Registrant may experience increased competition for the same futures or
option contracts. The Advisors may recommend similar or identical trades
to other accounts which they may manage; thus, the Registrant may be in
competition with such accounts for the same or similar positions. Such
competition may also increase due to the widespread utilization of
computerized trend-based trading methods similar to the methods used by
some of the Advisors. This Fund may also compete with other funds
organized by the General Partners.
Year 2000
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The General Partners are in the process of evaluating the effect of
Year 2000 issues on the Partnership. The internal software of both
General Partners is Year 2000 compliant. The General Partners
anticipate no internal operational problems with respect to the
Partnership related to the Year 2000. Both General Partners continue
to evaluate the effect of the Year 2000 issue with respect to the
Partnership's outside service providers and advisors. It is
anticipated that any costs incurred in connection with internal
operating problems relating to Year 2000 issues will be borne
by the General Partners.
Item 2. Properties.
The Registrant does not own or lease any real property. The General
Partners currently provide all necessary office space at no additional
charge to the Registrant.
Item 3. Legal Proceedings.
The Registrant is not aware of any material pending legal proceedings to
which it is a party or to which any of its assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fiscal year ended December 31, 1997, no matters were submitted
to a vote of the holders of Units of Limited Partnership Interest ("Units")
through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters.
The Partnership has filed a registration statement with the Securities and
Exchange Commission for the sale of up to $38,547,364 in Units of Limited
Partnership Interest. Such registration statement became effective as of
July 31, 1994. This offering was extended on January 31, 1995 and
continued through April 30, 1995. On June 23, 1995, Post-Effective
Amendment No. 3 was filed to deregister $20,721,920 of Units of Limited
Partnership Interest. As of December 31, 1997, a total of 38,501 Units
are outstanding and held by 2,629 Unit holders, including 574 Units of
General Partnership interest. During the calendar year 1997 a total of
4,194 Units were redeemed.
The General Partners have sole discretion in determining what
distributions, if any, the Registrant will make to its Unit holders. The
General Partners made no distributions as of December 31, 1997, or as of
the date hereof. A Limited Partner may request and receive redemption of
Units subject to restrictions in the limited partnership agreement.
Item 6. Selected Financial Data.
Following is a summary of certain financial information for the Registrant
for the calendar years 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and
1989.
1997
----
Realized Gains $ 12,910,062
Change in Unrealized
Gains (Losses) on
Open Contracts 2,218,892
Interest Income 4,917,717
Management Fees 4,544,748
Incentive Fees 3,224,784
Net Income (loss) 8,533,713
General Partner Capital 1,328,151
Limited Partner Capital 87,741,893
Partnership Capital 89,070,044
Net Asset Value per General
and Limited Partner Unit
at End of Year 2,313.44
Net Income (loss) per Unit* 208.27
1996
----
Realized Gains $ 19,859,370
Change in Unrealized
Gains (Losses) on
Open Contracts (4,280,980)
Interest Income 4,780,472
Management Fees 4,483,854
Incentive Fees 3,508,326
Net Income (loss) 9,128,038
General Partner Capital 1,208,324
Limited Partner Capital 88,652,837
Partnership Capital 89,861,161
Net Asset Value per General
and Limited Partner Unit
at End of Year 2,104.72
Net Income (loss) per Unit* 197.64
1995
----
Realized Gains $ 4,375,196
Change in Unrealized
Gains (Losses) on
Open Contracts 1,566,823
Interest Income 5,379,779
Management Fees 5,047,834
Incentive Fees 3,372,496
Net Income (loss) (6,415)
General Partner Capital 1,087,286
Limited Partner Capital 92,084,180
Partnership Capital 93,171,466
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,893.89
Net Income (loss) per Unit* (.12)
1994
----
Realized Gains $ 9,310,267
Change in Unrealized
Gains (Losses) on
Open Contracts (1,807,923)
Interest Income 3,955,212
Management Fees 5,046,028
Incentive Fees 3,895,306
Net Income (loss) (651,490)
General Partner Capital 1,079,392
Limited Partner Capital 94,082,138
Partnership Capital 95,161,530
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,880.14
Net Income (loss) per Unit* (12.47)
1993
----
Realized Gains $ 2,939,834
Change in Unrealized
Gains (Losses) on
Open Contracts 4,964,156
Interest Income 2,520,939
Management Fees 4,058,814
Incentive Fees 2,217,831
Net Income (loss) 2,169,428
General Partner Capital 1,078,359
Limited Partner Capital 99,341,520
Partnership Capital 100,419,879
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,889.57
Net Income (loss) per Unit* 50.65
1992
----
Realized Gains $ 4,100,947
Change in Unrealized
Gains (Losses) on
Open Contracts (99,004)
Interest Income 1,419,378
Management Fees 1,977,799
Incentive Fees 903,721
Net Income (loss) 1,646,961
General Partner Capital 533,765
Limited Partner Capital 51,136,749
Partnership Capital 51,670,514
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,773.56
Net Income (loss) per Unit* 69.73
1991
----
Realized Gains $ 1,462,579
Change in Unrealized
Gains (Losses) on
Open Contracts 1,394,986
Interest Income 1,206,044
Management Fees 999,451
Incentive Fees 814,700
Net Income (loss) 1,712,247
General Partner Capital 286,900
Limited Partner Capital 26,838,522
Partnership Capital 27,125,422
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,724.81
Net Income (loss) per Unit* 133.51
1990
----
Realized Gains $ 7,272,563
Change in Unrealized
Gains (Losses) on
Open Contracts (445,009)
Interest Income 1,425,216
Management Fees 848,671
Incentive Fees 1,201,766
Net Income (loss) 5,666,199
General Partner Capital 204,177
Limited Partner Capital 19,793,856
Partnership Capital 19,998,033
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,602.24
Net Income (loss) per Unit* 447.35
1989
----
Realized Gains $ 1,451,912
Change in Unrealized
Gains (Losses) on
Open Contracts 769,486
Interest Income 1,433,457
Management Fees 746,144
Incentive Fees 585,953
Net Income (loss) 1,772,687
General Partner Capital 183,476
Limited Partner Capital 15,050,429
Partnership Capital 15,233,905
Net Asset Value per General
and Limited Partner Unit
at End of Year 1,155.51
Net Income (loss) per Unit* 122.35
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* based on weighted average units outstanding during the year.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Fund commenced trading on August 3, 1987. The success of the Fund is
dependent on the ability of the Advisors to generate profits through
speculative trading sufficient to produce substantial capital appreciation
after payment of all fees and expenses. Future results will depend in
large part upon the futures markets in general, the performance of the
Advisors for the Fund and the amount of redemptions and changes in
interest rates. Due to the highly leveraged nature of futures trading,
small price movements may result in substantial losses. Because of the
nature of these factors and their interaction, it is impossible to predict
future operating results.
(a) Liquidity. From the inception of the Fund on March 7, 1987 to
December 31, 1997 substantially all of the Fund's assets have been
held in cash or near cash investments, except for the portion used to
margin its futures positions and to pay Fund expenses or redemptions
requested by Limited Partners. At December 31, 1997 cash and short-
term investments in fixed income securities comprised 69% of
the Fund's assets and the remaining 31% was on deposit as margin with
the Clearing Broker. The Fund earns interest on the amounts on
deposit with the Clearing Broker.
The Fund's operating expenses are accrued and paid on a monthly basis.
Accounts payable and accrued expenses at December 31, 1997 including
redemptions, represented only 3% of the Fund's assets. The Fund has no
fixed assets or long-term debt and expects to have none in the future.
Most United States exchanges (but generally not foreign exchanges, or banks
or broker-dealer firms in the case of foreign currency forward contracts)
limit by regulation the amount of fluctuation limits. The daily limits
establish the maximum amount the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of
the trading session. Once the "daily limit" has been reached in a
particular commodity, no trades may be made at a price beyond the limit.
Positions in the commodity can then be taken or liquidated only if traders
are willing to effect trades at or within the limit during the period for
trading on such day. Because the "daily limit" rule only governs price
movement for a particular trading day, it does not limit losses. The rule
may, in fact, substantially increase losses because it may prevent the
liquidation of unfavorable positions. Futures prices have occasionally
moved the daily limit for several consecutive trading days, and thereby
prevented prompt liquidation of futures positions on one side of the
market, subjecting those futures traders involved to substantial losses.
Liquidity will be of concern to the Fund primarily in that the futures
markets in which the Advisors take positions may have periods in which
illiquidity makes it impossible or economically undesirable to execute
trades which its respective trading strategy would otherwise suggest.
Other than in respect of the functioning of the markets in which it trades,
liquidity will be of little relevance to the operation of the Fund except
insofar as the General Partners are relatively thinly capitalized.
Nonetheless, the General Partners believe they have sufficient funding to
meet both their capital contribution and net worth requirements based on
capital contributions from the respective principals of the General
Partners, alternative funding sources, including the stock subscription
from the Clearing Broker to ProFutures, Inc. and/or a co-general partner or
successor (or some combination thereof).
(b) Capital Resources. The Fund's initial offering and sale of Units of
Limited Partnership Interest commenced on May 27, 1987 and ended on
July 31, 1987 after having sold $6,130,568 of units at the initial
offering price of $1,000. The Fund commenced trading August 3, 1987.
The Fund continued offering Units through February 29, 1988.
Thereafter additional offerings of the Fund's Units of Limited
Partnership Interest occurred on April 15, 1988, August 24, 1991,
May 14, 1992, November 30, 1992, August 30, 1993 and July 31, 1994.
The offering effective July 31, 1994 was extended on January 31, 1995
and continued through April 30, 1995. In June 1995, Post-Effective
Amendment No. 3 was filed to deregister the Fund's remaining
$20,721,920 of Units of Limited Partnership Interest.
(c) Results of Operations. Due to the speculative nature of trading
commodity interests, the Fund's income or loss from operations may
vary widely from period to period. Management cannot predict whether
the Fund's future Net Asset Value per Unit will increase or experience
a decline. Inflation is not a significant factor in the Fund's
operations, except to the extent that inflation may affect future
prices.
The General Partners have established procedures to actively monitor
and minimize the market and credit risk of the Fund. ATA Research,
Inc. (ATA), in its capacity as Trading Manager of the Fund, manages
market risk through the monitoring of the Fund's advisors and their
trading in the various commodity markets. The General Partners seek
to minimize credit risk primarily by keeping only minimal amounts of
excess cash at the brokers, with excess cash being maintained in
custodial or other accounts providing credit protection.
Additionally, the General Partners monitor credit risk based on their
current knowledge of the brokers' credit worthiness.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Year Ended December 31, 1997
----------------------------
Net income for 1997 amounted to $8,533,713 or $208.27 per Unit. At
December 31, 1997, partners' capital totaled $89,070,044, a net decrease
of $791,117 from December 31, 1996. Net Asset Value per Unit at
December 31, 1997 amounted to $2,313.44, as compared with $2,104.72 at
December 31, 1996, an increase of 9.92%.
The Fund's gains came mostly in the financials, including currencies,
stocks, and debt instruments. Strong gains were also achieved in the
agricultural commodities, including the food & fiber sector and the
grains.
Year Ended December 31, 1996
----------------------------
1996 was the tenth year of operations. Net income for 1996 amounted to
$9,128,038 or $197.64 per Unit. At December 31, 1996, partners' capital
totaled $89,861,161, a net decrease of $3,310,305 from December 31, 1995.
Net Asset Value per Unit at December 31, 1996 amounted to $2,104.72, as
compared with $1,893.89 at December 31, 1995, an increase of 11.13%.
The Fund's income for 1996 resulted from substantial gains in the foreign
interest rate markets for most of the year, as well as gains in the energy
and metals markets. These gains were slightly offset by early losses in
the bond and interest rate markets.
Year Ended December 31, 1995
----------------------------
Net loss for 1995 amounted to $6,415, or $.12 per Unit. At December 31,
1995, partners' capital totaled $93,171,466, a net decrease of $1,990,064
from December 31, 1994. Net Asset Value per Unit at December 31, 1995
amounted to $1,893.89, as compared with $1,880.14 at December 31, 1994, an
increase of .7%.
The Fund's overall flat performance was the result of early year losses in
several markets, including the currency markets which were offset later in
the year with significant gains in the agricultural, global bond and
energy markets.
(d) Possible changes. The General Partners reserve the right to terminate
current Advisors and/or engage additional Advisors in the future.
Furthermore, the General Partners reserve the right to change any of
the Fund's clearing arrangements to accommodate any new Advisors.
Item 8. Financial Statements and Supplementary Data.
Financial statements meeting the requirements of Regulation S-X are listed
on page F-1 of this report. The Supplementary Financial information
specified by Item 302 of Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant is a limited partnership and therefore does not have any
directors or officers. The Registrant's General Partners, ATA Research,
Inc. and ProFutures, Inc., administer and manage the affairs of the
Registrant.
Item 11. Executive Compensation.
As discussed above, the Registrant does not have any officers, directors or
employees. The General Partners receive monthly management fees which
aggregated $3,662,245 for 1997, or approximately 4% of the Registrant's Net
Asset Value.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) As of December 31, 1997, a total of 38,501 Units are issued and
outstanding, representing 2 General Partners and 2,627 Limited
Partners. The Partnership knows of no one person who owns
beneficially more than 5% of the Limited Partners' Units.
(b) The General Partners and their principals owned 574 General
Partnership Units as of December 31, 1997, having an aggregate value
of $1,328,151, which is approximately 1.49% of the Net Asset Value
of the Registrant.
(c) Changes in control. None have occurred and none are expected.
Item 13. Certain Relationships and Related Transactions.
Registrant's Prospectus dated July 31, 1994, Pages 16-18, which is
incorporated herein by reference, contains information concerning the
relationships and transactions between the General Partners, the Clearing
Broker and the Partnership.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a)(1) Financial Statements.
See index to Financial Statements.
The financial statements begin on page F-3.
(a)(2) Schedules other than Schedule II are omitted for the reason
that all required information is contained in the financial
statements included in (a)(1) above or are not applicable.
(a)(3) Exhibits as required by Item 601 of Regulation S-K.
*1.1 Form of Selling Agreement between the Registrant and
ProFutures Financial Group, Inc.
*1.2 Form of Additional Selling Agents Agreement between
ProFutures Financial Group, Inc. and certain
Additional Selling Agents.
*3.1 Agreement of Limited Partnership (attached to the
Prospectus as Exhibit A).
*3.2 Subscription Agreement and Power of Attorney (attached
to the Prospectus as Exhibit B).
*3.3 Request for Redemption Form (attached to the
Prospectus as Exhibit C).
*5.1 Opinion of Counsel as to the legality of the Units.
*8.1 Tax Opinion of Counsel
*10.2 Form of Brokerage Agreement between the Registrant and
Quantum Financial Services, Inc.
*10.3(a) Advisory Contract between the Registrant and Colorado
Commodities Management Corporation.
*10.3(a)(a) Advisory Contract between the Registrant and
Prospective Commodities, Inc.
*10.3(a)(b) Advisory Contract between the Registrant and Atlas
Capital Management, Inc.
*10.3(a)(c) Advisory Contract between the Registrant and Bensen
Capital Management, Inc.
*10.3(a)(d) Advisory Contract between the Registrant and Peter
Bruno.
*10.3(a)(e) Advisory Contract between the Registrant and
MicroQuant Capital Management Corp.
*10.3(a)(f) Advisory Contract between the Registrant and Travel
Currency Management Limited.
*10.3(b) Form of Representations Letter of Colorado
Commodities Management Corporation.
*10.3(c) Advisory Contract between the Registrant and
Fundamental Futures, Inc.
*10.3(d) Form of Representations Letter of Fundamental
Futures, Inc.
*10.3(e) Advisory Contract between the Registrant and FX 500
Ltd.
*10.3(f) Advisory Contract between the Registrant and
Hawksbill Capital Management.
*10.3(g) Advisory Contract between the Registrant and Insight
Enterprises, Inc.
*10.3(h) Advisory Contract between the Registrant and Luck
Trading Company, Inc.
*10.3(h)(1) Amendment dated December 3, 1993 to Advisory Contract
between the Registrant and Luck Trading Company, Inc.
dated March 11, 1992.
*10.3(h)(2) Amendment dated February 28, 1995 to Advisory
Contract dated March 11, 1992 between the Registrant
and Luck Trading Company (BVI), Inc.
*10.3(i) Advisory Contract between the Registrant and LaSalle
Portfolio Management, Inc.
*10.3(j) Form of Representations Letter of LaSalle Portfolio
Management, Inc.
*10.3(k) Advisory Contract between the Registrant and New
Forest Capital Management, Inc.
*10.3(l) Advisory Contract between the Registrant and Range
Wise, Inc.
*10.3(l)(1) Second Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Range Wise, Inc.
*10.3(m) Advisory Contract between the Registrant and Red Oak
Commodity Advisors, Inc.
*10.3(n) Advisory Contract between the Registrant and Trinity
Money Management, Inc.
*10.3(o) Advisory Contract between the Registrant and
Visioneering Research and Development Company.
*10.3(p) Form of Representations Letter of Visioneering
Research and Development Company.
*10.3(q) Advisory Contract between the Registrant and Classic
Capital, Inc.
*10.3(q)(1) First Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Classic Capital,
Inc.
*10.3(r) Advisory Contract between the Registrant and Wizard
Trading, Inc.
*10.3(s) Advisory Contract between the Registrant and Devan
Capital Management, Inc.
*10.3(t) Advisory Contract between the Registrant and
Hawksbill Capital Management.
*10.3(u) Advisory Contract between the Registrant and Rowayton
Capital Management, Inc.
*10.3(v) Advisory Contract between the Registrant and
Willowbridge Associates, Inc.
*10.3(v)(1) First Amendment dated March 31, 1994 to Advisory
Contract between the Registrant and Willowbridge
Associates, Inc.
*10.3(w) Advisory Contract between the Registrant and Zack
Hampton Bacon, III.
*10.3(x) Advisory Contract between the Registrant and
Niederhoffer Investments, Inc.
*10.3(y) Advisory Contract between the Registrant and Rabar
Market Research, Inc.
*10.3(z) Advisory Contract between the Registrant and
Considine Trading Corp.
*10.4 Form of Stock Subscription Agreement between Quantum
Financial Services, Inc. and ProFutures, Inc.
*24.1 Consent of Counsel to the Fund
*24.2 Consent of Certified Public Accountants, King, Burns
& Company, P.C.
*24.3 Consent of Certified Public Accountants, Arthur F.
Bell, Jr. & Associates, L.L.C.
- -----------------------
* The foregoing forms of exhibits were filed in the April 6, 1987
Registration Statement No. 33-13008 and/or Post-Effective Amendment No. 1
thereto filed March 11, 1988, and/or the June 5, 1991 Registration
Statement No. 33-41073, and/or Pre-Effective Amendment No. 1 thereto filed
August 8, 1991, and/or Post-Effective Amendment No. 1 thereto filed
March 26, 1992; and/or the October 14, 1992 Registration Statement
No. 33-53324, and/or the November 17, 1992 Pre-effective Amendment No. 1
thereto and/or the July 2, 1993 Registration Statement No. 33-65596, and/
or the Pre-Effective Amendment No. 1 thereto filed August 16, 1993, and
Supplement dated December 3, 1993, Post-Effective Amendment No. 2 thereto
filed June 30, 1994 and Supplement dated January 31, 1995. Post-Effective
Amendment No. 3 dated June 23, 1995. Accordingly, such exhibits are
incorporated herein by reference and notified herewith.
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K for the year ended
December 31, 1997.
(c) Exhibits.
Filed herewith:
None
(d) Financial Statements Schedules.
Not Applicable or information included in the financial statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
(Registrant)
By
- -------------------------- ----------------------------------------------
Date Aladin T. Abughazaleh, President
ATA Research Inc., General Partner
ATA Research/ProFutures Diversified Fund, L.P.
By
- -------------------------- ----------------------------------------------
Date Gary D. Halbert, President
ProFutures, Inc., General Partner
ATA Research/ProFutures Diversified Fund, L.P.
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
DECEMBER 31, 1997 AND 1996
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Statements of Financial Condition F-3
Statements of Operations F-5
Statements of Changes in Partners' Capital (Net Asset Value) F-6
Notes to Financial Statements F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-13
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Partners
ATA Research/ProFutures Diversified Fund, L.P.
We have audited the accompanying statements of financial condition of ATA
Research/ProFutures Diversified Fund, L.P. (a Delaware Limited Partnership)
as of December 31, 1997 and 1996, and the related statements of operations,
changes in partners' capital (net asset value) and the financial statement
schedule for each of the three years in the period ended December 31, 1997.
These financial statements and the related schedule are the responsibility
of the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ATA Research/ProFutures
Diversified Fund, L.P. as of December 31, 1997 and 1996, and the results of
its operations and changes in partners' capital for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information required to be included therein.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying information in Note
H is presented for purposes of additional analysis and is not a required part
of the basic financial statements. The accompanying information has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
January 24, 1998
F-2
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
ASSETS
------
1997 1996
---- ----
ASSETS
Cash and cash equivalents $62,563,566 $74,035,908
----------- -----------
Equity in broker trading accounts
Margin deposit 24,197,155 16,096,477
Interest receivable - broker 72,337 51,392
Net option premiums (received) (394,874) (644,260)
Unrealized gain on open contracts 4,071,200 1,852,308
----------- -----------
27,945,818 17,355,917
----------- -----------
Interest receivable 1,075,721 1,145,070
----------- -----------
TOTAL ASSETS $91,585,105 $92,536,895
=========== ===========
- Continued -
The accompanying notes are an integral part of these financial statements.
F-3
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION - Continued
December 31, 1997 and 1996
LIABILITIES AND PARTNERS' CAPITAL (NET ASSET VALUE)
---------------------------------------------------
1997 1996
---- ----
LIABILITIES
Accounts payable $ 3,970 $ 6,795
Commissions and other trading
fees on open contracts 197,177 136,720
Incentive fees payable 453,992 1,554,800
Management fees payable 531,288 529,837
Redemptions payable 1,328,634 447,582
----------- -----------
Total liabilities 2,515,061 2,675,734
----------- -----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partners - 574 units outstanding
at December 31, 1997 and 1996 1,328,151 1,208,324
Limited Partners - 37,927 and 42,121 units
outstanding at December 31, 1997 and 1996 87,741,893 88,652,837
----------- -----------
Total partners' capital (net asset value) 89,070,044 89,861,161
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $91,585,105 $92,536,895
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
INCOME
Trading gains (losses)
Realized $13,888,370 $20,115,571 $ 4,558,826
Change in unrealized 2,218,892 (4,280,980) 1,566,823
----------- ----------- -----------
Income from trading 16,107,262 15,834,591 6,125,649
Foreign exchange losses (978,308) (256,201) (183,630)
Interest 4,917,717 4,780,472 5,379,779
----------- ----------- -----------
Total income 20,046,671 20,358,862 11,321,798
----------- ----------- -----------
EXPENSES
Brokerage commissions and
other trading fees 3,389,414 2,849,321 2,423,253
Management fees 4,544,748 4,483,854 5,047,834
Incentive fees 3,224,784 3,508,326 3,372,496
Operating expenses 354,012 389,323 484,630
----------- ----------- -----------
Total expenses 11,512,958 11,230,824 11,328,213
----------- ----------- -----------
NET INCOME (LOSS) $ 8,533,713 $ 9,128,038 $ (6,415)
=========== =========== ===========
Net income (loss) per General
and Limited Partner Unit
(based on weighted - average
number of units outstanding) $ 208.27 $ 197.64 $ (.12)
=========== =========== ===========
Increase in net asset value
per General and Limited
Partner Unit $ 208.72 $ 210.83 $ 13.75
=========== =========== ===========
Number of weighted-average
units outstanding 40,974 46,185 52,207
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(NET ASSET VALUE)
Years ended December 31, 1997, 1996 and 1995
Total Partners' Capital (Net Asset Value)
Number of ------------------------------------------
Units General Limited Total
--------- ---------- ------------ ------------
Balances at
January 1, 1995 50,614 $1,079,392 $ 94,082,138 $ 95,161,530
Net income (loss)
for the year - 7,894 (14,309) (6,415)
Additions - 7,549 14,222,901 14,222,901
Redemptions - (8,967) (16,064,321) (16,064,321)
Administrative costs - - (142,229) (142,229)
------ ---------- ------------ ------------
Balances at
December 31, 1995 49,196 1,087,286 92,084,180 93,171,466
Net income
for the year - 121,038 9,007,000 9,128,038
Redemptions (6,501) - (12,438,343) (12,438,343)
------ ---------- ------------ ------------
Balances at
December 31, 1996 42,695 1,208,324 88,652,837 89,861,161
Net income
for the year - 119,827 8,413,886 8,533,713
Redemptions (4,194) - (9,324,830) (9,324,830)
------ ---------- ------------ ------------
Balances at
December 31, 1997 38,501 $1,328,151 $ 87,741,893 $ 89,070,044
====== ========== ============ ============
Net asset value per unit at
December 31, 1995 $1,893.89
=========
December 31, 1996 $2,104.72
=========
December 31, 1997 $2,313.44
=========
Percent of increase in per
unit net asset value
1994 to 1995 0.73%
=========
1995 to 1996 11.13%
=========
1996 to 1997 9.92%
=========
The accompanying notes are an integral part of these financial statements.
F-6
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. General Description of the Partnership
--------------------------------------
ATA Research/ProFutures Diversified Fund, L.P. (the Partnership or Fund)
is a Delaware limited partnership and operates as a commodity investment
pool. As a registrant with the Securities and Exchange Commission, the
Partnership is subject to the regulatory requirements under the
Securities Acts of 1933 and 1934. As a commodity investment pool, it is
subject to regulations of the Commodity Futures Trading Commission, an
independent agency of the United States government which regulates most
aspects of the commodity futures industry, rules of the National Futures
Association, a self regulatory organization, and the requirements of
Commodity Exchanges and Futures Commission Merchants (brokers) where the
Partnership trades.
2. Method of Reporting
-------------------
The Partnership's financial statements are presented in accordance with
generally accepted accounting principles. Gains or losses are realized
when contracts are liquidated. Net unrealized gains or losses on open
contracts (the difference between contract purchase price and market
price) at statement date are reported in the statement of financial
condition in accordance with Financial Accounting Standards Board
Interpretation No. 39. Any change in net unrealized gain or loss from
the preceding period is reported in the statement of operations. United
Sates Government securities are priced at cost plus accrued interest,
which approximates market value.
Investments in futures contracts involve elements of market risk in
excess of the amounts reflected in the financial statements.
Accordingly, the values reported are subject to the consequences of
commodity prices that can fluctuate rapidly over a wide range.
3. Futures Brokerage Commissions
-----------------------------
The fee charged by a broker for executing a trade in the account of the
Partnership is usually paid on a "round-turn" basis, that is, only upon
the closing of an open position. In some cases however, the brokerage
commissions may be charged "half-in half-out". For financial reporting
purposes and for calculating the Net Asset Value of the Partnership,
brokerage commissions and other trading fees are charged to expense when
futures positions are opened. The average "round-turn" fee paid during
1997 and 1996 approximated $11.00.
4. Income Taxes
------------
The Partnership prepares calendar year information income tax returns and
reports to each partner the allocable share of the Partnership's ordinary
income or loss and commodity trading gains or losses. Commodity futures
gains or losses on regulated futures contracts open at year end are
recognized for tax purposes as if sold at their market value less
commissions.
5. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents includes cash and short-term investments in
fixed income securities.
F-7
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
6. Partner Share Unit Additions
----------------------------
Limited Partner additions are considered pending during the month of
receipt by the Partnership. The purchasers are issued units at the Net
Asset Value per unit as of the end of business of the last day in the
month in which the subscription is accepted.
7. Partner Share Unit Redemptions and Distributions
------------------------------------------------
The Agreement of Limited Partnership provides that upon satisfying
certain conditions, Limited Partners may require the Fund to redeem all
or a portion of their Units and receive an amount equal to the Net Asset
Value per Unit. Redemptions are permitted at the end of any month, upon
fifteen days prior written notice, at the Net Asset Value per Unit as of
the last day of the month in which the request was received. The
Partnership is not required to make distributions, but may do so at the
sole discretion of the General Partners.
8. Foreign Currency Translation
----------------------------
The Partnership's functional currency is the United States (U.S.) dollar;
however, the Partnership 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 the functional currency are
reported in income currently.
9. Concentration of Credit Risk
----------------------------
The Partnership places its cash with high credit quality financial
institutions. The Partnership's exposure to loss for cash placed with a
bank should this financial institution fail is the excess over $100,000
which is the amount insured by the Federal Deposit Insurance Corporation.
10. Use of Estimates and Assumptions
--------------------------------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could vary
from the estimates that were used.
11. Recent Accounting Prouncements
------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which
requires enterprises to report, by major component and in total, all
changes in equity from nonowner sources; and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting
F-8
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
11. Recent Accounting Prouncements - Continued
------------------------------------------
standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major
customers. Both statements are effective for the Partnership's fiscal
year ended December 31, 1998, with earlier application permitted. The
effect of adoption of these statements, if any, will be limited to the
form and content of the Partnership's disclosures and will not impact the
Partnership's results of operations or financial position.
NOTE B - DEPOSITS WITH BROKERS
The Partnership deposits funds with various brokers to act as clearing
brokers subject to Commodity Futures Trading Commission and various
exchange regulations on minimum deposits. Margin requirements are
satisfied by cash on deposit with such brokers. The Partnership earns
interest income on the funds deposited with brokers.
NOTE C - GENERAL PARTNERS
The General Partners of the Partnership are ATA Research, Inc. and
ProFutures, Inc., who conduct and manage the business of the Partnership.
The Agreement of Limited Partnership provides that the General Partners
will contribute to the Fund an amount in the aggregate equal to at least
the lesser of $100,000 or 3% of the aggregate initial contributions of
all limited partners, but in no event less than 1% of the aggregate
initial capitalization of the Fund. The General Partners will purchase
Units of General Partnership Interest to the extent of such capital
contribution.
The General Partners will share Fund profits and losses with the limited
partners pro rata to the extent of their investment. Unless they own
units exceeding their minimum purchase or net worth requirements, the
General Partners may not redeem or transfer their interest so long as
they are acting as General Partner(s). At each of the three years ended
December 31, 1997, the General Partners had contributed cumulatively
$926,500 to the Partnership. Including all cumulative pro-rata Fund
profits, the General Partners were in compliance with this requirement.
Also under the Agreement of Limited Partnership, the General Partners are
obliged, for as long as they continue to serve as General Partners of the
Fund, to maintain in the aggregate a net worth of not less than (i) the
lesser of $250,000 or 15% of the aggregate capital contribution to the
Fund and any other partnership for which they act as General Partners
capitalized at $2,500,000 or less; and (ii) 10% of the aggregate initial
capital contributions to the Fund and any other limited partnership
capitalized at more than $2,500,000 for which they act as General
Partners. For these purposes, "net worth" shall reflect the carrying
value of all assets at fair market value and shall exclude capital
contributions of the General Partners to the Fund or to any other limited
partnership of which they may be General Partners. Net worth will be
calculated in accordance with generally accepted accounting principles
provided that all current assets shall be based on then current market
value and may include any notes receivable, letter of
F-9
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - GENERAL PARTNERS - Continued
credit or stock subscriptions from the Futures Broker and/or adequately
capitalized affiliate(s) of the General Partners. ProFutures, Inc. has a
subscription agreement with Internationale Nederlanden (U.S.) Securities
Futures and Options, Inc. (ING), the Partnership's primary broker,
whereby ING agrees to purchase or subscribe for the number of shares of
common stock of ProFutures, Inc. necessary to maintain the General
Partner net worth requirements. At December 31, 1997, the amount of
stock subscribed to ProFutures, Inc. is $19,000,090.
A monthly management fee is paid by the Partnership to the General
Partners. ATA Research, Inc. receives 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 years ended
December 31, 1997, 1996 and 1995, were $915,561, $905,191 and $949,479,
respectively. Total management fees earned by ProFutures, Inc. for the
years ended December 31, 1997, 1996 and 1995, were $2,746,684, $2,718,343
and $2,859,877, respectively.
NOTE D - TRADING ADVISORS
The Partnership has trading management agreements with several trading
advisors pursuant to which the Partnership pays selected advisors a
quarterly incentive fee based on a percentage of excess cumulative
Trading Profits (as defined in the Prospectus) and a management fee based
on Allocated Net Assets managed (as defined in the Prospectus).
NOTE E - OPERATING EXPENSES
All operating expenses of the Partnership are billed directly to and paid
by the Partnership. The General Partners are not reimbursed for indirect
expenses incurred in performing services for the Partnership and other
items generally falling within the category of overhead. The General
Partners may be reimbursed for the actual costs of legal, accounting and
auditing services used for or by the Partnership, as well as printing and
filing fees and extraordinary expenses incurred for or by the
Partnership.
NOTE F - REGISTRATION STATEMENT
On August 24, 1991, May 14, 1992, November 30, 1992, August 30, 1993 and
July 31, 1994 the Partnership filed registration statements with the
Securities and Exchange Commission for the sale of the Partnership's
Units of Limited Partnership Interest. During the offering periods,
units were sold at the previous month end Net Asset Value per Unit plus a
1% administrative charge, from which the Partnership reimburses the
General Partners for their actual expenses incurred in connection with
the offering. The offering effective July 31, 1994 terminated on
April 30, 1995.
F-10
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE G - TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign
futures contracts, options on U.S. and foreign futures contracts, forward
contracts and options on forward 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 deposits assets with brokers and dealers in securities
and other financial institutions in connection with its trading of
forward contracts and its cash management activities. In the event of a
financial institution's insolvency, recovery of Partnership assets on
deposit may be limited to account insurance or other protection afforded
such deposits. In the normal course of business, the Partnership does
not require collateral from such financial institutions. Since forward
contracts and options thereon are traded in unregulated markets between
principals, the Partnership also assumes the risk of loss from
counterparty nonperformance.
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 and forward 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 fair value of derivatives represents unrealized gains and losses on
open forward and futures contracts and long and short options at market
value. The average fair value of derivatives during 1997 and 1996 was
approximately $3,300,000 and $4,226,000, respectively and the related
year end fair values are approximately $3,676,000 and $1,208,000,
respectively.
Net trading results from derivatives for the years ended December 31,
1997, 1996 and 1995 are reflected in the statement of operations and
equal income from trading less brokerage commissions and other trading
fees. Such trading results reflect the net gain (loss) arising from the
Partnership's speculative trading of futures contracts, options on
futures contracts, forward contracts and options on forward contracts.
Open contracts generally mature within one year, however, the Partnership
intends to close all contracts prior to maturity. At December 31, 1997
and 1996, the notional amount of open contracts is as follows:
F-11
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE G - TRADING ACTIVITIES AND RELATED RISKS - Continued
1997
----------------------------
Contracts Contracts
to purchase to sell
------------ ------------
Derivatives (excluding purchased options):
Futures contracts and written
options thereon:
- Agriculture $ 27,000,000 $ 26,600,000
- Currency and currency
indices 10,400,000 74,200,000
- Energy 1,200,000 12,500,000
- Equity indices 65,500,000 54,900,000
- Interest rates 756,200,000 288,900,000
- Metals 87,500,000 103,700,000
- Other 500,000 300,000
Forward contracts and written
options thereon:
- Currency - -
Purchased options on futures contracts:
- Agriculture - -
- Currency and currency
indices - 8,300,000
- Equity indices - -
- Interest rates 27,000,000 -
- Metals 4,000,000 -
------------ ------------
$979,300,000 $569,400,000
============ ============
1996
----------------------------
Contracts Contracts
to purchase to sell
------------ ------------
Derivatives (excluding purchased options):
Futures contracts and written
options thereon:
- Agriculture $ 44,800,000 $ 22,900,000
- Currency and currency
indices 27,200,000 53,400,000
- Energy 3,400,000 3,900,000
- Equity indices 121,300,000 104,200,000
- Interest rates 398,600,000 138,500,000
- Metals 51,700,000 68,400,000
- Other 3,000,000 -
Forward contracts and written
options thereon:
- Currency 4,700,000 4,700,000
Purchased options on
futures contracts:
- Agriculture 3,600,000 -
- Currency and currency indices 8,000,000 -
- Equity indices 4,500,000 99,400,000
- Interest rates - -
- Metals 5,600,000 -
------------ ------------
$676,400,000 $495,400,000
============ ============
The above amounts do not represent the Partnership's risk of loss due to
market and credit risk, but rather represent the Partnership's extent of
involvement in derivatives at the date of the statement of financial
condition.
The General Partners have established procedures to actively monitor and
minimize market and credit risk. 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.
NOTE H - ACCOMPANYING INFORMATION - NET ASSET VALUE OF COMMODITY POOL
AND PARTICIPATION UNITS
A five year comparative table of the Partnership's Net Asset Value,
number of units outstanding and Net Asset Value per unit follows:
December 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
==== ==== ==== ==== ====
Total Net
Asset Value $89,070,044 $89,861,161 $93,171,466 $95,161,530 $100,419,879
=========== =========== =========== =========== ============
Number of
participation
units 38,501 42,695 49,196 50,614 53,144
=========== =========== =========== =========== ============
Net Asset
Value per
unit $ 2,313.44 $ 2,104.72 $ 1,893.89 $ 1,880.14 $ 1,889.57
=========== =========== =========== =========== ============
F-12
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996 and 1995
(A) (B) (C1) (C2)
Additions
----------------------
Balance
at the Charged
beginning to Charged
of the costs and to income
Description period expenses accounts
- --------------------- ------ -------- --------
December 31, 1997
- -----------------
Unrealized gain
(loss) on open
contracts $1,852,308 $ - $2,218,892
========== ========== ==========
Unrealized gain on
open forward contracts $ - $ - $ -
========== ========== ==========
December 31, 1996
- -----------------
Unrealized gain
(loss) on open
contracts $6,133,288 $ - $ -
========== ========== ==========
Unrealized gain on
open forward contracts $ - $ - $ -
========== ========== ==========
December 31, 1995
- -----------------
Unrealized gain
(loss) on open
contracts $4,317,622 $ - $1,815,666
========== ========== ==========
Unrealized gain on
open forward contracts $ 248,843 $ - $ -
========== ========== ==========
(A) (D) (E)
Deductions
----------
Balance
at the
Charged end
to income of the
Description accounts period
- --------------------- ---------- ----------
December 31, 1997
- -----------------
Unrealized gain
(loss) on open
contracts $ - $4,071,200
========== ==========
Unrealized gain on
open forward contracts $ - $ -
========== ==========
December 31, 1996
- -----------------
Unrealized gain
(loss) on open
contracts $4,280,980 $1,852,308
========== ==========
Unrealized gain on
open forward contracts $ - $ -
========== ==========
December 31, 1995
- -----------------
Unrealized gain
(loss) on open
contracts $ - $6,133,288
========== ==========
Unrealized gain on
open forward contracts $ 248,843 $ -
========== ==========
F-13
ATA RESEARCH/PROFUTURES DIVERSIFIED FUND, L.P.
AFFIRMATION OF THE COMMODITY POOL OPERATORS
--------------------
To the Partners
ATA Research/ProFutures Diversified Fund, L.P.
The information contained in the accompanying financial statements is accurate
and complete to the best of my knowledge and belief.
- ----------------------------- -------------------------------------
Date Aladin T. Abughazaleh, President
ATA Research, Inc.
Co-Commodity Pool Operator
- ----------------------------- -------------------------------------
Date Gary D. Halbert, President
ProFutures, Inc.
Co-Commodity Pool Operator
F-14