Attached files
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EX-31.01 - PROFUTURES DIVERSIFIED FUND L P | efc10-547_3101.htm |
EX-32.02 - PROFUTURES DIVERSIFIED FUND L P | efc10-547_3202.htm |
EX-31.02 - PROFUTURES DIVERSIFIED FUND L P | efc10-547_3102.htm |
EX-32.01 - PROFUTURES DIVERSIFIED FUND L P | efc10-547_3201.htm |
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 quarterly period ended June 30, 2010
Commission File Number 0-16898
PROFUTURES DIVERSIFIED FUND, L.P.
(Exact name of Partnership)
Delaware
|
75-2197831
|
|
(State of incorporation or organization)
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(I.R.S. Employer Identification No.)
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ProFutures, Inc.
11719 Bee Cave Road
Suite 200
Austin, Texas 78738
(Address of principal executive offices)
Partnership’s telephone number
(800) 348-3601
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
TABLE OF CONTENTS
Page
PART I – FINANCIAL INFORMATION
|
|
Item 1. Financial Statements
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2 – 11
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Item 1. Notes to Financial Statements
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12 – 29
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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30 - 34
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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35
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Item 4T. Controls and Procedures
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35
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PART II – OTHER INFORMATION
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Item 1. Legal Proceedings
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36
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Item 1A. Risk Factors
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36
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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36 – 37
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Item 3. Defaults Upon Senior Securities
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37
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Item 4. (Removed and Reserved)
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37
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Item 5. Other Information
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37
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Item 6. Exhibits
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37
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Signatures
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38
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Rule 13a–14(a)/15d–14(a) Certifications
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39 - 40
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Section 1350 Certifications
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41 - 42
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-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
_________________
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Equity in broker trading accounts
|
||||||||
Cash
|
$ | 2,501,991 | $ | 4,181,743 | ||||
Net unrealized gain (loss) on open futures contracts
|
(272,998 | ) | 267,330 | |||||
Deposits with broker
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2,228,993 | 4,449,073 | ||||||
Cash
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1,512 | 577 | ||||||
Investments in other commodity pools
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7,996,659 | 9,275,174 | ||||||
Redemption receivable from other commodity pools
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275,000 | 600,000 | ||||||
Total assets
|
$ | 10,502,164 | $ | 14,324,824 | ||||
LIABILITIES
|
||||||||
Accounts payable
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$ | 58,812 | $ | 43,635 | ||||
Commissions and other trading fees payable
|
516 | 1,524 | ||||||
Management fees payable (includes $32,609and $44,594 payable to the General Partner at June 30, 2010 and December 31, 2009, respectively)
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49,506 | 70,642 | ||||||
Redemptions payable
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180,028 | 532,984 | ||||||
Total liabilities
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288,862 | 648,785 | ||||||
PARTNERS’ CAPITAL (Net Asset Value)
|
||||||||
Partners’ Capital (Non-restricted units):
|
||||||||
General Partner –184 units outstanding at June 30, 2010 and December 31, 2009, respectively
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411,777 | 464,548 | ||||||
Limited Partners – 4,373 and 5,225 units outstanding at June 30, 2010 and December 31, 2009, respectively
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9,801,525 | 13,211,491 | ||||||
Total partners’ capital (Net Asset Value)
|
10,213,302 | 13,676,039 | ||||||
$ | 10,502,164 | $ | 14,324,824 |
See accompanying notes.
-2-
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS
June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
_______________
June 30, 2010
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December 31, 2009
|
|||||||||||||||
Fair
Value
|
% of Net
Asset Value
|
Fair
Value
|
% of Net
Asset Value
|
|||||||||||||
LONG FUTURES CONTRACTS(1)
|
||||||||||||||||
Description
|
||||||||||||||||
U.S.
|
||||||||||||||||
Agricultural
|
$ | (33,230 | ) | (0.33 | )% | $ | 138,381 | 1.01 | % | |||||||
Currency
|
(12,775 | ) | (0.12 | )% | 42,046 | 0.31 | % | |||||||||
Energy
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0 | 0.00 | % | 1,740 | 0.01 | % | ||||||||||
Interest rate
|
0 | 0.00 | % | (716 | ) | (0.01 | )% | |||||||||
Metal
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0 | 0.00 | % | 7,675 | 0.06 | % | ||||||||||
Stock index
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(233,193 | ) | (2.28 | )% | 6,475 | 0.05 | % | |||||||||
Total U.S. long futures contracts
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$ | (279,198 | ) | (2.73 | )% | $ | 195,601 | 1.43 | % | |||||||
Foreign
|
||||||||||||||||
Agricultural
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$ | 0 | 0.00 | % | $ | 15,597 | 0.11 | % | ||||||||
Interest rate
|
0 | 0.00 | % | (34,360 | ) | (0.25 | )% | |||||||||
Stock index
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0 | 0.00 | % | 14,396 | 0.11 | % | ||||||||||
Total foreign long futures contracts
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$ | 0 | 0.00 | % | $ | (4,367 | ) | (0.03 | )% | |||||||
SHORT FUTURES CONTRACTS(1)
|
||||||||||||||||
Description
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||||||||||||||||
U.S.
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||||||||||||||||
Agricultural
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$ | 375 | 0.00 | %(2) | $ | (330 | ) | 0.00 | %(2) | |||||||
Currency
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0 | 0.00 | % | 8,650 | 0.06 | % | ||||||||||
Energy
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0 | 0.00 | % | 17,045 | 0.12 | % | ||||||||||
Interest rate
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0 | 0.00 | % | 20,125 | 0.15 | % | ||||||||||
Stock index
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5,825 | 0.06 | % | 26,390 | 0.19 | % | ||||||||||
Total U.S. short futures contracts
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$ | 6,200 | 0.06 | % | $ | 71,880 | 0.52 | % | ||||||||
Foreign
|
||||||||||||||||
Stock index
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$ | 0 | 0.00 | % | $ | 4,216 | 0.03 | % | ||||||||
Total foreign short futures contracts
|
$ | 0 | 0.00 | % | $ | 4,216 | 0.03 | % | ||||||||
Total futures contracts
|
$ | (272,998 | ) | (2.67 | )% | $ | 267,330 | 1.95 | % |
(1)
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No individual futures contract position constitutes greater than 5% of the Partnership’s Net Asset Value at June 30, 2010 or December 31, 2009. Accordingly, the number of contracts and expiration dates are not presented.
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(2)
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Represents less than 0.01% of the Partnership’s Net Asset Value.
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See accompanying notes.
-3-
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS (CONTINUED)
June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
_______________
June 30, 2010
|
December 31, 2009
|
|||||||||||||||
Fair
Value
|
% of Net
Asset Value
|
Fair
Value
|
% of Net
Asset Value
|
|||||||||||||
INVESTMENTS IN OTHER COMMODITY POOLS
|
||||||||||||||||
Valhalla Synergy Fund LLC
|
||||||||||||||||
Investment Objective
|
||||||||||||||||
To achieve capital appreciation by trading U.S. and
|
||||||||||||||||
Non U.S. futures and forward currency contracts
|
||||||||||||||||
Redemption Provisions
|
||||||||||||||||
Quarterly, with 45 days notice
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$ | 0 | 0.00 | % | $ | 2,097,074 | 15.33 | % | ||||||||
Winton Futures Fund, L.P. (US) – Institutional Interests(1)
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||||||||||||||||
Investment Objective
|
||||||||||||||||
To achieve capital appreciation by trading U.S. and Non U.S. futures contracts and fixed income securities
|
||||||||||||||||
Redemption Provisions
|
||||||||||||||||
Monthly, with 15 days notice
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5,641,285 | 55.24 | % | 7,178,100 | 52.49 | % | ||||||||||
Altegris QIM Futures Fund, L.P. – Institutional Interests(1)
|
||||||||||||||||
Investment Objective
|
||||||||||||||||
To achieve capital appreciation by trading U.S. and Non U.S. futures contracts and fixed income securities
|
||||||||||||||||
Redemption Provisions
|
||||||||||||||||
Monthly, with 15 days notice
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2,355,374 | 23.06 | % | 0 | 0.00 | % | ||||||||||
Total investments in other commodity pools
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$ | 7,996,659 | 78.30 | % | $ | 9,275,174 | 67.82 | % |
(1)
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The General Partner of Winton Futures Fund, L.P. (US) and Altegris QIM Futures Fund, L.P. (formerly, APM-QIM Futures Fund, L.P.) is Altegris Portfolio Management, Inc., an affiliate of Altegris Investments, Inc.
|
See accompanying notes.
-4-
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS (CONTINUED)
June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
_______________
Proportional Share of Investments of Other Commodity Pools as of June 30, 2010(1)
U.S. Government Agency Bonds and Notes
Face
Value |
Description
|
Range of
Maturity Dates |
Fair
Value |
% of Net
Asset Value |
||||||||||
$1,186,155
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Federal Farm Credit Bank (0.01 – 1.19%)
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07/2010 to 06/2012
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$ | 1,188,266 | 11.63 | % | ||||||||
$1,074,261
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Federal Home Loan Bank (0.05 – 1.50%)
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07/2010 to 05/2012
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$ | 1,075,907 | 10.53 | % | ||||||||
$ 810,739
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Federal Home Loan Mortgage Corporation
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|||||||||||||
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(0.05 – 1.40%)
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07/2010 to 06/2012 | $ | 811,786 | 7.95 | % | ||||||||
$ 771,121
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Federal National Mortgage Association
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|||||||||||||
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(1.05 – 1.50%)
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07/2010 to 07/2012 | $ | 771,443 | 7.55 | % |
(1)
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Represents the Partnership’s proportional share of other commodity pools’ individual underlying investments which exceed 5% of the Partnership’s Net Asset Value at June 30, 2010.
|
See accompanying notes.
-5-
PROFUTURES DIVERSIFIED FUND, L.P.
CONDENSED SCHEDULES OF INVESTMENTS (CONTINUED)
June 30, 2010 (Unaudited) and December 31, 2009 (Audited)
_______________
(1)
|
Represents the Partnership’s proportional share of other commodity pools’ individual underlying investments and open futures contracts and options on futures contracts which exceed 5% of the Partnership’s Net Asset Value at December 31, 2009. In certain situations, open futures contracts and options on futures contracts that are less than 5% of the Partnership’s Net Asset Value at December 31, 2009 may be presented to better indicate the Partnership’s net exposure to a particular underlying commodity.
|
See accompanying notes.
-6-
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2010 and 2009
(Unaudited)
_________________
Three Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
TRADING AND INVESTING GAINS (LOSSES)
|
||||||||
Net gain (loss) from futures trading
|
||||||||
Realized
|
$ | 69,009 | $ | 305,470 | ||||
Change in unrealized
|
(287,632 | ) | 88,380 | |||||
Brokerage commissions
|
(24,589 | ) | (53,319 | ) | ||||
Gain (loss) from futures trading
|
(243,212 | ) | 340,531 | |||||
Income (loss) from investments in other commodity pools, net
|
79,788 | (571,940 | ) | |||||
Total trading and investing gains (losses)
|
(163,424 | ) | (231,409 | ) | ||||
NET INVESTMENT INCOME (LOSS)
|
||||||||
Income
|
||||||||
Interest income
|
807 | 835 | ||||||
Expenses
|
||||||||
Incentive fees
|
0 | 80,929 | ||||||
Management fees (includes $104,705 and $164,508charged by the General Partner for the three months ended June 30, 2010 and 2009, respectively)
|
137,606 | 224,487 | ||||||
Operating expenses
|
99,257 | 136,510 | ||||||
Total expenses
|
236,863 | 441,926 | ||||||
Net investment income (loss)
|
(236,056 | ) | (441,091 | ) | ||||
NET INCOME (LOSS)
|
$ | (399,480 | ) | $ | (672,500 | ) | ||
NET INCOME (LOSS) PER GENERAL AND
|
||||||||
LIMITED PARTNER UNIT
|
||||||||
(based on weighted average number of units outstanding during the period of 4,941 and 6,091, respectively)
|
$ | (80.85 | ) | $ | (110.41 | ) | ||
INCREASE (DECREASE) IN NET ASSET VALUE
|
||||||||
PER GENERAL AND LIMITED PARTNER UNIT
|
$ | (77.46 | ) | $ | (109.97 | ) |
See accompanying notes.
-7-
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF OPERATIONS (CONTINUED)
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
_________________
Six Months Ended June 30,
|
||||||||||||||||
2010
|
2009
|
2009
|
2009
|
|||||||||||||
Total
|
Non-
restricted
|
Side pocket/
restricted
|
Total
|
|||||||||||||
TRADING AND INVESTING GAINS (LOSSES)
|
||||||||||||||||
Net gain (loss) from futures trading
|
||||||||||||||||
Realized
|
$ | (522,210 | ) | $ | (81,142 | ) | $ | 0 | $ | (81,142 | ) | |||||
Change in unrealized
|
(540,328 | ) | (191,662 | ) | 0 | (191,662 | ) | |||||||||
Brokerage commissions
|
(81,021 | ) | (95,492 | ) | 0 | (95,492 | ) | |||||||||
Gain (loss) from futures trading
|
(1,143,559 | ) | (368,296 | ) | 0 | (368,296 | ) | |||||||||
Income (loss) from investments in other commodity pools, net
|
102,044 | (746,513 | ) | 19,515 | (726,998 | ) | ||||||||||
Total trading and investing gains (losses)
|
(1,041,515 | ) | (1,114,809 | ) | 19,515 | (1,095,294 | ) | |||||||||
NET INVESTMENT INCOME (LOSS)
|
||||||||||||||||
Income
|
||||||||||||||||
Interest income
|
944 | 1,985 | 0 | 1,985 | ||||||||||||
Expenses
|
||||||||||||||||
Incentive fees
|
0 | 136,617 | 0 | 136,617 | ||||||||||||
Management fees (includes $224,681, $336,037, $7,714and $343,751 charged by the General Partner for the six months ended June 30, 2010 and 2009, respectively)
|
304,705 | 447,259 | 7,714 | 454,973 | ||||||||||||
Interest expense
|
374 | 0 | 0 | 0 | ||||||||||||
Operating expenses
|
183,280 | 225,812 | 3,707 | 229,519 | ||||||||||||
Total expenses
|
488,359 | 809,688 | 11,421 | 821,109 | ||||||||||||
Net investment income (loss)
|
(487,415 | ) | (807,703 | ) | (11,421 | ) | (819,124 | ) | ||||||||
NET INCOME (LOSS)
|
$ | (1,528,930 | ) | $ | (1,922,512 | ) | $ | 8,094 | $ | (1,914,418 | ) | |||||
NET INCOME (LOSS) PER GENERAL AND
|
||||||||||||||||
LIMITED PARTNER UNIT
|
||||||||||||||||
(based on weighted average number of units outstanding during the period of 5,161, 6,091 and 462, respectively)
|
$ | (296.25 | ) | $ | (315.63 | ) | $ | 17.52 | N/A | (1) | ||||||
INCREASE (DECREASE) IN NET ASSET VALUE
|
||||||||||||||||
PER GENERAL AND LIMITED PARTNER UNIT
|
$ | (287.24 | ) | $ | (314.96 | ) | $ | 17.54 | N/A | (1) |
(1)
|
A total net income (loss) per general and limited partner Unit and a total for the increase (decrease) in Net Asset Value per general and limited partner Unit are not presented as the amounts are instead shown for each separate class of Units.
|
See accompanying notes.
-8-
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
_________________
Partners’ Capital
|
||||||||||||||||
Total
Number of
Units
|
General
|
Limited
|
Total
|
|||||||||||||
Balances at
|
||||||||||||||||
December 31, 2009
|
5,409 | $ | 464,548 | $ | 13,211,491 | $ | 13,676,039 | |||||||||
Net income (loss) for the six
|
||||||||||||||||
months ended June 30, 2010
|
(52,771 | ) | (1,476,159 | ) | (1,528,930 | ) | ||||||||||
Redemptions
|
(852 | ) | 0 | (1,933,807 | ) | (1,933,807 | ) | |||||||||
Balances at
|
||||||||||||||||
June 30, 2010
|
4,557 | $ | 411,777 | $ | 9,801,525 | $ | 10,213,302 | |||||||||
Net Asset Value Per Unit
|
||||||||||||||||
June 30,
2010
|
December 31,
2009
|
|||||||||||||||
$ | 2,241.37 | $ | 2,528.61 |
See accompanying notes.
-9-
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (NET ASSET VALUE)
(CONTINUED)
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
_________________
Total | ||||||||||||||||
Number of
|
Partners’Capital | |||||||||||||||
Units
|
General
|
Limited
|
Total
|
|||||||||||||
Non-restricted units
|
||||||||||||||||
Balances at
|
||||||||||||||||
December 31, 2008
|
5,859 | $ | 543,779 | $ | 17,851,493 | $ | 18,395,272 | |||||||||
Net income (loss) for the six
|
||||||||||||||||
months ended June 30, 2009
|
(57,241 | ) | (1,865,271 | ) | (1,922,512 | ) | ||||||||||
Redemptions
|
(179 | ) | 0 | (520,369 | ) | (520,369 | ) | |||||||||
Transfer from side pocket/restricted(1)
|
361 | 32,444 | 1,078,335 | 1,110,779 | ||||||||||||
Balances at
|
||||||||||||||||
June 30, 2009
|
6,041 | $ | 518,982 | $ | 16,544,188 | $ | 17,063,170 | |||||||||
Side pocket/restricted units
|
||||||||||||||||
Balances at
|
||||||||||||||||
December 31, 2008
|
415 | $ | 32,232 | $ | 1,073,525 | $ | 1,105,757 | |||||||||
Net income (loss) for the six
|
||||||||||||||||
months ended June 30, 2009
|
212 | 7,882 | 8,094 | |||||||||||||
Redemptions(2)
|
(1 | ) | 0 | (3,072 | ) | (3,072 | ) | |||||||||
Transfer to non-restricted(1)
|
(414 | ) | (32,444 | ) | (1,078,335 | ) | (1,110,779 | ) | ||||||||
Balances at
|
||||||||||||||||
June 30, 2009(3)
|
0 | $ | 0 | $ | 0 | $ | 0 | |||||||||
Total Partners’ Capital (Net Asset Value) at June 30, 2009
|
$ | 518,982 | $ | 16,544,188 | $ | 17,063,170 | ||||||||||
Net Asset Value Per Unit
|
||||||||||||||||
Non-restricted units
|
Side pocket/restricted units
|
|||||||||||||||
June 30,
|
December 31,
|
June 30,
|
December 31,
|
|||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
$ | 2,824.90 | $ | 3,139.86 | N/A | (3) | $ | 2,663.73 |
(1)
|
Effective February 28, 2009, the managing member of SHK distributed the remaining portion of the Partnership’s investment in SHK to the Partnership, which was paid to the Partnership on March 16, 2009. As a result, the remaining units held in the side pocket/restricted units were transferred and converted to non-restricted units at the February 28, 2009 non-restricted net asset value per unit.
|
(2)
|
Represents the portion of the February 28, 2009 distribution from SHK related to partners who have completely redeemed from the Partnership and did not hold non-restricted units.
|
(3)
|
The side pocket/restricted unit class was terminated effective February 28, 2009. The side pocket/restricted net asset value per unit at February 28, 2009, prior to the termination, was $2,681.27.
|
See accompanying notes.
-10-
PROFUTURES DIVERSIFIED FUND, L.P.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
_________________
June 30,
|
||||||||
2010
|
2009
|
|||||||
OPERATING ACTIVITIES
|
||||||||
Net income (loss)
|
$ | (1,528,930 | ) | $ | (1,914,418 | ) | ||
Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||
Change in unrealized (gain) loss on open futures contracts
|
540,328 | 191,662 | ||||||
(Income) loss from investments in other commodity pools, net
|
(102,044 | ) | 726,998 | |||||
Change in operating assets and liabilities
|
||||||||
(Increase) decrease in cash deposits with broker
|
1,679,752 | (208,529 | ) | |||||
Additions to investments in other commodity pools
|
(2,400,000 | ) | (1,000,000 | ) | ||||
Redemptions from other commodity pools
|
4,105,559 | 3,151,000 | ||||||
Increase in accounts payable
|
15,177 | 23,758 | ||||||
(Decrease) in commissions and other trading fees payable
|
(1,008 | ) | (44 | ) | ||||
(Decrease) in incentive fees payable
|
0 | (104,569 | ) | |||||
(Decrease) in management fees payable
|
(21,136 | ) | (72,375 | ) | ||||
Net cash provided by (used in) Operating Activities
|
2,287,698 | 793,483 | ||||||
FINANCING ACTIVITIES
|
||||||||
Redemptions paid
|
(2,286,763 | ) | (798,923 | ) | ||||
Net cash provided by (used in) Financing Activities
|
(2,286,763 | ) | (798,923 | ) | ||||
Net cash increase (decrease) for the period
|
935 | (5,440 | ) | |||||
Cash at beginning of the period
|
577 | 3,533 | ||||||
Cash (deficit) at end of the period
|
$ | 1,512 | $ | (1,907 | ) |
See accompanying notes.
-11-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
_________________
Note 1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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, options on futures contracts, physical commodities, interbank forward currency contracts and options on interbank forward currency contracts, United States (U.S.) Government agency obligations, corporate notes and repurchase agreements, directly and through its investments in other commodity pools. The Partnership closed to investors in 1995 and will terminate at the end of December 2012, at which time the remaining assets will be distributed.
|
|
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 the Securities Exchange Act of 1934. As a commodity investment pool, the Partnership is subject to the regulations of the Commodity Futures Trading Commission, an agency of the 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.
|
|
Method of Reporting
|
|
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 total number of units outstanding.
|
|
Use of Estimates
|
|
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates and assumptions utilized.
|
Fair Value of Financial Instruments
|
Substantially all of the Partnership’s assets and liabilities are considered financial instruments and are reflected at fair value, or at carrying amounts that approximate fair value because of the short maturity of the instruments.
|
|
Fair value, as defined in the Fair Value Measurements and Disclosures Topic of the Codification, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined under the Fair Value Measurements and Disclosures Topic of the Codification as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are described below:
|
-12-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair Value of Financial Instruments (continued)
|
Level 1.
|
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
|
|
Level 2.
|
Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly. A significant adjustment to a Level 2 input could result in the Level 2 measurement becoming a Level 3 measurement.
|
|
Level 3.
|
Inputs are unobservable for the asset or liability.
|
|
The Partnership uses futures contracts as part of its trading activities. The fair values of futures contracts are based upon exchange settlement prices. These contracts are classified as Level 1 of the fair value hierarchy. The fair values of Level 1 financial instruments at June 30, 2010 and December 31, 2009, consisted of the following:
|
June 30, 2010
|
December 31,2009
|
|||||||
Futures contracts
|
$ | (272,998 | ) | $ | 267,330 |
|
The Partnership’s investments in other commodity pools are reported in the statement of financial condition at fair value. Fair value ordinarily represents the Partnership’s proportionate share of each other commodity pool’s net asset value determined for each commodity pool in accordance with such commodity pool’s valuation policies and as reported by their management at the time of the Partnership’s valuation. Generally, the fair value of the Partnership’s investment in a commodity pool represents the amount that the Partnership could reasonably expect to receive from such commodity pool if the Partnership’s investment was redeemed at the time of valuation (generally the net asset value of the commodity pool), based on information reasonably available at the time the valuation is made and that the Partnership believes to be reliable. The Partnership records its proportionate share of other commodity pools’ income or loss in the statement of operations.
|
|
Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair Value Measurements and Disclosures (Topic 820), Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), provides that if the reporting entity has the ability to redeem its investment in another commodity pool at net asset value at the measurement date, the investment shall be categorized as a Level 2 fair value measurement, and if the reporting entity cannot redeem its investment in another commodity pool at net asset value at the measurement date but the investment may be redeemable at a future date, the reporting entity shall consider the length of time until the investment will be redeemable in determining whether it will be categorized as a Level 2 or Level 3 fair value measurement. Accordingly, in accordance with the provisions of ASU 2009-12, the Partnership’s investments in other commodity pools are categorized as Level 2 fair value measurements. The fair values of Level 2 investments in other commodity pools at June 30, 2010 and December 31, 2009, consisted of the following:
|
|
June 30, 2010
|
December 31, 2009
|
||||||
Investments in other commodity pools
|
$ | 7,996,659 | $ | 9,275,174 |
-13-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair Value of Financial Instruments (continued)
|
The amount of income from investments in other commodity pools included in net income (loss) for the three and six months ended June 30, 2010 and 2009 is reported as income (loss) from investments in other commodity pools as a single amount in the Statements of Operations, as the Partnership accounts for its investments in other commodity pools at fair value.
|
|
Futures Contracts
|
|
Transactions are accounted for on the trade date. Gains or losses are realized when contracts are liquidated. Net unrealized gains or losses on open contracts (the difference between contract trade 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. Any change in net unrealized gain or loss from the preceding period is reported in the Statements of Operations. Brokerage commissions on futures contracts include other trading fees and are charged to expense when contracts are opened. Fair value of exchange-traded contracts is based upon exchange settlement prices.
|
|
Income Taxes
|
|
The Partnership is not subject to federal income taxes. The Partnership prepares and files calendar year U.S. and applicable state information tax returns and reports to the partners their allocable shares of the Partnership’s income, expenses and trading and investing gains or losses. The Partnership has elected an accounting policy to classify interest and penalties, if any, as interest expense. Management has determined that there are no material uncertain income tax positions through June 30, 2010. The 2007 through 2009 tax years generally remain subject to examination by U.S. federal and most state tax authorities.
|
|
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 trading and investing gains (losses) in the Statements of Operations.
|
|
Redemptions of Units
|
|
Redemptions payable represent redemptions approved by the General Partner prior to the period end, including those that are not effective until subsequent periods. These redemptions have been recorded as redemptions and redemptions payable, using the period end Net Asset Value per unit, in accordance with the provisions of the Distinguishing Liabilities from Equity Topic of the Codification. Redemptions that are not effective until subsequent periods are treated as next month’s redemptions using the net asset value of the following month end. The change in redemptions payable from the previous reporting period due to change in net asset value is reported in net income and then allocated.
|
-14-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
Derivative Instruments
|
|
The Partnership’s business is the speculative trading of U.S. and foreign futures contracts and other commodity-related contracts, (collectively, derivatives) pursuant to the trading and investment methodology of the General Partner. The Partnership also invests in other commodity pools and is indirectly exposed to the speculative trading of U.S. and foreign futures contracts, physical commodities and securities within those other commodity pools. The Partnership does not designate any derivative instruments as hedging instruments under the Derivatives and Hedging Topic of the Codification nor are the derivative instruments used for other risk management purposes. Due to the speculative nature of the Partnership’s derivative trading activity, the Partnership is subject to the risk of substantial losses from derivatives trading.
|
|
The following tables summarize quantitative information required by the Derivatives and Hedging Topic of the Codification. The fair value of derivative contracts is presented as an asset if in a gain position and a liability if in a loss position. Fair value is presented on a gross basis in the table below even though the derivative contracts qualify for net presentation in the statement of financial condition:
|
Derivatives not designed as hedging instruments as of June 30, 2010:
|
Asset Derivatives*
|
Liability Derivatives*
|
||||||||||
Type of Contract
|
Fair Value
|
Fair Value
|
Net
|
|||||||||
Agricultural contracts
|
$ | 375 | $ | (33,230 | ) | $ | (32,855 | ) | ||||
Currency contracts
|
0 | (12,775 | ) | (12,775 | ) | |||||||
Stock index contracts
|
5,825 | (233,193 | ) | (227,368 | ) | |||||||
$ | 6,200 | $ | (279,198 | ) | $ | (272,998 | ) |
Derivatives not designed as hedging instruments as of December 31, 2009:
|
Asset Derivatives*
|
Liability Derivatives*
|
||||||||||
Type of Contract
|
Fair Value
|
Fair Value
|
Net
|
|||||||||
Agricultural contracts
|
$ | 168,857 | $ | (15,209 | ) | $ | 153,648 | |||||
Currency contracts
|
57,146 | (6,450 | ) | 50,696 | ||||||||
Energy contracts
|
19,325 | (540 | ) | 18,785 | ||||||||
Interest rate contracts
|
24,242 | (39,193 | ) | (14,951 | ) | |||||||
Metal contracts
|
38,200 | (30,525 | ) | 7,675 | ||||||||
Stock index contracts
|
52,282 | (805 | ) | 51,477 | ||||||||
$ | 360,052 | $ | (92,722 | ) | $ | 267,330 |
|
*
|
The fair values of all asset and liability derivatives, including agricultural, currency, energy, interest rate, metal and stock index contracts, are included in equity in broker trading accounts on the statement of financial condition.
|
-15-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
|
Derivative Instruments (continued)
|
Trading Revenue for the
Three Months Ended June 30, 2010 and 2009
|
Trading Revenue for the
Three Months Ended June 30, 2010 and 2009
|
||||||||||||||||
Type of Contract
|
2010
|
2009
|
Line Item in
Statement of
Operations
|
2010
|
2009
|
||||||||||||
Agricultural contracts
|
$ | (148,451 | ) | $ | 57,124 |
Realized
|
$ | 69,009 | $ | 305,470 | |||||||
Currency contracts
|
(120,394 | ) | 197,830 | ||||||||||||||
Energy contracts
|
(106,952 | ) | 145,331 |
Change in
|
|||||||||||||
Interest rate contracts
|
(12,751 | ) | (184,912 | ) |
unrealized
|
(287,632 | ) | 88,380 | |||||||||
Metal contracts
|
0 | (74,849 | ) | ||||||||||||||
Stock index contracts
|
169,925 | 253,326 | |||||||||||||||
$ | (218,623 | ) | $ | 393,850 | $ | (218,623 | ) | $ | 393,850 | ||||||||
Trading Revenue for the
Six Months Ended June 30, 2010 and 2009
|
Trading Revenue for the
Six Months Ended June 30, 2010 and 2009
|
||||||||||||||||
Type of Contract
|
2010 | 2009 |
Line Item in
Statement of
Operations
|
2010 | 2009 | ||||||||||||
Agricultural contracts
|
$ | (351,641 | ) | $ | (341,134 | ) |
Realized
|
$ | (522,210 | ) | $ | (81,142 | ) | ||||
Currency contracts
|
(195,445 | ) | 177,158 | ||||||||||||||
Energy contracts
|
(272,311 | ) | 103,040 |
Change in
|
|||||||||||||
Interest rate contracts
|
(69,546 | ) | (449,588 | ) |
unrealized
|
(540,328 | ) | (191,662 | ) | ||||||||
Metal contracts
|
(12,277 | ) | (98,666 | ) | |||||||||||||
Stock index contracts
|
(161,318 | ) | 336,386 | ||||||||||||||
$ | (1,062,538 | ) | $ | (272,804 | ) | $ | (1,062,538 | ) | $ | (272,804 | ) |
|
For the three months ended June 30, 2010 and 2009, the monthly average number of futures contracts bought and sold was approximately 1,600 and 3,300, respectively. For the six months ended June 30, 2010 and 2009, the monthly average number of futures contracts bought and sold was approximately 2,600 and 2,900, respectively.
|
Interim Financial Statements
|
The unaudited condensed financial statements of ProFutures Diversified Fund, L.P., as of June 30, 2010 and for the three and six month periods ended June 30, 2010 and 2009, have been prepared by us pursuant to the rules and regulations of the SEC. The information included reflects all adjustments (consisting only of normal recurring accruals and adjustments), which are, in the opinion of management; necessary to fairly state the operating results for the respective periods. However, these operating results are not necessarily indicative of the results expected for the full fiscal year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to SEC rules and regulations. The notes to the unaudited condensed financial statements should be read in conjunction with the notes to the financial statements contained in our 2009 Annual Report on Form 10-K filed with the SEC on April 15, 2010.
|
-16-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
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 contribute to the Partnership an amount in the aggregate 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 maintain 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, Inc. has a callable stock subscription agreement with MF Global Ltd. (MFG), the Partnership’s broker, whereby MFG has subscribed to purchase (up to $7,000,000, subject to conditions set forth in the stock subscription agreement dated October 22, 2004) the number of shares of common stock of ProFutures, Inc. necessary to maintain the General Partner’s net worth requirements.
|
|
The Partnership pays the General Partner a monthly management fee of 1/4 of 1% (3% annually) of month-end Net Asset Value. The General Partner receives an additional monthly management fee of .0625% (.75% annually) of the Partnership’s month-end Net Asset Value for consulting services rendered to the Partnership.
|
|
Total management fees earned by ProFutures, Inc. for the six months ended June 30, 2010 and 2009 were $224,681 and $343,751, respectively. Such management fees earned for the three months ended June 30, 2010 and 2009 were $104,705 and $164,508, respectively. Management fees payable to ProFutures, Inc. as of June 30, 2010 and December 31, 2009 were $32,609 and $44,594, respectively.
|
Note 3.
|
CONSULTANTS
|
|
The Partnership maintains a consulting agreement with Altegris Investments, Inc. (the CTA Consultant) and Altegris Portfolio Management, Inc. (the CPO Consultant), collectively (the Consultants), whereby the Consultants recommend the selection and termination of the Partnership’s trading advisors and other commodity pools and the allocation and reallocation of the Partnership’s assets. The CPO Consultant is the general partner of Winton Futures Fund, L.P. (US) and Altegris QIM Futures Fund, L.P. (formerly, APM-QIM Futures Fund, L.P.). Pursuant to the consulting agreement, the Consultants receive a monthly consulting fee equal to .0208% (.25% annually) of the Partnership’s month-end Net Asset Value (as defined in the Consulting Agreement). Certain net assets of the Partnership invested with managers affiliated with the Consultants are excluded from the month-end Net Asset Value when computing the consulting fees due to the Consultants. In addition, the net assets of the Partnership invested with a certain commodity trading advisor are excluded from the month-end Net Asset Value when computing the consulting fees due to the Consultants since the Consultants earn a percentage of such commodity trading advisor’s incentive fee.
|
-17-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 3.
|
CONSULTANTS (CONTINUED)
|
|
The consulting fee (included in management fees in the Statements of Operations) earned by the Consultants for the six months ended June 30, 2010 and 2009 totaled $2,842 and $5,811, respectively, and $1,280 and $2,757 for the three months ended June 30, 2010 and 2009, respectively. The consulting fee payable (included in management fees payable in the Statements of Financial Condition) to the Consultants as of June 30, 2010 and December 31, 2009 was $201 and $617, respectively. In addition to the monthly consulting fee, the Consultants earn commissions for introducing the Partnership to certain commodity trading advisors and other commodity pools based on the number of trades entered on behalf of the Partnership.
|
Note 4.
|
COMMODITY TRADING ADVISORS
|
|
The Partnership has trading advisory contracts with commodity trading advisors (CTAs) to furnish investment management services to the Partnership. These trading advisors typically receive management fees ranging from 0% to 2% annually of Allocated Net Asset Value (as defined in each respective trading advisory agreement). In addition, the commodity trading advisors typically receive quarterly incentive fees ranging from 20% to 25% of Trading Profits (as defined). Total management fees earned by the trading advisors amounted to $77,182 and $105,411 for the six months ended June 30, 2010 and 2009, respectively. Such management fees earned by the trading advisors for the three months ended June 30, 2010 and 2009 were $31,621 and $57,222, respectively. Total incentive fees earned by the trading advisors amounted to $0 and $136,617 for the six months ended June 30, 2010 and 2009, respectively. Such incentive fees earned by the trading advisors for the three months ended June 30, 2010 and 2009 were $0 and $80,929, respectively.
|
|
As of June 30, 2010, the Partnership has allocated notional funds to CTAs equal to approximately 30% of the Partnership’s cash and/or other margin – qualified assets. This percentage may be higher or lower at any given time. The management fees paid to a CTA, 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 a CTA 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, CTAs are expected to be allocated notional funds, and not all of the CTAs 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 a CTA will vary greatly at various times in the course of the Partnership’s business, depending on the General Partner’s general allocation strategy and pertinent margin requirements for the trading strategies undertaken by a CTA.
|
-18-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 5.
|
SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
|
|
Limited Partners have the right to redeem units as of any month-end upon ten (10) days' prior written notice to the Partnership. Redemptions will be made on the last day of the month for an amount equal to the net asset value per unit, as defined, represented by the units to be redeemed. The right to obtain redemptions is also contingent upon the Partnership's having assets sufficient to discharge its liabilities on the redemption date and may be delayed if the General Partner determines that earlier liquidation of commodity interest positions to meet redemption payments would be detrimental to the Partnership or non-redeeming Limited Partners.
|
|
Under certain circumstances, including, but not limited to, the inability to liquidate commodity positions or a delay in payments due to the Partnership from commodity brokers, banks, commodity pools or other persons, the Partnership may in turn delay payment to partners requesting redemption of units. In that event, payment for redemption of such units will be made to Limited Partners as soon thereafter as is practicable. As discussed more fully in Note 7, the General Partner established a side pocket/restricted unit class for the Partnership’s interest in SHK Diversified LLC (SHK). A partner could not redeem units from the side pocket/restricted unit class until management of SHK distributed proceeds from the Partnership’s investment in SHK to the Partnership. Effective February 28, 2009, SHK distributed the entire amount of the Partnership’s investment in SHK to the Partnership. As a result, all of the units held in the side pocket/restricted units were transferred and converted to non-restricted units at the February 28, 2009 non-restricted Net Asset Value per unit or were paid their pro rata share of the proceeds if they did not hold non-restricted units.
|
Note 6.
|
DEPOSITS WITH BROKER
|
|
The Partnership deposits funds with MFG to act as broker, subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such broker. All assets with MFG are subject to being collateralized for any amounts due to MFG to meet margin and other broker or regulatory requirements. The Partnership earns interest income on cash deposited with the broker.
|
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS
|
|
The Partnership invests in other commodity pools, which are subject to the terms of the respective limited partnership agreements and offering memoranda of such other commodity pools, which may, among other things, delay or suspend withdrawal rights under certain circumstances. The Partnership has no outstanding commitments related to its investments in other commodity pools.
|
-19-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
|
Summarized information for these investments is as follows:
|
SHK
Diversified LLC
|
Valhalla
Synergy
Fund LLC
|
Winton
Futures Fund,
L.P. (US)
|
Altegris QIM
Futures
Fund, L.P.
|
Totals
|
||||||||||||||||
Net Asset Value
|
||||||||||||||||||||
December 31, 2009
|
$ | 0 | $ | 2,097,074 | $ | 7,178,100 | $ | 0 | $ | 9,275,174 | ||||||||||
Additions
|
0 | 0 | 0 | 2,400,000 | 2,400,000 | |||||||||||||||
Income (loss)
|
0 | (171,515 | ) | 318,185 | (44,626 | ) | 102,044 | |||||||||||||
Redemptions
|
0 | (1,925,559 | ) | (1,855,000 | ) | 0 | (3,780,559 | ) | ||||||||||||
Net Asset Value
|
||||||||||||||||||||
June 30, 2010
|
$ | 0 | $ | 0 | $ | 5,641,285 | $ | 2,355,374 | $ | 7,996,659 | ||||||||||
Income (loss)
|
||||||||||||||||||||
Quarter 1, 2010
|
$ | 0 | $ | (171,515 | ) | $ | 212,543 | $ | (18,772 | ) | $ | 22,256 | ||||||||
Quarter 2, 2010
|
0 | 0 | 105,642 | (25,854 | ) | 79,788 | ||||||||||||||
Income (loss) for the
|
||||||||||||||||||||
six months ended
|
||||||||||||||||||||
June 30, 2010
|
$ | 0 | $ | (171,515 | ) | $ | 318,185 | $ | (44,626 | ) | $ | 102,044 | ||||||||
Net Asset Value
|
||||||||||||||||||||
December 31, 2008
|
$ | 1,315,743 | $ | 2,740,835 | $ | 8,527,355 | $ | 0 | $ | 12,583,933 | ||||||||||
Additions
|
0 | 0 | 1,000,000 | 0 | 1,000,000 | |||||||||||||||
Income (loss)
|
19,515 | 66,436 | (812,949 | ) | 0 | (726,998 | ) | |||||||||||||
Redemptions
|
(1,335,258 | ) | 0 | (500,000 | ) | 0 | (1,835,258 | ) | ||||||||||||
Net Asset Value
|
||||||||||||||||||||
June 30, 2009
|
$ | 0 | $ | 2,807,271 | $ | 8,214,406 | $ | 0 | $ | 11,021,677 | ||||||||||
Income (loss)
|
||||||||||||||||||||
Quarter 1, 2009
|
$ | 19,515 | $ | 31,822 | $ | (206,395 | ) | $ | 0 | $ | (155,058 | ) | ||||||||
Quarter 2, 2009
|
0 | 34,614 | (606,554 | ) | 0 | (571,940 | ) | |||||||||||||
Income (loss) for the
|
||||||||||||||||||||
six months ended
|
||||||||||||||||||||
June 30, 2009
|
$ | 19,515 | $ | 66,436 | $ | (812,949 | ) | $ | 0 | $ | (726,998 | ) |
|
SHK Diversified LLC
|
|
As of January 31, 2008, the managing member of SHK Diversified LLC (SHK) temporarily suspended future redemptions. SHK’s managing member indicated to investors that this action was taken due to a decline in the liquidity of the markets traded by SHK combined with a significant number of requests for redemptions. On April 28, 2008, the Partnership submitted a request for full redemption from SHK. Effective December 31, 2008, SHK declared for distribution to the Partnership approximately half ($1,315,742) of the Partnership’s investment in SHK which was paid to the Partnership on January 15, 2009. Effective February 28, 2009, SHK declared for distribution to the Partnership the entire remaining portion ($1,335,258) of the Partnership’s investment in SHK which was paid to the Partnership on March 16, 2009.
|
-20-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
|
SHK Diversified LLC (Continued)
|
|
The Partnership’s proportionate share in the earnings (losses) of SHK of $19,515 is included in net income (loss) for the six month period ended June 30, 2009.
|
|
The General Partner established a side pocket/restricted unit class for the Partnership’s interest in SHK until such time as these funds could be released and valued with a reasonable degree of certainty. Investor units attributed to SHK were segregated into the side pocket while units not attributed to SHK continued to be available for redemption. Redemptions were paid in cash for the portion of the Partnership’s net assets not attributed to SHK while the net assets attributed to SHK were held in the side pocket. The side pocket/restricted unit class also bore its proportionate share of the Partnership’s expenses, as well as all expenses directly related to this class’ establishment and operation. Effective February 28, 2009, the side pocket/restricted unit class was terminated after all proceeds were received from the Partnership’s investment in SHK.
|
|
Investors in SHK are charged management fees of 6.00% per annum and a profit share of 25% of trading profits. For the two months ended February 28, 2009, the Partnership’s proportionate share of management fees and profit share charged by SHK were approximately, $6,700 and $0, respectively.
|
|
Condensed financial information for the period January 1, 2009 to February 28, 2009 is as follows:
|
Statement of Operations
|
Two Months Ended February 28, 2009 (Unaudited)
|
|||
Trading gains (losses)
|
||||
Realized
|
$ | (10,063,882 | ) | |
Change in unrealized
|
10,768,533 | |||
Brokerage commissions
|
(89,581 | ) | ||
Total trading gains (losses)
|
615,070 | |||
Net investment income (loss)
|
||||
Interest and dividend income
|
13,459 | |||
Expenses
|
||||
Incentive fee
|
0 | |||
Management and other fees
|
126,078 | |||
Operating expenses
|
48,631 | |||
Total expenses
|
174,709 | |||
Net investment (loss)
|
(161,250 | ) | ||
Net income
|
$ | 453,820 |
|
Management of the Partnership believes the accounting principles utilized by SHK are consistent in all material respects with those utilized by the Partnership.
|
-21-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
|
Valhalla Synergy Fund LLC
|
|
Valhalla Synergy Fund LLC invests substantially all of its assets through a “master-feeder” structure into Valhalla Synergy Master Fund Ltd. (the Master Fund), a Cayman Islands exempted company. Valhalla Synergy Fund LLC pays to the manager of the Master Fund a management fee of 2.00% per annum and an annual profit participation allocation of 20% of trading profits. The Partnership fully redeemed its investment in Valhalla Synergy Fund LLC effective March 31, 2010. For the three months ended March 31, 2010, the Partnership’s proportionate share of management fees and profit participation allocation charged by the Master Fund were approximately $9,807 and $0, respectively. For the six months ended June 30, 2009, the Partnership’s proportionate share of management fees and profit participation allocation charged by the Master Fund were approximately $27,800 and $16,600, respectively. For the three months ended June 30, 2009, the Partnership’s proportionate share of management fees and profit participation allocation charged by the Master Fund were approximately $14,000 and $8,700, respectively.
|
|
Valhalla Synergy Fund LLC’s condensed financial information primarily consists of their investment in the Master Fund and income or loss allocated from the Master Fund to Valhalla Synergy Fund LLC.
|
|
Valhalla Synergy Fund LLC’s net assets at December 31, 2009 are $35,682,748. Total net income (loss) for the three months ended March 31, 2010 is $(3,136,677). Total net income (loss) for the three months and six months ended June 30, 2009 is $568,665 and $1,145,073, respectively.
|
|
The Partnership’s investment in Valhalla Synergy Fund LLC represents approximately 5.88% of the investee fund’s net asset value as of December 31, 2009.
|
|
Management of the Partnership believes the accounting principles utilized by Valhalla Synergy Fund LLC are consistent in all material respects with those utilized by the Partnership.
|
|
Winton Futures Fund, L.P. (US) – Institutional Interests
|
|
Institutional Interests of Winton Futures Fund, L.P. (US) are charged management fees of 1.75% annually and incentive fees of 20% of trading profits. For the six months ended June 30, 2010, the Partnership’s proportionate share of management fees and incentive fees charged by Winton Futures Fund, L.P. (US) were approximately $54,200 and $0, respectively. For the three months ended June 30, 2010, the Partnership’s proportionate share of management fees and incentive fees charged by Winton Futures Fund, L.P. (US) were approximately $25,600 and $0, respectively. For the six months ended June 30, 2009, the Partnership’s proportionate share of management fees and incentive fees charged by Winton Futures Fund, L.P. (US) were approximately $78,000 and $0, respectively. For the three months ended June 30, 2009, the Partnership’s proportionate share of management fees and incentive fees charged by Winton Futures Fund, L.P. (US) were approximately $38,000 and $0, respectively.
|
|
The CPO Consultant is the General Partner of Winton Futures Fund, L.P. (US).
|
-22-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
Winton Futures Fund, L.P. (US) – Institutional Interests (continued)
|
Condensed financial information as of June 30, 2010 and December 31, 2009 and for the three and six months ended June 30, 2010 and 2009 is as follows:
|
June 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Statements of Financial Condition
|
(Unaudited)
|
(Audited)
|
||||||
Assets
|
||||||||
Equity in Newedge USA, LLC account
|
||||||||
Cash
|
$ | 101,874,982 | $ | 57,157,995 | ||||
Unrealized gain on open commodity futures contracts
|
7,606,842 | 2,751,248 | ||||||
Long options (cost – $35,093 and $31,080)
|
109,600 | 15,760 | ||||||
Unrealized gain (loss) on open forward contracts
|
(58,371 | ) | 3,227 | |||||
109,533,053 | 59,928,230 | |||||||
Cash and cash equivalents
|
3,084,684 | 3,733,271 | ||||||
Investment securities at value
|
||||||||
(cost – $532,579,299 and $469,559,059)
|
532,975,093 | 469,934,981 | ||||||
Interest receivable
|
531,018 | 719,323 | ||||||
Total assets
|
$ | 646,123,848 | $ | 534,315,805 | ||||
Liabilities
|
||||||||
Short options (proceeds – $66,907 and $68,320)
|
$ | 215,180 | $ | 36,220 | ||||
Payable for securities purchased
|
24,002,350 | 0 | ||||||
Accounts payable
|
514,095 | 249,209 | ||||||
Commissions payable
|
720,175 | 611,622 | ||||||
Management fee payable
|
935,226 | 822,084 | ||||||
Administrative fee payable
|
93,477 | 77,788 | ||||||
Service fees payable
|
485,243 | 420,136 | ||||||
Incentive fee payable
|
1,346,781 | 249,171 | ||||||
Redemptions payable
|
7,259,360 | 3,504,884 | ||||||
Subscriptions received in advance
|
18,276,255 | 12,878,915 | ||||||
Total liabilities
|
53,848,142 | 18,850,029 | ||||||
Total partners’ capital (Net Asset Value)
|
592,275,706 | 515,465,776 | ||||||
$ | 646,123,848 | $ | 534,315,805 |
-23-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
Winton Futures Fund, L.P. (US) – Institutional Interests (continued)
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Statements of Operations
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||
Gain (loss) on trading of derivatives contracts
|
||||||||||||||||
Realized
|
$ | 30,413,482 | $ | (27,278,715 | ) | $ | 36,978,426 | $ | (26,224,491 | ) | ||||||
Change in unrealized
|
(14,684,668 | ) | 2,287,928 | 4,703,450 | (3,484,333 | ) | ||||||||||
Brokerage commissions
|
(2,181,355 | ) | (1,529,130 | ) | (4,159,710 | ) | (2,022,585 | ) | ||||||||
Gain (loss) from trading derivatives
|
13,547,459 | (26,519,917 | ) | 37,522,166 | (31,731,409 | ) | ||||||||||
Gain (loss) on trading of securities
|
||||||||||||||||
Realized
|
10,945 | 5,000 | 18,631 | (3,188 | ) | |||||||||||
Change in unrealized
|
163,073 | 429,489 | 19,871 | 542,256 | ||||||||||||
Gain (loss) from trading securities
|
174,018 | 434,489 | 38,502 | 539,068 | ||||||||||||
Foreign currency translation gains (losses)
|
(966,857 | ) | 553,601 | (1,274,857 | ) | (751,542 | ) | |||||||||
Total trading gains (losses)
|
12,754,620 | (25,531,827 | ) | 36,285,811 | (31,943,883 | ) | ||||||||||
Net investment income (loss)
|
||||||||||||||||
Income
|
||||||||||||||||
Interest income
|
896,747 | 783,711 | 1,806,081 | 1,210,454 | ||||||||||||
Expenses
|
||||||||||||||||
Incentive fee
|
1,346,781 | 0 | 3,155,956 | 4,718 | ||||||||||||
Management and other fees
|
4,147,376 | 2,630,969 | 7,889,215 | 4,690,362 | ||||||||||||
Operating expenses
|
855,587 | 449,995 | 1,443,387 | 772,235 | ||||||||||||
Total expenses
|
6,349,744 | 3,080,964 | 12,488,558 | 5,467,315 | ||||||||||||
Net investment (loss)
|
(5,452,997 | ) | (2,297,253 | ) | (10,682,477 | ) | (4,256,861 | ) | ||||||||
Net income (loss)
|
$ | 7,301,623 | $ | (27,829,080 | ) | $ | 25,603,334 | $ | (36,200,744 | ) |
|
The Partnership’s investment in Winton Futures Fund, L.P. (US) represents approximately 0.95% and 1.39% of the investee fund’s net asset value as of June 30, 2010 and December 31, 2009, respectively.
|
|
Management of the Partnership believes the accounting principles utilized by Winton Futures Fund, L.P. (US) are consistent in all material respects with those utilized by the Partnership.
|
|
Altegris QIM Futures Fund, L.P. – Institutional Interests
|
|
On March 1, 2010, the Partnership invested $1,500,000 in Institutional Interests of Altegris QIM Futures Fund, L.P. Institutional Interests of Altegris QIM Futures Fund, L.P. are charged management fees of 0.75% annually and incentive fees of 30% of trading profits. For the four months ended June 30, 2010, the Partnership’s proportionate share of management fees and incentive fees charged by Altegris QIM Futures Fund, L.P. were approximately $4,800 and $0, respectively. For the three months ended June 30, 2010, the Partnership’s proportionate share of management fees and incentive fees charged by Altegris QIM Futures Fund, L.P. were approximately $3,900 and $0, respectively.
|
-24-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
|
Altegris QIM Futures Fund, L.P. – Institutional Interests (continued)
|
|
The CPO Consultant is the General Partner of Altegris QIM Futures Fund, L.P.
|
|
Condensed financial information as of June 30, 2010 and for the three and four months ended June 30, 2010 is as follows:
|
June 30,
|
||||
2010
|
||||
Statement of Financial Condition
|
(Unaudited)
|
|||
Assets
|
||||
Equity in Newedge USA, LLC account
|
||||
Cash
|
$ | 14,310,491 | ||
Unrealized (loss) on open commodity futures contracts
|
(445,091 | ) | ||
13,865,400 | ||||
Cash and cash equivalents
|
1,361,751 | |||
Investment securities at value
|
||||
(cost – $81,957,694)
|
82,000,100 | |||
Receivable from General Partner
|
99,458 | |||
Interest receivable
|
60,813 | |||
Total assets
|
$ | 97,387,522 | ||
Liabilities
|
||||
Payable for securities purchased
|
$ | 9,152,450 | ||
Accounts payable
|
83,986 | |||
Commissions payable
|
63,666 | |||
Management fee payable
|
73,075 | |||
Administrative fee payable
|
17,093 | |||
Service fees payable
|
55,163 | |||
Incentive fees payable
|
4,041 | |||
Redemptions payable
|
1,582,840 | |||
Subscriptions received in advance
|
10,896,671 | |||
Total liabilities
|
21,928,985 | |||
Total partners’ capital (Net Asset Value)
|
75,458,537 | |||
$ | 97,387,522 |
-25-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 7.
|
INVESTMENTS IN OTHER COMMODITY POOLS (CONTINUED)
|
|
Altegris QIM Futures Fund, L.P. – Institutional Interests (continued)
|
Three Months Ended
|
Four Months Ended
|
|||||||
June 30,
|
June 30,
|
|||||||
2010
|
2010
|
|||||||
Statement of Operations
|
(Unaudited)
|
(Unaudited)
|
||||||
(Loss) on trading of commodity futures
|
||||||||
Realized
|
$ | 50,706 | $ | (350,623 | ) | |||
Change in unrealized
|
(488,715 | ) | (552,261 | ) | ||||
Brokerage commissions
|
(251,025 | ) | (312,611 | ) | ||||
(Loss) from trading futures
|
(689,034 | ) | (1,215,495 | ) | ||||
Gain on trading of securities
|
||||||||
Realized
|
1,127 | 1,127 | ||||||
Change in Unrealized
|
82,373 | 25,033 | ||||||
Gain from trading securities
|
83,500 | 26,160 | ||||||
Foreign currency translation (losses)
|
(8,749 | ) | (9,587 | ) | ||||
Total trading (losses)
|
(614,283 | ) | (1,198,922 | ) | ||||
Net investment income (loss)
|
||||||||
Income
|
||||||||
Interest income
|
106,542 | 125,606 | ||||||
Expenses
|
||||||||
Management and other fees
|
375,039 | 470,270 | ||||||
Incentive fees
|
4,041 | 4,041 | ||||||
Operating expenses
|
72,359 | 92,574 | ||||||
Total expenses
|
451,439 | 566,885 | ||||||
Net investment (loss)
|
(344,897 | ) | (441,279 | ) | ||||
Net (loss)
|
$ | (959,180 | ) | $ | (1,640,201 | ) |
|
The Partnership’s investment in Altegris QIM Futures Fund, L.P. represents approximately 3.12% of the investee fund’s net asset value as of June 30, 2010.
|
|
Management of the Partnership believes the accounting principles utilized by Altegris QIM Futures Fund, L.P. are consistent in all material respects with those utilized by the Partnership.
|
-26-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 8.
|
MARKET AND CREDIT RISKS
|
|
The Partnership is exposed to both market risk, the risk arising from changes in the fair value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract.
|
|
As the Partnership deposits substantially all of its assets with MFG, the Partnership has a concentration of credit risk with MFG. The following details the maximum amount of loss the Partnership would incur due to the complete failure by MFG to perform according to the terms of the applicable contractual agreements, with such maximum amount of loss being based on the gross fair value of the financial instruments held by MFG:
|
June 30, 2010
|
December 31, 2009
|
|||||||
Broker
|
||||||||
MFG
|
$ | 2,508,191 | $ | 4,541,795 |
|
The above maximum amounts of risk of loss of financial instruments does not take into account adverse market movements subsequent to June 30, 2010 and December 31, 2009, respectively, or the fact that the maximum amount of risk of loss on certain financial instruments is potentially unlimited. Accordingly, the maximum amount of risk of loss subsequent to June 30, 2010 could be materially greater.
|
|
Purchase and sale of futures and options on futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract fair 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.
|
|
For derivatives, risks arise from changes in the fair value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the notional contract value of futures contracts purchased and unlimited liability on such contracts sold short. The Partnership is also indirectly exposed to market risk on physical commodities equal to the fair value of physical commodities owned.
|
|
The Partnership has a portion of its assets on deposit with a financial institution in connection with its cash management activities. In the event of a financial institution’s insolvency, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits.
|
-27-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 8.
|
MARKET AND CREDIT RISKS (CONTINUED)
|
|
The Partnership’s investments in other commodity pools are subject to the market and credit risks of futures contracts, forward currency contracts and other derivative contracts held or sold short by these commodity pools. The Partnership bears the risk of loss only to the extent of the fair value of its respective investment and, in certain specific circumstances, distributions and redemptions received. The General Partner has established risk management procedures to monitor investments in other commodity pools and seeks to minimize risk primarily by investing in commodity pools, which the General Partner and the CPO Consultant believe are reliable and creditworthy. However, there can be no assurance that any commodity pool invested in will be able to meet its obligations to the Partnership.
|
|
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 commodity trading advisors, with the actual market risk controls being applied by the CTA Consultant and 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 fair value of their respective investments and, in certain specific circumstances, distributions and redemptions received.
|
Note 9.
|
INDEMNIFICATIONS
|
|
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
|
Note 10.
|
SUBSEQUENT EVENTS
|
|
The General Partner has evaluated subsequent events through the date the financial statements were issued. There are no subsequent events to be disclosed.
|
-28-
PROFUTURES DIVERSIFIED FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
_________________
Note 11.
|
FINANCIAL HIGHLIGHTS
|
|
The following information presents performance data and other supplemental financial data for the three and six months ended June 30, 2010 and 2009. This information has been derived from information presented in the financial statements.
|
Three months ended
June 30,
|
Six months ended
June 30,
|
Two months ended
February 28, 2009
|
||||||||||||||||||
2010
|
Non-restricted 2009
|
2010
|
Non-restricted 2009
|
Side pocket/restricted
|
||||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||
Per Unit Performance
|
||||||||||||||||||||
(for a unit outstanding throughout the entire period)
|
||||||||||||||||||||
Net asset value per unit at beginning of period
|
$ | 2,318.83 | $ | 2,934.87 | $ | 2,528.61 | $ | 3,139.86 | $ | 2,663.73 | ||||||||||
Income (loss) from operations:
|
||||||||||||||||||||
Total trading and investing gains (losses)(1)
|
(29.69 | ) | (37.56 | ) | (192.80 | ) | (182.36 | ) | 42.27 | |||||||||||
Net investment (loss)(1)
|
(47.77 | ) | (72.41 | ) | (94.44 | ) | (132.60 | ) | (24.73 | ) | ||||||||||
Total income (loss) from operations
|
(77.46 | ) | (109.97 | ) | (287.24 | ) | (314.96 | ) | 17.54 | |||||||||||
Net asset value per unit at end of period
|
$ | 2,241.37 | $ | 2,824.90 | $ | 2,241.37 | $ | 2,824.90 | $ | 2,681.27 | (7) | |||||||||
Total Return(4)
|
(3.34 | )% | (3.75 | )% | (11.36 | )% | (10.03 | )% | 0.66 | % | ||||||||||
Supplemental Data
|
||||||||||||||||||||
Ratios to average net asset value:(2)
|
||||||||||||||||||||
Expenses prior to incentive fees(3), (6)
|
8.42 | % | 8.17 | % | 8.01 | % | 7.35 | % | 5.53 | % | ||||||||||
Incentive fees(4)
|
0.00 | % | 0.46 | % | 0.00 | % | 0.75 | % | 0.00 | % | ||||||||||
Total expenses
|
8.42 | % | 8.63 | % | 8.01 | % | 8.10 | % | 5.53 | % | ||||||||||
Net investment income (loss)(3), (5), (6)
|
(8.39 | )% | (8.15 | )% | (8.00 | )% | (7.32 | )% | (5.53 | )% |
Total returns are calculated based on the change in value of a unit during the period. An individual partner’s total returns and ratios may vary from the above total returns and ratios based on the timing of redemptions.
|
(1)
|
The net investment (loss) per unit is calculated by dividing the net investment (loss) by the average number of units outstanding during the period. Total trading and investing gains (losses) is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. Such balancing amount may differ from the calculation of total trading and investing gains (losses) per unit due to the timing of trading and investing gains and losses during the period relative to the number of units outstanding.
|
|
(2)
|
Excludes the Partnership’s proportionate share of expenses and net investment income (loss) from investments in other commodity pools.
|
(3)
|
Annualized.
|
(4)
|
Not annualized.
|
|
(5)
|
Excludes incentive fees.
|
|
(6)
|
Excludes brokerage commissions.
|
|
(7)
|
Prior to termination of the side pocket/restricted unit class effective February 28, 2009.
|
-29-
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
Reference is made to Item 1, “Financial Statements.” The information contained therein is essential to, and should be read in conjunction with, the following analysis.
The Partnership commenced trading on August 3, 1987. The success of the Partnership is dependent on the ability of independent Commodity Trading Advisors (“CTAs”) and commodity trading advisors that are utilized via investing in commodity pools (collectively, 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 Partnership 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.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 1 to the Financial Statements.
The Partnership records all investments at fair value in its Financial Statements in accordance with Fair Value Measurements and Disclosures of the Accounting Standards Codification (ASC), with changes in fair value reported as a component of realized and change in unrealized trading gain (loss) and income (loss) from investments in other commodity pools in the Statements of Operations. Generally, fair values are based on market prices; however, in certain circumstances, estimates are involved in determining fair value in the absence of an active market closing price (e.g., swap and forward contracts which are traded in the inter-bank market).
The fair value of exchange-traded contracts is based upon exchange settlement prices. The fair value of the Partnership’s investments in other commodity pools are ordinarily determined by each commodity pool in accordance with such commodity pool’s valuation policies and as reported by their management at the time of the Partnership’s valuation. Generally, the fair value of the Partnership’s investment in a commodity pool represents the amount that the Partnership could reasonably expect to receive from such commodity pool if the Partnership’s investment was redeemed at the time of valuation (generally the net assets value of the commodity pool), based on information reasonably available at the time the valuation is made and that the Partnership believes to be reliable.
-30-
A. LIQUIDITY: Approximately 21% of the Partnership’s assets are highly liquid, such as cash and open futures contracts. It is possible that extreme market conditions or daily price fluctuation limits at certain exchanges could adversely affect the liquidity of open futures 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. The other estimated 79% of the Partnership’s assets is invested in other commodity pools which are subject to certain restrictions. The restrictions on withdrawals from these commodity pools typically include a 15 to 45 day written notice for withdrawals, monthly or quarterly redemptions and the commodity pools’ ability to limit or suspend redemptions.
As of January 31, 2008, the managing member of SHK Diversified LLC (“SHK”) temporarily suspended future redemptions. SHK’s managing member indicated to investors that this action was taken due to a decline in the liquidity of the markets traded by SHK combined with a significant number of requests for redemptions. Because of the uncertainty in valuing the Partnership’s investment in SHK, the General Partner established a side pocket for the Partnership’s interest in SHK effective April 30, 2008, to continue until such time as the investment could be valued with certainty. Investor units attributed to SHK were segregated into a side pocket while units not attributed to SHK continued to be available for redemption in cash. On April 28, 2008, the Partnership submitted a request for full redemption from SHK. The side pocket/restricted share class was allocated its proportionate share of the Partnership’s expenses, as well as all expenses directly related to the class’ establishment and operation. Effective, December 31, 2008, SHK paid the Partnership approximately half of the Partnership’s redemption proceeds, equal to $1,315,742, which was paid to the Partnership on January 15, 2009. Effective February 28, 2009, SHK paid the Partnership the remaining half of the Partnership’s redemption proceeds equal to $1,335,258, which was paid to the Partnership on March 16, 2009. The side pocket/restricted share class was subsequently canceled with existing Units either redeemed or converted to non-restricted shares. As of February 28, 2009 there are no restricted or side pocketed units.
B. CAPITAL RESOURCES: Since the Partnership’s business is the purchase and sale of various commodity interests, it will make few, if any, capital expenditures.
The Partnership’s offering of Units of Limited Partnership Interest terminated in 1995.
C. RESULTS OF OPERATIONS: The Partnership’s net income (loss) for the three months ended June 30, 2010 and 2009 is as follows:
2010
|
2009
|
|||||||
Three months ended June 30,
|
$ | (399,480 | ) | $ | (672,500 | ) | ||
Non-Restricted
|
(399,480 | ) | (672,500 | ) | ||||
Restricted
|
0 | 0 | ||||||
Six months ended June 30,
|
$ | (1,528,930 | ) | $ | (1,914,418 | ) | ||
Non-Restricted
|
(1,528,930 | ) | (1,922,512 | ) | ||||
Restricted
|
0 | 8,094 |
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As of June 30, 2010, 4,557 Units are outstanding, including 184 General Partner Units, with an aggregate Net Asset Value of $10,213,302 ($2,241.37 per Unit). This represents a decrease in Net Asset Value of ($3,462,737) compared with December 31, 2009. The decrease was caused by a combination of partner redemptions and trading losses for the period.
As of June 30, 2009, 6,041 Units were outstanding, including 184 General Partner Units, with an aggregate Net Asset Value of $17,063,170 ($2,824.90 per Unit). This represented a decrease in Net Asset Value of $(2,437,859) compared with December 31, 2008. The decrease was caused by a combination of partner redemptions and trading losses for the period. Effective December 31, 2008, one-half of the 878 Restricted Units from the side pocket were either converted to Non-Restricted Units or redeemed. Effective February 28, 2009, the second half of the Restricted Units were either converted to Non-Restricted Units or redeemed. As of February 28, 2009 the Partnership no longer had Restricted Units or a side-pocket.
Second Quarter 2010
The Partnership had losses for the quarter in energy, certain agricultural commodities, stock indexes and metals; gains were in interest rates and currencies.
The Partnership had a loss of 2.40% in April. The Partnership had losses in certain agricultural commodities, energy and currencies; gains were in the stock indexes, metals and interest rates.
The Partnership had a loss of 0.72% in May. The Partnership had losses in stock indexes, energy and metals; gains were in interest rates, currencies and certain agricultural commodities.
The Partnership had a loss of 0.24% in June. The Partnership had losses in certain agricultural commodities, currencies and energy; gains were in interest rates, stock indexes and metals.
The Partnership ended the quarter with a loss of 3.34%.
First Quarter 2010
The Partnership had losses for the quarter in the stock indexes, energy, certain agricultural commodities and metals; gains were limited to interest rates and currencies.
The Partnership had a loss of 5.16% in January. The Partnership had losses in the stock indexes, energy, metals and currencies; gains were in interest rates and certain agricultural commodities.
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The Partnership had a loss of 0.48% in February. The Partnership had gains in the stock indexes, interest rates, currencies and metals; losses were in certain agricultural commodities and energy.
The Partnership had a loss of 2.85% in March. The Partnership had losses in the stock indexes, certain agricultural commodities and interest rates; gains were in energy, metals and currencies.
The Partnership ended the quarter with a loss of 8.30%.
Second Quarter 2009
The Partnership had losses for the quarter in interest rates, metals and certain agricultural commodities; gains were in stock indexes, certain agricultural commodities and energy.
The Partnership had a loss of 3.16% in April. The Partnership had losses in interest rates, energy, currencies, certain agricultural commodities and metals; gains were in certain agricultural commodities and stock indexes.
The Partnership had a gain of 2.92% in May. The Partnership had gains in currencies, certain agricultural commodities, energy, stock indexes and interest rates; losses were limited to metals and certain agricultural commodities.
The Partnership had a loss of 3.43% in June. The Partnership had losses in certain agricultural commodities, interest rates, metals and currencies; gains were in certain agricultural commodities, energy and stock indexes.
The Partnership ended the quarter with a loss of 3.75%.
First Quarter 2009
The Partnership had losses for the quarter in interest rates, currencies, certain agricultural commodities, metals and energy; gains were limited to the stock indexes.
The Partnership had a loss of 0.23% in January. The Partnership had losses in interest rates and certain agricultural commodities; gains were in stock indexes, currencies, energy and metals.
The Partnership had a loss of 1.65% in February. The Partnership had losses in currencies, interest rates, energy, metals, stock indexes and certain agricultural commodities; gains were in certain agricultural commodities.
The Partnership had a loss of 4.74% in March. The Partnership had losses in every sector traded, in currencies, certain agricultural commodities, interest rates, stock indexes, metals and energy.
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The Partnership ended the quarter with a loss of 6.53%.
D. OFF-BALANCE SHEET ARRANGEMENTS: Off-balance sheet risk refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in future obligation or loss. The Partnership trades in futures and other commodity interest contracts and is therefore a party to financial instruments with elements of off-balance sheet market and credit risk. In entering into these contracts, the Partnership faces the market risk that these contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. If the markets should move against all of the commodity interest positions of the Partnership at the same time, and if the Partnership were unable to offset positions, the Partnership could lose all of its assets and the limited partners would realize a 100% loss. The Partnership minimizes market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 25%. All positions of the Partnership are valued each day on a mark-to-market basis.
In addition to market risk, in entering into commodity interest contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Partnership. The counterparty for futures and options on futures contracts traded in the United States and on most non-U.S. futures exchanges is the clearing organization associated with such exchange. In general, clearing organizations are backed by the corporate members of the clearing organization who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk.
In cases where the clearing organization is not backed by the clearing members, like some non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions.
In the case of forward contracts, over-the-counter options contracts or swap contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a central clearing organization backed by a group of financial institutions. As a result, there likely will be greater counterparty credit risk in these transactions. The Partnership trades only with those counterparties that it believes to be creditworthy. Nonetheless, the clearing member, clearing organization or other counterparty to these transactions may not be able to meet its obligations to the Partnership, in which case the Partnership could suffer significant losses on these contracts.
In the normal course of business, the Partnership enters into contracts and agreements that contain a variety of representations and warranties and which provide general indemnifications. The Partnership’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Partnership that have not yet occurred. The Partnership expects the risk of any future obligation under these indemnifications to be remote.
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E. CONTRACTUAL OBLIGATIONS: None.
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
The Partnership is a Smaller Reporting Company as defined by Rule 229.10(f)(1) and therefore this item is not required.
Item 4T.
|
Controls and Procedures.
|
ProFutures, Inc., as General Partner of ProFutures Diversified Fund, L.P., with the participation of the General Partner’s President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Partnership as of the end of the period covered by this quarterly report. Based on their evaluation, the President and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting:
There were no changes in the General Partner’s internal control over financial reporting applicable to the Partnership identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting applicable to the Partnership.
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PART II - OTHER INFORMATION
Item 1.
|
Legal Proceedings.
|
None.
Item 1A.
|
Risk Factors.
|
The Partnership is a Smaller Reporting Company as defined by Rule 229.10(f)(1) and therefore this item is not required.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
(a) None.
(b) Not applicable.
(c) Effective April 1, 2008, investor units attributed to the investment in SHK were segregated into and held in a side pocket due to SHK’s temporary suspension of redemptions, while units not attributed to SHK continued to be available for redemption in cash. Effective February 28, 2009, SHK paid the Partnership the balance of the Partnership’s redemption proceeds. The side pocket/Restricted share class was subsequently cancelled with existing Units either redeemed or converted to Non-Restricted shares.
Pursuant to the Partnership’s Limited Partnership Agreement, partners may redeem their Limited Partnership Units at the end of each calendar month at the then current Net Asset Value per Unit. The redemption of Units has no impact on the value of Units that remain outstanding, and Units are not reissued once redeemed.
The right to obtain redemption is contingent upon the Partnership’s having property sufficient to discharge its liabilities on the redemption date and may be delayed if the General partner determines that early liquidation of the commodity interest positions to meet redemption payments would be detrimental to the Partnership or non-redeeming Limited Partners.
Under certain circumstances, including but not limited to, the inability to liquidate commodity positions or a delay in payment due the Partnership from commodity brokers, banks, commodity pools or other persons, the Partnership may in turn delay payment to Partners requesting redemption units. In that event, payment for redemption of such units will be made to Limited Partners as soon as thereafter is practicable.
The following table summarizes the redemptions, excluding those that are not effective until subsequent periods, by partners during the three months ended June 30, 2010 for Non-Restricted Units:
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MONTH
|
UNITS REDEEMED
|
NAV PER UNIT
|
April 30, 2010
|
374
|
2,263.09
|
May 31, 2010
|
270
|
2,246.75
|
June 30, 2010
|
78
|
2,241.37
|
TOTAL
|
722
|
Item 3.
|
Dfaults Upon Senior Securities.
|
None.
Item 4.
|
(Removed and Reserved).
|
Item 5.
|
Other Information.
|
None.
Item 6.
|
Exhibits.
|
Exhibits filed herewith:
31.01
|
Certification of Gary D. Halbert, President, pursuant to Rules 13a-14 and15d-14 of the Securities Exchange Act of 1934.
|
31.02
|
Certification of Debi B. Halbert, Chief Financial Officer, pursuant toRules 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
|
32.01
|
Certification of Gary D. Halbert, President, pursuant to 18 U.S.C. Section1350 as enacted by Section 906 of The Sarbanes- Oxley Act of 2002.
|
32.02
|
Certification of Debi B. Halbert, Chief Financial Officer, pursuant to 18U.S.C. Section 1350 as enacted by Section 906 of The Sarbanes-OxleyAct of 2002.
|
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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.
PROFUTURES DIVERSIFIED FUND, L.P.
|
||
(Registrant)
|
||
August 13, 2010
|
By /s/ GARY D. HALBERT
|
|
Date
|
Gary D. Halbert, President and Director
|
|
ProFutures, Inc.
|
||
General Partner
|
||
August 13, 2010
|
By /s/ DEBI B. HALBERT
|
|
Date
|
Debi B. Halbert, Chief Financial Officer,
|
|
Treasurer and Director
|
||
ProFutures, Inc.
|
||
General Partner
|
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