Attached files
file | filename |
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EX-31.2 - EX-31.2 - POTOMAC FUTURES FUND LP | y05241exv31w2.htm |
EX-32.1 - EX-32.1 - POTOMAC FUTURES FUND LP | y05241exv32w1.htm |
EX-32.2 - EX-32.2 - POTOMAC FUTURES FUND LP | y05241exv32w2.htm |
EX-31.1 - EX-31.1 - POTOMAC FUTURES FUND LP | y05241exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - POTOMAC FUTURES FUND LP | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 000-50735
POTOMAC FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York |
13-3937275 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres
Managed Futures LLC
522 Fifth Avenue -
14th
Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 296-1999
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant 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 the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No
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. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company
(as defined in
rule 12b-2
of the Exchange Act).
Yes No X
As of October 31, 2011, 29,604.4858 Limited Partnership
Redeemable Units were outstanding.
POTOMAC FUTURES FUND L.P.
FORM 10-Q
INDEX
Page |
||||
Number | ||||
PART I - Financial Information:
|
||||
Item 1.
|
Financial Statements: | |||
Statements of Financial Condition at September 30, 2011 (unaudited) and December 31, 2010 |
3 | |||
Statements of Income and Expenses and Changes in Partners Capital for the three and nine months ended September 30, 2011 and 2010 (unaudited) |
4 | |||
Notes to Financial Statements, including the Financial Statements of CMF Campbell Master Fund L.P. (unaudited) |
5 - 21 | |||
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
22 24 | ||
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk |
25 26 | ||
Item 4.
|
Controls and Procedures | 27 | ||
PART II - Other Information
|
28 31 | |||
Exhibits | ||||
Exhibit 31.1 Certification | ||||
Exhibit 31.2 Certification | ||||
Exhibit 32.1 Certification | ||||
Exhibit 32.2 Certification |
101.INS
|
XBRL Instance Document. | |
101.SCH
|
XBRL Taxonomy Extension Schema Document. | |
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
2
PART I
Item 1.
Financial Statements
Potomac Futures Fund L.P.
Statements of Financial Condition
Statements of Financial Condition
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets:
|
||||||||
Investment in Master, at fair value
|
$ | 41,823,111 | $ | 36,378,264 | ||||
Cash
|
45,952 | 51,367 | ||||||
Total assets
|
$ | 41,869,063 | $ | 36,429,631 | ||||
Liabilities and Partners Capital:
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Brokerage fees
|
$ | 191,900 | $ | 166,969 | ||||
Management fees
|
69,420 | 60,366 | ||||||
Other |
25,034 | 43,141 | ||||||
Redemptions payable |
327,284 | 288,124 | ||||||
Total liabilities
|
613,638 | 558,600 | ||||||
Partners Capital:
|
||||||||
General Partner, 337.4926 unit equivalents
outstanding at September 30, 2011 and December 31, 2010 |
469,037 | 488,490 | ||||||
Limited
Partners, 29,347.6070 and 24,445.4336 Redeemable
Units outstanding at September 30, 2011 and December 31, 2010, respectively |
40,786,388 | 35,382,541 | ||||||
Total partners capital
|
41,255,425 | 35,871,031 | ||||||
Total liabilities and partners capital
|
$ | 41,869,063 | $ | 36,429,631 | ||||
Net asset value per unit
|
$ | 1,389.77 | $ | 1,447.41 | ||||
See accompanying notes to financial statements.
3
Potomac Futures Fund L.P.
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Investment Income: |
||||||||||||||||
Interest income allocated from Master |
$ | 1,260 | $ | 10,569 | $ | 10,146 | $ | 27,367 | ||||||||
Expenses: |
||||||||||||||||
Expenses allocated from Master |
40,017 | 43,297 | 123,190 | 139,303 | ||||||||||||
Brokerage fees |
594,517 | 643,222 | 1,696,419 | 2,137,724 | ||||||||||||
Management fees |
214,985 | 196,719 | 613,328 | 653,370 | ||||||||||||
Other |
43,960 | 45,466 | 158,005 | 146,978 | ||||||||||||
Total expenses |
893,479 | 928,704 | 2,590,942 | 3,077,375 | ||||||||||||
Net investment income (loss) |
(892,219 | ) | (918,135 | ) | (2,580,796 | ) | (3,050,008 | ) | ||||||||
Trading Results: |
||||||||||||||||
Net realized gains (losses) on closed contracts allocated from Master |
2,185,528 | 1,292,553 | 3,172,922 | (298,345 | ) | |||||||||||
Change in net unrealized gains (losses) on open contracts allocated from Master |
(169,477 | ) | 2,291,140 | (2,136,724 | ) | 3,109,317 | ||||||||||
Total trading results allocated from Master |
2,016,051 | 3,583,693 | 1,036,198 | 2,810,972 | ||||||||||||
Net income (loss) |
1,123,832 | 2,665,558 | (1,544,598 | ) | (239,036 | ) | ||||||||||
Subscriptions Limited Partners |
1,365,867 | 581,000 | 13,549,311 | 895,000 | ||||||||||||
Redemptions Limited Partners |
(891,479 | ) | (8,044,560 | ) | (6,620,319 | ) | (13,878,193 | ) | ||||||||
Redemptions General Partner |
0 | 0 | 0 | (375,000 | ) | |||||||||||
Net increase (decrease) in Partners Capital |
1,598,220 | (4,798,002 | ) | 5,384,394 | (13,597,229 | ) | ||||||||||
Partners Capital, beginning of period |
39,657,205 | 41,342,100 | 35,871,031 | 50,141,327 | ||||||||||||
Partners Capital, end of period |
$ | 41,255,425 | $ | 36,544,098 | $ | 41,255,425 | $ | 36,544,098 | ||||||||
Net asset value per unit (29,685.0996 and 26,848.6669 units
outstanding at September 30, 2011 and 2010, respectively) |
$ | 1,389.77 | $ | 1,361.11 | $ | 1,389.77 | $ | 1,361.11 | ||||||||
Net income (loss) per unit* |
$ | 39.47 | $ | 94.92 | $ | (57.64 | ) | $ | 15.36 | |||||||
Weighted average units outstanding |
29,672.4321 | 30,235.4398 | 28,686.5132 | 33,906.4130 | ||||||||||||
* | Based on change in net asset value per unit. |
See accompanying notes to financial statements.
4
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
1. | General: |
Potomac Futures Fund L.P.
(the
Partnership) is a limited partnership which was
organized on March 14, 1997 under the partnership laws of
the State of New York to engage, directly or indirectly, in the speculative trading of a
diversified portfolio of commodity interests including futures
contracts, options, swaps and forward contracts. The sectors
traded include currencies, energy, grains, indices, U.S. and non-U.S.
interest rates, livestock, metals and softs. The commodity
interests that are indirectly traded by the Partnership through
its investment in the Master (as defined below) are volatile and involve a high
degree of market risk. The Partnership was authorized to sell an
unlimited number of redeemable units of limited partnership
interest (Redeemable Units) during its initial
offering period. The Partnership privately and continuously offers up to 250,000 Redeemable Units in the Partnership to qualified investors.
There is no maximum number of units that may be sold by the Partnership.
Ceres Managed Futures LLC,
a Delaware limited liability company, acts as the general
partner (the General Partner) and
commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings
LLC (MSSB Holdings). Morgan Stanley, indirectly through various
subsidiaries, owns a majority equity interest in MSSB Holdings.
Citigroup Global Markets Inc. (CGM), the commodity broker
and a selling agent for the Partnership, owns a minority equity interest in MSSB Holdings.
Citigroup Inc. (Citigroup), indirectly through various
subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as
of which MSSB Holdings became its owner, the General Partner was
wholly owned by Citigroup Financial Products Inc., a wholly owned
subsidiary of Citigroup Global Markets Holdings Inc., the sole owner
of which is Citigroup. As of September 30, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).
On January 1, 2005, the Partnership allocated substantially
all of its capital to the CMF Campbell Master Fund L.P. (the
Master), a limited partnership organized under the
partnership laws of the State of New York. The Partnership
purchased 173,788.6446 units of the Master with cash equal to
$172,205,653 and a contribution of open commodity futures and
forward positions with a fair value of $1,582,992. The Master
was formed in order to permit accounts managed by
Campbell & Company, Inc. (Campbell or the Advisor)
using Campbells FME Large Portfolio
Program (FME), a proprietary, systematic
trading program, to invest together in one trading vehicle. The
General Partner is also the general partner of the
Master. Individual and pooled accounts currently managed by the
Advisor, including the Partnership, are permitted to be limited
partners of the Master. The General Partner and the Advisor
believe that trading through this master/feeder structure
promotes efficiency and economy in the trading process. Expenses
to investors as a result of the investment in the Master are
approximately the same and redemption rights are not affected.
The General Partner is not aware of any material changes to the trading program discussed above during the fiscal
quarter ended September 30, 2011.
As of September 30, 2011 and December 31, 2010, the
Partnership owned 100%
of the Master. The Partnership intends to continue to invest
substantially all of its assets in the Master. The performance
of the Partnership is directly affected by the performance of
the Master. The Masters trading of futures, forwards, swaps and options contracts, if applicable, on
commodities is done primarily on U.S. and foreign commodity
exchanges. The Master engages in such trading through a commodity brokerage account maintained with
CGM.
The Masters Statements of Financial Condition,
including Condensed Schedules of Investments and Statements of Income and
Expenses and Changes in Partners Capital are included
herein.
The General Partner and each limited partner share in the
profits and losses of the Partnership in proportion to the
amount of partnership interest owned by each except that no
limited partner shall be liable for obligations of the
Partnership in excess of its capital contribution and
profits, if any, net of distributions.
5
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The accompanying financial statements and accompanying notes are unaudited but, in the
opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement
of the Partnerships financial condition at September 30, 2011
and December 31, 2010, and the results of its
operations and changes in partners capital for the three and nine months ended September 30, 2011
and 2010. These financial statements present
the results of interim periods and do not include all
disclosures normally provided in annual financial statements.
You should read these financial statements together with the
financial statements and notes included in the
Partnerships Annual Report on
Form 10-K
filed with the Securities and Exchange Commission (the
SEC) for the year ended December 31, 2010.
The preparation of financial
statements and accompanying notes in conformity with accounting
principles generally accepted in the United States of America (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, income and expenses, and related
disclosures of contingent assets and liabilities in the
financial statements and accompanying notes.
As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of
operations for the interim periods presented should not be
considered indicative of the results that may be expected for
the entire year.
6
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The Masters Statements of Financial Condition and Condensed
Schedules
of Investments as of September 30, 2011 and December 31, 2010 and
Statements of Income and Expenses and Changes in Partners
Capital for the three and nine months ended September 30, 2011
and 2010 are presented below:
CMF
Campbell Master Fund L.P.
Statements of Financial Condition
Statements of Financial Condition
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets: |
||||||||
Equity in trading account: |
||||||||
Cash |
$ | 38,528,774 | $ | 32,330,637 | ||||
Cash margin |
4,391,549 | 2,935,375 | ||||||
Net unrealized appreciation on open futures contracts |
0 | 360,633 | ||||||
Net unrealized appreciation on open forward contracts |
0 | 714,542 | ||||||
Options purchased, at fair value (cost $0 and $99,341
at September 30, 2011 and December 31, 2010, respectively) |
0 | 130,648 | ||||||
Total assets |
$ | 42,920,323 | $ | 36,471,835 | ||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Net unrealized depreciation on open futures contracts |
$ | 330,366 | $ | 0 | ||||
Net unrealized depreciation on open forward contracts |
737,394 | 0 | ||||||
Options premium received, at fair value (premium $0 and
$18,835 at September 30, 2011 and December 31, 2010, respectively) |
0 | 56,353 | ||||||
Accrued expenses: |
||||||||
Professional fees |
29,452 | 39,490 | ||||||
Total liabilities |
1,097,212 | 95,843 | ||||||
Partners Capital: |
||||||||
General Partner, 0.0000 unit equivalents at September 30, 2011 and
December 31, 2010 |
0 | 0 | ||||||
Limited Partners, 31,569.1481 and 27,995.8787 units outstanding
at September 30, 2011 and December 31, 2010, respectively |
41,823,111 | 36,375,992 | ||||||
Total liabilities and partners capital |
$ | 42,920,323 | $ | 36,471,835 | ||||
Net asset value per unit |
$ | 1,324.81 | $ | 1,299.33 | ||||
7
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF
Campbell Master Fund L.P.
Condensed Schedule of Investments
September 30, 2011
(Unaudited)
Condensed Schedule of Investments
September 30, 2011
(Unaudited)
Notional ($)/ Number | % of Partners | |||||||||||
of Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased |
||||||||||||
Energy |
30 | $ | (127,688 | ) | (0.30 | )% | ||||||
Grains |
11 | (53,725 | ) | (0.13 | ) | |||||||
Indices |
35 | (40,395 | ) | (0.10 | ) | |||||||
Interest Rates Non-U.S. |
804 | (187,284 | ) | (0.45 | ) | |||||||
Interest Rates U.S. |
337 | (99,142 | ) | (0.23 | ) | |||||||
Livestock |
39 | 63,470 | 0.15 | |||||||||
Metals |
6 | (76,070 | ) | (0.18 | ) | |||||||
Softs |
6 | (99,206 | ) | (0.24 | ) | |||||||
Total futures contracts purchased |
(620,040 | ) | (1.48 | ) | ||||||||
Futures Contracts Sold |
||||||||||||
Energy |
58 | 117,540 | 0.28 | |||||||||
Grains |
48 | 163,850 | 0.39 | |||||||||
Indices |
70 | 6,056 | 0.01 | |||||||||
Metals |
1 | 3,337 | 0.01 | |||||||||
Softs |
11 | (1,109 | ) | (0.00 | )* | |||||||
Total futures contracts sold |
289,674 | 0.69 | ||||||||||
Unrealized Appreciation on Open Forward Contracts |
||||||||||||
Currencies |
$119,599,506 | 2,985,708 | 7.14 | |||||||||
Metals |
98 | 1,047,860 | 2.50 | |||||||||
Total unrealized appreciation on open forward contracts |
4,033,568 | 9.64 | ||||||||||
Unrealized Depreciation on Open Forward Contracts |
||||||||||||
Currencies |
$97,182,910 | (4,192,521 | ) | (10.02 | ) | |||||||
Metals |
51 | (578,441 | ) | (1.38 | ) | |||||||
Total unrealized depreciation on open forward contracts |
(4,770,962 | ) | (11.40 | ) | ||||||||
Net fair value |
$ | (1,067,760 | ) | (2.55 | )% | |||||||
* | Due to rounding. |
8
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF
Campbell Master Fund L.P.
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Notional ($)/ |
||||||||||||
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Energy
|
69 | $ | 80,412 | 0.22 | % | |||||||
Grains
|
56 | 126,606 | 0.35 | |||||||||
Indices
|
338 | 10,189 | 0.03 | |||||||||
Interest Rates
Non-U.S.
|
163 | 22,693 | 0.06 | |||||||||
Interest Rates U.S.
|
78 | 22,062 | 0.06 | |||||||||
Livestock
|
10 | 550 | 0.00 | * | ||||||||
Metals
|
15 | 96,690 | 0.27 | |||||||||
Softs
|
31 | 100,006 | 0.27 | |||||||||
Total futures contracts purchased
|
459,208 | 1.26 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Energy
|
13 | (29,230 | ) | (0.08 | ) | |||||||
Grains
|
1 | (2,870 | ) | (0.01 | ) | |||||||
Indices
|
2 | 4,022 | 0.01 | |||||||||
Interest Rates
Non-U.S.
|
66 | (44,183 | ) | (0.12 | ) | |||||||
Interest Rates U.S.
|
32 | (24,734 | ) | (0.07 | ) | |||||||
Livestock
|
1 | (1,580 | ) | (0.00 | )* | |||||||
Total futures contracts sold
|
(98,575 | ) | (0.27 | ) | ||||||||
Unrealized Appreciation on Open Forward Contracts
|
||||||||||||
Currencies
|
$124,455,128 | 3,015,962 | 8.29 | |||||||||
Metals
|
31 | 184,969 | 0.50 | |||||||||
Total unrealized appreciation on open forward contracts
|
3,200,931 | 8.79 | ||||||||||
Unrealized Depreciation on Open Forward Contracts
|
||||||||||||
Currencies
|
$111,245,655 | (2,455,912 | ) | (6.75 | ) | |||||||
Metals
|
7 | (30,477 | ) | (0.08 | ) | |||||||
Total unrealized depreciation on open forward contracts
|
(2,486,389 | ) | (6.83 | ) | ||||||||
Options Purchased
|
||||||||||||
Currencies
|
||||||||||||
Calls
|
$3,525,490,581 | 104,466 | 0.29 | |||||||||
Puts
|
$13,652,298,260 | 26,182 | 0.07 | |||||||||
Total options purchased
|
130,648 | 0.36 | ||||||||||
Options Premium Received
|
||||||||||||
Currencies
|
||||||||||||
Calls
|
$11,412,894,676 | (55,752 | ) | (0.15 | ) | |||||||
Puts
|
$8,668,304,279 | (601 | ) | (0.00 | )* | |||||||
Total options premium received
|
(56,353 | ) | (0.15 | ) | ||||||||
Net fair value
|
$ | 1,149,470 | 3.16 | % | ||||||||
* Due to rounding.
|
9
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
CMF
Campbell Master Fund L.P.
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Investment Income: |
||||||||||||||||
Interest income |
$ | 1,260 | $ | 11,457 | $ | 10,146 | $ | 29,887 | ||||||||
Expenses: |
||||||||||||||||
Clearing fees |
28,959 | 32,578 | 78,686 | 89,523 | ||||||||||||
Professional fees |
11,058 | 14,379 | 44,504 | 63,601 | ||||||||||||
Total expenses |
40,017 | 46,957 | 123,190 | 153,124 | ||||||||||||
Net investment income (loss) |
(38,757 | ) | (35,500 | ) | (113,044 | ) | (123,237 | ) | ||||||||
Trading Results: |
||||||||||||||||
Net gains (losses) on trading of commodity interests: |
||||||||||||||||
Net realized gains (losses) on closed contracts |
2,185,528 | 1,410,580 | 3,172,922 | (580,712 | ) | |||||||||||
Change in net unrealized gains (losses) on open contracts |
(169,477 | ) | 2,492,377 | (2,136,724 | ) | 3,368,871 | ||||||||||
Total trading results |
2,016,051 | 3,902,957 | 1,036,198 | 2,788,159 | ||||||||||||
Net income (loss) |
1,977,294 | 3,867,457 | 923,154 | 2,664,922 | ||||||||||||
Subscriptions Limited Partners |
1,365,867 | 581,000 | 13,549,311 | 895,000 | ||||||||||||
Redemptions Limited Partners |
(2,093,191 | ) | (6,908,044 | ) | (9,015,200 | ) | (23,012,990 | ) | ||||||||
Distribution of interest income to feeder funds |
(1,260 | ) | (11,457 | ) | (10,146 | ) | (29,887 | ) | ||||||||
Net increase (decrease) in Partners Capital |
1,248,710 | (2,471,044 | ) | 5,447,119 | (19,482,955 | ) | ||||||||||
Partners Capital, beginning of period |
40,574,401 | 45,513,752 | 36,375,992 | 62,525,663 | ||||||||||||
Partners Capital, end of period |
$ | 41,823,111 | $ | 43,042,708 | $ | 41,823,111 | $ | 43,042,708 | ||||||||
Net asset value per unit (31,569.1481 and 36,009.3884
units outstanding at September 30, 2011 and 2010, respectively) |
$ | 1,324.81 | $ | 1,195.32 | $ | 1,324.81 | $ | 1,195.32 | ||||||||
Net income (loss) per unit* |
$ | 62.93 | $ | 108.15 | $ | 25.82 | $ | 90.49 | ||||||||
Weighted average units outstanding |
32,038.1060 | 39,986.9154 | 31,825.4520 | 46,891.4394 | ||||||||||||
* | Based on change in net asset value per unit. |
10
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
2. | Financial Highlights: |
Changes in net asset value per unit for the three and nine months ended
September 30, 2011 and 2010 were as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net realized and unrealized gains (losses) allocated from Master* |
$ | 48.52 | $ | 103.05 | $ | (29.48 | ) | $ | 39.89 | |||||||
Interest income allocated from Master |
0.05 | 0.35 | 0.38 | 0.83 | ||||||||||||
Expenses ** |
(9.10 | ) | (8.48 | ) | (28.54 | ) | (25.36 | ) | ||||||||
Increase (decrease) for the period |
39.47 | 94.92 | (57.64 | ) | 15.36 | |||||||||||
Net asset value per unit, beginning of period |
1,350.30 | 1,266.19 | 1,447.41 | 1,345.75 | ||||||||||||
Net asset value per unit, end of period |
$ | 1,389.77 | $ | 1,361.11 | $ | 1,389.77 | $ | 1,361,11 | ||||||||
* | Includes Partnership brokerage fees and clearing fees allocated from the Master. | |
** | Excludes Partnership brokerage fees and clearing fees allocated from the Master. |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Ratio to average net assets:*** |
||||||||||||||||
Net investment income (loss) before incentive fees**** |
(8.5 | )% | (9.6 | )% | (8.7 | )% | (9.6 | )% | ||||||||
Operating expenses |
8.5 | % | 9.7 | % | 8.7 | % | 9.6 | % | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
Total expenses |
8.5 | % | 9.7 | % | 8.7 | % | 9.6 | % | ||||||||
Total return: |
||||||||||||||||
Total return before incentive fees |
2.9 | % | 7.5 | % | (4.0 | )% | 1.1 | % | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
Total return after incentive fees |
2.9 | % | 7.5 | % | (4.0 | )% | 1.1 | % | ||||||||
*** | Annualized (other than incentive fees). | |
**** | Interest income allocated from the Master less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the period. Additionally,
these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average
net assets.
11
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Financial Highlights of the Master:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net realized and unrealized gains (losses)* |
$ | 63.24 | $ | 108.24 | $ | 26.92 | $ | 91.25 | ||||||||
Interest income |
0.04 | 0.29 | 0.34 | 0.69 | ||||||||||||
Expenses ** |
(0.35 | ) | (0.38 | ) | (1.44 | ) | (1.45 | ) | ||||||||
Increase (decrease) for the period |
62.93 | 108.15 | 25.82 | 90.49 | ||||||||||||
Distribution
of interest income to feeder funds |
(0.04 | ) | (0.29 | ) | (0.34 | ) | (0.69 | ) | ||||||||
Net asset
value per unit, beginning of
period |
1,261.92 | 1,087.46 | 1,299.33 | 1,105.52 | ||||||||||||
Net asset
value per unit, end of period |
$ | 1,324.81 | $ | 1,195.32 | $ | 1,324.81 | $ | 1,195.32 | ||||||||
* | Includes clearing fees | |
** | Excludes clearing fees |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Ratios to Average Net Assets:*** |
||||||||||||||||
Net
investment income (loss)**** |
(0.4 | )% | (0.3 | )% | (0.4 | )% | (0.3 | )% | ||||||||
Operating expenses |
0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % | ||||||||
Total return |
5.0 | % | 9.9 | % | 2.0 | % | 8.2 | % | ||||||||
*** | Annualized. | |
**** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the timing of capital transactions
during the period. Additionally, these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average net assets.
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of
commodity interests, including derivative financial instruments and derivative
commodity instruments. The Partnership invests substantially all of its assets through a
master/feeder structure. The Partnerships pro-rata
share of the results of the Masters trading activities are
shown in the Statements of Income and Expenses and Changes in Partners Capital.
The customer agreements between the Partnership and CGM and the
Master and CGM give the Partnership and the Master,
respectively, the legal right to net unrealized gains and losses
on open futures and on open forward contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open
futures and on open forward contracts on the Statements of Financial
Condition.
Brokerage fees are calculated as a percentage of the
Partnerships adjusted net asset value on the last day of
each month and are affected by trading performance, subscriptions and redemptions.
12
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
All of the commodity interests owned by the Master are held for trading purposes. The monthly average number
of futures contracts traded during the three months ended September 30, 2011 and 2010 were 1,673 and 2,060,
respectively. The monthly average number of futures contracts traded during the nine months ended September
30, 2011 and 2010 were 1,614 and 2,297, respectively. The monthly average number of metals forward contracts
traded during the three months ended September 30, 2011 and 2010 were 238 and 100, respectively. The monthly
average number of metals forward contracts traded during the nine months ended September 30, 2011 and 2010 were
167 and 100, respectively. The monthly average notional values of currency forward contracts during the three
months ended September 30, 2011 and 2010 were $660,781,804 and $435,914,516, respectively. The monthly average
notional values of currency forward contracts during the nine months ended September 30, 2011 and 2010
were $615,634,709 and $472,889,436, respectively. The monthly average notional values of currency option
contracts during the three months ended September 30, 2011 and 2010 were $39,274,753,998 and $36,593,784,402,
respectively. The monthly average notional values of currency option contracts during the nine months ended
September 30, 2011 and 2010 were $44,099,454,339 and $43,865,779,322, respectively. The following tables
indicate the gross fair values of derivative instruments of futures, forward and options contracts as separate
assets and liabilities as of September 30, 2011 and December 31, 2010.
Assets | September 30, 2011 | |||
Futures Contracts |
||||
Energy |
$ | 118,660 | ||
Grains |
163,850 | |||
Indices |
53,446 | |||
Interest Rates Non-U.S. |
48,798 | |||
Interest Rates U.S. |
10,937 | |||
Livestock |
63,470 | |||
Metals |
3,338 | |||
Softs |
1,779 | |||
Total unrealized appreciation on open futures contracts |
$ | 464,278 | ||
Liabilities |
||||
Futures Contracts |
||||
Energy |
$ | (128,808 | ) | |
Grains |
(53,725 | ) | ||
Indices |
(87,785 | ) | ||
Interest Rates Non-U.S. |
(236,082 | ) | ||
Interest Rates U.S. |
(110,079 | ) | ||
Metals |
(76,070 | ) | ||
Softs |
(102,095 | ) | ||
Total unrealized depreciation on open futures contracts |
$ | (794,644 | ) | |
Net unrealized depreciation on open futures contracts |
$ | (330,366) | * | |
Assets |
||||
Forward Contracts |
||||
Currencies |
$ | 2,985,708 | ||
Metals |
1,047,860 | |||
Total unrealized appreciation on open forward contracts |
$ | 4,033,568 | ||
Liabilities |
||||
Forward Contracts |
||||
Currencies |
$ | (4,192,521 | ) | |
Metals |
(578,441 | ) | ||
Total unrealized depreciation on open forward contracts |
$ | (4,770,962 | ) | |
Net unrealized depreciation on open forward contracts |
$ | (737,394) | ** | |
* | This amount is in Net unrealized depreciation on open futures contracts on the Masters Statements of Financial Condition. | |
** | This amount is in Net unrealized depreciation on open forward contracts on the Masters Statements of Financial Condition. |
13
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Assets | December 31, 2010 | |||
Futures Contracts
|
||||
Energy
|
$ | 104,562 | ||
Grains
|
126,606 | |||
Indices
|
110,856 | |||
Interest Rates Non-U.S.
|
32,933 | |||
Interest Rates U.S.
|
22,063 | |||
Livestock
|
700 | |||
Metals
|
97,200 | |||
Softs
|
118,914 | |||
Total unrealized appreciation on open futures contracts
|
$ | 613,834 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Energy
|
$ | (53,380 | ) | |
Grains
|
(2,870 | ) | ||
Indices
|
(96,645 | ) | ||
Interest Rates Non-U.S.
|
(54,423 | ) | ||
Interest Rates U.S.
|
(24,734 | ) | ||
Livestock
|
(1,730 | ) | ||
Metals
|
(510 | ) | ||
Softs
|
(18,909 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (253,201 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 360,633 | * | |
Assets | ||||
Forward Contracts
|
||||
Currencies
|
$ | 3,015,962 | ||
Metals
|
184,969 | |||
Total unrealized appreciation on open forward contracts
|
$ | 3,200,931 | ||
Liabilities
|
||||
Forward Contracts
|
||||
Currencies
|
$ | (2,455,912 | ) | |
Metals
|
(30,477 | ) | ||
Total unrealized depreciation on open forward contracts
|
$ | (2,486,389 | ) | |
Net unrealized appreciation on open forward contracts
|
$ | 714,542 | ** | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Masters Statements of Financial Condition. | |
** | This amount is in Net unrealized appreciation on open forward contracts on the Masters Statements of Financial Condition. |
Assets | ||||
Options Purchased |
||||
Currencies |
$ | 130,648 | ||
Total options purchased |
$ | 130,648 | *** | |
Liabilities |
||||
Options Premium Received |
||||
Currencies |
$ | (56,353 | ) | |
Total options premium received |
$ | (56,353 | )**** | |
*** | This amount is in Options purchased, at fair value on the Masters Statements of Financial Condition. | |
**** | This amount is in Options premium received, at fair value on the Masters Statements of Financial Condition. |
14
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The
following table indicates the trading gains and losses, by market
sector, on derivative instruments for the three and nine months ended
September 30, 2011 and 2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Sector | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Currencies |
$ | (1,683,768 | ) | $ | 735,747 | $ | (1,166,638 | ) | $ | 394,295 | ||||||
Energy |
(552,413 | ) | (659,349 | ) | (428,277 | ) | (2,641,886 | ) | ||||||||
Grains |
(470,666 | ) | 596,097 | (881,655 | ) | 655,258 | ||||||||||
Indices |
(745,242 | ) | 325,881 | (2,131,747 | ) | (3,011,390 | ) | |||||||||
Interest Rates U.S. |
1,682,966 | 1,167,263 | 2,517,194 | 2,828,152 | ||||||||||||
Interest Rates Non-U.S. |
3,937,196 | 486,333 | 3,697,786 | 4,208,592 | ||||||||||||
Livestock |
(100,880 | ) | (39,780 | ) | (249,630 | ) | (54,780 | ) | ||||||||
Metals |
343,462 | 565,058 | 8,029 | (198,989 | ) | |||||||||||
Softs |
(394,604 | ) | 725,707 | (328,864 | ) | 608,907 | ||||||||||
Total |
$ | 2,016,051 | ***** | $ | 3,902,957 | ***** | $ | 1,036,198 | ***** | $ | 2,788,159 | ***** | ||||
***** | This amount is in Total trading results on the Masters Statements of Income and Expenses and Changes in Partners Capital. |
4. | Fair Value Measurements: |
Partnerships Investments. The Partnership values its investment in the Master at its net asset value per unit as calculated by the Master. The Master values its investments as described in Note 2 of the Masters notes to the annual financial statements as of December 31, 2010.
Partnerships Fair Value Measurements. Fair value is defined as 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 under current market conditions. The fair value
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable
inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in
its entirety falls shall be determined based on the lowest level input that is significant to the
fair value measurement in its entirety.
GAAP also requires the need to use judgment in determining if a formerly active market has
become inactive and in determining fair values when the market has become inactive. Management has
concluded that based on available information in the marketplace, there has not been a significant
decrease in the volume and level of activity in the
Partnerships Level 2 assets.
The Partnership will separately present purchases, sales, issuances and settlements in its
reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the level of disaggregation and the
inputs and valuation techniques used to measure fair value for measurements that fall within either
Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
15
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The Partnership values its investment in
the Master where there are no other rights or obligations inherent within the ownership interest held by the Partnership
based on the end of the day net asset value of the Master (Level 2). The value of the Partnerships
investment in the Master reflects its proportional interest in the
Master. As of and for the periods ended September 30, 2011 and December 31, 2010,
the Partnership did not hold any derivative instruments that were based on unadjusted quoted prices in active markets
for identical assets (Level 1) or priced at fair value using unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
Quoted Prices |
||||||||||||||||
in Active Markets |
Significant Other |
Significant |
||||||||||||||
for Identical |
Observable Inputs |
Unobservable |
||||||||||||||
September 30, 2011 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Master
|
$ | 41,823,111 | $ | | $ | 41,823,111 | $ | | ||||||||
Net fair value
|
$ | 41,823,111 | $ | | $ | 41,823,111 | $ | | ||||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
December 31, 2010 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Investment in Master |
$ | 36,378,264 | $ | | $ | 36,378,264 | $ | | ||||||||
Net fair value |
$ | 36,378,264 | $ | | $ | 36,378,264 | $ | | ||||||||
Masters Investments. All commodity
interests of the Master (including derivative financial
instruments and derivative commodity instruments) are held for
trading purposes. The commodity interests are recorded on trade
date and open contracts are recorded at fair value (as described
below) at the measurement date. Investments in commodity
interests denominated in foreign currencies are translated into
U.S. dollars at the exchange rates prevailing at the
measurement date. Gains or losses are realized when contracts
are liquidated. Unrealized gains or losses on open contracts are
included as a component of equity in trading account on the
Statements of Financial Condition. Net realized gains or losses and
any change in net unrealized gains or losses from the preceding
period are reported in the Statements of Income and Expenses.
Masters Fair Value Measurements. Fair
value is defined as 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 under
current market conditions. The fair value hierarchy gives the
highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to fair values derived from unobservable inputs
(Level 3). The level in the fair value hierarchy within
which the fair value measurement in its entirety falls shall be
determined based on the lowest level input that is significant
to the fair value measurement in its entirety. Management has
concluded that based on available information in the
marketplace, the Masters Level 1 assets and
liabilities are actively traded.
GAAP also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that based on available information in the
marketplace, there has not been a significant decrease in the
volume and level of activity in the Masters Level 2
assets and liabilities.
The Master will separately present purchases, sales, issuances
and settlements in its reconciliation of Level 3 fair
value measurements (i.e., to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the
level of disaggregation and the inputs and valuation techniques
used to measure fair value for measurements that fall within
either Level 2 or Level 3 of the fair value hierarchy
as required under GAAP.
16
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
The Master considers prices for exchange-traded commodity futures, forwards and options
contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values
of non-exchange-traded forwards, swaps and certain options contracts for which market quotations
are not readily available are priced by broker-dealers who derive fair values for those assets from
observable inputs (Level 2). As of and for the periods ended September 30, 2011 and December 31, 2010, the Master did not hold any derivative
instruments that were priced at fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing models (Level 3).
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
September 30, 2011 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Futures |
$ | 464,278 | $ | 464,278 | $ | | $ | | ||||||||
Forwards |
4,033,568 | 1,047,860 | 2,985,708 | | ||||||||||||
Total assets |
4,497,846 | 1,512,138 | 2,985,708 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
$ | 794,644 | $ | 794,644 | $ | | $ | | ||||||||
Forwards |
4,770,962 | 578,441 | 4,192,521 | | ||||||||||||
Total liabilities |
5,565,606 | 1,373,085 | 4,192,521 | | ||||||||||||
Net fair value |
$ | (1,067,760 | ) | $ | 139,053 | $ | (1,206,813 | ) | $ | | ||||||
Quoted Prices in | ||||||||||||||||
Active Markets | Significant Other | Significant | ||||||||||||||
for Identical | Observable Inputs | Unobservable | ||||||||||||||
December 31, 2010* | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Futures |
$ | 613,834 | $ | 613,834 | $ | | $ | | ||||||||
Forwards |
3,200,931 | 184,969 | 3,015,962 | | ||||||||||||
Options purchased |
130,648 | | 130,648 | | ||||||||||||
Total assets |
3,945,413 | 798,803 | 3,146,610 | | ||||||||||||
Liabilities |
||||||||||||||||
Futures |
$ | 253,201 | $ | 253,201 | $ | | $ | | ||||||||
Forwards |
2,486,389 | 30,477 | 2,455,912 | | ||||||||||||
Options premium received |
56,353 | | 56,353 | | ||||||||||||
Total liabilities |
2,795,943 | 283,678 | 2,512,265 | | ||||||||||||
Net fair value |
$ | 1,149,470 | $ | 515,125 | $ | 634,345 | $ | | ||||||||
* | The amounts have been reclassified from the December 31, 2010 prior year financial statements to conform to current year presentation. |
17
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
5. | Financial Instrument Risks: |
In the normal course of
business, the Partnership, through its investment in the Master,
is party to financial instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments may include forwards,
futures, options and swaps, whose values are based upon an underlying asset, index, or reference
rate, and generally represent future commitments to exchange currencies or cash balances, or to
purchase or sell other financial instruments at specific terms at specified future dates, or, in
the case of derivative commodity instruments, to have a reasonable possibility to be settled in
cash, through physical delivery or with another financial instrument. These instruments may be
traded on an exchange or over-the-counter (OTC). Exchange-traded instruments are standardized and
include futures and certain forwards and option contracts. OTC contracts are negotiated between
contracting parties and include certain forwards and option contracts. Specific market movements of commodities
or futures contracts underlying an option cannot accurately be predicated. Each of these instruments is
subject to various risks similar to those related to the underlying financial instruments including
market and credit risk. In general, the risks associated with OTC contracts are greater than those
associated with exchange-traded instruments because of the greater risk of default by the
counterparty to an OTC contract.
The risk to the limited partners that have purchased interests
in the Partnership is limited to the amount of their capital
contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This
limited liability is a result of the organization of the
Partnership as a limited partnership under New York law.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership/Master due to market changes, including interest and foreign exchange rate
movements and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership/Master is exposed to a market risk equal to the value of futures and forward contracts
purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to
perform according to the terms of a contract. The
Partnerships/Masters risk of loss in the event of
a counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and is not represented by the contract or notional amounts of the instruments. The
Partnerships/Masters risk of loss is reduced through the use of legally enforceable master netting
agreements with counterparties that permit the Partnership/Master to offset unrealized gains and
losses and other assets and liabilities with such counterparties upon the occurrence of certain
events. The Partnership/Master has credit risk and concentration risk as CGM or a CGM affiliate is the sole counterparty or
broker with respect to the Partnerships/Masters assets. Credit risk
with respect to exchange-traded instruments is reduced to the extent that through CGM, the
Partnerships/Masters counterparty is an exchange or clearing organization.
As both a buyer and seller of options, the Master pays or receives a premium at
the outset and then bears the risk of unfavorable changes in the price of the contract underlying
the option. Written options expose the Master to potentially unlimited liability; for
purchased options, the risk of loss is limited to the premiums paid. Certain written put options
permit cash settlement and do not require the option holder to own the reference asset. The
Master does not consider these contracts to be guarantees.
The General Partner monitors and attempts to control the Partnerships/Masters risk
exposure on a daily
basis through financial, credit and risk management monitoring systems, and accordingly believes
that it has effective procedures for evaluating and limiting the credit and market risks to which
the Partnership/Master may be subject. These monitoring systems
generally allow the General Partner to
statistically analyze actual trading results with risk adjusted performance indicators and
correlation statistics. In addition, online monitoring systems provide account analysis of
futures, forwards and options positions by sector, margin requirements, gain and loss transactions
and collateral positions.
The majority of these instruments mature within one year of the inception date. However, due
to the nature of the Partnerships/Masters business, these instruments may not be held to maturity.
18
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
6. Critical
Accounting Policies
Use of Estimates. The preparation of financial statements and accompanying notes in conformity
with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, income and expenses,
and related disclosures of contingent assets and liabilities in the financial statements and
accompanying notes. As a result, actual results could differ from these estimates.
Partnerships Investments. The Partnership values its investment in the Master at its net asset value per
unit as calculated by the Master. The Master values its investments as described in Note 2 of the
Masters notes to the annual financial statements as of December 31, 2010.
Partnerships and Masters Fair Value Measurements. Fair value is defined as 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 under current market conditions. The fair value
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable
inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in
its entirety falls shall be determined based on the lowest level input that is significant to the
fair value measurement in its entirety. Management has concluded that based on available
information in the marketplace, the Masterss Level 1 assets and liabilities are actively
traded.
GAAP also requires the need to use judgment in determining if a formerly active market has
become inactive and in determining fair values when the market has become inactive. Management has
concluded that based on available information in the marketplace, there has not been a significant
decrease in the volume and level of activity in the
Partnerships and Masters Level 2 assets and liabilities.
The
Partnership will separately present purchases, sales, issuances and
settlements in its
reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the level of disaggregation and the
inputs and valuation techniques used to measure fair value for measurements that fall within either
Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
The
Partnership values its investment in the Master where there are no other rights or obligations
inherent within the ownership interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the Partnerships investment
in the Master reflects its proportional interest in the Master. As of and for the periods
ended September 30, 2011 and December 31, 2010, the Partnership did not hold any
derivative instruments that were based on unadjusted quoted prices in active markets for identical
assets (Level 1) or priced at fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing models (Level 3).
The
Master considers prices for exchange-traded commodity
futures, forwards and options contracts to be based on unadjusted quoted
prices in active markets for identical assets (Level 1).
The values of non-exchange-traded forwards, swaps and certain
options contracts for which market quotations are not readily
available are priced by broker-dealers who derive fair values
for those assets from observable inputs (Level 2). As of and
for the periods ended
September 30, 2011 and December 31, 2010, the Master did not hold any
derivative instruments that were priced at fair value using
unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
19
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
Futures Contracts. The Master trades futures contracts. A futures contract is a firm
commitment to buy or sell a specified quantity of investments, currency or a standardized amount of
a deliverable grade commodity, at a specified price on a specified future date, unless the contract
is closed before the delivery date or if the delivery quantity is something where physical delivery
cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the Master each business day, depending on the
daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains
or losses by the Master. When the contract is closed, the Master records a realized gain or loss
equal to the difference between the value of the contract at the time it was opened and the value
at the time it was closed. Transactions in futures contracts require participants to make
both initial margin deposits of cash or other assets and variation margin deposits, through the
futures broker, directly with the exchange on which the contracts are traded.
Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are
included in the Statements of Income and Expenses and Changes in Partners
Capital.
Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the
Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price
on an agreed future date. Forward foreign currency contracts are valued daily, and the Masters net equity
therein, representing unrealized gain or loss on the contracts as measured by the difference
between the forward foreign exchange rates at the dates of entry into the contracts and the forward
rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains
(losses) and changes in net unrealized gains (losses) on forward foreign currency contracts are recognized in
the period in which the contract is closed or the changes occur, respectively, and are included in
the Statements of Income and Expenses and Changes in Partners Capital.
The
Master does not isolate that portion of the results of operations arising from the
effect of changes in foreign exchange rates on investments from fluctuations from changes in market
prices of investments held. Such fluctuations are included in net gain (loss) on investments in
the Statements of Income and Expenses and Changes in Partners Capital.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange
(LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead,
nickel, tin or zinc. LME contracts traded by the Master are cash settled based on prompt dates
published by the LME. Payments
(variation margin) may be made or received by the Master each business day, depending on the
daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains
or losses by the Master. A contract is considered offset when all
long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Master records a realized
gain or loss equal to the difference between the value of the contract at the time it was opened
and the value at the time it was closed. Transactions in LME contracts require participants
to make both initial margin deposits of cash or other assets and variation margin deposits, through
the broker, directly with the LME. Net realized gains (losses) and changes
in net unrealized gains (losses) on metal contracts are included
in the Statements of Income and
Expenses and Changes in Partners
Capital.
Options.
The Master may purchase and write (sell) both exchange listed
and OTC options on commodities or financial instruments. An option is a contract allowing,
but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or
financial instrument at a specified price during a specified time period. The option premium is the
total price paid or received for the option contract. When the Master writes an option, the premium
received is recorded as a liability in the Statements of Financial Condition and marked to market
daily. When the Master purchases an option, the premium paid is recorded as an asset in the
Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes
in net unrealized gains (losses) on options contracts are included in the Statements of Income and
Expenses and Changes in Partners Capital.
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on its share of the Partnerships income and expenses.
20
Potomac Futures Fund L.P.
Notes to Financial Statements
September 30, 2011
(Unaudited)
Notes to Financial Statements
September 30, 2011
(Unaudited)
GAAP provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial
statements and requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the
Partnerships financial statements to determine whether the
tax positions are more-likely-than-not to be
sustained by the applicable tax authority. Tax positions with
respect to tax at the Partnership level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The General
Partner concluded that no provision for income tax is required
in the Partnerships financial statements.
The Partnership files U.S. federal and various state and local
tax returns. No income tax returns are currently under
examination. Generally, the 2008 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
Subsequent Events. The General Partner
evaluates events that occur after the balance sheet
date but before financial statements are filed. The General Partner has
assessed the subsequent events through the date of filing and
determined that there were no subsequent events requiring
adjustment of or disclosure in the financial statements.
Recent Accounting Pronouncements.
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards
(IFRS). The amendments within this ASU change the wording used to describe many
of the requirements in U.S. GAAP for measuring fair value and for disclosing information about
fair value measurements to eliminate unnecessary wording differences
between U.S. GAAP and IFRS.
However, some of the amendments clarify the FASBs intent about the application of existing
fair value measurement requirements and other amendments change a particular principle or
requirement for measuring fair value or for disclosing information about fair value measurements.
The ASU is effective for annual and interim periods beginning after December 15, 2011 for public
entities. This new guidance is not expected to have a material impact
on the Partnerships/Masters financial statements.
In October 2011, FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for
determining whether an entity is an investment company. Under longstanding U.S. GAAP, investment companies carry all of their investments at fair value, even if
they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to
which entities would be considered investment companies as well as certain disclosure and presentation
requirements. In addition to the changes to the criteria for determining whether an entity is an investment
company, the FASB also proposes that an investment company consolidate another investment company if it
holds a controlling financial interest in the entity. The Partnership is currently evaluating the impact
that this proposed update would have on the financial statements.
Net Income (Loss) per unit. Net
income (loss) per unit is calculated in accordance
with investment company guidance. See Note 2, Financial
Highlights.
21
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Liquidity
and Capital Resources
The Partnership does not engage in sales of goods or services.
Its only assets are its investment in the Master and cash. The Master does not engage in sales of
goods or services. Because of the low margin deposits normally
required in commodity futures trading, relatively small price
movements may result in substantial losses to the Partnership,
through its investment in the Master. While substantial losses
could lead to a material decrease in liquidity, no such illiquidity
occurred in the third quarter of 2011.
The Partnerships capital consists of the capital
contributions of the partners, as increased or decreased by income (loss)
from its investment in the Master,
expenses, interest income,
redemptions of Redeemable Units and distributions of profits, if
any.
For the nine months ended September 30, 2011, Partnership
capital increased 15.0% from $35,871,031
to $41,255,425. This increase was attributable to the additional
subscriptions of 9,546.9354
Redeemable Units totaling $13,549,311, which was partially offset by a net loss from operations of
$1,544,598 coupled with the redemption of 4,644.7620 Redeemable Units
totaling $6,620,319. Future
redemptions can impact the amount of funds available for investment in the Master in subsequent
periods.
The Masters capital consists of the capital contributions of the
partners as increased or decreased by realized and/or unrealized gains or losses on trading, expenses,
interest income, redemptions of units and distributions of profits, if any.
For the nine months ended September 30, 2011, the Masters
capital increased 15.0% from $36,375,992
to $41,823,111. This increase was attributable to a net gain from
operations of $923,154
coupled with the additional
subscriptions of 10,420.9976 units
totaling $13,549,311, which was partially offset by the redemption
of 6,847.7282 units totaling $9,015,200 and distribution of interest
income to feeder funds totaling $10,146. Future redemptions can impact the amount of funds available
for investment in commodity contract positions in subsequent periods.
Critical
Accounting Policies
The preparation of financial statements in conformity with GAAP 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. Actual results could
differ from those estimates. The Partnerships significant accounting policies are described in
detail in Note 6 of the Financial Statements.
The
Partnership records all investments at fair value in its financial statements, with
changes in fair value reported as a component of net realized gains
(losses) and change in net unrealized
gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
22
Results
of Operations
During the Partnerships third quarter of 2011, the net asset value per unit increased
2.9% from $1,350.30 to $1,389.77 as compared to an increase of 7.5% in the third quarter of 2010.
The Partnership, through its investment in the Master, experienced a net trading gain before
brokerage fees and related fees in the third quarter of 2011 of $2,016,051. Gains were primarily
attributable to the Masters trading of commodity futures in U.S. and non-U.S. interest
rates and metals and were partially offset by losses in currencies, energy, grains, indices, livestock and softs.
The Partnership, through its investment in the Master, experienced a net trading gain before brokerage
fees and related fees in the third quarter of 2010 of $3,583,693. Gains were primarily attributable
to the Masters trading of commodity futures in currencies,
grains, U.S. and non-U.S. interest
rates, metals, softs, and indices and were partially offset by losses in energy and livestock.
The most significant gains were achieved within the global interest rate sector throughout the majority of
the quarter from long positions in European, U.S., and Australian fixed income futures as prices advanced higher
due to concern about the European sovereign debt crisis and a faltering global economy. Within the metals
markets, gains were experienced primarily during July from long positions in gold and silver futures after prices
moved higher as escalating concern that the global economy is slowing boosted demand for the precious metals.
A portion of the Partnerships gains for the quarter was offset by losses incurred within the currency markets,
primarily during August and September. In August, long positions in the Australian dollar, New Zealand dollar,
and Canadian dollar versus the U.S. dollar resulted in losses as the value of the U.S. dollar was boosted higher
against these commodity currencies by increased
safe haven demand following central bank intervention in
the Japanese yen. During September, additional losses were incurred due to long positions in the Singapore dollar,
Norwegian krone, and New Zealand dollar versus the U.S. dollar after the value of these currencies declined
against the U.S. dollar as a deepening debt crisis in Europe diminished demand for higher-yielding currencies.
Within the agricultural complex, losses were experienced primarily during September due to long futures
positions in corn and soybeans as prices declined on speculation that Europes sovereign debt crisis may hinder
the global economy, reducing demand for the grains. Losses were incurred within the global stock index markets,
primarily during July and August, from long positions in European and U.S. equity index futures as prices
dropped following Standard & Poors downgrade of the United States sovereign credit rating. Lastly, losses were
recorded within the energy sector, primarily during September, from long futures positions in crude oil and its
related products as prices fell on concern energy demand may falter amid slowing economic growth in the U.S.
During the Partnerships nine months ended September 30, 2011, the net asset value per unit
decreased 4.0% from $1,447.41 to $1,389.77 as compared to an increase of 1.1% in the nine months
ended September 30, 2010. The Partnership, through its investment in the Master, experienced a net
trading gain before brokerage fees and related fees in the nine months ended September 30, 2011 of
$1,036,198. Gains were primarily attributable to the Masters trading of commodity futures in U.S. and
non-U.S. interest rates and metals and were partially offset by losses
in currencies, energy, grains, indices, livestock and softs. The Partnership, through its investment in
the Master, experienced a net trading gain before brokerage fees and related fees in the nine
months ended September 30, 2010 of $2,810,972. Gains were primarily attributable to the Masters
trading of commodity futures in currencies, grains, U.S. and non-U.S. interest rates, and softs and
were partially offset by losses in energy, livestock, metals and indices.
The most significant losses were recorded within the global stock index sector, primarily during March,
due to long positions in European, Pacific Rim, and U.S. equity index futures as prices moved sharply lower
following the worst earthquake and tsunami in Japanese history. During July and August, long positions in
European and U.S. equity index futures resulted in losses as prices
dropped following Standard & Poors
downgrade of the United States sovereign credit rating. Within the agricultural complex, losses were experienced
primarily during March due to long positions in corn futures as prices fell after a U.S. Department of Agriculture
report revealed increasing world stockpiles and declining U.S. exports of the crop. Additional losses were
incurred in this sector during June due to long positions in corn futures as prices declined sharply after the U.S.
Department of Agriculture revealed larger-than-expected plantings. During September, long futures positions in
corn and soybeans also resulted in losses as prices declined on speculation that Europes sovereign debt crisis may
hinder the global economy, reducing demand for the grains. Losses were recorded within the energy sector,
primarily during May and June, from long futures positions in crude oil and its related products as prices moved
lower amid signs of a slowing global economic recovery. Losses were incurred within the currency markets,
primarily during August, from long positions in the Australian dollar, New Zealand dollar, and Canadian dollar
versus the U.S. dollar as the value of the U.S. dollar was boosted
higher by increased safe haven demand
following central bank intervention in the Japanese yen. During September, additional losses were incurred due to
long positions in the Singapore dollar, Norwegian krone, and New Zealand dollar versus the U.S. dollar after the
value of these currencies declined against the U.S. dollar as a deepening debt crisis in Europe diminished demand
for higher-yielding currencies. A portion of the Partnerships losses during the first nine months of the year was
offset by gains achieved within the global interest rate sector, primarily during May, due to long positions in U.S.
fixed-income futures as prices increased following reports that showed the U.S. economy grew less than forecast
and U.S. jobless claims unexpectedly rose. Additional gains were recorded during the third quarter from long
positions in European, U.S., and Australian fixed income futures as prices advanced higher due to concern about
the European sovereign debt crisis and a faltering global economy. Within the metals markets, gains were
experienced primarily during April from long futures positions in silver and gold as silver futures prices advanced
to a 31-year high and gold futures prices reached an all-time high after the U.S. Federal Reserve pledged to keep
borrowing costs low, eroding the value of the U.S. dollar and boosting demand for precious metals as an
alternative investment. Additional gains were achieved during July due to long positions in gold futures as
investors sought protection against the possibility of a U.S. debt default, thus pushing gold prices to a record high
at the end of the month.
23
Commodity futures markets are highly volatile. The potential for
broad and rapid price fluctuations increases the risks involved
in commodity trading, but also increases the possibility of
profit. The profitability of the Partnership (and the Master)
depends on the existence of major price trends and the ability
of the Advisor to correctly identify those price trends. Price
trends are influenced by, among other things, changing supply
and demand relationships, weather, governmental, agricultural,
commercial and trade programs and policies, national and
international political and economic events and changes in
interest rates. To the extent that market trends exist and the
Advisor is able to identify them, the Partnership (and the
Master) expects to increase capital through operations.
Interest income on 80% of the Partnerships average daily
equity allocated to it by the Master was earned at a
30-day
U.S. Treasury bill rate determined weekly by CGM based on
the average non-competitive yield on
3-month
U.S. Treasury bills maturing in 30 days. Interest
income allocated from the Master for the three and nine
months ended September 30, 2011
decreased by $9,309 and $17,221, respectively, as compared to the
corresponding periods in 2010.
The decrease in interest income is primarily due to lower U.S. Treasury bill rates during the three and
nine months ended September 30, 2011 as compared to the
corresponding periods in 2010. Interest earned by the Partnership will increase the net asset value
of the Partnership. The amount of interest income earned by the Partnership depends on the average daily
equity in the Partnerships account and upon interest rates over
which neither the Partnership nor CGM has control.
Brokerage fees are calculated as a percentage of the
Partnerships adjusted net asset value on the last day of
each month and are affected by trading performance, subscriptions
and redemptions. Accordingly, they must be analyzed in relation
to the fluctuations in the monthly net asset values. Brokerage
fees for the three and nine months ended September 30, 2011 decreased
by $48,705 and $441,305, respectively as compared to the
corresponding periods in 2010. The decrease in brokerage
and fees is due to a change in the fee percentage rate during the three
and nine
months ended September 30,
2011 as compared to the corresponding periods in 2010.
Management fees are calculated as a percentage of the
Partnerships net asset value as of the end of each month
and are affected by trading performance, subscriptions and
redemptions. Management fees for the three months ended September 30,
2011 increased by $18,266 as compared to the corresponding period in 2010.
The increase in management fees is due to an increase in average net assets during the three months ended September 30, 2011 as compared to the corresponding
period in 2010. Management fees for the nine months ended September 30, 2011 decreased by
$40,042 as compared to the corresponding period in 2010. The decrease
in management fees is due to a decrease in
average net assets during the nine months ended September 30, 2011 as compared to the corresponding period in 2010.
Incentive fees are based on the new trading profits generated by
the Advisor at the end of the quarter, as defined in the advisory
agreements between the Partnership, the General Partner and the
Advisor. There were no incentive fees earned for the three and
nine months
ended September 30, 2011 and 2010. The Advisor will
not be paid incentive fees until the Advisor recovers the net
loss incurred and earns additional new trading profits for the
Partnership.
In allocating substantially all of the assets of the Partnership to the Master, the General Partner considers the Advisors
past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the
allocation of assets to the Advisor at any time.
24
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
All of the Partnerships assets are subject to the risk of
trading loss through its investment in the Master. The Master is
a speculative commodity pool. The market sensitive instruments
held by the Master are acquired for speculative trading purposes, and
all or substantially all of the Partnerships assets is subject
to the risk of trading loss through its investment in the Master. Unlike an operating company, the
risk of market sensitive instruments is integral, not
incidental, to the Masters and the Partnerships main line of business.
The risk to the limited partners that have purchased interests in the Partnership is
limited to the amount of their capital contributions to the Partnership and their share of
the Partnerships assets and undistributed profits. This limited
liability is a result of the organization of the Partnership as a limited partnership under New York law.
Market movements result in frequent changes in the fair market
value of the Masters open positions and, consequently, in
their earnings and cash balances. The Masters market risk is
influenced by a wide variety of factors, including the level and
volatility of interest rates, exchange rates, equity price
levels, the market value of financial instruments and contracts,
the diversification effects among the Masters open
contracts and the liquidity of the markets in which they trade.
The Master rapidly acquires and liquidates both long and short
positions in a wide range of different markets. Consequently, it
is not possible to predict how a particular future market
scenario will affect performance, and the Masters past
performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the
Master could reasonably be expected to lose in a given market
sector. However, the inherent uncertainty of the Masters
speculative trading and the recurrence in the markets traded by
the Master of market movements far exceeding expectations could
result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Masters experience to date
(i.e., risk of ruin). In light of the foregoing as
well as the risks and uncertainties intrinsic to all future
projections, the inclusion of the quantification in this section
should not be considered to constitute any assurance or
representation that the Masters losses in any market
sector will be limited to Value at Risk or by the Masters
attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the
Master as the measure of its Value at Risk. Maintenance margin
requirements are set by exchanges to equal or exceed the maximum
losses reasonably expected to be incurred in the fair value of
any given contract in 95%-99% of any
one-day
interval. Maintenance margin has been used rather than the more
generally available initial margin, because initial margin
includes a credit risk component, which is not relevant to Value
at Risk.
25
Value at Risk tables represent a probabilistic assessment of the risk of loss in
market risk sensitive instruments. The following tables indicate the trading Value of Risk
associated with the Masters open positions by market category
as of September 30, 2011 and
December 31, 2010, and the highest, lowest and average values during
the three months ended September 30, 2011 and for the twelve months ended December 31, 2010
. All open position trading risk exposures of the Master have been included in
calculating the figures set forth below. There has been no material change in the
trading Value at Risk information previously
disclosed in the Partnerships Annual Report on Form 10-K for the year ended December
31, 2010. As of September 30, 2011, the
Masters total capitalization was $41,823,111 and the Partnership owned 100.0% of the
Master. The Partnership invests substantially all of its assets in the Master. The Masters
Value at Risk as of September 30, 2011 was as follows:
September 30, 2011
Three Months Ended September 30, 2011 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 917,275 | 2.19 | % | $ | 2,962,979 | $ | 785,690 | $ | 1,669,863 | ||||||||||
Energy |
281,105 | 0.67 | % | 648,701 | 156,560 | 298,867 | ||||||||||||||
Grains |
75,625 | 0.18 | % | 262,850 | 47,600 | 113,808 | ||||||||||||||
Indices |
546,380 | 1.31 | % | 1,770,044 | 393,541 | 655,617 | ||||||||||||||
Interest Rates U.S. |
256,600 | 0.61 | % | 583,300 | 235,650 | 322,217 | ||||||||||||||
Interest Rates
Non-U.S. |
984,136 | 2.35 | % | 1,818,523 | 721,899 | 1,156,316 | ||||||||||||||
Livestock |
47,950 | 0.11 | % | 78,950 | 2,500 | 31,092 | ||||||||||||||
Metals |
432,860 | 1.04 | % | 743,442 | 209,060 | 496,077 | ||||||||||||||
Softs |
64,950 | 0.16 | % | 259,500 | 27,900 | 105,750 | ||||||||||||||
Total |
$ | 3,606,881 | 8.62 | % | ||||||||||||||||
*
Average of month-end Values at Risk.
As of December 31, 2010, the
Masters total capitalization was $36,375,992 and the
Partnership owned 100.0% of the Master. The Partnership invests substantially all of its assets in the
Master. The Masters Value at Risk as of December 31, 2010 was as follows:
December 31, 2010 | ||||||||||||||||||||
Twelve Months Ended December 31, 2010 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 1,263,212 | 3.47 | % | $ | 3,076,532 | $ | 45,857 | $ | 1,544,875 | ||||||||||
Energy |
275,400 | 0.76 | % | 561,250 | 56,374 | 256,720 | ||||||||||||||
Grains |
109,562 | 0.30 | % | 335,050 | 12,500 | 109,901 | ||||||||||||||
Indices |
1,190,652 | 3.27 | % | 1,974,159 | 444,941 | 1,162,418 | ||||||||||||||
Interest Rates U.S. |
23,067 | 0.06 | % | 889,400 | 23,067 | 400,082 | ||||||||||||||
Interest Rates Non-U.S. |
200,338 | 0.55 | % | 1,860,915 | 142,880 | 919,067 | ||||||||||||||
Livestock |
10,050 | 0.03 | % | 33,350 | 1,000 | 11,913 | ||||||||||||||
Metals |
322,981 | 0.89 | % | 913,240 | 69,732 | 419,922 | ||||||||||||||
Softs |
128,500 | 0.35 | % | 317,000 | 5,200 | 116,413 | ||||||||||||||
Total |
$ | 3,523,762 | 9.68 | % | ||||||||||||||||
* | Annual average of month-end Values at Risk. |
26
Item 4. | Controls and Procedures |
The Partnerships disclosure controls and procedures are
designed to ensure that information required to be disclosed
by the Partnership on the reports that it files or submits under the Securities Exchange Act of
1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods
expected in the SECs rules and forms. Disclosure controls and procedures include controls
and procedures designed to ensure that information required to be disclosed by the Partnership in
the reports it files
is accumulated and communicated to management,
including the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO) of the General Partner, to allow for
timely decisions regarding required disclosure and appropriate
SEC filings.
The General Partner is responsible for ensuring that there is an adequate
and effective process for establishing, maintaining and
evaluating disclosure controls and procedures for the
Partnerships external disclosures.
The General Partners CEO and CFO have evaluated the
effectiveness of the Partnerships disclosure controls and
procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of September 30, 2011 and, based on
that evaluation, the General Partners CEO and CFO have
concluded that, at that
date, the Partnerships disclosure controls and procedures
were effective.
The Partnerships internal control over financial
reporting is a process under the supervision of the General
Partners CEO and CFO to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP. These
controls include policies and procedures that:
| pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | |
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control
over financial reporting process during the fiscal quarter ended
September 30, 2011 that materially affected, or are reasonably
likely to materially affect, the Partnerships internal
control over financial reporting.
27
PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
The following information supplements and amends the discussion set forth under Part I, Item 3
Legal Proceedings in the Partnerships Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, as updated by the Partnerships Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2011 and June 30, 2011.
Subprime-Mortgage Related Actions
On October 19, 2011, the SEC and Citigroup announced a settlement, subject to judicial
approval, in connection with the SECs investigation into the structuring and sale of CDOs.
Pursuant to the proposed settlement, CGM agreed to pay $160 million in disgorgement, $30 million in
prejudgment interest, and a civil penalty of $95 million relating to CGMs role in the structuring
and sale of the Class V Funding III CDO transaction. Additional information relating to this matter
is publicly available in court filings under the docket number 11 Civ. 7387 (S.D.N.Y.) (Rakoff,
J.).
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Item 1A. Risk Factors
There have been no material changes to the risk factors set forth under Part I, Item 1A.
Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended
December 31, 2010 and under Part II, Item 1A. Risk
Factors in the Partnerships Quarterly Report on the Form 10-Q for the quarters ended March 31,
2011 and June 30, 2011.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
For the three months ended September 30, 2011, there were
additional subscriptions of 933.8772 Redeemable Units totaling
$1,365,867.
The Redeemable Units were issued in reliance upon applicable
exemptions from registration under Section 4(2) of the
Securities Act of 1933, as amended, and Section 506 of
Regulation D promulgated thereunder.
Proceeds of net offering were used for the trading of commodity
interests, including futures contracts, options, forwards and swap
contracts.
The following chart sets forth the purchases of Redeemable Units
by the Partnership.
These units were purchased by accredited investors as defined in
Regulation D.
(d) Maximum Number |
||||||||||||||||||||
(or Approximate |
||||||||||||||||||||
(c) Total Number |
Dollar Value) of |
|||||||||||||||||||
(a) Total |
of Redeemable Units |
Redeemable Units that |
||||||||||||||||||
Number of |
(b) Average |
Purchased as Part |
May Yet Be |
|||||||||||||||||
Redeemable |
Price Paid per |
of Publicly Announced |
Purchased Under the |
|||||||||||||||||
Period | Units Purchased* | Redeemable Unit** | Plans or Programs | Plans or Programs | ||||||||||||||||
July 1, 2011 -
July 31, 2011 |
153.2272 | $ | 1,475.24 | N/A | N/A | |||||||||||||||
August 1, 2011 -
August 31, 2011 |
229.1547 | $ | 1,475.63 | N/A | N/A | |||||||||||||||
September 1, 2011 -
September 30, 2011 |
235.4953 | $ | 1,389.77 | N/A | N/A | |||||||||||||||
617.8772 | $ | 1,442.81 | ||||||||||||||||||
* Generally, limited partners
are permitted to redeem their Redeemable Units as of the end of
each month on three business days notice to the General Partner.
Under certain circumstances, the General Partner can compel
redemption, although to date the General Partner has not exercised
this right. Purchases of Redeemable Units by the Partnership
reflected in the chart above were made in the ordinary course of
the Partnerships business in connection with effecting
redemptions for limited partners.
** Redemptions of Redeemable
Units are effected as of the last day of each month at the net
asset value per Redeemable Unit as of that day.
Item 3. | Defaults Upon Senior Securities None |
Item 4. | [Removed and Reserved] |
Item 5. | Other Information None. |
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Item 6. | Exhibits |
3.1 | Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated March 13, 1997 (filed as Exhibit 3.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(a) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated February 26, 1999 (filed as Exhibit 3.4 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(b) | Certificate of Change of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.3 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(c) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 1, 2001 (filed as Exhibit 3.2 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(d) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 21, 2003 (filed as Exhibit 3.5 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(e) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.1(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |
(f) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.1(f) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |
(g) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |
(h) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 29, 2010 (filed as Exhibit 3.1(h) to the Form 8-K filed on June 30, 2010 and incorporated herein by reference). | |
(i) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K filed on September 7, 2011 and incorporated herein by reference). | |
3.2 | Third Amended and Restated Limited Partnership Agreement, dated February 22, 2010 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on February 25, 2010 and incorporated herein by reference). | |
10.1 | Form of Subscription Agreement (filed as Exhibit 10.1 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |
10.2 | Second Amended and Restated Customer Agreement between the Partnership and Salomon Smith Barney Inc., dated April 1, 2001 (filed as Exhibit 10.2 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
10.3 | Second Amended and Restated Agency Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated July 29, 2010 (filed as Exhibit 10.3 to the Form 8-K filed on August 3, 2010 and incorporated herein by reference). | |
10.4 | Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference). | |
10.5 | Escrow Agreement among the Partnership, Smith Barney Futures Management Inc., Smith Barney Inc. and European American Bank, dated April 15, 1997 (filed as Exhibit 10.5 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
30
10.6 | Management Agreement among the Partnership, Smith Barney Futures Management Inc. and Campbell & Company, Inc., dated April 1, 1997 (filed as Exhibit 10.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(a) | First Amendment to the Management Agreement among the Partnership, Smith Barney Futures Management Inc., Campbell & Company, Inc. and SFG Global Investments, Inc., dated March 1, 1999 (filed as Exhibit 10.1(a) to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(b) | Second Amendment to the Management Agreement among the Partnership, Smith Barney Futures Management LLC and Campbell & Company, Inc., dated April 1, 2001 (filed as Exhibit 10.1(b) to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference). | |
(c) | Letter extending Management Agreement between the General Partner and Campbell & Company, Inc. for 2010, dated June 1, 2010 (filed as Exhibit 10.6(c) to the Form 10-K filed on March 31, 2011 and incorporated herein by reference). | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director). | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer). | |
32.1 | Section 1350 Certification (Certification of President and Director). | |
32.2 | Section 1350 Certification (Certification of Chief Financial Officer). | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
31
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.
POTOMAC FUTURES FUND L.P.
|
||
By:
|
Ceres Managed Futures LLC (General Partner) |
|
By:
|
/s/ Walter Davis Walter Davis President and Director |
|
Date: November 14, 2011
|
||
By:
|
/s/ Brian
Centner
Brian Centner Chief Financial Officer (Principal Accounting Officer) |
|
Date: November 14, 2011
|
32