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Table of Contents

UNITED STATES

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 March 31, 2012

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 000-52602

BRISTOL ENERGY FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

New York

   

20-2718952

(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

 

(Registrant’s 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 þ 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 this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ 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 þ   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 þ

As of April 30, 2012, 196,022.3252 Limited Partnership Redeemable Units were outstanding.


Table of Contents

BRISTOL ENERGY FUND L.P.

FORM 10-Q

INDEX

 

     Page
Number
 

PART I — Financial Information:

  

Item 1. Financial Statements:

  

Statements of Financial Condition at March 31, 2012 (unaudited) and December 31, 2011

     3   

Statements of Income and Expenses and Changes in Partners’ Capital for the three months ended March 31, 2012 and 2011 (unaudited)

     4   

Notes to Financial Statements, including the Financial Statements of CMF SandRidge Master Fund L.P. (unaudited)

     5-18   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     19-20   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     21-22   

Item 4. Controls and Procedures

     23   

PART II — Other Information

     24-27   

Exhibits

  

Ex. 31.1 Certification

  

Ex. 31.2 Certification

  

Ex. 32.1 Certification

  

Ex. 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


Table of Contents

PART I

Item 1. Financial Statements

Bristol Energy Fund L.P.

Statements of Financial Condition

 

     (Unaudited)
March 31,
2012
     December 31,
2011
 

Assets:

     

Investment in Master, at fair value

   $ 329,990,672       $ 290,607,238   

Cash

     272,554         226,388   
  

 

 

    

 

 

 

Total assets

   $ 330,263,226       $ 290,833,626   
  

 

 

    

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Accrued expenses:

     

Brokerage fees

   $ 1,032,073       $ 908,855   

Management fees

     548,388         482,943   

Administrative fees

     137,097         120,736   

Other

     198,146         158,755   

Redemptions payable

  

 

 

 

 

 

6,888,930

 

 

  

  

 

 

 

 

 

3,436,028

 

 

  

  

 

 

    

 

 

 

Total liabilities

     8,804,634         5,107,317   
  

 

 

    

 

 

 

Partners’ Capital:

     

General Partner, 2,647.2615 unit equivalents outstanding at March 31, 2012 and December 31, 2011

     4,245,440         3,682,182   

Special Limited Partner, 800.7772 Redeemable Units outstanding at March 31, 2012 and December 31, 2011

     1,284,214         1,113,833   

Limited Partners, 196,999.3779 and 201,971.5156 Redeemable Units outstanding at March 31, 2012 and December 31, 2011, respectively

     315,928,938         280,930,294   
  

 

 

    

 

 

 

Total partners’ capital

  

 

 

 

321,458,592

 

  

  

 

 

 

285,726,309

 

  

  

 

 

    

 

 

 

Total liabilities and partners’ capital

   $ 330,263,226       $ 290,833,626   
  

 

 

    

 

 

 

Net asset value per unit

  

 

$

 

1,603.71

 

  

  

 

$

 

1,390.94

 

  

  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

3


Table of Contents

Bristol Energy Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)

 

    Three Months Ended
March 31,
 
    2012     2011  

Investment Income:

   

Interest income allocated from Master

  $ 23,817      $ 67,639   
 

 

 

   

 

 

 

Expenses:

   

Expenses allocated from Master

    251,675        271,083   

Brokerage fees

    2,841,873        3,244,641   

Management fees

    1,510,035        1,724,602   

Administrative fees

    377,509        431,150   

Other

    83,491        87,027   
 

 

 

   

 

 

 

Total expenses

    5,064,583        5,758,503   
 

 

 

   

 

 

 

Net investment income (loss)

    (5,040,766     (5,690,864
 

 

 

   

 

 

 

Trading Results:

   

Net realized gains (losses) on closed contracts allocated from Master

    29,768,498        1,388,191   

Change in net unrealized gains (losses) on open contracts allocated from Master

    18,841,819        11,157,465   
 

 

 

   

 

 

 

Total trading results allocated from Master

    48,610,317        12,545,656   
 

 

 

   

 

 

 

Net income (loss)

    43,569,551        6,854,792   

Subscriptions — Limited Partners

    5,201,000        5,791,925   

Redemptions — Limited Partners

    (13,038,268     (77,957,214
 

 

 

   

 

 

 

Net increase (decrease) in Partners’ Capital

    35,732,283        (65,310,497

Partners’ Capital, beginning of period

    285,726,309        378,107,253   
 

 

 

   

 

 

 

Partners’ Capital, end of period

  $ 321,458,592      $ 312,796,756   
 

 

 

   

 

 

 

Net asset value per unit (200,447.4166 and 241,246.8691 units outstanding at March 31, 2012 and 2011, respectively)

  $ 1,603.71      $ 1,296.58   
 

 

 

   

 

 

 

Net income (loss) per unit*

  $ 212.77      $ 29.49   
 

 

 

   

 

 

 

Weighted average units outstanding

    205,751.7924        268,731.6341   
 

 

 

   

 

 

 

 

 

 

* Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

4


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

1. General:

Bristol Energy Fund L.P. (the “Partnership”), is a limited partnership organized on April 20, 2005 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of commodity interests, including options, commodity futures contracts, forwards and swaps contracts on exchanges and markets located in the United States and abroad. The Master (as defined below) may enter into swap and derivative contracts on energy related products. The commodity interests that are traded by the Partnership, through its investment in the Master, are volatile and involve a high degree of market risk. During the initial offering period the Partnership sold 11,925 redeemable units of limited partnership interest (“Redeemable Units”). The Partnership commenced trading on September 6, 2005. The Partnership privately and continuously offers Redeemable Units 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 Inc. (“Citigroup”) indirectly owns a minority equity interest in MSSB Holdings. Citigroup also indirectly owns Citigroup Global Markets Inc. (“CGM”), the commodity broker and a selling agent for the Partnership. 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 March 31, 2012, all trading decisions for the Partnership are made by the Advisor (defined below).

On December 1, 2005, the Partnership allocated substantially all of its capital to CMF SandRidge Master Fund L.P. (the “Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 14,410.6191 units of the Master with cash equal to $14,477,858 and a contribution of open commodity futures and option contracts with a fair value of $(16,018). The Master was formed in order to permit commodity pools managed now or in the future by SandRidge Capital, L.P. (“SandRidge” or the “Advisor”) using its Energy Program, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the general partner of the Master. In addition, the Advisor is a special limited partner (the “Special Limited Partner”) of the Partnership. Individual and pooled accounts currently managed by SandRidge, including the Partnership, are permitted to be limited partners of the Master. The Master’s commodity broker is CGM. The General Partner and SandRidge believe that trading through this master/feeder structure should promote 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 March 31, 2012.

At March 31, 2012 and December 31, 2011, the Partnership owned approximately 98.1% and 98.0%, respectively, of the Master. It is the Partnership’s intention 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 Master’s trading of futures, forwards, swaps and option 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 Master’s Statements of Financial Condition, 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, after the allocation to the Special Limited Partner, in proportion to the amount of Partnership interest owned by each, except that no limited partner is liable for obligations of the Partnership in excess of its capital contribution and profits or losses, if any, net of distributions.

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustment, necessary for a fair statement of the Partnership’s financial condition at March 31, 2012 and December 31, 2011, and the results of its operations and changes in partners’ capital for the three months ended March 31, 2012 and 2011. 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 Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2011.

 

5


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

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.

The Master’s Statements of Financial Condition and Condensed Schedules of Investments as of March 31, 2012 and December 31, 2011 and Statements of Income and Expenses and Changes in Partners’ Capital for the three months ended March 31, 2012 and 2011 are presented below:

CMF SandRidge Master Fund L.P.

Statements of Financial Condition

 

     (Unaudited)
March  31,

2012
     December 31,
2011
 

Assets:

     

Equity in trading account:

     

Cash

   $ 314,206,114       $ 300,431,661   

Cash margin

     7,304,993         3,206,567   

Net unrealized appreciation on open futures and exchange-cleared swap contracts

     8,810,327           

Options purchased, at fair value (cost $3,071,650 and $70,380 at March 31, 2012 and December 31, 2011, respectively)

     6,305,839         276   
  

 

 

    

 

 

 

Total assets

   $ 336,627,273       $ 303,638,504   
  

 

 

    

 

 

 

Liabilities and Partners’ Capital:

  

Liabilities:

  

Net unrealized depreciation on open futures and exchange-cleared swap contracts

   $       $ 7,086,968   

Accrued expenses:

     

Professional fees

     114,501         105,784   
  

 

 

    

 

 

 

Total liabilities

     114,501         7,192,752   
  

 

 

    

 

 

 

Partners’ Capital:

  

General Partner, 0.0000 unit equivalents at March 31, 2012 and December 31, 2011

               

Limited Partners, 136,117.4500 and 140,469.0325 units outstanding at March 31, 2012 and December 31, 2011, respectively

     336,512,772         296,445,752   
  

 

 

    

 

 

 

Total liabilities and partners’ capital

   $ 336,627,273       $ 303,638,504   
  

 

 

    

 

 

 

Net asset value per unit

   $ 2,472.22       $ 2,110.40   
  

 

 

    

 

 

 

 

6


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

CMF SandRidge Master Fund L.P.

Condensed Schedule of Investments

March 31, 2012

(Unaudited)

 

     Number of
Contracts
     Fair Value     % of Partners’
Capital
 

Futures and Exchange-Cleared Swap Contracts Purchased

       

Energy

       

ICE Henry Hub Natural Gas Swap May. 12 - Dec. 13

     5,087       $ (10,836,730     (3.22 )% 

NYMEX Henry Hub Natural Gas Jan. 13 - Jan. 14

     4,905         (10,007,464     (2.97

Other

     11,154         (1,698,007     (0.51
     

 

 

   

 

 

 

Total futures and exchange-cleared swap contracts purchased

        (22,542,201     (6.70
     

 

 

   

 

 

 

Futures and Exchange-Cleared Swap Contracts Sold

       

Energy

       

ICE Henry Hub Natural Gas Swap Oct. 12

     3,795         4,097,400        1.22   

NYMEX Henry Hub Natural Gas Swap May 12 - Dec. 13

     6,248         7,221,520        2.15   

NYMEX Henry Hub Natural Gas May 12 - Oct. 13

     5,590         20,008,633        5.95   

Other

     333         24,975        0.00
     

 

 

   

 

 

 

Total futures and exchange-cleared swap contracts sold

        31,352,528        9.32   
     

 

 

   

 

 

 

Options Purchased

       

Puts

       

Energy

     4,850         6,235,615        1.85   

Calls

       

Energy

     462         70,224        0.02   
     

 

 

   

 

 

 

Total options purchased

        6,305,839        1.87   
     

 

 

   

 

 

 

Net fair value

      $ 15,116,166        4.49
     

 

 

   

 

 

 

 

 

* Due to rounding.

 

7


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

CMF SandRidge Master Fund L.P.

Condensed Schedule of Investments

December 31, 2011

 

    Number of
Contracts
    Fair Value     % of Partners’
Capital
 

Futures and Exchange-Cleared Swap Contracts Purchased

                 

Energy

     

ICE Henry Hub Natural Gas Swap Feb. 12 - Dec. 13

    2,408      $ (10,638,392     (3.59 )% 

NYMEX Henry Hub Natural Gas Swap Oct. 12

    1,448        (7,610,660     (2.56

NYMEX Henry Hub Natural Gas Dec. 13

    158        (235,956     (0.08
   

 

 

   

 

 

 

Total futures and exchange-cleared swap contracts purchased

      (18,485,008     (6.23
   

 

 

   

 

 

 

Futures and Exchange-Cleared Swap Contracts Sold

     

Energy

     

ICE Henry Hub Natural Gas Swap April 12

    164        272,060        0.09   

NYMEX Henry Hub Natural Gas Swap Feb. 12 - Dec. 13

    2,788        9,639,450        3.25   

NYMEX Henry Hub Natural Gas Feb. 12 - Apr. 12

    429        1,486,530        0.50   
   

 

 

   

 

 

 

Total futures and exchange-cleared swap contracts sold

      11,398,040        3.84   
   

 

 

   

 

 

 

Options Purchased

     

Call

     

Energy

    184        276        0.00
   

 

 

   

 

 

 

Total Options purchased

      276        0.00
   

 

 

   

 

 

 

Net fair value

    $ (7,086,692     (2.39 )% 
   

 

 

   

 

 

 

 

 

* Due to rounding

 

8


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

CMF SandRidge Master Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)

 

     Three Months Ended
March 31,
 
     2012     2011  

Investment Income:

    

Interest income

   $ 24,284      $ 84,997   
  

 

 

   

 

 

 

Expenses:

    

Clearing fees

     178,776        249,406   

Professional fees

     77,752        85,696   
  

 

 

   

 

 

 

Total expenses

     256,528        335,102   
  

 

 

   

 

 

 

Net investment income (loss)

     (232,244     (250,105
  

 

 

   

 

 

 

Trading results:

    

Net gains (losses) on trading of commodity interests:

    

Net realized gains (losses) on closed contracts

     30,367,626        (1,741,536

Change in net unrealized gains (losses) on open contracts

     19,201,588        16,784,609   
  

 

 

   

 

 

 

Total trading results

     49,569,214        15,043,073   
  

 

 

   

 

 

 

Net income (loss)

     49,336,970        14,792,968   

Subscriptions — Limited Partners

     5,701,000        5,791,925   

Redemptions — Limited Partners

     (14,946,666     (171,039,372

Distribution of interest income to feeder funds

     (24,284     (84,997
  

 

 

   

 

 

 

Net increase (decrease) in Partners’ capital

     40,067,020        (150,539,476

Partners’ Capital, beginning of period

     296,445,752        528,735,257   
  

 

 

   

 

 

 

Partners’ Capital, end of period

   $ 336,512,772      $ 378,195,781   
  

 

 

   

 

 

 

Net asset value per unit (136,117.4500 and 201,675.8845 units outstanding at March 31, 2012 and 2011, respectively)

   $ 2,472.22      $ 1,875.27   
  

 

 

   

 

 

 

Net income (loss) per unit*

   $ 362.00      $ 71.60   
  

 

 

   

 

 

 

Weighted average units outstanding

     139,775.0025        264,102.7667   
  

 

 

   

 

 

 

 

 

* Based on change in net asset value per unit.

 

9


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

2. Financial Highlights:

Changes in the net asset value per unit for the three months ended March 31, 2012 and 2011 were as follows:

 

     Three Months Ended
March 31,
     2012   2011

Net realized and unrealized gains (losses)*

     $ 222.60       $ 37.85  

Interest income allocated from Master

       0.12         0.25  

Expenses and allocation to Special Limited Partner**

       (9.95 )       (8.61 )
    

 

 

     

 

 

 

Increase (decrease) for the period

       212.77         29.49  

Net asset value per unit, beginning of period

       1,390.94         1,267.09  
    

 

 

     

 

 

 

Net asset value per unit, end of period

     $ 1,603.71       $ 1,296.58  
    

 

 

     

 

 

 

 

 

* Includes brokerage fees.

 

** Excludes brokerage fees and includes allocation to Special Limited Partner, if any.

 

     Three Months Ended
March 31,
     2012   2011***

Ratios to average net assets:****

        

Net investment income (loss)

       (6.9 )%       (6.9 )%

Allocation to Special Limited Partner

       %       %
    

 

 

     

 

 

 

Net investment income (loss) before allocation to Special Limited Partner*****

       (6.9 )%       (6.9 )%
    

 

 

     

 

 

 

Operating expenses

       6.9 %       7.0 %

Allocation to Special Limited Partner

       %       %
    

 

 

     

 

 

 

Total expenses and allocation to Special Limited Partner

       6.9 %       7.0 %
    

 

 

     

 

 

 

Total return:

        

Total return before allocation to Special Limited Partner

       15.3 %       2.3 %

Allocation to Special Limited Partner

       %       %
    

 

 

     

 

 

 

Total return after allocation to Special Limited Partner

       15.3 %       2.3 %
    

 

 

     

 

 

 

 

 

*** The ratios are shown net and gross of allocation to Special Limited Partner, if any, to conform to current year presentation.

 

**** Annualized (except for allocation to Special Limited Partner, if applicable).

 

***** Interest income allocated from 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.

 

10


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

Financial Highlights of the Master:

 

     Three Months Ended
March 31,
     2012   2011

Net realized and unrealized gains (losses)*

     $ 362.39       $ 71.61  

Interest income

       0.18         0.36  

Expenses **

       (0.57 )       (0.37 )
    

 

 

     

 

 

 

Increase (decrease) for the period

       362.00         71.60  

Distribution of interest income to feeder funds

       (0.18 )       (0.36 )

Net asset value per unit, beginning of period

       2,110.40         1,804.03  
    

 

 

     

 

 

 

Net asset value per unit, end of period

     $ 2,472.22       $ 1,875.27  
    

 

 

     

 

 

 

 

 

* Includes clearing fees.

 

** Excludes clearing fees.

 

     Three Months Ended
March 31,
     2012   2011

Ratios to average net assets:***

        

Net investment income (loss) ****

       (0.3 )%       (0.2 )%
    

 

 

     

 

 

 

Operating expenses

       0.3 %       0.3 %
    

 

 

     

 

 

 

Total return

       17.1 %       4.0 %
    

 

 

     

 

 

 

 

 

*** 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 commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests substantially all of its assets through a “master feeder” structure. The Partnership’s pro-rata share of the results of the Master’s 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 contracts and exchange-cleared swap contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open futures and exchange-cleared swap contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210-20, “Balance Sheet”, has been met.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions.

All of the commodity interests owned by the Master are held for trading purposes. The monthly average number of futures and exchange cleared swap contracts traded during the three months ended March 31, 2012 and 2011, were 36,415 and 69,633, respectively. The monthly average number of options contracts traded during the three months ended March 31, 2012 and 2011, were 3,356 and 4,710, respectively.

 

11


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

The following tables indicate the gross fair values of derivative instruments of futures, exchange-cleared swap and option contracts as separate assets and liabilities as of March 31, 2012 and December 31, 2011.

 

     March 31, 2012  

Assets

  

Futures and Exchange-Cleared Swap Contracts

  

Energy

   $ 31,916,089   
  

 

 

 

Total unrealized appreciation on open futures and exchange-cleared swap contracts

   $ 31,916,089   
  

 

 

 

Liabilities

  

Futures and Exchange-Cleared Swap Contracts

  

Energy

   $ (23,105,762
  

 

 

 

Total unrealized depreciation on open futures and exchange-cleared swap contracts

   $ (23,105,762
  

 

 

 

Net unrealized appreciation on open futures and exchange-cleared swap contracts

  

$

8,810,327

  

 

 

 

 

 

* This amount is in “Net unrealized appreciation on open futures and exchange-cleared swap contracts” on the Master’s Statements of Financial Condition.

 

Assets

  

Options Purchased

  

Energy

   $         6,305,839   
  

 

 

 

Total options purchased

   $ 6,305,839 ** 
  

 

 

 

 

 

** This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.

 

     December 31, 2011  

Assets

  

Futures and Exchange-Cleared Swap Contracts

  

Energy

   $ 11,398,040   
  

 

 

 

Total unrealized appreciation on open futures and exchange-cleared swap contracts

   $ 11,398,040   
  

 

 

 

Liabilities

  

Futures and Exchange-Cleared Swap Contracts

  

Energy

   $ (18,485,008
  

 

 

 

Total unrealized depreciation on open futures and exchange-cleared swap contracts

   $ (18,485,008
  

 

 

 

Net unrealized depreciation on open futures and exchange-cleared swap contracts

   $ (7,086,968 )*** 
  

 

 

 

 

 

*** This amount is in “Net unrealized depreciation on open futures and exchange-cleared swap contracts” on the Master’s Statements of Financial Condition.

 

Assets

  

Options Purchased

  

Energy

   $     276   
  

 

 

 

Total options purchased

   $ 276 **** 
  

 

 

 

 

 

**** This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.

 

 

12


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three months ended March 31, 2012 and 2011.

 

    Three Months Ended
March 31,
 

Sector

  2012     2011  

Energy

  $ 49,569,214      $ 15,043,073   
 

 

 

   

 

 

 

Total

  $ 49,569,214 *****    $ 15,043,073 ***** 
 

 

 

   

 

 

 

 

 

***** This amount is in “Total trading results” on the Master’s Statements of Income and Expenses and Changes in Partner’s Capital.

4. Fair Value Measurements:

Partnership’s Investments. The Partnership values its investment in the Master at the net asset value per unit as calculated by the Master. The Master values its investments as described in Note 2 of the Master’s notes to the annual financial statements as of December 31, 2011.

Partnership’s 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 use of 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 Partnership’s Level 2 assets and liabilities.

The Partnership will separately present purchases, subscriptions, 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.

Effective January 1, 2012, the Partnership adopted Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards” (“IFRS”). The amendments within this ASU change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between GAAP and IFRS. However, some of the amendments clarify FASB’s 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. This new guidance did not have a significant impact on the Partnership’s financial statements.

 

13


Table of Contents

The Partnership values its investment in the Master with no 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 Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended March 31, 2012 and December 31, 2011, 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 management’s assumptions and internal valuation pricing models (Level 3). There were no transfers of assets and liabilities between Level 1 and Level 2 during the quarter ended March 31, 2012.

 

    March 31, 2012     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 

Assets

       

Investment in Master

  $ 329,990,672      $      $ 329,990,672      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ 329,990,672      $      $ 329,990,672      $   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2011     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 

Assets

       

Investment in Master

  $ 290,607,238      $      $ 290,607,238      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ 290,607,238      $      $ 290,607,238      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

14


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

Master’s 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 Master’s 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 Master’s Statements of Income and Expenses and Changes in Partners’ Capital.

Master’s 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 use of 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, the Master’s Level 1 assets and liabilities are actively traded.

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.

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 that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended March 31, 2012 and December 31, 2011, the Master did not hold any derivative instruments for which market quotations are not readily available and were priced by broker-dealers that derive fair values for those assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). During the period January 1, 2012 to March 31, 2012, there were no Level 3 assets and liabilities, and there were no transfers of assets or liabilities between Level 1 and Level 2.

 

    March 31, 2012     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 
Assets        

Futures and Exchange-Cleared Swaps

  $ 31,916,089      $ 31,916,089      $      $   

Options purchased

    6,305,839        6,305,839                 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 38,221,928      $ 38,221,928      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 
Liabilities        

Futures and Exchange-Cleared Swaps

  $ 23,105,762      $ 23,105,762      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    23,105,762        23,105,762                 
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ 15,116,166      $ 15,116,166      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2011     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
    Significant Other
Observable
Inputs

(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 
Assets        

Futures and Exchange-Cleared Swaps

  $ 11,398,040      $ 11,398,040      $      $   

Options purchased

    276        276                 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 11,398,316      $ 11,398,316      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 
Liabilities        

Futures and Exchange-Cleared Swaps

  $ 18,485,008      $ 18,485,008      $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    18,485,008        18,485,008                 
 

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

  $ (7,086,692   $ (7,086,692   $      $   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(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, 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, swaps and certain forward and option contracts. OTC contracts are negotiated between contracting parties and include certain forwards, swaps and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer, or seller, of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating 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 Redeemable Units is limited to the amount of their share of the Partnership’s net 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 Partnership’s/Master’s 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 Partnership’s/Master’s 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 Partnership’s/Master’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through CGM, the Partnership’s/Master’s counterparty is an exchange or clearing organization.

The Advisor will concentrate the Partnership’s/Master’s trading in energy related markets. Concentration in a limited number of commodity interests may subject the Partnership’s/Master’s account to greater volatility than if a more diversified portfolio of contracts was traded on behalf of the Partnership/Master.

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 Partnership’s/Master’s 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, exchange-cleared swaps and options contracts by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Partnership’s/Master’s business, these instruments may not be held to maturity.

 

16


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(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.

Partnership’s 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 Master’s financial statements as of December 31, 2011.

Partnership’s and Master’s 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 Master’s Level 1 assets and liabilities are actively traded.

GAAP also requires the use of 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 the level of activity in the Partnership’s Level 2 assets and liabilities.

The Partnership and 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.

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 Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended March 31, 2012 and December 31, 2011, 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 management’s 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 that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended March 31, 2012 and December 31, 2011, the Master did not hold any derivative instruments for which market quotations are not readily available and were priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

Futures Contracts. The Master trades futures contracts and exchange-cleared swaps. Exchange-cleared swaps are traded as futures. 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 Master’s Statements of Income and Expenses and Changes in Partners’ Capital.

 

17


Table of Contents

Bristol Energy Fund L.P.

Notes to Financial Statements

March 31, 2012

(Unaudited)

 

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 Master’s 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 Master’s Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Master’s 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 Partnership’s income and expenses.

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 Partnership’s 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 has concluded that no provision for income tax is required in the Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2008 through 2011 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner 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 has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.

Recent Accounting Pronouncements. 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 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 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, FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.

In December 2011, FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities,” which creates a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparisons between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership should also provide the disclosures retrospectively for all comparative periods presented. The Partnership is currently evaluating the impact that the pronouncement 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.”

 

18


Table of Contents

Item 2. Management’s 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. The Partnership’s only assets are its investment in the Master and cash. The Master does not engage in sales of goods or services. The Master’s only assets are its equity in its trading accounts, consisting of cash and cash equivalents, net unrealized appreciation on open futures and exchange-cleared swap contracts and options purchased, at fair value. Because of the low margin deposits normally required in 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 first quarter of 2012.

The Partnership’s capital consists of capital contributions, as increased or decreased by income (loss) from its investment in the Master, expenses, interest income, subscriptions, redemptions of Redeemable Units and distributions of profits, if any.

For the three months ended March 31, 2012, Partnership capital increased 12.5% from $285,726,309 to $321,458,592. This increase was attributable to a net gain from operations of $43,569,551 coupled with the additional subscriptions of 3,729.0362 Redeemable Units totaling $5,201,000, which was partially offset by the redemption of 8,701.1739 Redeemable Units totaling $13,038,268. Future redemptions can impact the amount of funds available for investment in the Master in subsequent periods.

The Master’s capital consists of the capital contributions of the partners as increased or decreased by net realized and/or unrealized gains or losses on futures trading, interest income, expenses, redemptions of units and distributions of profits, if any.

For the three months ended March 31, 2012, the Master’s capital increased 13.5% from $296,445,752 to $336,512,772. This increase was attributable to a net gain from operations of $49,336,970 coupled with the additional subscriptions of 2,680.7570 units totaling $5,701,000, which was partially offset by the redemption of 7,032.3395 units totaling $14,946,666 and distribution of interest income to feeder funds totaling $24,284. 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 Partnership’s 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.

 

19


Table of Contents

Results of Operations

During the Partnership’s first quarter of 2012, the net asset value per unit increased 15.3% from $1,390.94 to $1,603.71 as compared to an increase of 2.3% in the first quarter of 2011. The Partnership, through its investment in the Master, experienced a net trading gain before brokerage fees and expenses in the first quarter of 2012 of $48,610,317. Gains were primarily attributable to the Master’s trading of commodity futures and other derivatives of NYMEX Natural Gas and were partially offset by losses in ICE Natural Gas. The Partnership, through its investment in the Master, experienced a net trading gain before brokerage fees and expenses in the first quarter of 2011 of $12,545,656. Gains were primarily from the Master trading of commodity futures and other derivatives of NYMEX Natural Gas and ICE Natural Gas.

The most significant gains were recorded during March from short futures positions in natural gas as prices fell due to the unseasonably warm end to the winter season, thus weakening demand for the commodity. Additional gains were recorded during January and February from short futures positions in natural gas as prices declined during the end of the month due to significant increases in production and “soft” demand.

Commodity futures markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase 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 Partnership’s daily average equity allocated to it by the Master was earned at a 30-day 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 months ended March 31, 2012 decreased by $43,822, as compared to the corresponding period in 2011. The decrease in interest income is due to lower average net assets and lower U.S. Treasury bill rates during the three months ended March 31, 2012, as compared to the corresponding period in 2011. 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 Master account and upon interest rates over which the Partnership, the Master and CGM have no control.

Brokerage fees are calculated as a percentage of the Partnership’s 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 months ended March 31, 2012 decreased by $402,768, as compared to the corresponding period in 2011. The decrease in brokerage fees is due to lower average net assets during the three months ended March 31, 2012, as compared to the corresponding period in 2011.

Management fees are calculated as a percentage of the Partnership’s adjusted 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 March 31, 2012 decreased by $214,567, as compared to the corresponding period in 2011. The decrease in management fees is due to lower average net assets during the three months ended March 31, 2012, as compared to the corresponding period in 2011.

Administrative fees are paid to the General Partner for administering the business and affairs of the Partnership. These fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Administrative fees for the three months ended March 31, 2012 decreased by $53,641, as compared to the corresponding period in 2011. The decrease in administrative fees is due to lower average net assets during the three months ended March 31, 2012, as compared to the corresponding period in 2011.

Special Limited Partner profit share allocations are based on the new trading profits generated by the Advisor at the end of the quarter as defined in the advisory agreement among the Partnership, the General Partner and the Advisor. There were no profit share allocations made for the three months ended March 31, 2012 and 2011, respectively. The Advisor will not earn a profit share allocation 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 Advisor’s 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.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership’s 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 Partnership’s assets are 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 Master’s and the Partnership’s main line of business.

The limited partners will not be liable for losses exceeding the current net asset value of their investment.

Market movements result in frequent changes in the fair value of the Master’s open positions and, consequently, in its earnings and cash balances. The Master’s 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 Master’s open contracts and the liquidity of the markets in which it trades.

The Master rapidly acquires and liquidates both long and short positions in a wide range of different market sectors. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Master’s 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 Master’s 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 Master’s 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 Master’s losses in any market sector will be limited to Value at Risk or by the Master’s 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.

Value at Risk tables represent a probabilistic assessment of the risk of loss in market sensitive instruments. The following tables indicate the trading Value at Risk associated with the Master’s open positions by market category as of March 31, 2012 and December 31, 2011, and the highest, lowest and average value during the three months ended March 31, 2012, and during the twelve months ended December 31, 2011. 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 Partnership’s Annual Report on Form 10-K for the year ended December 31, 2011.

As of March 31, 2012, the Master’s total capitalization was $336,512,772 and the Partnership owned approximately 98.1% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of March 31, 2012 was as follows:

March 31, 2012

 

                  Three months ended March 31, 2012  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk*
 

Energy

   $ 10,774,354         3.20   $ 61,733,650       $ 2,425,471       $ 14,120,025   
  

 

 

    

 

 

         

Total

   $ 10,774,354         3.20        
  

 

 

    

 

 

         

 

* Average of month-end Values at Risk.

 

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As of December 31, 2011, the Master’s total capitalization was $296,445,752 and the Partnership owned approximately 98.0% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of December 31, 2011 was as follows:

December 31, 2011

 

                  Twelve months ended December 31, 2011  

Market Sector

   Value at Risk      % of Total
Capitalization
    High
Value at Risk
     Low
Value at
Risk
     Average
Value at Risk*
 

Energy

   $ 2,666,386         0.90   $ 61,733,650       $ 1,015,817       $ 20,188,738   
  

 

 

    

 

 

         

Total

   $ 2,666,386         0.90        
  

 

 

    

 

 

         

 

* Annual average of month-end Values at Risk.

 

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Item 4. Controls and Procedures

The Partnership’s 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 SEC’s 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 (the “CEO”) and Chief Financial Officer (the “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 Partnership’s external disclosures.

The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2012 and, based on that evaluation, the General Partner’s CEO and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s 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 Partnership’s 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 Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended March 31, 2012 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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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 Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. There are no material legal proceedings pending against the Partnership and the General Partner.

Subprime Mortgage-Related Litigation and Other Matters

On March 15, 2012, the United States Court of Appeals for the Second Circuit granted a stay of the district court proceedings pending resolution of the appeals in SEC v. CGMI. Additional information relating to this matter is publicly available in court filings under docket numbers 11 Civ. 7387 (S.D.N.Y.) (Rakoff, J.) and 11-5227 (2d Cir.).

 

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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 Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

For the three months ended March 31, 2012, there were subscriptions of 3,729.0362 Redeemable Units totaling $5,201,000. 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. The Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

Proceeds of net offering were used for the trading of commodity interests, including futures contracts, options, swaps and forwards contracts and any other interests pertaining thereto, including interests in commodity pools.

The following chart sets forth the purchases of Redeemable Units by the Partnership.

 

Period       

(a) Total Number

of Redeemable
Units Purchased*

         (b) Average
Price Paid per
Redeemable  Unit**
        

(c) Total Number
of Redeemable Units
Purchased as Part
of  Publicly
Announced

Plans or Programs

         (d) Maximum Number
(or Approximate
Dollar  Value) of
Redeemable Units that
May Yet Be
Purchased Under the
Plans or Programs
 

January 1, 2012 - January 31, 2012

        2,205.8506          $ 1,392.30            N/A            N/A  

February 1, 2012 - February 29, 2012

        2,199.7026          $ 1,399.34            N/A            N/A  

March 1, 2012 - March 31, 2012

        4,295.6207          $ 1,603.71            N/A            N/A  
          8,701.1739          $ 1,498.45                           

 

* 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 Partnership’s 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. Mine Safety Disclosures — None.

Item 5. Other Information — None.

 

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Item 6. Exhibits

Exhibit

 

3.1     (a)   Certificate of Limited Partnership dated April 15, 2005 (filed as Exhibit 3.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
          (b)   Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (filed as Exhibit 3.1(a) to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
          (c)   Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
          (d)   Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference).
          (e)   Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.1(e) to the Current Report on Form 8-K filed on July 2, 2010 and incorporated herein by reference).
          (f)   Certificate of Amendment of the Certificate of Limited Partnership Agreement dated September 2, 2011 (filed as Exhibit 3.1(f) to the Current Report on Form 8-K filed on September 7, 2011 and incorporated herein by reference).
3.2   Third Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on April 27, 2010 and incorporated herein by reference).
10.1   (a)   Advisory Agreement among the Partnership, the General Partner and SandRidge Capital, L.P. (filed as Exhibit 10.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
          (b)   Letter from the General Partner to SandRidge Capital, L.P. extending the Advisory Agreement through June 30, 2012 (filed as Exhibit 10.1(b) to the Annual Report on Form 10-K filed on March 30, 2012 and incorporated herein by reference).
10.2   (a)   Customer Agreement between the Partnership, the General Partner and CGM (filed as Exhibit 10.2 to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
          (b)   Addendum to the Customer Agreement between the Partnership, the General Partner and CGM (filed as Exhibit 10.2(a) to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
10.3   Amended and Restated Agency Agreement between the Partnership, the General Partner and CGM and MSSB (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 3, 2010 and incorporated herein by reference).
10.4   Form of Subscription Agreement (filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.5   Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC (filed as Exhibit 10 to the Quarterly Report on Form 10-Q filed on August 14, 2009 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.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

BRISTOL ENERGY FUND L.P.
By:  

Ceres Managed Futures LLC

(General Partner)

By:   /s/ Walter Davis
  Walter Davis
  President and Director

Date: May 15, 2012

 

By:   /s/ Brian Centner
  Brian Centner
  Chief Financial Officer
(Principal Accounting Officer)

Date: May 15, 2012

 

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