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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 September 30, 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 000-52604

TIDEWATER FUTURES FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

New York		13-3811113
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Ceres Managed Futures LLC

522 5th Ave - 14th Floor

New York, New York 10036

 

(Address of principal executive offices) (Zip Code)

(855) 672-4468

 

(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 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
		(Do not check if a 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, 2012, 10,707.9143 Limited Partnership Redeemable Units were outstanding.

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TIDEWATER 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, 2012 (unaudited) and December 31, 2011		3
Condensed Schedules of Investments at September 30, 2012 (unaudited) and December 31, 2011		4 – 5
Statements of Income and Expenses and Changes in Partners’ Capital for the three and nine months ended September 30, 2012 and 2011 (unaudited)		6
Notes to Financial Statements (unaudited)		7 – 16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17 – 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk		20 – 21
Item 4. Controls and Procedures		22
PART II — Other Information
Item 1. Legal Proceedings		23-24
Item 1A. Risk Factors		25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 5. Other Information		26
Item 6. Exhibits		27 – 28

 

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PART I

Item 1. Financial Statements

Tidewater Futures Fund L.P.

Statements of Financial Condition

 

		(Unaudited) September 30, 2012				December 31, 2011
Assets:
Equity in trading account:
Cash		$	10,896,663			$	18,186,510
Cash margin			3,460,605				5,223,123
Net unrealized appreciation on open futures contracts			445,462				478,555
Net unrealized appreciation on open forward contracts			0				299,200
Total trading equity			14,802,730				24,187,388
Interest receivable			623				0
Total assets		$	14,803,353			$	24,187,388
Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open forward contracts		$	577,606			$	0
Accrued expenses:
Brokerage fees			59,274				100,781
Management fees			11,756				40,016
Other			59,021				76,781
Redemptions payable			1,278,885				452,587
Total liabilities			1,986,542				670,165
Partners’ Capital:
General Partner, 184.9703 unit equivalents outstanding at September 30, 2012 and December 31, 2011			208,894				273,506
Limited Partners, 11,164.0073 and 15,719.5935 Redeemable Units outstanding at September 30, 2012 and December 31, 2011, respectively			12,607,917				23,243,717
Total partners’ capital			12,816,811				23,517,223
Total liabilities and partners’ capital		$	14,803,353			$	24,187,388
Net asset value per unit		$	1,129.34			$	1,478.65

See accompanying notes to financial statements.

 

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Tidewater Futures Fund L.P.

Condensed Schedule of Investments

September 30, 2012

(Unaudited)

 

		Notional$/ Number of Contracts				Fair Value				% of Partners’ Capital
Futures Contracts Purchased
Currencies			89			$	37,622				0.29	%
Energy			27				(24,488	)			(0.19	)
Grains			90				451,865				3.53
Indices			247				(124,203	)			(0.97	)
Interest Rates U.S.			38				(4,430	)			(0.03	)
Interest Rates Non-U.S.			147				79,620				0.62
Metals			15				118,095				0.92
Softs			90				(70,492	)			(0.55	)
Total futures contracts purchased							463,589				3.62
Futures Contracts Sold
Currencies			108				(54,358	)			(0.42	)
Energy			7				(29,546	)			(0.23	)
Grains			2				(492	)			(0.00	)*
Indices			6				(4,737	)			(0.04	)
Interest Rates Non-U.S.			21				(3,138	)			(0.02	)
Livestock			59				44,075				0.34
Softs			52				30,069				0.23
Total futures contracts sold							(18,127	)			(0.14	)
Unrealized Appreciation on Open Forward Contracts
Metals			105				250,657				1.95
Total unrealized appreciation on open forward contracts							250,657				1.95
Unrealized Depreciation on Open Forward Contracts
Metals			146				(828,263	)			(6.46	)
Total unrealized depreciation on open forward contracts							(828,263	)			(6.46	)
Net fair value						$	(132,144	)			(1.03	)%

 

*	Due to rounding

See accompanying notes to financial statements.

 

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Tidewater Futures Fund L.P.

Condensed Schedule of Investments

December 31, 2011

 

		Number of Contracts				Fair Value				% of Partners’ Capital
Futures Contracts Purchased
Currencies			151			$	45,655				0.19	%
Energy			84				240,346				1.02
Grains			21				3,162				0.01
Indices			2				(1,728	)			(0.00	)*
Interest Rates U.S.			86				25,133				0.11
Interest Rates Non-U.S.			638				225,959				0.96
Livestock			30				27,565				0.12
Metals			18				(219,420	)			(0.93	)
Softs			81				(371,619	)			(1.58	)
Total futures contracts purchased							(24,947	)			(0.10	)
Futures Contracts Sold
Currencies			201				319,035				1.36
Grains			222				(317,073	)			(1.35	)
Indices			249				125,758				0.53
Softs			250				375,782				1.60
Total futures contracts sold							503,502				2.14
Unrealized Appreciation on Open Forward Contracts
Metals			54				301,950				1.28
Total unrealized appreciation on open forward contracts							301,950				1.28
Unrealized Depreciation on Open Forward Contracts
Metals			1				(2,750	)			(0.01	)
Total unrealized depreciation on open forward contracts							(2,750	)			(0.01	)
Net fair value						$	777,755				3.31	%

 

*	Due to rounding.

See accompanying notes to financial statements.

 

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Tidewater Futures Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Investment income:
Interest income		$	1,990			$	835			$	5,870			$	9,818
Expenses:
Brokerage fees including clearing fees			207,866				352,119				748,379				1,406,518
Management fees			78,926				134,595				282,414				514,614
Other			38,107				39,034				142,650				115,448
Total expenses			324,899				525,748				1,173,443				2,036,580
Management fees waived			(39,463	)			0				(53,620	)			0
Net expenses			285,436				525,748				1,119,823				2,036,580
Net investment income (loss)			(283,446	)			(524,913	)			(1,113,953	)			(2,026,762	)
Trading Results:
Net gains (losses) on trading of commodity interests:
Net realized gains (losses) on closed contracts			(280,971	)			(3,955,421	)			(3,134,877	)			1,276,991
Change in net unrealized gains (losses) on open contracts			69,031				(1,520,897	)			(909,899	)			(7,856,516	)
Total trading results			(211,940	)			(5,476,318	)			(4,044,776	)			(6,579,525	)
Net income (loss)			(495,386	)			(6,001,231	)			(5,158,729	)			(8,606,287	)
Subscriptions - Limited Partners			0				452,229				342,162				1,124,729
Redemptions - Limited Partners			(2,750,176	)			(521,278	)			(5,883,845	)			(11,843,864	)
Redemptions - General Partner			0				0				0				(200,000	)
Net increase (decrease) in Partners’ Capital			(3,245,562	)			(6,070,280	)			(10,700,412	)			(19,525,422	)
Partners’ Capital, beginning of period			16,062,373				28,216,902				23,517,223				41,672,044
Partners’ Capital, end of period		$	12,816,811			$	22,146,622			$	12,816,811			$	22,146,622
Net asset value per unit (11,348.9776 and 15,730.4317 units outstanding at September 30, 2012 and 2011, respectively)		$	1,129.34			$	1,407.88			$	1,129.34			$	1,407.88
Net income (loss) unit *		$	(44.40	)		$	(380.86	)		$	(349.31	)		$	(574.55	)
Weighted average units outstanding			13,186.3399				15,873.3636				14,691.5258				17,089.2039

 

 

*	Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

1. General:

Tidewater Futures Fund L.P. (the “Partnership”) is a limited partnership organized on February 23, 1995 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 traded by the Partnership are volatile and involve a high degree of market risk. The Partnership privately and continuously offers redeemable units interest (“Redeemable Units”) in the Partnership to qualified investors. There is no maximum number of Redeemable 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. indirectly owns a minority equity interest in MSSB Holdings. Citigroup Inc. also indirectly owns Citigroup Global Markets Inc. (“CGM”), the commodity broker and 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 Inc.

As of September 30, 2012, all trading decisions for the Partnership are made by Chesapeake Capital Corporation (the “Advisor”). The Partnership’s trading of futures, forwards and options contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with CGM.

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 is liable for obligations of the Partnership in excess of its capital contribution and profits or losses, if any, net of distributions.

Effective May 22, 2012, the Advisor, in consultation with the General Partner, agreed to reduce the overall leverage of the Partnership’s assets traded pursuant to the Advisor’s Diversified 2XL Program (the “Program”) from 75% of the customary leverage utilized by the Program, to 50% of the customary leverage utilized by the Program. The Advisor, in further consultation with the General Partner will determine, if, and at what time, the Partnership’s leverage may be readjusted.

As of June 1, 2012, the Advisor agreed to reduce the management fee it receives from the Partnership from an annual rate of 2% of adjusted net assets to an annual rate of 1% of adjusted net assets. This management fee reduction will remain in effect until the General Partner and the Advisor determine otherwise.

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 Partnership’s financial condition at September 30, 2012 and December 31, 2011 and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 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.

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.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

2. Financial Highlights:

Changes in the net asset value per unit for the three and nine months ended September 30, 2012 and 2011 were as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Net realized and unrealized gains (losses) *		$	(38.67	)		$	(369.97	)		$	(324.92	)		$	(538.18	)
Interest income			0.16				0.05				0.42				0.54
Expenses **			(5.89	)***			(10.94	)			(24.81	)***			(36.91	)
Increase (decrease) for the period			(44.40	)			(380.86	)			(349.31	)			(574.55	)
Net asset value per unit, beginning of period			1,173.74				1,788.74				1,478.65				1,982.43
Net asset value per unit, end of period		$	1,129.34			$	1,407.88			$	1,129.34			$	1,407.88

 

 

*	Includes brokerage fees and clearing fee.

 

**	Excludes brokerage fees and clearing fee.

 

***	Expenses per unit would have been (8.88) and (28.78) for the three and nine months ended September 30, 2012, respectively, had it not been for the management fee waived by the Advisor.

 

		Three Months  Ended September 30,								Nine Months Ended September 30,
		2012				2011(2)				2012				2011(2)
Ratios to average net assets: (1)
Net investment income (loss)			(7.4	)%			(7.7	)%			(7.9	)%			(8.0	)%
Incentive fees			—	%			—	%			—	%			—	%
Net investment income (loss) before incentive fees (3)			(7.4	)%			(7.7	)%			(7.9	)%			(8.0	)%
Operating expense			7.5	%(4)			7.7	%			8.0	%(4)			8.1	%
Incentive fees			—	%			—	%			—	%			—	%
Total expenses and incentive fee			7.5	%			7.7	%			8.0	%			8.1	%
Total return:
Total return before incentive fees			(3.8	)%			(21.3	)%			(23.6	)%			(29.0	)%
Incentive fees			—	%			—	%			—	%			—	%
Total return after incentive fees			(3.8	)%			(21.3	)%			(23.6	)%			(29.0	)%

 

(1)	Annualized (other than incentive fees).

(2)	The ratios are shown net and gross of incentive fees to conform to current period presentation.

(3)	Interest income less total expenses

(4)	Percentages are after management fee waivers. The Advisor voluntarily waived a portion of the management fee (equal to 0.3% of the Adjusted Net Assets for each period).

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.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

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 results of the Partnership’s trading activities are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.

The customer agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures and open forward contracts. The Partnership nets, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210-20 “Balance Sheet,” have been met.

All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded by the Partnership during the three months ended September 30, 2012 and 2011 were 920 and 2,002. The monthly average number of futures contracts traded by the Partnership during the nine months ended September 30, 2012 and 2011 were 1,316 and 2,786. The monthly average number of metal forward contracts traded by the Partnership during the three months ended September 30, 2012 and 2011 were 142 and 98. The monthly average number of metal forward contracts traded by the Partnership during the nine months ended September 30, 2012 and 2011 were 102 and 122. The monthly average notional value of currency forward contracts held by the Partnership during the three months ended September 30, 2012 and 2011 were $0 and $0. The monthly average notional value of currency forward contracts held by the Partnership during the nine months ended September 30, 2012 and 2011 were $685,407 and $0.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

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.

The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of September 30, 2012 and December 31, 2011.

 

		September 30, 2012
Assets
Futures Contracts
Currencies		$	106,134
Energy			6,468
Grains			478,315
Indices			35,672
Interest Rates U.S.			15,000
Interest Rates Non-U.S.			92,241
Livestock			71,275
Metals			119,325
Softs			37,013
Total unrealized appreciation on open futures contracts		$	961,443
Liabilities
Futures Contracts
Currencies		$	(122,870	)
Energy			(60,502	)
Grains			(26,942	)
Indices			(164,612	)
Interest Rates U.S.			(19,430	)
Interest Rates Non-U.S.			(15,759	)
Livestock			(27,200	)
Metals			(1,230	)
Softs			(77,436	)
Total unrealized depreciation on open futures contracts		$	(515,981	)
Net unrealized appreciation on open futures contracts		$	445,462	*
		September 30, 2012
Assets
Forward Contracts
Metals		$	250,657
Total unrealized appreciation on open forward contracts		$	250,657
Liabilities
Forward Contracts
Metals		$	(828,263	)
Total unrealized depreciation on open forward contracts		$	(828,263	)
Net unrealized depreciation on open forward contracts		$	(577,606	)**

 

*	This amount is in “Net unrealized appreciation on open futures contracts” on the Statements of Financial Condition.

 

**	This amount is in “Net unrealized depreciation on open forward contracts” on the Statements of Financial Condition.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

Assets		December 31, 2011
Futures Contracts
Currencies		$	518,318
Energy			255,066
Grains			42,625
Indices			200,253
Interest Rates U.S.			34,313
Interest Rates Non-U.S.			360,868
Livestock			38,625
Softs			420,142
Total unrealized appreciation on open futures contracts		$	1,870,210
Liabilities
Futures Contracts
Currencies		$	(153,628	)
Energy			(14,720	)
Grains			(356,536	)
Indices			(76,223	)
Interest Rates U.S.			(9,180	)
Interest Rates Non-U.S.			(134,909	)
Livestock			(11,060	)
Metals			(219,420	)
Softs			(415,979	)
Total unrealized depreciation on open futures contracts		$	(1,391,655	)
Net unrealized appreciation on open futures contracts		$	478,555	*

 

Assets		December 31, 2011
Forward Contracts
Metals		$	301,950
Total unrealized appreciation on open forward contracts		$	301,950
Liabilities
Forward Contracts
Metals		$	(2,750	)
Total unrealized depreciation on open forward contracts		$	(2,750	)
Net unrealized appreciation on open forward contracts		$	299,200	**

 

*	This amount is in “Net unrealized appreciation on open futures contracts” on the Statements of Financial Condition.

 

**	This amount is in “Net unrealized appreciation on open forward contracts” on the Statements of Financial Condition.

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2012 and 2011.

 

Sector		Three Months Ended September 30, 2012 Gain (loss) from trading				Three Months Ended September 30, 2011 Gain (loss) from trading				Nine Months Ended September 30, 2012 Gain (loss) from trading				Nine Months Ended September 30, 2011 Gain (loss) from trading
Currencies		$	(87,929	)		$	(2,256,330	)		$	(1,520,668	)		$	(744,996	)
Energy			(235,095	)			(789,081	)			(682,782	)			769,031
Grains			474,707				(704,236	)			(313,086	)			(2,138,665	)
Indices			85,058				(2,910,763	)			(877,327	)			(3,014,293	)
Interest Rates U.S.			30,406				892,977				264,612				838,492
Interest Rates Non-U.S.			97,753				2,604,105				588,830				1,240,500
Livestock			168,340				(173,235	)			(6,315	)			(1,232,627	)
Metals			(355,677	)			(939,403	)			(322,234	)			(478,067	)
Softs			(389,503	)			(1,200,352	)			(1,175,806	)			(1,818,900	)
Total		$	(211,940	)***		$	(5,476,318	)***		$	(4,044,776	)***		$	(6,579,525	)***

 

 

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

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

4. Fair Value Measurements:

Partnership’s Investments. All commodity interests held by the Partnership (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 and Changes in Partners’ Capital.

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. Management has concluded that based on available information in the marketplace, the Partnership’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 level of activity in the Partnership’s 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.

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 the Financial Accounting Standards Board’s (“FASB”) 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.

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

The Partnership considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (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 and liabilities from observable inputs (Level 2). As of and for the periods ended September 30, 2012 and December 31, 2011, the Partnership did not hold any derivative instruments for which market quotations were not readily available and that were priced by broker-dealers who derive fair values for those assets and liabilities 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). There were no transfers of assets and liabilities between Level 1 and Level 2 during the nine months ended September 30, 2012.

 

		September 30, 2012				Quoted Prices in Active Markets for Identical Assets and  Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Futures		$	961,443			$	961,443			$	0			$	0
Forwards			250,657				250,657				0				0
Total assets			1,212,100				1,212,100				0				0
Liabilities
Futures		$	515,981			$	515,981			$	0			$	0
Forwards			828,263				828,263				0				0
Total liabilities			1,344,244				1,344,244				0				0
Net fair value		$	(132,144	)		$	(132,144	)		$	0			$	0

 

		December 31, 2011				Quoted Prices in Active Markets for Identical Assets and  Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Futures		$	1,870,210			$	1,870,210			$	0			$	0
Forwards			301,950				301,950				0				0
Total assets			2,172,160				2,172,160				0				0
Liabilities
Futures		$	1,391,655			$	1,391,655			$	0			$	0
Forwards			2,750				2,750				0				0
Total liabilities			1,394,405				1,394,405				0				0
Net fair value		$	777,755			$	777,755			$	0			$	0

 

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

5. Financial Instrument Risks:

In the normal course of business, the Partnership 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 specified terms on 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 forward and option contracts. OTC contracts are negotiated between contracting parties and include swaps and certain forward and option contracts. 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 General Partner estimates that at any given time approximately 0.0% to 6.4% of the Partnership’s contracts are traded OTC.

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 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 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 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 risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership has credit risk and concentration risk as CGM or a CGM affiliate is the sole counterparty or broker with respect to the Partnership’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnership’s counterparty is an exchange or clearing organization.

The General Partner monitors and attempts to control the Partnership’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 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 financial instruments mature within one year of the inception date. However, due to the nature of the Partnership’s business, these instruments may not be held to maturity.

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. All commodity interests held by the Partnership (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

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

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 and Changes in Partners’ Capital.

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 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, the Partnership’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 level of activity in the Partnership’s 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 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, 2012 and December 31, 2011, the Partnership did not hold any derivative instruments for which market quotations were not readily available and that were priced by broker-dealers who derive fair values for those assets and liabilities 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). There were no transfer of assets or liabilities between Level 1 and Level 2 during the nine months ended September 30, 2012.

Futures Contracts. The Partnership 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 Partnership 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 Partnership. When the contract is closed, the Partnership 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 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.

 

 

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Tidewater Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

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 Partnership are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by the Partnership 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 Partnership. 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 Partnership 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.

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 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 2009 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 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. In August 2012, FASB updated the proposed ASU to state that entities regulated under the Investment Company Act of 1940 should qualify to be investment companies within the proposed investment company guidance. 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 arrangement 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 comparison 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.”

 

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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. Its only assets are its equity in its trading account, consisting of cash and cash equivalents, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts, and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the third quarter of 2012.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading, and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2012, Partnership capital decreased 45.5% from $23,517,223 to $12,816,811. This decrease was attributable to a net loss of $5,158,729, coupled with redemptions of 4,790.8187 Redeemable Units totaling $5,883,845, which was partially offset by the subscriptions of 235.2325 Redeemable Units totaling $342,162. 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 and assumptions 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.

 

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Results of Operations

During the Partnership’s third quarter of 2012, the net asset value per unit decreased 3.8% from $1,173.74 to $1,129.34 as compared to a decrease of 21.3% in the third quarter of 2011. The Partnership experienced a net trading loss before brokerage fees and related fees in the third quarter of 2012 of $211,940. Losses were primarily attributable to the trading of commodity futures in currencies, energy, metals and softs were partially offset by gains in grains, indices, U.S. and non-U.S. interest rates and livestock. The Partnership experienced a net trading loss before brokerage fees and related fees in the third quarter of 2011 of $5,476,318. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, livestock, metals, softs and indices and were partially offset by gains in U.S. and non-U.S. interest rates.

The most significant losses were incurred within the metals complex during September from short positions in nickel, aluminum, and zinc futures as prices moved higher amid signs of increased infrastructure spending by the Chinese government. Within the energy markets, losses were recorded during July and August from short futures positions in crude oil and its related products as prices advanced on concern that instability in the Middle East will disrupt energy supplies. Within the currency sector, losses were experienced during August from short positions in the Norwegian krone, euro, and Swiss franc versus the U.S. dollar as the value of these European currencies moved higher against the U.S. dollar after German Chancellor Angela Merkel reiterated her commitment to working with the European Central Bank to resolve the euro-zone’s financial turmoil. A portion of the Partnership’s losses during the quarter was offset by gains achieved within the agricultural complex during July from long futures positions in the soybean complex, corn, and wheat as prices rose after a heat wave and drought in the U.S. Midwest threatened to limit output. Additional gains were recorded in this sector during July from short positions in feeder cattle futures as prices fell on speculation U.S. supplies may increase. Within the global interest rate sector, gains were experienced during July from long positions in U.S. and European fixed income futures as prices advanced on concern the global economic recovery is slowing. Within the global stock index markets, gains were recorded during August from long positions in U.S. equity index futures as prices moved higher on better-than-expected reports of U.S. corporate earnings and after the U.S. Federal Reserve’s plan to buy mortgage securities fueled demand for “riskier” assets.

During the Partnership’s nine months ended September 30, 2012, the net asset value per unit decreased 23.6% from $1,478.65 to $1,129.34 as compared to a decrease of 29.0% during the nine months ended September 30, 2011. The Partnership experienced a net trading loss before brokerage fees and related fees for the nine months ended September 30, 2012 of $4,044,776. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, indices, livestock, metals and softs and were partially offset by gains in U.S. and non-U.S. interest rates. The Partnership experienced a net trading loss before brokerage fees and related fees for the nine months ended September 30, 2011 of $6,579,525. Losses were primarily attributable to the trading of commodity futures in currencies, grains, livestock, softs, metals and indices and were partially offset by gains in energy, U.S. and non-U.S. interest rates.

The most significant losses were incurred within the currency sector during January from short positions in the Swiss franc versus the U.S. dollar as the value of the franc reversed higher against the U.S. dollar. During February and March, long positions in the Mexican peso and Norwegian krone versus the U.S. dollar resulted in losses as the value of these currencies fell against the U.S. dollar after concern over earnings in China reduced demand for higher-yielding currency assets. Within the agricultural complex, losses were experienced during January from short positions in cocoa futures as prices advanced on concern supplies from the Ivory Coast, the world’s largest cocoa growing country, may weaken. Losses were also recorded during May from long futures positions in the soybean complex as prices fell amid favorable growing conditions in the U.S. Additional losses in this sector were experienced in June from short positions in sugar futures as prices advanced after heavy rains hampered the harvest in Brazil. Meanwhile, losses were recorded in the energy sector primarily during May from long futures positions in crude oil and its related products as prices declined on signs that manufacturing is slowing in China and Europe and after stockpiles rose in the U.S. Within the global stock index markets, losses were experienced during April and May from long positions in U.S., European, and Japanese equity index futures as prices fell amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. Within the metals complex, losses were incurred during September from short positions in nickel, aluminum, and zinc futures as prices moved higher amid signs of increased infrastructure spending by the Chinese government. A portion of the Partnership’s losses during the first nine months of the year was offset by gains experienced within the global interest rate sector during April and May from Australian, U.S., and European fixed income futures as prices advanced after Standard & Poor’s cut Spain’s credit rating and Greece failed to form a unified government, adding to concern central banks and politicians are failing to contain the European debt crisis. Gains in this sector were also experienced during July from long positions in U.S. and European fixed income futures as prices advanced on concern the global economic recovery is slowing.

 

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Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility for profit. The profitability of the Partnership depends on the existence of major price trends and the ability of the Advisor to identify those price trends correctly. 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 expects to increase capital through operations.

Interest income on 80% of the average daily equity maintained in cash in the Partnership’s brokerage account 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 for the three months ended September 30, 2012 increased by $1,155, as compared to the corresponding period in 2011. The increase in interest income was primarily due to higher U.S. Treasury bill rates during the three months ended September 30, 2012, as compared to the corresponding period in 2011. Interest income for the nine months ended September 30, 2012 decreased by $3,948, as compared to the corresponding period in 2011. The decrease in interest income was primarily due to lower average net assets during the nine months ended September 30, 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 Partnership’s account and upon interest rates over which neither the Partnership nor CGM has control.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees and clearing fees for the three and nine months ended September 30, 2012 decreased by $144,253 and $658,139, respectively, as compared to the corresponding periods in 2011. The decrease in brokerage fees is due to lower average adjusted net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods 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 and nine months ended September 30, 2012 decreased by $95,132 and $285,820, respectively, as compared to the corresponding periods in 2011. The decrease in management fees is due to lower average adjusted net assets as well as a reduction in the management fee rate during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Incentive fees are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the management agreement among the Partnership, the General Partner and the Advisor. There were no incentive fees earned for the three and nine months ended September 30, 2012 or 2011. 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 the assets of the Partnership to the Advisor, 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

The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to 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 Partnership’s open positions and, consequently, in its earnings and cash balances. The Partnership’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 Partnership’s open contracts and the liquidity of the markets in which it trades.

The Partnership 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 Partnership’s past performance is not necessarily indicative of its future results.

“Value at Risk” is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership’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 Partnership’s losses in any market sector will be limited to Value at Risk or by the Partnership’s attempts to manage its market risk.

Exchange maintenance margin requirements have been used by the Partnership 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.

 

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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 at Risk associated with the Partnership’s open positions by market category as of September 30, 2012 and December 31, 2011, and the highest, lowest and average values during the three months ended September 30, 2012 and the twelve months ended December 31, 2011. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of September 30, 2012, the Partnership’s total capitalization was $12,816,811. 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.

September 30, 2012

 

										Three Months Ended September 30, 2012
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Currencies		$	398,030				3.11	%		$	404,777			$	342,534			$	383,468
Energy			117,822				0.92	%			131,098				60,830				106,667
Grains			231,250				1.80	%			243,150				106,750				238,058
Indices			697,848				5.45	%			703,517				372,259				515,994
Interest Rates U.S.			82,550				0.64	%			91,800				62,050				80,350
Interest Rates Non-U.S.			301,066				2.35	%			325,722				262,645				311,180
Livestock			79,900				0.62	%			93,200				79,900				87,100
Metals			378,640				2.95	%			535,516				295,817				457,979
Softs			273,943				2.14	%			274,243				201,512				240,600
Total		$	2,561,049				19.98	%

 

*	Average of month-end Values at Risk.

As of December 31, 2011, the Partnership’s total capitalization was $23,517,223.

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*
Currencies		$	1,081,085				4.60	%		$	1,379,867			$	832,855			$	1,097,042
Energy			455,800				1.94	%			863,083				450,550				622,684
Grains			351,542				1.50	%			1,141,450				185,150				622,608
Indices			492,553				2.09	%			2,710,265				295,731				1,524,778
Interest Rates U.S.			175,100				0.74	%			179,800				29,500				109,475
Interest Rates Non-U.S.			1,031,701				4.39	%			1,076,331				358,383				784,532
Livestock			41,700				0.18	%			265,450				39,970				124,117
Metals			362,324				1.54	%			1,316,070				354,331				791,992
Softs			555,733				2.36	%			1,581,019				390,793				790,732
Total		$	4,547,538				19.34	%

  

 

*	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, (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 President 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 Partnership’s external disclosures.

The General Partner’s President 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 September 30, 2012 and, based on that evaluation, the General Partner’s President 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 President 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 September 30, 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, as updated by the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012.

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which CGM or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.

CGM (together with Citigroup Inc. and its other subsidiaries, “Citigroup”) (formerly known as Salomon Smith Barney Inc.) is a New York corporation with its principal place of business at 388 Greenwich St., New York, New York 10013. CGM is registered as a broker-dealer and futures commission merchant (“FCM”), and provides futures brokerage and clearing services for institutional and retail participants in the futures markets. CGM and its affiliates also provide investment banking and other financial services for clients worldwide.

There have been no material administrative, civil or criminal actions within the past five years against CGM or any of its individual principals and no such actions are currently pending, except as follows.

RMBS Litigation and Other Matters

On May 4, 2012, the district court in FEDERAL HOUSING FINANCE AGENCY v. UBS AMERICAS, INC., ET AL., a parallel case to FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL., FEDERAL HOUSING FINANCE AGENCY v. CITIGROUP INC., ET AL., and FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL., denied defendants’ motion to dismiss plaintiff’s securities law claims and granted defendants’ motion to dismiss plaintiff’s negligent misrepresentation claims. On June 19, 2012, the district court granted defendants’ motion to certify an interlocutory appeal to the United States Court of Appeals for the Second Circuit from the court’s statutes of repose and limitations rulings.

On May 15, 2012, Woori Bank filed a complaint in the United States District Court for the Southern District of New York against Citigroup alleging actionable misstatements and omissions in connection with Woori Bank’s $95 million investment in five collateralized debt obligations.

On May 18, 2012, the Federal Deposit Insurance Corporation filed (“FDIC”) complaints in the United States District Courts for the Southern District of New York and the Central District of California against various defendants, including Citigroup Global Markets Inc., Citicorp Mortgage Securities Inc., and CitiMortgage Inc., in connection with purchases of residential mortgage-backed securities (“RMBS”) by two failed banks for which the FDIC is acting as receiver.

On June 6, 2012, the court granted in part and denied in part defendants’ motions to dismiss in WESTERN & SOUTHERN LIFE INS. CO., ET AL. v. RESIDENTIAL FUNDING CO., LLC, ET AL.

On June 26, 2012, the court overruled defendants’ demurrer to plaintiff’s amended complaint in FEDERAL HOME LOAN BANK OF CHICAGO v. BANC OF AMERICA SECURITIES, LLC, ET AL.

On July 27, 2012, John Hancock Life Insurance Co. and several affiliated entities filed a complaint in the United States District Court for the District of Minnesota against various defendants, including CGM, asserting disclosure claims arising out of purchases of RMBS.

On August 29, 2012, the United States District Court for the Southern District of New York issued an order preliminarily approving the parties’ settlement in IN RE CITIGROUP INC. SECURITIES LITIGATION, pursuant to which Citigroup has agreed to pay $590 million. A fairness hearing is scheduled for January 15, 2013.

On August 30, 2012, Rentokil-Initial Pension Scheme filed a putative class action complaint against Citigroup on behalf of purchasers of 26 Citigroup offerings of medium term Euro Notes issued between October 12, 2005 and February 25, 2009. The complaint asserts claims under Section 90 of the Financial Services and Markets Act 2000 and includes allegations similar to those asserted in IN RE CITIGROUP INC. BOND LITIGATION.

 

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On October 15, 2012, the United States District Court for the Southern District of New York granted lead plaintiffs’ amended motion for class certification in NEW JERSEY CARPENTERS HEALTH FUND v. RESIDENTIAL CAPITAL LLC, ET AL., having previously denied lead plaintiffs’ motion for class certification on January 18, 2011. Plaintiffs in this action allege violations of Sections 11, 12, and 15 of the Securities Act of 1933, as amended, and assert disclosure claims on behalf of a putative class of purchasers of mortgage-backed securities issued by Residential Accredited Loans, Inc. pursuant or traceable to prospectus materials filed on March 3, 2006 and April 3, 2007. CGM is one of the underwriter defendants.

Other Matters

Citigroup and Citibank, N.A., along with other U.S. Dollar (USD) LIBOR panel banks, are defendants in the multidistrict litigation (MDL) proceeding before Judge Buchwald in the United States District Court for the Southern District of New York captioned IN RE LIBOR-BASED FINANCIAL INSTRUMENTS ANTITRUST LITIGATION. Judge Buchwald has appointed interim lead class counsel for, and consolidated amended complaints have been filed on behalf of, three separate putative classes of plaintiffs: (1) OTC purchasers of derivative instruments tied to USD LIBOR; (2) purchasers of exchange-traded derivative instruments tied to USD LIBOR; and (3) indirect OTC purchasers of U.S. debt securities. Each of these putative classes alleges that the panel bank defendants conspired to suppress USD LIBOR in violation of the Sherman Act and/or the Commodity Exchange Act, thereby causing plaintiffs to suffer losses on the instruments they purchased. Also consolidated into the MDL proceeding are individual civil actions commenced by various Charles Schwab entities that allege that the panel bank defendants conspired to suppress the USD LIBOR rates in violation of the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act, and California state law, causing the Schwab entities to suffer losses on USD LIBOR-linked financial instruments that they owned. Plaintiffs in these actions seek compensatory damages and restitution for losses caused by the alleged violations, as well as treble damages under the Sherman Act. The Schwab and OTC plaintiffs also seek injunctive relief.

In the course of its business, CGM, as a major futures commission merchant and broker-dealer, is a party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of CGM. GCM may establish reserves from time to time in connections with such actions. Additional lawsuits containing claims similar to those described above may be filed in the future.

 

 

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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, and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, other than as set forth below.

Speculative position and trading limits may reduce profitability.

The CFTC and U.S. exchanges have established speculative position limits on the maximum net long or net short positions which any person may hold or control in particular futures and options on futures. The trading instructions of an advisor may have to be modified, and positions held by the Partnership may have to be liquidated in order to avoid exceeding these limits. Such modification or liquidation could adversely affect the operations and profitability of the Partnership by increasing transaction costs to liquidate positions and foregoing potential profits.

In October 2011, the CFTC adopted new rules governing position limits. In September 2012, these rules were vacated by the United States District Court for the District of Columbia and remanded to the CFTC for further consideration. It is possible, nevertheless, that these rules may take effect in some form via re-promulgation or a successful appeal by the CFTC of the District Court’s ruling. The vacated rules established position limits on certain futures contracts and any economically equivalent futures, options and swaps.

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

For the three months ended September 30, 2012, there were no additional subscriptions of Redeemable Units. 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 be accredited investors in a private offering.

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.

 

Period		(a) Total Number of Shares (or Units) Purchased*		(b) Average Price Paid per Share (or Unit)**				(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs				(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2012 - July 31, 2012		291.9830		$	1,234.82				N/A			N/A
August 1, 2012 - August 31, 2012		911.4250		$	1,218.69				N/A			N/A
September 1, 2012 - September 30, 2012		1,132.4180		$	1,129.34				N/A			N/A
		2,335.8260		$	1,177.39

 

 

*

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.

 

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Item 3. Defaults Upon Senior Securities — None

Item 4. Mine Safety Disclosures — None

Item 5. Other Information

The registrant does not have a board of directors. The General Partner is managed by a board of directors.

Effective November 14, 2012, Mr. Damian George was appointed a director of the General Partner.

Damian George, age 45, has been a Director of the General Partner since November 2012. Since June 2012, Mr. George has been the Chief Financial Officer and a principal of the General Partner and is an associate member of the National Futures Association. Since August 2009, Mr. George has been employed by Morgan Stanley Smith Barney LLC, a financial services firm, where his responsibilities include oversight of budgeting, finance and Sarbanes-Oxley testing for the Alternative Investments–Managed Futures group. Since August 2009, Mr. George has been registered as an associated person of Morgan Stanley Smith Barney LLC. From November 2005 through July 2009, Mr. George was employed by Citi Alternative Investments, a division of Citigroup Inc. (“Citigroup”), a financial services firm, which administered Citigroup’s hedge fund and fund of funds business, where he served as Director and was responsible for budgeting, finance and Sarbanes-Oxley testing for the Hedge Fund Management group. From November 2004 through July 2009, Mr. George was registered as an associated person of CGM. Mr. George earned his Bachelor of Science degree in Accounting in May 1989 from Fordham University and his Master of Business Administration degree in International Finance in February 1998 from Fordham University. Mr. George is a Certified Public Accountant.

In addition, effective January 1, 2013 (the “Effective Date”), the Advisor will no longer be responsible for trading decisions made for the Partnership or allocated a portion of the Partnership’s assets to manage. The Advisor will be replaced with Rabar Market Research, Inc. (“Rabar”) as the sole trading advisor to the Partnership. It is anticipated that on or about the Effective Date, the Partnership’s assets will be traded pursuant to Rabar’s Diversified Program. Limited partners have been given the option to redeem their investments in the Partnership prior to the Effective Date.

 

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Item 6. Exhibits

 

3.1				Second Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.2 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
3.2				Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of the State of New York (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).
		(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 3.1(a) to the general form for registration of securities on Form 10 filed on April 30, 2007 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, dated January 31, 2000 (filed as Exhibit 3.2(g) to the quarterly report on Form 10-Q filed on November 16, 2009 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 3.1(b) to the general form for registration of securities on Form 10 filed on April 30, 2007 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 May 21, 2003 (filed as Exhibit 3.2(c) to the quarterly report on Form 10-Q filed on November 16, 2009 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(c) to the general form for registration of securities on Form 10 filed on April 30, 2007 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 3.2(e) to the quarterly report on 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 30, 2009 (filed as Exhibit 99.1(a) to the current report on Form 8-K filed on September 30, 2009 and incorporated herein by reference).
		(h)		Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.2(h) to the current report on Form 8-K filed on July 2, 2010 and incorporated herein by reference).
		(i)		Certificate of Amendment of the Certificate of Limited Partnership dated September 2, 2011 (filed as Exhibit 3.1 to the current report on Form 8-K filed on September 17, 2011 and incorporated herein by reference).

 

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10.1				Amended and Restated Management Agreement among the Partnership, the General Partner and Chesapeake Capital Corporation (filed as Exhibit 10.1 to the current report on Form 8-K filed on September 16, 2010 and incorporated herein by reference).
10.1(a)				Letter extending the Management Agreement between the General Partner and Chesapeake Capital Corporation (filed as Exhibit 10.1 (a) to the annual report on Form 10-K, filed March 30, 2012 and incorporated herein by reference).
10.2				Second Amended and Restated Customer Agreement between the Partnership and Salomon Smith Barney Inc. (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).
10.3				Amended and Restated Agency Agreement between the Partnership, Smith Barney Futures Management LLC and Salomon Smith Barney Inc. (filed as Exhibit 10.3 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
10.4				Form of Subscription Agreement (filed herein).
10.5				Joinder Agreement among Citigroup Managed Futures LLC (the former name of the General Partner), Citigroup Global Markets Inc. 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).
Exhibit 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).   Exhibit 31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director).   Exhibit 32.1 — Section 1350 Certification (Certification of President and Director).   Exhibit 32.2 — Section 1350 Certification (Certification of Chief Financial Officer and Director).
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.
101.DEF				XBRL     Taxonomy Extension Definition 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.

 

TIDEWATER FUTURES FUND L.P.
By:		Ceres Managed Futures LLC
		(General Partner)
By:		/s/ Walter Davis
		Walter Davis
		President and Director
Date: November 14, 2012
By:		/s/ Damian George
		Damian George
		Chief Financial Officer and Director (Principal Accounting Officer)

Date: November 14, 2012

 

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