Form 10-Q for Period ending September 30,2012

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 000-50718

TACTICAL DIVERSIFIED FUTURES FUND L.P.

(Exact name of registrant as specified in its charter)


New York		13-4224248
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue – 14^th 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 _

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, 541,985.2508 Limited Partnership Redeemable Units were outstanding.

PART I

Item 1. Financial Statements

Tactical Diversified Futures Fund L.P.

Statements of Financial Condition


	(Unaudited) September 30, 2012		December 31, 2011
Assets:

Investment in Funds, at fair value	$	543,434,388	$	648,497,275
Equity in trading account:
Cash		18,924,642		23,412,721
Cash margin		4,035,364		6,146,380
Net unrealized appreciation on open futures contracts		40,282		1,191,752

Total trading equity		566,434,676		679,248,128
Interest receivable		973		0

Total assets	$	566,435,649	$	679,248,128


Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open forward contracts	$	47,980	$	0
Accrued expenses:
Brokerage fees		2,595,945		3,113,220
Management fees		857,136		1,034,080
Other		354,611		357,723
Redemptions payable		10,527,800		8,180,703

Total liabilities		14,383,472		12,685,726

Partners’ Capital:
General Partner, 6,536.5294 and 7,513.5294 unit equivalents outstanding at September 30, 2012 and December 31, 2011, respectively		6,471,360		8,030,460
Limited Partners, 551,076.6868 and 616,142.5801 Redeemable Units outstanding at September 30, 2012 and December 31, 2011, respectively		545,580,817		658,531,942

Total partners’ capital		552,052,177		666,562,402

Total liabilities and partners’ capital	$	566,435,649	$	679,248,128

Net asset value per unit	$	990.03	$	1,068.80

See accompanying notes to financial statements.

Tactical Diversified Futures Fund, L.P.

Condensed Schedule of Investments

September 30, 2012

(Unaudited)


	Number of Contracts		Fair Value			% of Partners Capital
Futures Contracts Purchased
Currencies		175	$	(37,237	)		(0.01	)%
Energy		70		53,757			0.01
Indices		188		(211,009	)		(0.04	)
Interest Rates – U.S.		744		1,900			0.00	*
Interest Rates Non – U.S.		318		56,756			0.01
Metals		32		297,960			0.06
Softs		87		(6,378	)		(0.00	)*

Total futures contracts purchased				155,749			0.03

Futures Contracts Sold
Energy		6		(26,400	)		(0.00	)*
Grains		18		(27,450	)		(0.01	)
Softs		198		(61,617	)		(0.01	)

Total futures contracts sold				(115,467	)		(0.02	)

Unrealized Appreciation on Open Forward Contracts
Currencies	$	3,794,828		29,774			0.01
Metals		140		568,910			0.10

Total unrealized appreciation on open forward contracts				598,684			0.11

Unrealized Depreciation on Open Forward Contracts
Currencies	$	3,596,084		(37,052	)		(0.01	)
Metals		117		(609,612	)		(0.11	)

Total unrealized depreciation on open forward contracts				(646,664	)		(0.12	)

Investment in Funds
CMF Drury Capital Master Fund L.P.				83,892,108			15.20
CMF Willowbridge Argo Master Fund L.P.				33,180,137			6.01
CMF Aspect Master Fund L.P.				101,866,774			18.45
CMF Capital Fund Management Master Fund L.P.				81,958,516			14.84
CMF Graham Capital Master Fund L.P.				53,039,965			9.61
KR Master Fund L.P.				93,885,114			17.01
CMF Altis Partners Master Fund L.P.				95,611,774			17.32

Total investment in Funds				543,434,388			98.44

Net fair value			$	543,426,690			98.44	%

*	Due to rounding.

See accompanying notes to financial statements.

Tactical Diversified Futures Fund L.P.

Condensed Schedule of Investments

December 31, 2011


	Number of Contracts		Fair Value			% of Partners Capital
Futures Contracts Purchased
Grains		23	$	(400	)		(0.00	)*%
Interest Rates – U.S.		160		130,781			0.02
Interest Rates Non – U.S.		193		261,882			0.04

Total futures contracts purchased				392,263			0.06

Futures Contracts Sold
Currencies		198		(69,662	)		(0.01	)
Energy		124		58,921			0.01
Grains		23		(53,263	)		(0.01	)
Indices		26		31,347			0.01
Interest Rates – U.S.		81		(4,613	)		(0.00	)*
Metals		140		685,030			0.10
Softs		348		151,729			0.02

Total futures contracts sold				799,489			0.12

Investment in Funds
CMF Drury Capital Master Fund L.P.				100,174,719			15.03
CMF Willowbridge Argo Master Fund L.P.				49,103,137			7.37
CMF Aspect Master Fund L.P.				117,010,536			17.55
CMF Capital Fund Management Master Fund L.P.				97,747,442			14.66
CMF Graham Capital Master Fund L.P.				78,951,308			11.84
KR Master Fund L.P.				100,225,332			15.04
CMF Altis Partners Master Fund L.P.				105,284,801			15.80

Total investment in Funds				648,497,275			97.29

Net fair value			$	649,689,027			97.47	%

*	Due to rounding.

See accompanying notes to financial statements.

Tactical Diversified 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	$	3,073		$	1,103		$	8,702		$	11,470
Interest income from investment in Funds		69,604			22,225			185,087			189,146

Total investment income		72,677			23,328			193,789			200,616


Expenses:
Brokerage fees including clearing fees		8,704,334			10,596,140			27,435,110			33,330,354
Management fees		2,696,941			3,309,142			8,580,181			10,575,162
Incentive fees		0			521,073			0			868,682
Other		197,844			175,909			733,788			1,122,694

Total expenses		11,599,119			14,602,264			36,749,079			45,896,892

Net investment income (loss)		(11,526,442	)		(14,578,936	)		(36,555,290	)		(45,696,276	)


Trading Results:
Net gains (losses) on trading of commodity interests and investment in Funds:
Net realized gains (losses) on closed contracts		(1,586,330	)		1,870,604			(3,556,061	)		3,980,393
Net realized gains (losses) on investment in Funds		11,594,327			14,754,214			22,392,753			26,330,015
Change in net unrealized gains (losses) on open contracts		300,282			1,945,158			(1,199,450	)		(643,122	)
Change in net unrealized gains (losses) on investment in Funds		(8,992,301	)		16,003,605			(27,348,279	)		(8,743,477	)

Total trading results		1,315,978			34,573,581			(9,711,037	)		20,923,809


Net income (loss)		(10,210,464	)		19,994,645			(46,266,327	)		(24,772,467	)
Subscriptions — Limited Partners		4,610,062			15,675,764			22,857,364			56,332,372
Redemptions — Limited Partners		(28,825,839	)		(23,174,994	)		(90,099,357	)		(92,645,657	)
Redemptions — General Partner		(1,001,905	)		0			(1,001,905	)		0

Net increase (decrease) in Partners’ Capital		(35,428,146	)		12,495,415			(114,510,225	)		(61,085,752	)
Partners’ Capital, beginning of period		587,480,323			689,586,322			666,562,402			763,167,489

Partners’ Capital, end of period	$	552,052,177		$	702,081,737		$	552,052,177		$	702,081,737

Net asset value per unit (557,613.2162 and 623,163.8021 units outstanding on September 30, 2012 and 2011, respectively)	$	990.03		$	1,126.64		$	990.03		$	1,126.64

Net income (loss) per unit*	$	(18.75)		$	31.33		$	(78.77)		$	(38.64)

Weighted average units outstanding		576,305.0635			633,077.4161			599,741.3577		$	645,785.0221

*	Based on change in net asset value per unit.

See accompanying notes to financial statements.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

1. General:

Tactical Diversified Futures Fund L.P. (the “Partnership”) is a limited partnership organized under the partnership laws of the State of New York on December 3, 2002 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, lumber, metals and softs. The commodity interests that are traded by the Partnership directly and through its investments in the Funds (as defined in Note 5 “Investment in Funds”) are volatile and involve a high degree of market risk.

Between March 27, 2003 (commencement of the public offering period) and April 30, 2003, 36,616 redeemable units of limited partnership interest (“Redeemable Units”) were publicly offered at $1,000 per Redeemable Unit. The proceeds of the initial public offering were held in an escrow account until April 30, 2003, at which time they were turned over to the Partnership for trading. The Partnership was authorized to publicly offer 300,000 Redeemable Units during the initial public offering period. As of December 4, 2003, the Partnership was authorized to publicly offer an additional 700,000 Redeemable Units. As of October 7, 2004, the Partnership was authorized to publicly offer an additional 1,000,000 Redeemable Units. As of June 30, 2005, the Partnership was authorized to publicly offer the 2,000,000 Redeemable Units previously registered. The public offering of Redeemable Units terminated on November 30, 2008. The Partnership currently privately and continuously offers Redeemable Units 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 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 Inc.

As of September 30, 2012, all trading decisions are made for the Partnership by Drury Capital, Inc., (“Drury”), Graham Capital Management, L.P., (“Graham”), John W. Henry & Company, Inc., (“JWH”), Willowbridge Associates Inc. (“Willowbridge”), Aspect Capital Limited (“Aspect”), Capital Fund Management S.A. (“CFM”), Krom River Trading AG and Krom River Investment Management (Cayman) Limited (collectively, “Krom River”) and Altis Partners (Jersey) Limited (“Altis”) (each an “Advisor” and collectively, the “Advisors”), each of which is a registered commodity trading advisor or exempt from registration. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to JWH directly, where as the Partnership invests the portion of its assets allocated to each of the other Advisors indirectly through investments in master funds.

The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits 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 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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

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.

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) *	$	(13.85	)	$	37.61		$	(63.58	)	$	(19.56	)
Interest income		0.13			0.03			0.33			0.30
Expenses **		(5.03	)		(6.31	)		(15.52	)		(19.38	)

Increase (decrease) for the period		(18.75	)		31.33			(78.77	)		(38.64	)
Net asset value per unit, beginning of period		1,008.78			1,095.31			1,068.80			1,165.28

Net asset value per unit, end of period	$	990.03		$	1,126.64		$	990.03		$	1,126.64

*	Includes brokerage fees.

**	Excludes brokerage fees.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011***			2012			2011***
Ratios to average net assets:****
Net investment income (loss)		(7.9	)%		(8.0	)%		(7.9	)%		(8.2	)%
Incentive fees		—	%		0.1	%		—	%		0.1	%

Net investment income (loss) before incentive fees*****		(7.9	)%		(7.9	)%		(7.9	)%		(8.1	)%

Operating expenses		7.9	%		7.9	%		7.9	%		8.2	%
Incentive fees		—	%		0.1	%		—	%		0.1	%

Total expenses		7.9	%		8.0	%		7.9	%		8.3	%


Total return:
Total return before incentive fees		(1.9	)%		2.9	%		(7.4	)%		(3.2	)%
Incentive fees		—	%		0.0	%******		—	%		(0.1	)%

Total return after incentive fees		(1.9	)%		2.9	%		(7.4	)%		(3.3	)%

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

****	Annualized (other than incentive fees).

*****

Interest income less total expenses.

******

Due to rounding.

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.

Tactical Diversified 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 agreements between the Partnership and CGM and the Funds and CGM give the Partnership and the Funds the legal right to net unrealized gains and losses on open futures contracts and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 201-20, “Balance Sheet”, have been met.

All of the commodity interests owned by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the three months ended September 30, 2012 and 2011 were 1,735 and 1,262, respectively. The monthly average number of futures contracts traded directly by the Partnership during the nine months ended September 30, 2012 and 2011 were 1,428 and 1,172, respectively. The monthly average number of metal forward contracts traded directly by the Partnership during the three months ended September 30, 2012 and 2011 were 240 and 0, respectively. The monthly average number of metal forward contracts traded directly by the Partnership during the nine months ended September 30, 2012 and 2011 were 124 and 0, respectively. The monthly average notional value of currency forward contracts held by the Partnership during the three months ended September 30, 2012 and 2011 were $16,244,034 and $0, respectively. The monthly average notional value of currency forward contracts held by the Partnership during the nine months ended September 30, 2012 and 2011 were $8,351,178 and $0, respectively.

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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

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


	September 30, 2012
Assets
Futures Contracts
Currencies	$	27,025
Energy		62,507
Interest Rates - U.S.		10,853
Interest Rates Non - U.S.		69,880
Metals		297,960
Softs		22,510

Total unrealized appreciation on open futures contracts	$	490,735


Liabilities
Futures Contracts
Currencies	$	(64,262	)
Energy		(35,150	)
Grains		(27,450	)
Indices		(211,009	)
Interest Rates - U.S.		(8,953	)
Interest Rates Non - U.S.		(13,124	)
Softs		(90,505	)

Total unrealized depreciation on open futures contracts	$	(450,453	)

Net unrealized appreciation on open futures contracts	$	40,282	*


Assets
Forward Contracts
Currencies	$	29,774
Metals		568,910

Total unrealized appreciation on open forward contracts	$	598,684


Liabilities
Forward Contracts
Currencies	$	(37,052	)
Metals		(609,612	)

Total unrealized depreciation on open forward contracts	$	(646,664	)

Net unrealized depreciation on open forward contracts	$	(47,980	)**

*	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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)


	December 31, 2011
Assets
Futures Contracts
Currencies	$	42,581
Energy		169,956
Grains		487
Indices		34,866
Interest Rates U.S.		130,781
Interest Rates Non-U.S.		265,283
Metals		759,650
Softs		180,039

Total unrealized appreciation on open futures contracts	$	1,583,643

Liabilities
Futures Contracts
Currencies	$	(112,243	)
Energy		(111,035	)
Grains		(54,150	)
Indices		(3,519	)
Interest Rates U.S.		(4,613	)
Interest Rates Non-U.S.		(3,401	)
Metals		(74,620	)
Softs		(28,310	)

Total unrealized depreciation on open futures contracts	$	(391,891	)

Net unrealized appreciation on open futures contracts	$	1,191,752	***

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

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership 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	$	(72,469	)	$	498,690		$	(949,090	)	$	(27,369	)
Energy		(1,154,768	)		(614,529	)		(533,930	)		423,336
Grains		969,788			(349,075	)		269,201			(2,391,900	)
Indices		(306,227	)		47,040			(379,571	)		(714,909	)
Interest Rates — U.S.		76,422			1,703,759			(369,540	)		1,830,233
Interest Rates Non — U.S.		(338,406	)		2,470,086			333,682			2,452,763
Metals		74,797			197,325			(2,629,270	)		673,180
Softs		(535,185	)		(137,534	)		(496,993	)		1,091,937

Total	$	(1,286,048	)****	$	3,815,762	****	$	(4,755,511	)****	$	3,337,271	****

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

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

4. Fair Value Measurements:

Partnership’s and the Funds’ Investments. All commodity interests (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 and the Funds’ 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 and the Funds’ 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 and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their 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.

The Partnership and the Funds consider 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). Investments in funds (other commodity pools) with no rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended September 30, 2012 and December 31, 2011, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). For the nine months ended September 30, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)


	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	$	490,735	$	490,735		$	—	$	—
Forwards		598,684		568,910			29,774		—
Investment in Funds		543,434,388		—			543,434,388		—

Total assets		544,523,807		1,059,645			543,464,162		—


Liabilities
Futures	$	450,453	$	450,453		$	—	$	—
Forwards		646,664		609,612			37,052		—

Total liabilites		1,097,117		1,060,065			37,052		—

Net fair value	$	543,426,690	$	(420	)	$	543,427,110	$	—


	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	$	1,583,643	$	1,583,643	$	—	$	—
Investment in Funds		648,497,275		—		648,497,275		—

Total assets		650,080,918		1,583,643		648,497,275		—


Liabilities
Futures	$	391,891	$	391,891	$	—	$	—

Total liabilites		391,891		391,891		—		—

Net fair value	$	649,689,027	$	1,191,752	$	648,497,275	$	—

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

5. Investment in Funds:

The assets allocated to JWH for trading are invested directly pursuant to JWH’s Global Analytics Program.

On December 1, 2004, the assets allocated to Winton for trading were invested in the CMF Winton Master L.P. (“Winton Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 52,981.2908 units of Winton Master with cash equal to $57,471,493. The Partnership fully redeemed its investment in Winton Master on August 31, 2011 for cash equal to $29,538,004.

On March 1, 2005, the assets allocated to Aspect for trading were invested in the CMF Aspect Master Fund L.P. (“Aspect Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 131,340.8450 units of Aspect Master with cash equal to $122,786,448 and a contribution of open commodity futures and forward contracts with a fair value of $8,554,397. Aspect Master was formed in order to permit accounts managed now or in the future by Aspect using its Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Aspect Master. Individual and pooled accounts currently managed by Aspect, including the Partnership, are permitted to be limited partners of Aspect Master. The General Partner and Aspect believe that trading through this structure should promote efficiency and economy in the trading process.

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in the CMF Willowbridge Argo Master Fund L.P. (“Willowbridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 95,795.8082 units of Willowbridge Master with cash equal to $85,442,868 and a contribution of open commodity futures and forward contracts with a fair value of $10,352,940. Willowbridge Master was formed in order to permit accounts managed now or in the future by Willowbridge using its Argo Trading System, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process.

On August 1, 2005, the assets allocated to Drury for trading were invested in the CMF Drury Capital Master Fund L.P. (“Drury Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 120,720.7387 units of Drury Master with cash equal to $117,943,206 and a contribution of open commodity futures and forward contracts with a fair value of $2,777,533. Drury Master was formed in order to permit accounts managed now or in the future by Drury using its Diversified Trend-Following Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Drury Master. Individual and pooled accounts currently managed by Drury, including the Partnership, are permitted to be limited partners of Drury Master. The General Partner and Drury believe that trading through this structure should promote efficiency and economy in the trading process.

On August 1, 2005, the assets allocated to CFM for trading were invested in the CMF Capital Fund Management Master Fund L.P. (“CFM Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 159,434.0631 units of CFM Master with cash equal to $157,804,020 and a contribution of open commodity futures and forward contracts with a fair value of $1,630,043. CFM Master was formed in order to permit accounts managed now or in the future by CFM using its Discus Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of CFM Master. Individual and pooled accounts currently managed by CFM, including the Partnership, are permitted to be limited partners of CFM Master. The General Partner and CFM believe that trading through this structure should promote efficiency and economy in the trading process.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

On June 1, 2006, the assets allocated to Graham for trading were invested in the CMF Graham Capital Master Fund L.P. (“Graham Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 101,486.0491 units of Graham Master with cash equal to $103,008,482. Graham Master was formed in order to permit accounts managed now or in the future by Graham using its K4D-15V Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process.

On March 1, 2009, the assets allocated to SandRidge for trading were in invested in the CMF SandRidge Master Fund L.P. (“SandRidge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 14,408.1177 units of SandRidge Master with cash equal to $27,000,000. The Partnership fully redeemed its investment in SandRidge Master on April 30, 2011 for cash equal to $14,786,676.

On October 1, 2010, the assets allocated to Sasco for trading were invested in the CMF Sasco Master Fund L.P. (“Sasco Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 19,612.3882 units of Sasco Master with cash equal to $25,535,000. The Partnership fully redeemed its investment in Sasco Master on May 31, 2011 for cash equal to $51,987,122.

On May 1, 2011, the assets allocated to Krom River for trading were invested in the KR Master Fund L.P. (“KR Master”), a limited partnership organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in KR Master with cash equal to $65,000,000. KR Master was formed in order to permit commodity pools managed now or in the future by Krom River using its Commodity Program at 150% Leverage, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the general partner of KR Master. Individual and pooled accounts currently managed by Krom River, including the Partnership, are permitted to be limited partners of KR Master. The General Partner and Krom River believe that trading through this structure should promote efficiency and economy in the trading process.

On May 1, 2011, the assets allocated to Altis for trading were invested in the CMF Altis Partners Master Fund L.P. (“Altis Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 21,851.9469 units of Altis Master with cash equal to $70,000,000. Altis Master was formed to permit commodity pools managed now and in the future by Altis using its Global Futures Portfolio Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Altis Master. Individual and pooled accounts currently managed by Altis, including the Partnership, are permitted to be limited partners of Altis Master. The General Partner and Altis believe that trading through this structure should promote efficiency and economy in the trading process.

On June 1, 2011, the assets allocated to DKR for trading were invested in the Morgan Stanley Smith Barney DKR Fusion, LLC (“DKR I, LLC” or the “Trading Company”), a limited liability company organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in DKR I, LLC with cash equal to $53,373,870. The Partnership fully redeemed its investment in DKR I, LLC on August 31, 2011 for cash equal to $63,781,467.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

The General Partner is not aware of any material changes to the trading programs discussed above during the fiscal quarter ended September 30, 2012.

Aspect Master’s, Drury Master’s, Willowbridge Master’s, CFM Master’s, Graham Master’s, Altis Master’s and KR Master’s (collectively, the “Funds”) and the Partnership’s trading of futures, forwards and options contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. The Funds and the Partnership engage in such trading through commodity brokerage accounts maintained with CGM.

A limited partner of the Funds may withdraw all or part of their capital contribution and undistributed profits, if any, from the Funds in multiples of the net asset value per unit as of the end of any day (the “Redemption Date”) after a request for redemption has been made to the General Partner of the Funds at least 3 days in advance of the Redemption Date. The units are classified as a liability when the limited partner elects to redeem and informs the Funds.

Management and incentive fees are charged at the Partnership level, with the exception of DKR I, LLC, where the Partnership paid, indirectly, its pro rata portion of the management and incentive fees of the Trading Company. All exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) are borne by the Partnership directly and through its investment in the Funds. All other fees, including CGM’s direct brokerage fees, are charged at the Partnership level.

At September 30, 2012, the Partnership owned approximately 85.5% of Drury Master, 77.0% of Willowbridge Master, 72.1% of Aspect Master, 76.8% of CFM Master, 57.4% of Graham Master, 81.0% of KR Master and 75.1% of Altis Master. At December 31, 2011, the Partnership owned approximately 83.8% of Drury Master, 83.8% of Willowbridge Master, 71.5% of Aspect Master, 76.3% of CFM Master, 61.9% of Graham Master, 89.5% of KR Master and 72.7% of Altis Master. It is the Partnership’s intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of investment in the Funds are approximately the same and the redemption rights are not affected.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

Summarized information reflecting the total assets, liabilities and capital for the Funds is shown in the following tables.


	September 30, 2012
	Total Assets		Total Liabilities		Total Capital
Drury Master	$	101,913,250	$	3,747,203	$	98,166,047
Willowbridge Master		43,137,151		51,975		43,085,176
Aspect Master		142,664,482		1,335,013		141,329,469
CFM Master		107,046,163		389,703		106,656,460
Graham Master		95,924,800		3,450,230		92,474,570
KR Master		117,357,253		1,440,308		115,916,945
Altis Master		130,410,814		3,081,989		127,328,825

Total	$	738,453,913	$	13,496,421	$	724,957,492


	December 31, 2011
	Total Assets		Total Liabilities		Total Capital
Drury Master	$	119,558,883	$	54,463	$	119,504,420
Willowbridge Master		58,685,838		62,005		58,623,833
Aspect Master		163,744,655		39,491		163,705,164
CFM Master		128,240,769		60,320		128,180,449
Graham Master		127,567,600		44,426		127,523,174
KR Master		116,101,391		4,162,840		111,938,551
Altis Master		145,096,295		161,169		144,935,126

Total	$	858,995,431	$	4,584,714	$	854,410,717

Summarized information reflecting the net investment income (loss), total trading results and net income (loss) for the Funds is shown in the following tables.


	For the three months ended September 30, 2012
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(75,217	)	$	(521,796	)	$	(597,013	)
Willowbridge Master		(25,369	)		1,523,607			1,498,238
Aspect Master		(56,443	)		(3,873,903	)		(3,930,346	)
CFM Master		(174,158	)		1,519,731			1,345,573
Graham Master		(76,849	)		1,524,964			1,448,115
KR Master		(173,873	)		4,605,264			4,431,391
Altis Master		(126,559	)		(1,512,299	)		(1,638,858	)

Total	$	(708,468	)	$	3,265,568		$	2,557,100


	For the nine months ended September 30, 2012
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(241,295	)	$	1,846,061		$	1,604,766
Willowbridge Master		(76,478	)		2,997,608			2,921,130
Aspect Master		(178,209	)		(5,359,870	)		(5,538,079	)
CFM Master		(608,190	)		(5,343,134	)		(5,951,324	)
Graham Master		(337,956	)		566,270			228,314
KR Master		(368,147	)		901,800			533,653
Altis Master		(290,400	)		(2,667,631	)		(2,958,031	)

Total	$	(2,100,675	)	$	(7,058,896	)	$	(9,159,571	)

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)


	For the three months ended September 30, 2011
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(63,960	)	$	351,374		$	287,414
Willowbridge Master		(26,164	)		6,231,581			6,205,417
Aspect Master		(41,821	)		17,484,618			17,442,797
CFM Master		(255,559	)		21,126,133			20,870,574
Winton Master		(115,599	)		65,557,693			65,442,094
Graham Master		(213,853	)		(7,001,386	)		(7,215,239	)
KR Master		(101,424	)		(2,674,155	)		(2,775,579	)
Altis Master		(70,204	)		(5,750,190	)		(5,820,394	)
DKR I, LLC		(614,534	)		6,405,194			5,790,660

Total	$	(1,503,118	)	$	101,730,862		$	100,227,744


	For the nine months ended September 30, 2011
	Net Investment Income (Loss)			Total Trading Results			Net Income (Loss)
Drury Master	$	(187,236	)	$	(12,290,868	)	$	(12,478,104	)
Willowbridge Master		(96,550	)		21,510,516			21,413,966
Aspect Master		(120,427	)		15,053,518			14,933,091
CFM Master		(1,061,206	)		36,178,083			35,116,877
Winton Master		(172,947	)		76,099,292			75,926,345
Graham Master		(596,969	)		(15,857,052	)		(16,454,021	)
SandRidge Master		(584,251	)		48,322,928			47,738,677
Sasco Master		(707,823	)		1,199,725			491,902
KR Master		(153,525	)		(6,599,796	)		(6,753,321	)
Altis Master		(210,088	)		(25,206,754	)		(25,416,842	)
DKR I, LLC		(957,240	)		1,410,624			453,384

Total	$	(4,848,262	)	$	139,820,216		$	134,971,954

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

Summarized information reflecting the Partnership’s investment in, and the operations of, the Funds is shown in the following tables.


	September 30, 2012					For the three months ended September 30, 2012
	% of								Expenses				Net
Funds	Partners’ Capital			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		15.20	%	$	83,892,108	$	(426,909	)	$	59,601	$	16,059	$	(502,569	)		Commodity Portfolio		Monthly
Willowbridge Master		6.01	%		33,180,137		1,194,898			7,776		16,231		1,170,891			Commodity Portfolio		Monthly
Aspect Master		18.45	%		101,866,774		(2,794,940	)		34,572		19,211		(2,848,723	)		Commodity Portfolio		Monthly
CFM Master		14.84	%		81,958,516		1,187,571			131,437		13,347		1,042,787			Commodity Portfolio		Monthly
Graham Master		9.61	%		53,039,965		1,017,234			37,942		13,689		965,603			Commodity Portfolio		Monthly
KR Master		17.01	%		93,885,114		3,751,405			161,136		8,770		3,581,499			Commodity Portfolio		Monthly
Altis Master		17.32	%		95,611,774		(1,257,629	)		91,808		15,365		(1,364,802	)		Commodity Portfolio		Monthly

Total				$	543,434,388	$	2,671,630		$	524,272	$	102,672	$	2,044,686


	September 30, 2012					For the nine months ended September 30, 2012
	% of								Expenses				Net
Funds	Partners’ Capital			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		15.20	%	$	83,892,108	$	1,481,145		$	194,762	$	41,687	$	1,244,696			Commodity Portfolio		Monthly
Willowbridge Master		6.01	%		33,180,137		2,319,547			24,394		45,701		2,249,452			Commodity Portfolio		Monthly
Aspect Master		18.45	%		101,866,774		(3,814,462	)		97,489		64,895		(3,976,846	)		Commodity Portfolio		Monthly
CFM Master		14.84	%		81,958,516		(3,997,817	)		451,472		42,082		(4,491,371	)		Commodity Portfolio		Monthly
Graham Master		9.61	%		53,039,965		513,799			193,170		34,347		286,282			Commodity Portfolio		Monthly
KR Master		17.01	%		93,885,114		804,011			328,224		38,310		437,477			Commodity Portfolio		Monthly
Altis Master		17.32	%		95,611,774		(2,076,662	)		198,162		48,217		(2,323,041	)		Commodity Portfolio		Monthly

Total				$	543,434,388	$	(4,770,439	)	$	1,487,673	$	315,239	$	(6,573,351	)


	December 31, 2011					For the three months ended September 30, 2011
	% of								Expenses				Net
Funds	Partners’ Capital			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		15.03	%	$	100,174,719	$	310,676		$	43,738	$	15,759	$	251,179			Commodity Portfolio		Monthly
Willowbridge Master		7.37	%		49,103,137		4,870,827			10,648		11,521		4,848,658			Commodity Portfolio		Monthly
Aspect Master		17.55	%		117,010,536		12,497,777			26,758		6,778		12,464,241			Commodity Portfolio		Monthly
CFM Master		14.66	%		97,747,442		15,036,816			172,719		11,960		14,852,137			Commodity Portfolio		Monthly
Winton Master		0.00	%		—		2,815,174			3,369		588		2,811,217			Commodity Portfolio		Monthly
Graham Master		11.84	%		78,951,308		(4,281,757	)		117,060		13,761		(4,412,578	)		Commodity Portfolio		Monthly
KR Master		15.04	%		100,225,332		(2,532,125	)		68,236		21,733		(2,622,094	)		Commodity Portfolio		Monthly
Altis Master		15.80	%		105,284,801		(3,870,539	)		36,457		12,776		(3,919,772	)		Commodity Portfolio		Monthly
DKR I, LLC		0.00	%		—		5,933,195			184,865		400,360		5,347,970			Commodity Portfolio		Monthly

Total				$	648,497,275	$	30,780,044		$	663,850	$	495,236	$	29,620,958


	December 31, 2011					For the nine months ended September 30, 2011
	% of								Expenses				Net
Funds	Partners’ Capital			Fair Value		Income (Loss)			Brokerage Fees		Other		Income (Loss)			Investment Objective		Redemptions Permitted
Drury Master		15.03	%	$	100,174,719	$	(10,782,799	)	$	150,933	$	46,474	$	(10,980,206	)		Commodity Portfolio		Monthly
Willowbridge Master		7.37	%		49,103,137		6,208,429			29,375		23,092		6,155,962			Commodity Portfolio		Monthly
Aspect Master		17.55	%		117,010,536		10,781,661			85,173		32,352		10,664,136			Commodity Portfolio		Monthly
CFM Master		14.66	%		97,747,442		26,975,846			768,304		49,810		26,157,732			Commodity Portfolio		Monthly
Winton Master		0.00	%		—		6,433,628			27,075		5,553		6,401,000			Commodity Portfolio		Monthly
Graham Master		11.84	%		78,951,308		(9,031,183	)		353,621		36,762		(9,421,566	)		Commodity Portfolio		Monthly
Sandridge Master		0.00	%		—		1,710,045			33,570		11,848		1,664,627			Energy Portfolio		Monthly
Sasco Master		0.00	%		—		819,472			430,592		95,550		293,330			Energy Portfolio		Monthly
KR Master		15.04	%		100,225,332		(5,774,907	)		105,080		29,293		(5,909,280	)		Commodity Portfolio		Monthly
Altis Master		15.80	%		105,284,801		(11,242,374	)		72,097		19,894		(11,334,365	)		Commodity Portfolio		Monthly
DKR I, LLC		0.00	%		—		1,677,866			250,341		493,764		933,761			Commodity Portfolio		Monthly

Total				$	648,497,275	$	17,775,684		$	2,306,161	$	844,392	$	14,625,131

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

6. Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are parties 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 on specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forwards and option contracts. OTC contracts are negotiated between contracting parties and include swaps and certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 9.3% to 22.1% of the Partnership’s/Funds’ 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/Funds 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/Funds are 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/Funds’ 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/Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds have credit risk and concentration risk as CGM or its affiliates is the sole counterparty or broker with respect to the Partnership’s/Funds’ asset. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnership’s/Funds’ counterparty is an exchange or clearing organization.

As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Funds 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 Funds do not consider these contracts to be guarantees.

The General Partner monitors and attempts to control the Partnership’s/Funds’ 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/Funds 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/Funds’ businesses, these instruments may not be held to maturity.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

7. 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 and the Funds’ Investments. All commodity interests held by the Partnership and the Funds (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 and the Funds’ 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 and the Funds’ Level 1 assets and liabilities are actively traded.

The Partnership and the Funds 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.

Futures Contracts. The Partnership and the Funds trade 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 and the Funds 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 and the Funds. When the contract is closed, the Partnership and the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Partnership/Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward foreign currency contracts are valued daily, and the Partnership/Funds’ net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on forward foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

The Partnership/Funds do not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in net gain (loss) on investments in the Statements of Income and Expenses and Changes in Partners’ Capital.

London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Partnership/Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by the Partnership/Funds 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/Funds. 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/Funds record 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.

Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

Options. The Funds 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 Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the 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 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 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”.

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

Liquidity and Capital Resources

The Partnership does not engage in the sale of goods or services. The Partnership’s assets are its (i) investment in Funds, (ii) equity in its trading account, consisting of cash and cash margin, net unrealized appreciation on open futures contracts and (iii) 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 during 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 subscriptions, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2012, Partnership capital decreased 17.2% from $666,562,402 to $552,052,177. This decrease was attributable to the redemptions of 86,696.0168 Redeemable Units resulting in an outflow of $90,099,357, and the redemptions of 977.0000 General Partner unit equivalents totaling $1,001,905, coupled with the net loss of $46,266,327, which was offset by the subscriptions of 21,630.1235 Redeemable Units totaling $22,857,364. Future redemptions could 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 7 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.

Results of Operations

During the third quarter of 2012, the Partnership’s net asset value per unit decreased 1.9% from $1,008.78 to $990.03 as compared to an increase of 2.9% in the same period of 2011. The Partnership experienced a net trading gain before brokerage fees and related fees in the third quarter of 2012 of $1,315,978. Losses were primarily attributable to the Partnership/Funds’ trading in currencies, energy, indices, non-U.S. interest rates and softs and were partially offset by gains in grains, U.S. interest rates and metals. The Partnership experienced a net trading gain before brokerage fees and related fees in the third quarter of 2011 of $34,573,581. Gains were primarily attributable to the Partnership/Funds’ trading in U.S. and non-U.S. interest rates and metals and were partially offset by losses in currencies, energy, grains, indices, livestock and softs.

The most significant losses were incurred within the metals sector, primarily during August and September, from short positions in aluminum futures as prices advanced after the U.S. Federal Reserve announced a third round of fiscal measures to bolster the U.S. economy, fueling expectations that raw-material use will increase. Within the soft commodities sector, losses were incurred primarily during September from short positions in coffee futures as prices advanced on speculation that supplies will tighten in South America, the world’s top coffee producing region. Within the energy sector, losses were incurred primarily during July and September from short positions in natural gas futures as prices climbed higher on forecasts of hotter-than-normal weather that may erode a natural gas stockpile surplus. Elsewhere, losses were incurred from short positions in crude oil and its related products as prices advanced on rising concern that instability in the Middle East will disrupt supplies from a region responsible for about one-third of world production. The Partnership’s losses during the quarter were offset by gains experienced within the global interest rate sector primarily during July, due to long positions in European and U.S. fixed income futures as prices advanced as a euro-area report showing inflation held at the slowest since February 2011 added to signs the region is headed for a recession. Prices continued to move higher after Germany’s top court said it would take more than eight weeks to rule on the euro-area’s bailout fund, holding up crisis resolution efforts and boosting demand for the relative “safety” of government debt. Gains were also experienced in the agricultural markets, primarily during July, from long positions in corn and soybean futures as corn futures prices advanced to an all-time high and soybean futures prices reached their highest level since July 2008 as a heat wave and drought in the U.S. Midwest threatened to limit output. Meanwhile, corn futures prices continued to rise on increased demand for corn imports by Asian nations including China. Within the stock index sector, gains were experienced primarily during August and September from long positions in U.S. equity index futures as prices moved higher, sending the Standard & Poor’s 500 Index to the highest level since 2007, as the U.S. Federal Reserve’s plan to buy mortgage securities fueled demand for “riskier” assets. Elsewhere, additional gains were recorded from long positions in European equity index futures. Within the currency sector, gains were experienced primarily during July from short positions in the euro as the value of the euro declined to its lowest level against the U.S. dollar in more than two years after European Central Bank President Mario Draghi said the currency bloc still faces risks after policy makers cut interest rates to a record low.

During the Partnership’s nine months ended September 30, 2012, the net asset value per unit decreased 7.4% from $1,068.80 to $990.03 as compared to a decrease of 3.3% in the same period of 2011. The Partnership experienced a net trading loss before brokerage fees and related fees in the nine months ended September 30, 2012 of $9,711,037. Losses were primarily attributable to the Partnership/Funds’ trading in currencies, energy, indices, U.S. interest rates, metals and softs and were partially offset by gains in grains and non-U.S. interest rates. The Partnership experienced a net trading gain before brokerage fees and related fees in the nine months ended September 30, 2011 of $20,923,809. Gains were primarily attributable to the Partnership/Funds’ trading in U.S. and non-U.S. interest rates and metals and were partially offset by losses in energy, grains, indices, livestock and softs.

The most significant losses were incurred within the metals sector primarily during January and February from long positions in silver and gold futures as prices declined on speculation that the U.S. Federal Reserve will refrain from offering additional stimulus as the economy recovers, eroding demand for the precious metals. Gold futures prices continued to decline after India, the world’s biggest bullion buyer, increased the tax on imports of precious metals. Within the currency sector, losses were incurred primarily during June from short positions in the British pound versus the U.S. dollar as the value of the British pound advanced as European Union leaders eased terms on loans to Spanish banks, taking a step towards resolving the region’s debt crisis. Losses were also incurred in this sector from short positions in the Canadian dollar and Swiss franc as the value of these currencies also advanced versus the U.S. dollar. Within the soft commodities sector, losses were incurred primarily during July from short positions in sugar futures as prices rose on continued concern that global supplies will remain limited after wet weather delayed cane crushing in Brazil. Within the global stock indices, losses were experienced primarily during April and May due to short futures positions in Pacific Rim and European equity index futures as prices rose on speculation the Chinese government will ease monetary policy and global central banks will take action to bolster economies amid Europe’s sovereign debt crisis. A portion of the Partnership’s losses during the first nine months of the year was offset by gains achieved within the global interest rate sector, primarily during April and May, from long positions in European, U.S., and Australian fixed-income futures as prices advanced as Greece failed to form a unified government, increasing concern Europe’s debt crisis is worsening and spurring demand for the relative “safety” of government debt. Additional profits from long positions in this sector were recorded during July. Gains were also experienced in the agricultural markets during July from long positions in soybean futures as prices reached their highest level since July 2008 as a heat wave and drought in the U.S. Midwest threatened to limit output. Additional gains were also experienced in the energy sector, primarily during February, from short positions in natural gas futures as prices dropped amid ample inventories and mild weather across the U.S.

Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership/Funds depends on the existence of major price trends and the ability of the Advisors 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 Advisors are 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 (or the Partnership’s allocable portion of a Fund’s) brokerage account was earned at the monthly average 30-day U.S. Treasury bill yield 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 $49,349 as compared to the corresponding period in 2011. The increase in interest income is 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 $6,827 as compared to the corresponding period in 2011. The decrease in interest income is primarily due to lower average daily equity for the Partnership 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 and the Funds’ accounts and upon interest rates over which neither the Partnership/the Funds nor CGM has 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 compared in relation to the fluctuations in the monthly net asset values. Brokerage fees for the three and nine months ended September 30, 2012 decreased $1,891,806 and $5,895,244, respectively, as compared to the corresponding periods in 2011. The decrease in brokerage fees is due to a decrease in average net assets for 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 $612,201 and $1,994,981, respectively, as compared to the corresponding periods in 2011. The decrease in management fees is due to a decrease in average net assets for 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 each Advisor at the end of the quarter as defined in the respective management agreements between the Partnership, the General Partner and each Advisor. There were no incentive fees earned for the three and nine months ended September 30, 2012. Trading performance for the three and nine months ended September 30, 2011 resulted in incentive fees of $521,073 and $868,682, respectively. An Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.

In allocating the assets of the Partnership among the Advisors, the General Partner considers past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time.

As of September 30, 2012 and June 30, 2012, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages:


Advisor	September 30, 2012			June 30, 2012
Drury Capital, Inc.		15	%		15	%
Graham Capital Management, L.P.		9	%		10	%
John W. Henry & Company, Inc.		4	%		4	%
Aspect Capital Limited		19	%		18	%
Capital Fund Management S.A.		14	%		15	%
Willowbridge Associates Inc.		5	%		5	%
Krom River Trading AG and Krom River Investment Management (Cayman) Limited		17	%		16	%
Altis Partners (Jersey) Limited		17	%		17	%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Partnership/Funds are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the Partnership’s/Funds’ 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/Funds’ open positions and, consequently, in their earnings and cash balances. The Partnership’s/Funds’ 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/Funds’ open contracts and the liquidity of the markets in which they trade.

The Partnership/Funds rapidly acquire and liquidate 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/Funds’ past performance is not necessarily indicative of their future results.

“Value at Risk” is a measure of the maximum amount which the Partnership/Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s/Funds’ speculative trading and the recurrence in the markets traded by the Partnership/Funds 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/Funds’ 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/Funds’ losses in any market sector will be limited to Value at Risk or by the Partnership’s/Funds’ attempts to manage their market risk.

Exchange maintenance margin requirements have been used by the Partnership/Funds as the measure of their 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 risk sensitive instruments. With the exception of JWH, the Partnership’s advisors currently trade the Partnership’s assets indirectly in master fund managed accounts over which they have been granted limited authority to make trading decisions. JWH directly trades a managed account in the Partnership’s name. The first two trading Value at Risk tables reflects the market sensitive instruments held by the Partnership directly and through its investment in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly (i.e., in the managed account in the Partnership’s name traded by JWH) and indirectly by each Fund separately. There have been no material changes 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.

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. As of September 30, 2012, the Partnership’s total capitalization was $552,052,177.


Market Sector	Value at Risk		% of Total Capitalization
Currencies	$	19,277,866		3.49	%
Energy		4,712,026		0.85	%
Grains		4,571,868		0.83	%
Indices		12,703,085		2.30	%
Interest Rates U.S.		4,769,313		0.87	%
Interest Rates Non-U.S.		10,854,483		1.97	%
Livestock		886,258		0.16	%
Lumber		7,510		0.00	%*
Metals		11,820,029		2.14	%
Softs		3,466,476		0.63	%

Total	$	73,068,914		13.24	%

*	Due to rounding.

The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investments in the Funds by market category as of September 30, 2012 and December 31, 2011, the highest and lowest value at any point and the average value during the three months ended September 30, 2012 and for the twelve months ended December 31, 2011. All open position trading risk exposures have been included in calculating the figures set forth below. As of September 30, 2012, the Partnership’s Value at Risk for the portion of its assets that are traded directly by JWH was as follows:

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	$	858,818		0.15	%	$	1,351,135	$	284,015	$	572,378
Energy		186,283		0.03	%		516,480		152,470		274,231
Grains		36,000		0.01	%		347,000		36,000		240,667
Indices		415,912		0.08	%		516,325		103,594		361,653
Interest Rates U.S.		387,000		0.07	%		474,200		193,435		351,545
Interest Rates Non -U.S.		565,825		0.10	%		875,379		157,471		590,886
Metals		728,146		0.13	%		728,146		189,000		577,345
Softs		474,300		0.09	%		474,300		47,500		379,167

Total	$	3,652,284		0.66	%

*	Average of month-end Values at Risk.

As of December 31, 2011, the Partnership’s Value at Risk for the portion of its assets that are traded directly by JWH 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*
Currencies	$	831,500		0.12	%	$	925,600	$	93,875	$	517,955
Energy		543,600		0.08	%		728,756		35,000		404,389
Grains		59,799		0.01	%		736,000		59,799		333,446
Indices		87,649		0.01	%		314,626		25,200		139,134
Interest Rates U.S.		349,564		0.05	%		366,200		35,200		230,360
Interest Rates Non -U.S.		644,722		0.11	%		782,302		153,679		499,999
Metals		1,670,000		0.25	%		1,670,000		90,000		731,012
Softs		722,000		0.11	%		1,206,240		48,600		616,773

Total	$	4,908,834		0.74	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, Drury Master’s total capitalization was $98,166,047. The Partnership owned approximately 85.5% of Drury Master. As of September 30, 2012, Drury Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Drury for trading) was as follows:

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	$	5,649,216		5.75	%	$	5,792,926	$	4,650,250	$	5,172,698
Energy		2,215,919		2.26	%		2,280,820		898,433		1,832,096
Grains		582,850		0.59	%		896,575		458,950		676,792
Indices		5,061,316		5.16	%		5,125,196		3,029,544		4,228,859
Interest Rates U.S.		1,132,850		1.16	%		1,152,950		1,132,850		1,146,250
Interest Rates Non-U.S.		3,450,610		3.52	%		3,834,020		3,448,349		3,673,163
Metals		2,281,587		2.32	%		5,353,630		1,878,846		3,900,851
Softs		520,476		0.53	%		1,036,204		483,162		651,685

Total	$	20,894,824		21.29	%

*	Average of month-end Values at Risk.

As of December 31, 2011, Drury Master’s total capitalization was $119,504,420. The Partnership owned approximately 83.8% of Drury Master. As of December 31, 2011, Drury Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Drury for trading) 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*
Currencies	$	4,978,798		4.17	%	$	10,623,092	$	1,390,435	$	6,311,281
Energy		2,655,850		2.22	%		4,172,224		97,500		2,002,791
Grains		1,874,100		1.57	%		1,956,300		257,850		1,079,088
Indices		3,285,264		2.75	%		8,249,728		930,732		4,423,323
Interest Rates U.S.		838,000		0.70	%		1,673,050		149,500		1,028,371
Interest Rates Non-U.S.		4,569,722		3.82	%		7,351,133		1,109,606		2,580,222
Metals		6,131,098		5.13	%		6,131,098		1,411,950		3,837,388
Softs		1,467,655		1.23	%		2,176,397		508,252		1,348,762

Total	$	25,800,487		21.59	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, Willowbridge Master’s total capitalization was $43,085,176. The Partnership owned approximately 77.0% of Willowbridge Master. As of September 30, 2012, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

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	$	671,388		1.56	%	$	673,396	$	164,000	$	453,834
Energy		98,400		0.23	%		318,200		98,400		138,867
Grains		183,731		0.43	%		505,250		66,625		380,160
Interest Rates U.S.		55,350		0.13	%		113,519		28,000		49,733
Interest Rates Non-U.S.		24,828		0.06	%		575,284		24,828		248,058
Livestock		24,000		0.05	%		25,200		24,000		24,000
Metals		953,250		2.21	%		999,750		268,857		752,229
Softs		82,400		0.19	%		292,300		78,750		165,733

Total	$	2,093,347		4.86	%

*	Average of month-end Values at Risk.

As of December 31, 2011, Willowbridge Master’s total capitalization was $58,623,833. The Partnership owned approximately 83.8% of Willowbridge Master. As of December 31, 2011, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) 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*
Currencies	$	1,519,874		2.60	%	$	3,114,825	$	191,750	$	1,146,326
Energy		283,500		0.48	%		4,681,000		144,000		1,513,100
Interest Rates U.S.		285,900		0.49	%		1,654,100		108,350		417,625
Interest Rates Non-U.S.		813,981		1.39	%		2,784,138		382,835		972,513
Metals		1,350,000		2.30	%		4,137,702		272,000		1,716,030
Softs		481,250		0.82	%		3,503,200		112,000		1,050,396

Total	$	4,734,505		8.08	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, Aspect Master’s total capitalization was $141,329,469. The Partnership owned approximately 72.1% of Aspect Master. As of September 30, 2012, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

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	$	11,095,458		7.85	%	$	11,095,458	$	8,035,101	$	9,819,027
Energy		746,920		0.53	%		1,050,723		614,998		855,480
Grains		740,696		0.52	%		937,803		483,900		718,861
Indices		3,614,980		2.56	%		3,692,898		1,403,855		2,704,840
Interest Rates U.S.		904,075		0.64	%		1,104,825		899,025		976,867
Interest Rates Non-U.S.		2,841,330		2.01	%		4,285,846		2,594,956		3,676,543
Livestock		153,900		0.11	%		203,750		116,250		155,967
Metals		2,028,515		1.43	%		3,472,258		1,769,619		2,645,136
Softs		788,550		0.56	%		847,554		336,425		653,386

Total	$	22,914,424		16.21	%

*	Average of month-end Values at Risk.

As of December 31, 2011, Aspect Master’s total capitalization was $163,705,164. The Partnership owned approximately 71.5% of Aspect Master. As of December 31, 2011, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) 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*
Currencies	$	2,807,437		1.71	%	$	9,705,808	$	1,688,702	$	5,538,957
Energy		1,507,645		0.92	%		2,078,345		854,247		1,329,387
Grains		593,449		0.36	%		738,173		102,816		421,438
Indices		1,940,895		1.19	%		3,093,179		914,885		1,992,336
Interest Rates U.S.		999,225		0.61	%		2,289,150		83,863		1,060,327
Interest Rates Non-U.S.		6,012,060		3.67	%		6,742,007		699,901		4,253,781
Livestock		58,360		0.04	%		131,900		4,785		63,524
Lumber		7,500		0.00	% **		9,000		1,300		6,483
Metals		1,645,692		1.01	%		1,857,539		649,748		1,226,695
Softs		697,143		0.43	%		891,860		324,467		526,580

Total	$	16,269,406		9.94	%

*	Annual average of month-end Value at Risk.

**	Due to rounding.

As of September 30, 2012, CFM Master’s total capitalization was $106,656,460. The Partnership owned approximately 76.8% of CFM Master. As of September 30, 2012, CFM Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to CFM for trading) was as follows:

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	$	2,083,401		1.95	%	$	3,885,480	$	1,970,675	$	2,607,496
Energy		591,158		0.55	%		916,812		208,982		689,184
Grains		790,222		0.74	%		975,253		281,601		572,450
Indices		1,292,734		1.21	%		3,758,272		1,133,046		2,007,679
Interest Rates U.S.		1,165,800		1.09	%		1,620,625		701,055		1,427,858
Interest Rates Non -U.S.		2,291,362		2.15	%		2,840,887		960,308		2,242,146
Livestock		38,800		0.04	%		45,500		9,650		26,121
Metals		1,308,960		1.23	%		2,474,546		799,819		1,695,550
Softs		412,666		0.39	%		991,644		412,666		622,503

Total	$	9,975,103		9.35	%

*	Average of month-end Values at Risk.

As of December 31, 2011, CFM Master’s total capitalization was $128,180,449. The Partnership owned approximately 76.3% of CFM Master. As of December 31, 2011, CFM Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to CFM for trading) 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*
Currencies	$	2,474,570		1.93	%	$	6,421,110	$	722,590	$	2,571,272
Energy		398,871		0.31	%		1,695,364		119,162		521,148
Grains		361,918		0.28	%		887,447		102,213		349,294
Indices		1,331,991		1.04	%		8,797,600		474,193		3,435,537
Interest Rates U.S.		806,950		0.63	%		6,531,050		48,245		2,259,504
Interest Rates Non -U.S.		4,515,713		3.53	%		5,287,044		592,170		3,108,648
Livestock		24,785		0.02	%		96,900		11,855		39,554
Metals		1,218,208		0.95	%		2,671,117		181,250		1,374,130
Softs		384,805		0.30	%		634,756		122,253		278,571

Total	$	11,517,811		8.99	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, Graham Master’s total capitalization was $92,474,570. The Partnership owned approximately 57.4% of Graham Master. As of September 30, 2012, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

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	$	2,567,494		2.78	%	$	4,733,601	$	2,153,005		3,523,033
Energy		1,048,265		1.13	%		1,446,040		328,716		958,017
Grains		736,750		0.80	%		1,199,925		694,650		863,867
Indices		5,066,164		5.48	%		5,399,465		3,650,988		4,751,021
Interest Rates U.S.		1,287,925		1.39	%		1,827,200		1,011,300		1,466,600
Interest Rates Non-U.S.		3,253,133		3.52	%		3,871,167		2,704,921		3,450,631
Livestock		10,800		0.01	%		35,175		8,550		17,642
Metals		949,025		1.03	%		2,984,515		661,356		1,897,484
Softs		705,600		0.76	%		970,701		454,083		717,721

Total	$	15,625,156		16.90	%

*	Average of month-end Values at Risk.

As of December 31, 2011, Graham Master’s total capitalization was $127,523,174. The Partnership owned approximately 61.9% of Graham Master. As of December 31, 2011, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) 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*
Currencies	$	5,181,686		4.06	%	$	14,715,746	$	1,934,690	$	8,500,010
Energy		2,114,289		1.66	%		2,114,289		430,473		1,224,336
Grains		1,611,500		1.27	%		1,783,300		325,891		633,165
Indices		4,513,393		3.54	%		11,180,261		924,448		3,873,039
Interest Rates U.S.		1,636,222		1.28	%		4,564,925		91,689		1,397,376
Interest Rates Non-U.S.		5,486,252		4.30	%		5,647,770		813,077		2,296,485
Livestock		10,800		0.01	%		127,950		2,400		35,984
Metals		2,117,496		1.66	%		2,219,604		616,825		1,237,109
Softs		987,729		0.77	%		987,729		161,005		421,227

Total	$	23,659,367		18.55	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, KR Master’s total capitalization was $115,916,945. The Partnership owned approximately 81.0% of KR Master. As of September 30, 2012, KR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to KR for trading) was as follows:

September 30, 2012


						For the 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*
Energy	$	970,043		0.83	%	$	2,169,540	$	720,634	$	934,482
Grains		1,828,484		1.58	%		2,830,766		854,973		1,725,706
Livestock		507,538		0.44	%		904,078		507,538		694,099
Metals		4,400,622		3.80	%		5,633,228		566,868		3,257,500
Softs		477,384		0.41	%		1,125,877		255,410		554,124

Total	$	8,184,071		7.06	%

*	Average of month-end Values at Risk.

As of December 31, 2011, KR Master’s total capitalization was $111,938,551. The Partnership owned approximately 89.5% of KR Master. As of December 31, 2011, KR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Krom River for trading) 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	$	651,345		0.58	%	$	1,515,141	$	114,921	$	802,683
Grains		345,908		0.31	%		2,029,031		13,500		676,464
Livestock		453,614		0.40	%		1,050,925		1,225		352,450
Metals		2,307,204		2.06	%		4,434,879		1,946,800		2,672,044
Softs		286,638		0.26	%		1,209,019		139,301		456,846

Total	$	4,044,709		3.61	%

*	Annual average of month-end Value at Risk.

As of September 30, 2012, Altis Master’s total capitalization was $127,328,825. The Partnership owned approximately 75.1% of Altis Master. As of September 30, 2012, Altis Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Altis for trading) was as follows:

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	$	2,660,960		2.09	%	$	2,660,960	$	1,577,473	$	2,248,654
Energy		233,537		0.18	%		2,423,995		213,441		1,035,887
Grains		1,133,368		0.89	%		2,259,232		1,133,368		1,523,952
Indices		1,934,154		1.52	%		2,122,187		596,630		1,880,928
Interest Rates U.S.		1,444,295		1.14	%		2,121,250		1,221,325		1,731,523
Interest Rates Non -U.S.		2,188,556		1.72	%		4,354,626		1,939,262		3,157,509
Livestock		412,400		0.32	%		498,350		308,850		379,600
Lumber		10,000		0.01	%		22,500		1,250		10,833
Metals		2,436,803		1.91	%		3,234,982		1,865,647		2,742,358
Softs		1,073,973		0.84	%		1,804,057		902,071		1,196,362

Total	$	13,528,046		10.62	%

*	Average of month-end Values at Risk.

As of December 31, 2011, Altis Master’s total capitalization was $144,935,126. The Partnership owned approximately 72.7% of Altis Master. As of December 31, 2011, Altis Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Altis for trading) 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 *
Currencies	$	4,706,034		3.25	%	$	4,735,198	$	646,682	$	2,692,436
Energy		1,077,077		0.74	%		2,954,905		374,821		1,387,930
Grains		1,147,409		0.79	%		1,342,558		294,622		660,686
Indices		1,694,372		1.17	%		4,865,066		470,802		1,611,202
Interest Rates U.S.		659,750		0.46	%		1,007,400		101,249		442,163
Interest Rates Non -U.S.		2,332,739		1.61	%		2,332,739		211,275		1,252,268
Livestock		242,550		0.17	%		244,350		21,625		109,725
Lumber		57,000		0.04	%		70,500		800		22,233
Metals		2,499,389		1.72	%		3,663,593		644,520		1,887,972
Softs		1,438,518		0.99	%		1,748,653		374,414		801,205

Total	$	15,854,838		10.94	%

*	Annual average month-end Value at Risk.

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.

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.

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. CGM 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.

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

The public offering of Redeemable Units terminated on November 30, 2008.

For the three months ended September 30, 2012, there were additional subscriptions of 4,478.1977 Redeemable Units totaling $4,610,062. 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 described 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 and forward contracts.

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
July 1, 2012 – July 31, 2012		8,038.7630	$	1,050.60		N/A		N/A
August 1, 2012 – August 31, 2012		10,560.7260	$	1,027.81		N/A		N/A
September 1, 2012 – September 30, 2012		10,633.8190	$	990.03		N/A		N/A
		29,233.3080	$	1,020.33

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 6. Exhibits



3.1		Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York (filed as Exhibit 3.2 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 99.2 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(b)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 99.3 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(c)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 99.4 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

(d)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 24, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).

(e)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 30, 2010 (filed as Exhibit 3.1(e) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference).

(f)		Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K filed on September 7, 2011 and incorporated herein by reference).

3.2		Limited Partnership Agreement (filed as Exhibit A to the Post-Effective Amendment No. 5 to the Registration on Form S-1 filed on April 22, 2008 and incorporated herein by reference).

(a)		Amendment to the Limited Partnership Agreement, dated May 31, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on November 3, 2009 and incorporated herein by reference).

10.1		Amended and Restated Customer Agreement among the Partnership and Salomon Smith Barney Inc. (filed as Exhibit 10.1 to the Pre-Effective Amendment No. 2 to the Registration on Form S-1 filed on March 18, 2003 and incorporated herein by reference).

10.2		Escrow Agreement among the Partnership, Salomon Smith Barney Inc. and JPMorgan Chase Bank (filed as Exhibit 10.3 to the Pre-Effective Amendment No. 1 to the Registration on Form S-1 filed on February 14, 2003 and incorporated herein by reference).

10.3		Management Agreement among the Partnership, the General Partner and Graham (filed as Exhibit 10.5 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Graham for 2011 (filed as Exhibit 10.3(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.4		Management Agreement among the Partnership, the General Partner and Willowbridge (filed as Exhibit 10.7 to the Registration on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Willowbridge for 2011 (filed as Exhibit 10.4(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.5		Management Agreement among the Partnership, the General Partner and Drury (filed as Exhibit 10.4 to the Pre-Effective Amendment No. 1 to the Registration on Form S-1 filed on February 14, 2003 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Drury for 2011 (filed as Exhibit 10.5(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).



10.6		Management Agreement among the Partnership, the General Partner and JWH (filed as Exhibit 10.6 to the Pre-Effective Amendment No. 2 to the Registration on Form S-1 filed on March 18, 2003 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with JWH for 2011 (filed as Exhibit 10.6(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.7		Amended and Restated Management Agreement among the Partnership, the General Partner and CFM (filed as Exhibit 10.8 to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

(a)		Letter from the General Partner extending Amended and Restated Management Agreement with Capital Fund Management for 2011 (filed as Exhibit 10.8(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.8		Management Agreement among the Partnership, the General Partner and Aspect (filed as Exhibit 10.4 to the Form 10-K filed on March 16, 2005 and incorporated herein by reference).

(a)		Letter from the General Partner extending Management Agreement with Aspect for 2011 (filed as Exhibit 10.9(a) to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.9		Management Agreement among the Partnership, the General Partner and Altis Partners (Jersey) Limited. (filed as Exhibit 10.13 to the Form 8-K filed on May 3, 2011 and incorporated herein by reference).

10.10		Management Agreement among the Partnership, the General Partner and Krom River Investment Management (Cayman) Limited and Krom River Trading AG (filed as Exhibit 10.14 to the Form 8-K filed on May 3, 2011 and incorporated herein by reference).

10.11		Second Amended and Restated Agency Agreement among the Partnership, the General Partner, CGM and MSSB dated July 29, 2010 (filed as Exhibit 10.12 to the Form 8-K filed on August 3, 2010 and incorporated herein by reference).

10.12		Form of Subscription Agreement (filed herein).

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 and Director)

32.1 — Section 1350 Certification (Certification of President and Director)

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.


TACTICAL DIVERSIFIED 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


		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)	7–23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24–26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27–36

Item 4.	Controls and Procedures	37

PART II - Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 5.	Other Information	41

Item 6.	Exhibits	42–43