10-Q 1 d404517d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended 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 000-30455

GLOBAL DIVERSIFIED FUTURES FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

New York   13-4015586

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue — 14th Floor

New York, New York 10036

 

(Address of principal executive offices) (Zip Code)

(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 þ        No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ        No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer ¨

   Accelerated filer ¨    Non-accelerated filer þ    Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨        No þ

As of October 31, 2012, 11,228.9318 Limited Partnership Redeemable Units were outstanding.

 

 

 


Table of Contents

GLOBAL DIVERSIFIED FUTURES FUND L.P.

FORM 10-Q

INDEX

 

     Page
  Number  
 
PART I — Financial Information:   

Item 1. Financial Statements:

  

Statements of Financial Condition at September 30, 2012 (unaudited) and December 31, 2011

     3   

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)

     7-17   

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

     18-20   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     21-26   

Item 4. Controls and Procedures

     27   

PART II — Other Information

  

Item 1. Legal Proceedings

     28   

Item 1A. Risk Factors

     29   

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

     30   

Item 5. Other Information

     30   

Item 6. Exhibits

     31   

 

2


Table of Contents

PART I

Item 1. Financial Statements

Global Diversified Futures Fund L.P.

Statements of Financial Condition

 

     (Unaudited)
September  30,

2012
     December 31,
2011
 

Assets:

     

Investment in Funds, at fair value

   $ 18,953,699       $ 22,884,691   

Cash

     65,704         70,392   
  

 

 

    

 

 

 

Total assets

   $ 19,019,403       $ 22,955,083   
  

 

 

    

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Accrued expenses:

     

Brokerage fees

   $ 85,587       $ 103,298   

Management fees

     25,648         30,483   

Other

     69,512         81,687   

Redemptions payable

     53,666         318,128   
  

 

 

    

 

 

 

Total liabilities

     234,413         533,596   
  

 

 

    

 

 

 

Partners’ Capital:

     

General Partner, 157.9234 unit equivalents outstanding at September 30, 2012 and December 31, 2011

     259,574         284,865   

Limited Partners, 11,270.7818 and 12,272.1137 Redeemable Units outstanding at September 30, 2012 and December 31, 2011, respectively

     18,525,416         22,136,622   
  

 

 

    

 

 

 

Total partners’ capital

     18,784,990         22,421,487   
  

 

 

    

 

 

 

Total liabilities and partners’ capital

   $ 19,019,403       $ 22,955,083   
  

 

 

    

 

 

 

Net asset value per unit

   $ 1,643.67       $ 1,803.82   
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

Global Diversified Futures Fund L.P.

Schedule of Investments

September 30, 2012

(Unaudited)

 

     Fair Value     % of Partners’
Capital
 

Investment in Funds

    

CMF Aspect Master Fund L.P.

   $ 5,013,019        26.69

CMF Altis Partners Master Fund L.P.

     4,083,587        21.74   

Waypoint Master Fund L.P.

     5,564,777        29.62   

Blackwater Master Fund L.P.

     4,292,316        22.85   
  

 

 

   

 

 

 

Total investment in Funds, at fair value

   $ 18,953,699        100.90
  

 

 

   

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

Global Diversified Futures Fund L.P.

Schedule of Investments

December 31, 2011

 

     Fair Value      % of Partners’
Capital
 

Investment in Funds

     

CMF Aspect Master Fund L.P.

   $ 5,625,837         25.09

CMF Altis Partners Master Fund L.P.

     4,697,554         20.95   

Waypoint Master Fund L.P.

     6,185,970         27.59   

Blackwater Master Fund L.P.

     6,375,330         28.43   
  

 

 

    

 

 

 

Total investment in Funds, at fair value

   $ 22,884,691         102.06
  

 

 

    

 

 

 

See accompanying notes to financial statements.

 

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Table of Contents

Global 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 from investment in Funds

   $ 2,473      $ 756      $ 6,579      $ 7,084   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Brokerage fees including clearing fees

     282,020        363,395        896,042        1,151,968   

Management fees

     80,504        103,567        254,915        326,915   

Incentive fees

     —          260,521        —          260,521   

Other

     29,574        41,680        120,100        143,803   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     392,098        769,163        1,271,057        1,883,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss)

     (389,625     (768,407     (1,264,478     (1,876,123
  

 

 

   

 

 

   

 

 

   

 

 

 

Trading Results:

        

Net gains (losses) on investment in Funds:

        

Net realized gains (losses) on investment in Funds

     (613,727     1,075,391        (95,257     986,378   

Change in net unrealized gains (losses) on investments in Funds

     467,690        1,484,908        (529,003     321,628   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total trading results

     (146,037     2,560,299        (624,260     1,308,006   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (535,662     1,791,892        (1,888,738     (568,117

Redemptions — Limited Partners

     (978,076     (748,796     (1,747,759     (2,174,494
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in Partners’ Capital

     (1,513,738     1,043,096        (3,636,497     (2,742,611

Partners’ Capital, beginning of period

     20,298,728        24,650,356        22,421,487        28,436,063   
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, end of period

   $ 18,784,990      $ 25,693,452      $ 18,784,990      $ 25,693,452   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per unit (11,428.7052 and 13,009.4565 units outstanding at September 30, 2012 and 2011, respectively)

   $ 1,643.67      $ 1,974.98      $ 1,643.67      $ 1,974.98   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per unit*

   $ (48.35   $ 135.15      $ (160.15   $ (35.97
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average units outstanding

     11,695.0805        13,266.3129        12,045.3077        13,674.0045   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

* Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

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Table of Contents

Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

1. General:

Global Diversified Futures Fund L.P. (the “Partnership”) is a limited partnership organized under the partnership laws of the State of New York on June 15, 1998 to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including futures contracts, options, swaps and forward contracts on United States exchanges and certain foreign exchanges. The sectors traded include currencies, energy, grains, indices, metals, softs, livestock, lumber and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Funds (as defined in note 5, “Investment in Funds”) are volatile and involve a high degree of market risk. The Partnership commenced trading on February 2, 1999. The Partnership was authorized to sell up to 100,000 redeemable units of limited partnership interest (“Redeemable Units”) during its initial offering period. The Partnership no longer offers Redeemable Units for sale.

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 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 Aspect Capital Limited (“Aspect”), Altis Partners (Jersey) Limited (“Altis”), Waypoint Capital Management LLC (“Waypoint”) and Blackwater Capital Management LLC (“Blackwater”) (each an Advisor and collectively, the “Advisors”), each of which is a registered commodity trading advisor. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each Advisor indirectly through investments in the Funds.

The General Partner and each limited partner of the Partnership (each, a Limited Partner) share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no Limited Partner is liable for obligations of the Partnership in excess of its capital contribution and profits or losses, if any, net of distributions.

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 disclosure of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

 

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Table of Contents

Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

2. Financial Highlights:

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

 

     Three Months Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  

Net realized and unrealized gains (losses) *

   $ (39.15   $ 165.85      $ (129.60   $ 17.52   

Interest income

     0.22        0.05        0.55        0.51   

Expenses **

     (9.42     (30.75     (31.10     (54.00
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) for the period

     (48.35     135.15        (160.15     (35.97

Net asset value per unit, beginning of period

     1,692.02        1,839.83        1,803.82        2,010.95   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per unit, end of period

   $  1,643.67      $ 1,974.98      $  1,643.67      $ 1,974.98   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

*  Includes brokerage fees and clearing fees.

 

**  Excludes brokerage fees and clearing 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 )%      (9.0 )%      (8.1 )%      (9.2 )% 

Incentive fees

        1.0         1.0
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income (loss) before incentive fees*****

    (7.9     (8.0     (8.1     (8.2
 

 

 

   

 

 

   

 

 

   

 

 

 
       

Operating expense

    7.9     8.0     8.1     8.2

Incentive fees

        1.0         1.0
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    7.9     9.0     8.1     9.2
 

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

       

Total return before incentive fees

    (2.9 )%      8.4     (8.9 )%      (0.8 )% 

Incentive fees

        (1.0 )%          (1.0 )% 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fees

    (2.9 )%      7.4     (8.9 )%      (1.8 )% 
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

***  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.

The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner class using the Limited Partners’ share of income, expenses and average net assets.

3. Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership’s investments are in other funds which trade these instruments. The Partnership’s trading activities are resulting from its investment in the Funds are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.

The customer agreements between the Partnership/Funds and CGM give the Partnership/Funds the legal right to net unrealized gains and losses on open futures and forward contracts. The Partnership/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”) 210-20, “Balance Sheet,” have been met.

All of the commodity interests owned by the Funds are held for trading purposes.

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 and redemptions.

 

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Table of Contents

Global 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 held by the Partnership (including derivative financial instruments and derivative commodity instruments), through the Partnership’s investments in Funds, 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 Funds’ 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 Funds’ 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 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.

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 (the “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 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 that derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (other commodity pools) where there are no other 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 the management’s assumptions and internal valuation pricing models (Level 3). During the nine months ended September 30, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2.

 

     September 30,
2012
     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Assets

           

Investment in Funds

   $ 18,953,699       $ 0       $ 18,953,699       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net fair value

   $ 18,953,699       $ 0       $ 18,953,699       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011      Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

Assets

           

Investment in Funds

   $ 22,884,691       $ 0       $ 22,884,691       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net fair value

   $ 22,884,691       $ 0       $ 22,884,691       $ 0   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

5. Investment in Funds:

On March 1, 2005, the assets allocated to Aspect for trading were invested in 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 16,015.3206 units of Aspect Master with cash equal to $14,955,106 and a contribution of open commodity futures and forward contracts with a fair value of $1,060,214. Aspect Master was formed in order to permit commodity pools managed now or in the future by Aspect using Aspect’s 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 November 1, 2005, the assets allocated to Altis for trading were invested in 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 13,013.6283 units of the Altis Master with cash equal to $11,227,843 and a contribution of open commodity futures and forwards contracts with a fair value of $1,785,785. Altis Master was formed to permit commodity pools managed now and in the future by Altis using the Global Futures Portfolio Program, a proprietary, systematic trading program, 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 March 1, 2010, the assets allocated to Waypoint for trading were invested in Waypoint Master Fund L.P. (“Waypoint Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 4,959.4220 units of Waypoint Master with cash equal to $4,959,422. Waypoint Master was formed in order to permit commodity pools managed now or in the future by Waypoint using its Diversified Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Waypoint Master. Individual and pooled accounts currently managed by Waypoint, including the Partnership, are permitted to be limited partners of Waypoint Master. The General Partner and Waypoint believe that trading through this structure should promote efficiency and economy in the trading process.

On November 1, 2010, the assets allocated to Blackwater for trading were invested in Blackwater Master Fund L.P. (“Blackwater Master”), a limited partnership organized under the partnership laws of the State of Delaware. The Partnership purchased 5,000.0000 units of Blackwater Master with cash equal to $5,000,000. Blackwater Master was formed in order to permit commodity pools managed now or in the future by Blackwater using its Global Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Blackwater Master. Individual and pooled accounts currently managed by Blackwater, including the Partnership, are permitted to be limited partners of Blackwater Master. The General Partner and Blackwater believe that trading through this structure should promote efficiency and economy in the trading process.

 

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Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

On December 1, 2010, the assets allocated to Sasco for trading were invested in 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 3,064.6736 units of Sasco Master with cash equal to $4,000,000. On May 31, 2011 the Partnership fully redeemed its investment in Sasco Master for cash equal to $3,583,752.

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, Altis Master’s, Waypoint Master’s and Blackwater Master’s (collectively, the “Funds”), trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on United States of America commodity exchanges and foreign commodity exchanges. The Funds engage in such trading through commodity brokerage accounts maintained by CGM.

A limited partner of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any day (the “Redemption Date”) after a request for redemption has been made to the General Partner of the Fund at least three days in advance of the Redemption Date. Such withdrawals 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. All exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) are borne by the Partnership 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 3.5%, 3.2%, 17.8% and 6.1% of Aspect Master, Altis Master, Waypoint Master and Blackwater Master, respectively. At December 31, 2011, the Partnership owned approximately 3.4%, 3.2%, 15.8% and 7.7% of Aspect Master, Altis Master, Waypoint Master and Blackwater Master, respectively. It is the intention of the Partnership to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to the investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.

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

 

     September 30, 2012  
     Total Assets      Total
Liabilities
     Total
Capital
 

Aspect Master

   $ 142,664,482       $ 1,335,013       $ 141,329,469   

Altis Master

     130,410,814         3,081,989         127,328,825   

Waypoint Master

     31,382,544         52,873         31,329,671   

Blackwater Master

     71,962,614         1,512,696         70,449,918   
  

 

 

    

 

 

    

 

 

 

Total

   $ 376,420,454       $ 5,982,571       $ 370,437,883   
  

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Total Assets      Total
Liabilities
     Total
Capital
 

Aspect Master

   $ 163,744,655       $ 39,491       $ 163,705,164   

Altis Master

     145,096,295         161,169         144,935,126   

Waypoint Master

     39,260,567         68,237         39,192,330   

Blackwater Master

     83,066,066         176,287         82,889,779   
  

 

 

    

 

 

    

 

 

 

Total

   $ 431,167,583       $ 445,184       $ 430,722,399   
  

 

 

    

 

 

    

 

 

 

 

11


Table of Contents

Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

Summarized information reflecting the net investment income (loss), total trading results and net income (loss) of 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)
 

Aspect Master

   $ (56,443   $ (3,873,903   $ (3,930,346

Altis Master

     (126,559     (1,512,299     (1,638,858

Waypoint Master

     (33,044     (451,172     (484,216

Blackwater Master

     (21,038     1,160,184        1,139,146   
  

 

 

   

 

 

   

 

 

 

Total

   $ (237,084   $ (4,677,190   $ (4,914,274
  

 

 

   

 

 

   

 

 

 
     For the nine months ended September 30, 2012  
     Net Investment
Income (Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (178,209   $ (5,359,870   $ (5,538,079

Altis Master

     (290,400     (2,667,631     (2,958,031

Waypoint Master

     (120,412     2,339,558        2,219,146   

Blackwater Master

     (91,781     (10,499,005     (10,590,786
  

 

 

   

 

 

   

 

 

 

Total

   $ (680,802   $ (16,186,948   $ (16,867,750
  

 

 

   

 

 

   

 

 

 
     For the three months ended September 30, 2011  
     Net Investment
Income (Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (41,821   $ 17,484,618      $ 17,442,797   

Altis Master

     (70,204     (5,750,190     (5,820,394

Waypoint Master

     (42,646     5,476,730        5,434,084   

Blackwater Master

     (22,526     6,416,576        6,394,050   
  

 

 

   

 

 

   

 

 

 

Total

   $ (177,197   $ 23,627,734      $ 23,450,537   
  

 

 

   

 

 

   

 

 

 
     For the nine months ended September 30, 2011  
     Net Investment
Income (Loss)
    Total Trading
Results
    Net Income
(Loss)
 

Aspect Master

   $ (120,427   $ 15,053,518      $ 14,933,091   

Altis Master

     (210,088     (25,206,754     (25,416,842

Waypoint Master

     (156,111     4,716,133        4,560,022   

Blackwater Master

     (70,260     6,933,479        6,863,219   

Sasco Master

     (707,823     1,199,725        491,902   
  

 

 

   

 

 

   

 

 

 

Total

   $ (1,264,709   $ 2,696,101      $ 1,431,392   
  

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

Global 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
Partnership’s
Net Assets
    Fair
Value
    Income
(Loss)
    Expenses    

Net

Income

    Investment
Objective
    Redemptions
Permitted
 

Funds

        Brokerage Fees     Other     (Loss)      

Aspect Master

    26.69   $ 5,013,019      $ (134,528   $ 1,721      $ 961      $ (137,210    
 
Commodity
Portfolio
  
  
    Monthly   

Altis Master

    21.74     4,083,587        (39,752     3,948        665        (44,365    
 
Commodity
Portfolio
  
  
    Monthly   

Waypoint Master

    29.62     5,564,777        (75,165     3,907        2,626        (81,698    
 
Commodity
Portfolio
  
  
    Monthly   

Blackwater Master

    22.85     4,292,316        105,881        2,635        1,419        101,827       
 
Commodity
Portfolio
  
  
    Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 18,953,699      $ (143,564   $ 12,211      $ 5,671      $ (161,446    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

    September 30,
2012
    For the nine months ended September 30, 2012              
    % of
Partnership’s
Net Assets
    Fair
Value
    Income
(Loss)
    Expenses    

Net

Income

    Investment
Objective
    Redemptions
Permitted
 

Funds

        Brokerage Fees     Other     (Loss)      

Aspect Master

    26.69   $ 5,013,019      $ (195,448   $ 4,839      $ 3,246      $ (203,533    
 
Commodity
Portfolio
  
  
    Monthly   

Altis Master

    21.74     4,083,587        (76,174     8,676        2,126        (86,976    
 
Commodity
Portfolio
  
  
    Monthly   

Waypoint Master

    29.62     5,564,777        349,970        13,689        8,061        328,220       
 
Commodity
Portfolio
  
  
    Monthly   

Blackwater Master

    22.85     4,292,316        (696,029     10,282        5,565        (711,876    
 
Commodity
Portfolio
  
  
    Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 18,953,699      $ (617,681   $ 37,486      $ 18,998      $ (674,165    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

13


Table of Contents

Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

    December 31, 2011     For the three months ended September 30, 2011              
    % of
Partnership’s

Net Assets
    Fair
Value
    Income
(Loss)
    Expenses    

Net

Income

    Investment
Objective
    Redemptions
Permitted
 

Funds

        Brokerage Fees     Other     (Loss)      

Aspect Master

    25.09   $ 5,625,837      $ 687,489      $ 1,459      $ 371      $ 685,659       
 
Commodity
Portfolio
  
  
    Monthly   

Altis Master

    20.95     4,697,554        (216,316     2,083        836        (219,235    
 
Commodity
Portfolio
  
  
    Monthly   

Waypoint Master

    27.59     6,185,970        926,928        5,430        2,339        919,159       
 
Commodity
Portfolio
  
  
    Monthly   

Blackwater Master

    28.43     6,375,330        1,162,954        3,525        848        1,158,581       
 
Commodity
Portfolio
  
  
    Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 22,884,691      $ 2,561,055      $ 12,497      $ 4,394      $ 2,544,164       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

    December 31, 2011     For the nine months ended September 30, 2011              
    % of
Partnership’s

Net Assets
    Fair
Value
    Income
(Loss)
    Expenses    

Net

Income

    Investment
Objective
    Redemptions
Permitted
 

Funds

        Brokerage Fees     Other     (Loss)      

Aspect Master

    25.09   $ 5,625,837      $ 586,372      $ 4,283      $ 1,672      $ 580,417       
 
Commodity
Portfolio
  
  
    Monthly   

Altis Master

    20.95     4,697,554        (1,463,729     10,880        3,643        (1,478,252    
 
Commodity
Portfolio
  
  
    Monthly   

Waypoint Master

    27.59     6,185,970        793,586        20,340        8,714        764,532       
 
Commodity
Portfolio
  
  
    Monthly   

Blackwater Master

    28.43     6,375,330        1,291,070        10,220        5,391        1,275,459       
 
Commodity
Portfolio
  
  
    Monthly   

Sasco Master

                  107,791        24,669        4,617        78,505       
 
Energy
Portfolio
  
  
    Monthly   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 22,884,691      $ 1,315,090      $ 70,392      $ 24,037      $ 1,220,661       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

14


Table of Contents

Global 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, through its investments in the Funds, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options, and swaps whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forward and option contracts. OTC contracts are negotiated between contracting parties and include swaps and certain forward and option contracts. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 8.3% to 44.4% of the Fund’s contracts are traded OTC.

The risk to the Limited Partners that have purchased Redeemable Units is limited to the amount of their share of the Partnership’s net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

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

The General Partner monitors and attempts to control the 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 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 contracts by sector, margin requirements, gain and loss transactions and collateral positions.

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

 

15


Table of Contents

Global 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 (including derivative financial instruments and derivative commodity instruments), through the Partnership’s investments in Funds, 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 Funds’ 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 Fund’s 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 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 by GAAP.

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 that derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (other commodity pools) where there are no other 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). During the nine months ended September 30, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2.

Futures Contracts. The Funds trade futures contracts and exchange-cleared swaps. Exchange-cleared swaps are traded as futures. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the 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 Funds. When the contract is closed, 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.

Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the 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 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.

 

16


Table of Contents

Global Diversified Futures Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

The Funds do not isolate the 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 income (loss) 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 Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by 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 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 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.

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses.

GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner has concluded that no provision for income tax is required in the Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 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 has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.

Recent Accounting Pronouncements. In October 2011, the 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 the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. In August 2012, the 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, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities,” which creates a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparisons between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership would 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.”

 

17


Table of Contents

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

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are its investments in the Funds and cash. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investments in the Funds. 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 net gains or losses on trading and by expenses, interest income and redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2012, Partnership capital decreased 16.2% from $22,421,487 to $18,784,990. This decrease was attributable to the net loss of $1,888,738, coupled with the redemptions of 1,001.3319 Redeemable Units totaling $1,747,759. Future redemptions could impact the amount of funds available for investment in the Funds in subsequent periods.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s/Funds’ 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.

 

18


Table of Contents

Results of Operations

During the Partnership’s third quarter of 2012 the net asset value per Unit decreased 2.9% from $1,692.02 to $1,643.67 as compared to an increase of 7.4% in the third quarter of 2011. The Partnership experienced a net trading loss, before brokerage fees and related fees in the third quarter of 2012 of $146,037. Losses were primarily attributable to the Master’s trading of commodity futures in energy, U.S. and non-U.S. interest rates, livestock, metals, softs and indices and, were partially offset by gains in currencies and grains. The Partnership experienced a net trading gain, before brokerage fees and related fees in the third quarter of 2011 of $2,560,299. Gains were primarily attributable to the Funds’ trading of commodity futures in currencies, U.S and non-U.S. interest rates, indices and metals, and were partially offset by losses in grains, livestock, softs and energy.

During the third quarter of 2012, the most significant losses were incurred within the global interest rate sector, primarily during August and September, due to long positions in European and U.S. fixed income futures as prices declined as the European Central Bank announced details of a plan to buy sovereign bonds of highly-indebted euro-region nations, dimming the allure of “refuge” assets. Meanwhile, prices of European and U.S. fixed income futures continued to decline amid demand for riskier assets after the U.S. Federal Reserve said it will buy mortgage-back securities and keep interest rates “exceptionally low” to spur the economy. Within the global stock indices, losses were experienced primarily from July long positions in Pacific Rim equity index futures as prices declined throughout a majority of the month amid concern Greece may not meet bailout targets and after the International Monetary Fund said China’s economy faces significant downside risks. Within the metals sector, losses were incurred primarily during August and September from short positions in aluminum futures as prices moved higher 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 throughout the majority of the quarter 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 throughout the majority of the quarter from short positions in natural gas futures as prices rose as forecasts for cooler U.S. Midwest weather signaled higher demand for the heating fuel. A portion of the Partnership’s losses during the quarter was offset by gains achieved within the currency sector, primarily during July and September, from long positions in the British pound, Indian rupee, and Mexican peso versus the U.S. dollar after the U.S. dollar declined amid the U.S. Federal Reserve announcement of bond buying to bolster the economy in a program of quantitative easing that tends to debase the currency. Gains were also experienced in the agricultural markets, primarily during July, from long positions in soybean futures as prices reached the highest level since July 2008 as a heat wave and drought in the U.S. Midwest threatened to limit output. Gains in this sector were also experienced from long positions in wheat futures.

During the Partnership’s nine months ended September 30, 2012, the net asset value per Unit decreased 8.9% from $1,803.82 to $1,643.67, as compared to a decrease of 1.8% during the nine months ended September 30, 2011. The Partnership experienced a net trading loss, before brokerage fees and related fees during the nine months ended September 30, 2012 of $624,260. Losses were primarily attributable to the Master’s trading of commodity futures in energy, grains, U.S. interest rates, livestock, metals, softs and indices, and were partially offset by gains in currencies and non-U.S. interest rates. The Partnership experienced a net trading gain, before brokerage fees and related fees during the nine months ended September 30, 2011 of $1,308,006. Gains were primarily attributable to the Funds’ trading of commodity futures in U.S and non-U.S. interest rates and currencies, and were partially offset by losses in grains, livestock, metals, softs, indices and energy.

During the nine months ended September 30, 2012, the most significant losses were incurred within the metals sector, primarily during August and September, from short positions in aluminum futures as prices moved higher 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 global stock indices, losses were experienced primarily during April due to short futures positions in Pacific Rim and European equity index futures as prices increased 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. Within the agricultural sector, losses were incurred primarily during June from short positions in corn futures as corn prices climbed higher after inventories tumbled the most in 16 years, and on speculation that hot, dry weather will increase stress on crops in the U.S. Losses were also incurred in this sector from short positions in wheat futures. In the energy sector, losses were recorded primarily during May from long positions in gasoline futures as prices capped the biggest monthly drop in more than three years on speculation that slowing U.S. growth and Europe’s debt crisis will reduce fuel demand. A portion of the Partnership’s losses during the first nine months of the year was offset by gains achieved within the currency sector, primarily during July and September, from long positions in the British pound, Indian rupee, and Mexican peso versus the U.S. dollar after the U.S. dollar declined amid the U.S. Federal Reserve announcement of bond buying to bolster the economy in a program of quantitative easing that tends to debase the currency. Gains were also experienced during May from short positions in the euro versus the U.S. dollar as the value of the euro touched its lowest level against the U.S. dollar in almost two years as Spain struggled to rescue its troubled banks, adding to signs the European debt crisis was spreading to the region’s larger economies. Gains were also experienced 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 amid increasing concern Europe’s debt crisis was worsening, spurring demand for the relative “safety” of government debt. Additional profits from long positions in this sector were recorded during July.

 

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Commodity futures markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the 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 Funds expect to increase capital through operations.

Interest income on 80% of the Partnership’s allocable portion of the average daily equity maintained in cash in each of the Funds’ brokerage accounts was earned at a 30- day U.S. Treasury bill rate determined weekly by CGM based on the average noncompetitive yield on 3-month U.S Treasury bill maturing in 30 days. Interest income for the three months ended September 30, 2012 increased by $1,717 and for the nine months ended September 30, 2012 decreased by $505, as compared to the corresponding periods in 2011. The increase in interest income is due to higher U.S. Treasury bill rates during the three months ended September 30, 2012, as compared to the corresponding period in 2011. The decrease in interest income was due to lower average net assets and lower U.S. Treasury bill rates during the nine months ended September 30, 2012, as compared to the corresponding period in 2011. The amount of interest income earned by the Partnership/Funds depends on the average daily equity in the Partnership’s/Funds’ accounts and upon interest rates over which neither the Partnership/Funds nor CGM has control.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees and related fees for the three and nine months ended September 30, 2012 decreased by $81,375 and $255,926, respectively, as compared to the corresponding periods in 2011. The decrease in brokerage fees and related fees was due to lower average net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Management fees for the three and nine months ended September 30, 2012 decreased by $23,063 and $72,000, respectively, as compared to the corresponding periods in 2011. The decrease in management fees was due to lower average net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Incentive fees are based on the new trading profits generated by each Advisor as defined in the management agreements among the Partnership, the General Partner and each Advisor and are payable annually. There were no incentive fees 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 $260,521. 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 Advisors, the General Partner considers each Advisor’s 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 Advisors in the following approximate percentages:

 

Advisor

   September 30, 2012     June 30, 2012  

Aspect Capital Limited.

     27     26

Altis Partners (Jersey) Limited.

    
21

    22

Waypoint Capital Management LLC

     29     27

Blackwater Capital Management LLC

     23     25

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership’s assets are subject to the risk of trading loss through its investments in the Funds. The 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 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 Funds’ main lines 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 Funds’ open contracts and, consequently in their earnings and cash balances. The Funds’ market risks are 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 of the Funds’ open contracts and the liquidity of the market in which they trade.

The 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 Funds’ past performances are not necessarily indicative of their future results.

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

Exchange maintenance margin requirements have been used by the 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. The 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. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investments in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by each Fund, separately. There have bee 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.

 

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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 $18,784,990.

September 30, 2012

 

                % of Total  

Market Sector

   Value at Risk      Capitalization  

Currencies

     $ 2,363,022         12.58

Energy

       60,452         0.32

Grains

       69,055         0.37

Interest Rates U.S.

       119,040         0.63

Interest Rates Non-U.S.

       255,930         1.36

Livestock

       18,583         0.10

Lumber

       320         0.00 %* 

Metals

       233,793         1.25

Softs

       69,896         0.37

Indices

       605,106         3.22
    

 

 

    

 

 

 

Total

     $ 3,795,197         20.20
    

 

 

    

 

 

 

 

 

* Due to rounding.

As of December 31, 2011, the Partnership’s total capitalization was $22,421,487.

December 31, 2011

 

            % of Total  

Market Sector

   Value at Risk      Capitalization  

Currencies

   $ 663,285         2.96

Energy

     124,204         0.55

Grains

     144,438         0.64

Indices

     156,613         0.70

Interest Rates U.S.

     108,758         0.49

Interest Rates Non-U.S.

     571,141         2.55

Livestock

     9,746         0.04

Lumber

     2,079         0.00 %* 

Metals

     257,076         1.15

Softs

     86,799         0.39
  

 

 

    

 

 

 

Total

   $ 2,124,139         9.47
  

 

 

    

 

 

 

 

 

* Due to rounding.

The following tables indicate the trading Value at Risk associated with the Partnership’s investments in the Funds by market category as of September 30, 2012 and December 31, 2011, and the highest, lowest and average value during the three months ended September 30, 2012 and during the twelve months ended December 31, 2011. All open contracts trading risk exposures have been included in calculating the figures set forth below. 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.

 

 

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As of September 30, 2012, Aspect Master’s total capitalization was $141,329,469. The Partnership owned approximately 3.5% 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  
          % of Total     High     Low     Average  

Market Sector

  Value at Risk     Capitalization     Value at Risk     Value at Risk     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 3.4% 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  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      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 Values at Risk.
** Due to rounding.

 

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As of September 30, 2012, Altis Master’s total capitalization was $127,328,825. The Partnership owned approximately 3.2% 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  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      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 3.2% 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 Master for trading) was as follows:

December 31, 2011

 

                  Twelve months ended December 31, 2011  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      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 of month-end Values at Risk.

 

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As of September 30, 2012, Waypoint Master’s total capitalization was $31,329,671. The Partnership owned approximately 17.8% of Waypoint Master. As of September 30, 2012, Waypoint Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Waypoint for trading) was as follows:

September 30, 2012

 

                  Three months ended September 30, 2012  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      Value at Risk *  

Currencies

   $ 9,796,551         31.27   $ 9,805,183       $ 801,893       $ 5,059,039   

Energy

     108,000         0.34     108,000         15,277         86,833   

Indices

     1,095,273         3.50     1,111,107         84,388         608,173   

Interest Rates U.S.

     30,800         0.10     537,550         30,800         175,308   

Interest Rates Non-U.S.

     73,820         0.24     961,765         42,234         450,284   

Metals

     476,500         1.52     476,500         16,200         235,333   

Softs

     44,550         0.14     71,500         32,200         61,117   
  

 

 

    

 

 

         

Total

   $ 11,625,494         37.11        
  

 

 

    

 

 

         

 

 

* Average of month-end Values at Risk.

As of December 31, 2011, Waypoint Master’s total capitalization was $39,192,330. The Partnership owned approximately 15.8% of Waypoint Master. As of December 31, 2011, Waypoint Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Waypoint 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

   $ 1,465,318         3.74%       $  10,317,436       $ 325,222       $  5,419,330   

Energy

     47,250         0.12%         195,000         12,250         73,156   

Grains

     181,500         0.46%         221,500         15,000         94,143   

Indices

     84,070         0.21%         1,861,926         19,012         596,211   

Interest Rates U.S.

     339,700         0.87%         591,250         26,000         244,963   

Interest Rates Non-U.S.

     1,096,807         2.80%         1,537,795         55,028         713,282   

Metals

     137,000         0.35%         245,750         17,000         151,548   

Softs

      108,000         0.28%         353,250         14,700         75,763   
  

 

 

    

 

 

          

Total

   $  3,459,645         8.83%            
  

 

 

    

 

 

          

 

 

* Annual average of month-end Values at Risk.

 

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As of September 30, 2012, Blackwater Master’s total capitalization was $70,449,918. The Partnership owned approximately 6.1% of Blackwater Master. As of September 30, 2012, Blackwater Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Blackwater for trading) was as follows:

September 30, 2012

 

                  Three months ended September 30, 2012  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      Value at Risk*  

Currencies

   $ 2,389,248         3.39   $ 2,804,912       $ 1,374,428       $ 1,904,294   

Energy

     124,800         0.18     298,200         124,800         138,167   

Grains

     112,500         0.16     112,500         112,500         112,500   

Indices

     3,634,913         5.16     3,673,208         885,672         2,851,435   

Interest Rates U.S.

     585,200         0.83     1,153,475         411,700         662,325   

Interest Rates Non-U.S.

     1,201,798         1.70     2,578,770         993,791         1,313,518   
  

 

 

    

 

 

         

Total

   $ 8,048,459         11.42        
  

 

 

    

 

 

         

 

 

* Average of month-end Values at Risk.

As of December 31, 2011, Blackwater Master’s total capitalization was $82,889,779. The Partnership owned approximately 7.7% of Blackwater Master. As of December 31, 2011, Blackwater Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Blackwater for trading) was as follows:

December 31, 2011

 

                  Twelve months ended December 31, 2011  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk      Capitalization     Value at Risk      Value at Risk      Value at Risk*  

Currencies

   $ 2,411,930         2.91   $ 2,568,118       $ 336,921       $ 1,115,740   

Energy

     402,750         0.49     1,023,868         16,250         232,145   

Grains

     764,500         0.92     870,250         30,000         240,345   

Indices

     300,251         0.36     1,607,842         247,572         684,419   

Interest Rates Non-U.S.

     1,542,704         1.86     1,552,868         102,339         581,511   

Metals

     1,292,162         1.56     1,292,162         86,599         500,735   
  

 

 

    

 

 

         

Total

   $  6,714,297         8.10 %         
  

 

 

    

 

 

         

 

 

* Annual average of month-end Values at Risk.

 

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Item 4. Controls and Procedures.

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (the “CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2012, and, based on that evaluation, the General Partner’s President and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:

 

pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

 

provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended September 30, 2012 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The following information supplements and amends the discussion set forth under Part I, Item 3. “Legal Proceedings” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as updated by the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012.

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

CGM 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 (formerly known as Salomon Smith Barney) 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. GCM may establish reserves from time to time in connections with such actions.

 

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Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth under Part 1, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, other than as set forth below.

Speculative position and trading limits may reduce profitability.

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

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

 

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

The Partnership no longer offers Redeemable Units for sale.

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

    369.5680          $ 1,745.99            N/A            N/A       

August 1, 2012 –

August 31, 2012

    165.8040          $ 1,683.60            N/A            N/A       

September 1, 2012 –

September 30, 2012

    32.6500          $ 1,643.67            N/A            N/A       
          568.0220          $ 1,721.90                       

 

* 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. No fee will be charged for redemptions.

Item 3. Defaults Upon Senior Securities — None

Item 4. Mine Safety Disclosures — None

Item 5. Other Information

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

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

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

 

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Item 6. Exhibits

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, dated June 12, 1998 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on August 20, 1998 and incorporated herein by reference).

 

  (a) Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 30, 1998 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on August 20, 1998 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 October 1, 1999 (filed as Exhibit 3.1(b) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

 

  (c) Certificate of Change to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.1(c) to the Form 10-Q filed on November 16, 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 May 21, 2003 (filed as Exhibit 3.1(d) to the Form 10-Q filed on November 16, 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 September 21, 2005 (filed as Exhibit 3.1(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

 

  (f) Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated August 27, 2008 (filed as Exhibit 99.1 to the Form 8-K filed on September 2, 2008 and incorporated herein by reference).

 

  (g) 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 3.1(g) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).

 

  (h) Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).

 

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

 

  (j) 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, dated June 15, 1998 (filed as Exhibit A to the Registration Statement on Form S-1 filed on August 20, 1998 and incorporated herein by reference).

10.1 — Customer Agreement between the Partnership and Salomon Smith Barney Inc., dated October 21, 1998 (filed as Exhibit 10.1 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on October 22, 1998 and incorporated herein by reference).

10.2 — Escrow Agreement among the Partnership, Smith Barney Inc., and European American Bank, dated October 21, 1998 (filed as Exhibit 10.3 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on October 22, 1998 and incorporated herein by reference).

 

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10.3 — Selling Agreement among the Partnership, Smith Barney Futures Management Inc., and Smith Barney Inc., dated October 21, 1998 (filed as Exhibit 1.1 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on October 22, 1998 and incorporated herein by reference).

10.4 — Joinder Agreement among the Partnership, Citigroup Managed Futures LLC, Citigroup Global Markets Inc. and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference).

10.5 — Management Agreement among the Partnership, the General Partner and Aspect Capital Management Limited, dated April 17, 2001 (filed as Exhibit 10.12 to the Form 10-K filed on March 28, 2002 and incorporated herein by reference).

 

  (a) Letter from the General Partner extending Management Agreement with Aspect Capital Management Limited, dated June 1, 2011 (filed as Exhibit 10.5A 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 Altis Partners (Jersey) Limited, dated October 1, 2005 (filed as Exhibit 33.1 to the Form 10-Q/A filed on November 16, 2005 and incorporated herein by reference).

 

  (a) Letter from the General Partner extending Management Agreement with Altis Partners (Jersey) Limited, dated June 1, 2011 (filed as Exhibit 10.6A to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

10.7 — Management Agreement among the Partnership, the General Partner and Waypoint Capital Management LLC, dated September 29, 2008 (filed as Exhibit 10.23 to the Form 10-K filed on March 31, 2009 and incorporated herein by reference).

 

  (a) Letter from the General Partner extending Management Agreement with Waypoint Capital Management LLC, dated June 1, 2011 (filed as Exhibit 10.7A 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 Blackwater Capital Management LLC, dated October 29, 2010 (filed as Exhibit 10.9 to the Form 8-K filed on November 4, 2010 and incorporated herein be reference).

 

  (a) Letter from the General Partner extending Management Agreement among the Partnership, the General Partner and Blackwater Capital Management LLC, dated June 1, 2011 (filed as Exhibit 10.8A to the Form 10-K filed on March 30, 2012 and incorporated herein by reference).

31.1   Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).

31.2   Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer 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 Document.

 

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SIGNATURES

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

 

GLOBAL 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

 

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