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 June 30, 2012
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-52604
TIDEWATER FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York | 13-3811113 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
522 5th Ave - 14th Floor
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(855) 672-4468
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | Accelerated filer | Non-accelerated filer X | Smaller reporting company | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
As of July 31, 2012, 13,207.8503 Limited Partnership Redeemable Units were outstanding.
FORM 10-Q
INDEX
101.INS | XBRL | Instance Document. | ||
101.SCH | XBRL | Taxonomy Extension Schema Document. | ||
101.CAL | XBRL | Taxonomy Extension Calculation Linkbase Document. | ||
101.LAB | XBRL | Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL | Taxonomy Extension Presentation Linkbase Document. |
2
Statements of Financial Condition
(Unaudited) June 30, 2012 |
December 31, 2011 |
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Assets: |
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Equity in trading account: |
||||||||
Cash |
$ | 14,714,893 | $ | 18,186,510 | ||||
Cash margin |
2,653,713 | 5,223,123 | ||||||
Net unrealized appreciation on open futures contracts |
0 | 478,555 | ||||||
Net unrealized appreciation on open forward contracts |
69,434 | 299,200 | ||||||
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|
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Total trading equity |
17,438,040 | 24,187,388 | ||||||
Interest receivable |
548 | | ||||||
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|
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Total assets |
$ | 17,438,588 | $ | 24,187,388 | ||||
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Liabilities and Partners Capital: |
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Liabilities: |
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Net unrealized depreciation on open futures contracts |
$ | 270,609 | $ | 0 | ||||
Accrued expenses: |
||||||||
Brokerage fees |
71,533 | 100,781 | ||||||
Management fees |
14,157 | 40,016 | ||||||
Other |
107,529 | 76,781 | ||||||
Redemptions payable |
912,387 | 452,587 | ||||||
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Total liabilities |
1,376,215 | 670,165 | ||||||
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Partners Capital: |
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General Partner, 184.9703 unit equivalents outstanding at June 30, 2012 and December 31, 2011 |
217,107 | 273,506 | ||||||
Limited Partners, 13,499.8333 and 15,719.5935 Redeemable Units outstanding at June 30, 2012 and December 31, 2011, respectively |
15,845,266 | 23,243,717 | ||||||
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Total partners capital |
16,062,373 | 23,517,223 | ||||||
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Total liabilities and partners capital |
$ | 17,438,588 | $ | 24,187,388 | ||||
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Net asset value per unit |
$ | 1,173.74 | $ | 1,478.65 | ||||
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See accompanying notes to financial statements.
3
Condensed Schedule of Investments
June 30, 2012
(Unaudited)
Notional$/ Number of Contracts |
Fair Value | % of Partners Capital |
||||||||||
Futures Contracts Purchased |
||||||||||||
Currencies |
87 | $ | (91,178 | ) | (0.57 | )% | ||||||
Energy |
7 | 2,734 | 0.02 | |||||||||
Grains |
54 | 118,968 | 0.74 | |||||||||
Indices |
74 | 254,334 | 1.58 | |||||||||
Interest Rates U.S. |
40 | 35,578 | 0.22 | |||||||||
Interest Rates Non-U.S. |
182 | 24,748 | 0.15 | |||||||||
Metals |
9 | 33,480 | 0.21 | |||||||||
Softs |
24 | (2,470 | ) | (0.01 | ) | |||||||
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Total futures contracts purchased |
376,194 | 2.34 | ||||||||||
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Futures Contracts Sold |
||||||||||||
Currencies |
94 | (41,936 | ) | (0.26 | ) | |||||||
Energy |
37 | (157,822 | ) | (0.98 | ) | |||||||
Grains |
30 | (43,740 | ) | (0.27 | ) | |||||||
Indices |
44 | (45,048 | ) | (0.28 | ) | |||||||
Interest Rates Non-U.S. |
23 | 1,660 | 0.01 | |||||||||
Livestock |
72 | (73,680 | ) | (0.46 | ) | |||||||
Softs |
176 | (286,237 | ) | (1.78 | ) | |||||||
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|||||||||
Total futures contracts sold |
(646,803 | ) | (4.02 | ) | ||||||||
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Unrealized Appreciation on Open Forward Contracts |
||||||||||||
Metals |
119 | 367,800 | 2.29 | |||||||||
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Total unrealized appreciation on open forward contracts |
367,800 | 2.29 | ||||||||||
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Unrealized Depreciation on Open Forward Contracts |
||||||||||||
Metals |
125 | (298,366 | ) | (1.86 | ) | |||||||
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Total unrealized depreciation on open forward contracts |
(298,366 | ) | (1.86 | ) | ||||||||
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Net fair value |
$ | (201,175 | ) | (1.25 | )% | |||||||
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See accompanying notes to financial statements.
4
Tidewater Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2011
Number of Contracts |
Fair Value | % of Partners Capital |
||||||||||
Futures Contracts Purchased |
||||||||||||
Currencies |
151 | $ | 45,655 | 0.19 | % | |||||||
Energy |
84 | 240,346 | 1.02 | |||||||||
Grains |
21 | 3,162 | 0.01 | |||||||||
Indices |
2 | (1,728 | ) | (0.00 | )* | |||||||
Interest Rates U.S. |
86 | 25,133 | 0.11 | |||||||||
Interest Rates Non-U.S. |
638 | 225,959 | 0.96 | |||||||||
Livestock |
30 | 27,565 | 0.12 | |||||||||
Metals |
18 | (219,420 | ) | (0.93 | ) | |||||||
Softs |
81 | (371,619 | ) | (1.58 | ) | |||||||
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Total futures contracts purchased |
(24,947 | ) | (0.10 | ) | ||||||||
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Futures Contracts Sold |
||||||||||||
Currencies |
201 | 319,035 | 1.36 | |||||||||
Grains |
222 | (317,073 | ) | (1.35 | ) | |||||||
Indices |
249 | 125,758 | 0.53 | |||||||||
Softs |
250 | 375,782 | 1.60 | |||||||||
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Total futures contracts sold |
503,502 | 2.14 | ||||||||||
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Unrealized Appreciation on Open Forward Contracts |
||||||||||||
Metals |
54 | 301,950 | 1.28 | |||||||||
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Total unrealized appreciation on open forward contracts |
301,950 | 1.28 | ||||||||||
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Unrealized Depreciation on Open Forward Contracts |
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Metals |
1 | (2,750 | ) | (0.01 | ) | |||||||
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Total unrealized depreciation on open forward contracts |
(2,750 | ) | (0.01 | ) | ||||||||
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Net fair value |
$ | 777,755 | 3.31 | % | ||||||||
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* | Due to rounding. |
See accompanying notes to financial statements.
5
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months
Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Investment income: |
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Interest income |
$ | 2,110 | $ | 1,305 | $ | 3,880 | $ | 8,983 | ||||||||
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Expenses: |
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Brokerage fees including clearing fees |
252,654 | 465,892 | 540,513 | 1,054,399 | ||||||||||||
Management fees |
94,427 | 176,603 | 203,488 | 380,019 | ||||||||||||
Other |
43,249 | 44,423 | 104,543 | 76,414 | ||||||||||||
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Total expenses |
390,330 | 686,918 | 848,544 | 1,510,832 | ||||||||||||
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Management fees waived |
(14,157 | ) | 0 | (14,157 | ) | 0 | ||||||||||
Net expenses |
376,173 | 686,918 | 834,387 | 1,510,832 | ||||||||||||
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Net investment income (loss) |
(374,063 | ) | (685,613 | ) | (830,507 | ) | (1,501,849 | ) | ||||||||
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Trading Results: |
||||||||||||||||
Net gains (losses) on trading of commodity interests: |
||||||||||||||||
Net realized gains (losses) on closed positions |
(1,348,988 | ) | (2,869,725 | ) | (2,853,906 | ) | 5,232,412 | |||||||||
Change in net unrealized gains (losses) on open positions |
(609,096 | ) | (4,042,686 | ) | (978,930 | ) | (6,335,619 | ) | ||||||||
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Total trading results |
(1,958,084 | ) | (6,912,411 | ) | (3,832,836 | ) | (1,103,207 | ) | ||||||||
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Net income (loss) |
(2,332,147 | ) | (7,598,024 | ) | (4,663,343 | ) | (2,605,056 | ) | ||||||||
Subscriptions - Limited Partners |
0 | 287,500 | 342,162 | 672,500 | ||||||||||||
Redemptions - Limited Partners |
(2,069,249 | ) | (2,363,874 | ) | (3,133,669 | ) | (11,322,586 | ) | ||||||||
Redemptions - General Partner |
0 | (200,000 | ) | 0 | (200,000 | ) | ||||||||||
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Net increase (decrease) in Partners capital |
(4,401,396 | ) | (9,874,398 | ) | (7,454,850 | ) | (13,455,142 | ) | ||||||||
Partners Capital, beginning of period |
20,463,769 | 38,091,300 | 23,517,223 | 41,672,044 | ||||||||||||
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Partners Capital, end of period |
$ | 16,062,373 | $ | 28,216,902 | $ | 16,062,373 | $ | 28,216,902 | ||||||||
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Net asset value per unit (13,684.8036 and 15,774.7577 units outstanding at June 30, 2012 and 2011, respectively) |
$ | 1,173.74 | $ | 1,788.74 | $ | 1,173.74 | $ | 1,788.74 | ||||||||
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Net income (loss) unit * |
$ | (159.12 | ) | $ | (464.26 | ) | $ | (304.91 | ) | $ | (193.69 | ) | ||||
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Weighted average units outstanding |
14,926.3185 | 16,695.4484 | 15,444.1188 | 17,713.1717 | ||||||||||||
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* | Based on change in net asset value per unit. |
See accompanying notes to financial statements.
6
Notes to Financial Statements
June 30, 2012
(Unaudited)
1. General:
Tidewater Futures Fund L.P. (the Partnership) is a limited partnership organized on February 23, 1995 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, metals and softs. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk. The Partnership privately and continuously offers redeemable units interest (Redeemable Units) in the Partnership to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the General Partner) and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings). Morgan Stanley, indirectly through various subsidiaries, owns a majority equity interest in MSSB Holdings. Citigroup Inc. indirectly owns a minority equity interest in MSSB Holdings. Citigroup Inc. also indirectly owns Citigroup Global Markets Inc. (CGM), the commodity broker and selling agent for the Partnership. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.
As of June 30, 2012, all trading decisions for the Partnership are made by Chesapeake Capital Corporation (the Advisor). The Partnerships trading of futures, forwards and options contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with CGM.
The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner is liable for obligations of the Partnership in excess of its capital contribution and profits or losses, if any, net of distributions.
Effective May 22, 2012, the Advisor, in consultation with the General Partner, agreed to reduce the overall leverage of the Partnerships assets traded pursuant to the Advisors Diversified 2XL Program (the Program) from 75% of the customary leverage utilized by the Program, to 50% of the customary leverage utilized by the Program. The Advisor, in further consultation with the General Partner will determine, if, and at what time, the Partnerships leverage may be readjusted.
As of June 1, 2012, the Advisor agreed to reduce the management fee it receives from the Partnership from an annual rate of 2% of adjusted net assets to an annual rate of 1% of adjusted net assets. This management fee reduction will remain in effect until the General Partner and the Advisor determine otherwise. See Item 5. Other Information on page 23 for more information on the management fee reduction.
The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnerships financial condition at June 30, 2012 and December 31, 2011 and the results of its operations and changes in partners capital for the three and six months ended June 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 Partnerships Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) for the year ended December 31, 2011.
The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
7
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
2. Financial Highlights:
Changes in the net asset value per unit for the three and six months ended June 30, 2012 and 2011 were as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Net realized and unrealized gains (losses) * |
$ | (151.02 | ) | $ | (451.10 | ) | $ | (286.25 | ) | $ | (168.21 | ) | ||||
Interest income |
0.15 | 0.08 | 0.26 | 0.49 | ||||||||||||
Expenses ** |
(8.25 | )*** | (13.24 | ) | (18.92 | )*** | (25.97 | ) | ||||||||
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Increase (decrease) for the period |
(159.12 | ) | (464.26 | ) | (304.91 | ) | (193.69 | ) | ||||||||
Net asset value per unit, beginning of period |
1,332.86 | 2,253.00 | 1,478.65 | 1,982.43 | ||||||||||||
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Net asset value per unit, end of period |
$ | 1,173.74 | $ | 1,788.74 | $ | 1,173.74 | $ | 1,788.74 | ||||||||
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* | Includes brokerage fees and clearing fee. |
** | Excludes brokerage fees and clearing fee. |
*** | Expenses per unit would have been (9.23) and (19.90) for the three and six months ended June 30, 2012, respectively, had it not been for the management fee waived by the Advisor. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011***** | 2012 | 2011***** | |||||||||||||
Ratios to average net assets: **** |
||||||||||||||||
Net investment income (loss) |
(8.0) | % | (7.8) | % | (8.2) | % | (8.2) | % | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
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Net investment income (loss) before incentive fees ****** |
(8.0) | % | (7.8) | % | (8.2) | % | (8.2) | % | ||||||||
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Operating expense |
8.1 | %******* | 7.8 | % | 8.2 | %******* | 8.3 | % | ||||||||
Incentive fees |
| % | | % | | % | | % | ||||||||
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Total expenses and incentive fee |
8.1 | % | 7.8 | % | 8.2 | % | 8.3 | % | ||||||||
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Total return: |
||||||||||||||||
Total return before incentive fees |
(11.9) | % | (20.6) | % | (20.6) | % | (9.8) | % | ||||||||
incentive fee |
| % | | % | | % | | % | ||||||||
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Total return after incentive fees |
(11.9) | % | (20.6) | % | (20.6) | % | (9.8) | % | ||||||||
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**** | Annualized (other than incentive fees). |
***** | The ratios are shown net and gross of incentive fees to conform to current period presentation. |
****** | Interest income less total expenses |
******* | Percentages are after management fee waivers. The Advisor voluntarily waived a portion of the management fee (equal to 0.01% of the Adjusted Net Assets for each period). |
The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners share of income, expenses and average net assets.
8
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
3. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnerships trading activities are shown in the Statements of Income and Expenses and Changes in Partners Capital.
The customer agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures and open forward contracts. The Partnership nets, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (ASC) 210-20 Balance Sheet, have been met.
All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded by the Partnership during the three months ended June 30, 2012 and 2011 were 1,233 and 3,079. The monthly average number of futures contracts traded by the Partnership during the six months ended June 30, 2012 and 2011 were 1,515 and 3,178. The monthly average number of metal forward contracts traded by the Partnership during the three months ended June 30, 2012 and 2011 were 120 and 104. The monthly average number of metal forward contracts traded by the Partnership during the six months ended June 30, 2012 and 2011 were 82 and 134. The monthly average notional value of currency forward contracts held by the Partnership during the three months ended June 30, 2012 and 2011 were $0 and $0. The monthly average notional value of currency forward contracts held by the Partnership during the six months ended June 30, 2012 and 2011 were $1,028,110 and $0.
9
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions.
The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of June 30, 2012 and December 31, 2011.
June 30, 2012 | ||||
Assets |
||||
Futures Contracts |
||||
Currencies |
$ | 113,915 | ||
Energy |
2,734 | |||
Grains |
119,230 | |||
Indices |
256,488 | |||
Interest Rates U.S. |
|
35,578 |
| |
Interest Rates Non-U.S. |
74,508 | |||
Metals |
|
33,480 |
| |
|
|
|||
Total unrealized appreciation on open futures contracts |
$ | 635,933 | ||
|
|
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Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (247,029 | ) | |
Energy |
(157,822 | ) | ||
Grains |
(44,002 | ) | ||
Indices |
(47,202 | ) | ||
Interest Rates Non-U.S. |
(48,100 | ) | ||
Livestock |
(73,680 | ) | ||
Softs |
(288,707 | ) | ||
|
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Total unrealized depreciation on open futures contracts |
$ | (906,542 | ) | |
|
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Net unrealized depreciation on open futures contracts |
$ | (270,609 | )* | |
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June 30, 2012 | ||||
Assets |
||||
Forward Contracts |
||||
Metals |
$ | 367,800 | ||
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Total unrealized appreciation on open forward contracts |
$ | 367,800 | ||
|
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Liabilities |
||||
Forward Contracts |
||||
Metals |
$ | (298,366 | ) | |
|
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Total unrealized depreciation on open forward contracts |
$ | (298,366 | ) | |
|
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Net unrealized appreciation on open forward contracts |
$ | 69,434 | ** | |
|
|
* | This amount is in Net unrealized depreciation on open futures contracts on the Statements of Financial Condition. |
** | This amount is in Net unrealized appreciation on open forward contracts on the Statements of Financial Condition. |
10
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
Assets | December 31, 2011 | |||
Futures Contracts |
||||
Currencies |
$ | 518,318 | ||
Energy |
255,066 | |||
Grains |
42,625 | |||
Indices |
200,253 | |||
Interest Rates U.S. |
34,313 | |||
Interest Rates Non-U.S. |
360,868 | |||
Livestock |
38,625 | |||
Softs |
420,142 | |||
|
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Total unrealized appreciation on open futures contracts |
$ | 1,870,210 | ||
|
|
|||
Liabilities |
||||
Futures Contracts |
||||
Currencies |
$ | (153,628 | ) | |
Energy |
(14,720 | ) | ||
Grains |
(356,536 | ) | ||
Indices |
(76,223 | ) | ||
Interest Rates U.S. |
(9,180 | ) | ||
Interest Rates Non-U.S. |
(134,909 | ) | ||
Livestock |
(11,060 | ) | ||
Metals |
(219,420 | ) | ||
Softs |
(415,979 | ) | ||
|
|
|||
Total unrealized depreciation on open futures contracts |
$ | (1,391,655 | ) | |
|
|
|||
Net unrealized appreciation on open futures contracts |
$ | 478,555 | * | |
|
|
Assets | December 31, 2011 | |||
Forward Contracts |
||||
Metals |
$ | 301,950 | ||
|
|
|||
Total unrealized appreciation on open forward contracts |
$ | 301,950 | ||
|
|
|||
Liabilities |
||||
Forward Contracts |
||||
Metals |
$ | (2,750 | ) | |
|
|
|||
Total unrealized depreciation on open forward contracts |
$ | (2,750 | ) | |
|
|
|||
Net unrealized appreciation on open forward contracts |
$ | 299,200 | ** | |
|
|
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
** | This amount is in Net unrealized appreciation on open forward contracts on the Statements of Financial Condition. |
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and six months ended June 30, 2012 and 2011.
Sector |
Three Months Ended June 30, 2012 Gain (loss) from trading |
Three Months Ended June 30, 2011 Gain (loss) from trading |
Six Months Ended June 30, 2012 Gain (loss) from trading |
Six Months Ended June 30, 2011 Gain (loss) from trading |
||||||||||||
Currencies |
$ | (7,128 | ) | $ | 1,089,123 | $ | (1,432,739 | ) | $ | 1,511,335 | ||||||
Energy |
(1,748,441 | ) | (1,219,733 | ) | (447,687 | ) | 1,558,112 | |||||||||
Grains |
(265,700 | ) | (1,632,543 | ) | (787,793 | ) | (1,434,430 | ) | ||||||||
Indices |
(984,589 | ) | (864,511 | ) | (962,385 | ) | (103,530 | ) | ||||||||
Interest Rates U.S. |
462,501 | 46,523 | 234,206 | (54,485 | ) | |||||||||||
Interest Rates Non-U.S. |
1,320,493 | (993,537 | ) | 491,077 | (1,363,605 | ) | ||||||||||
Livestock |
(106,905 | ) | (1,692,385 | ) | (174,655 | ) | (1,059,392 | ) | ||||||||
Metals |
(59,857 | ) | (655,317 | ) | 33,443 | 461,336 | ||||||||||
Softs |
(568,458 | ) | (990,031 | ) | (786,303 | ) | (618,548 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (1,958,084 | )*** | $ | (6,912,411 | )*** | $ | (3,832,836 | )*** | $ | (1,103,207 | )*** | ||||
|
|
|
|
|
|
|
|
*** | This amount is in Total trading results on the Statements of Income and Expenses and Changes in Partners Capital. |
11
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
4. Fair Value Measurements:
Partnerships Investments. All commodity interests held by the Partnership (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses and Changes in Partners Capital.
Partnerships Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Partnerships 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 Partnerships Level 2 assets and liabilities.
The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
Effective January 1, 2012, the Partnership adopted Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards (IFRS). The amendments within this ASU change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between GAAP and IFRS. However, some of the amendments clarify the Financial Accounting Standards Boards (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 Partnerships financial statements.
12
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
The Partnership considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended June 30, 2012 and December 31, 2011, the Partnership did not hold any derivative instruments for which market quotations were not readily available and that were priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2 ) or that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). There were no transfers of assets and liabilities between Level 1 and Level 2 during the six months ended June 30, 2012.
June 30, 2012 |
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets | ||||||||||||||||
Futures |
$ | 635,933 | $ | 635,933 | $ | | $ | | ||||||||
Forwards |
367,800 | 367,800 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
1,003,733 | 1,003,733 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities | ||||||||||||||||
Futures |
$ | 906,542 | $ | 906,542 | $ | | $ | | ||||||||
Forwards |
298,366 | 298,366 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
1,204,908 | 1,204,908 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net fair value |
$ | (201,175 | ) | $ | (201,175 | ) | $ | | $ | | ||||||
|
|
|
|
|
|
|
|
December 31, 2011 |
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets | ||||||||||||||||
Futures |
$ | 1,870,210 | $ | 1,870,210 | $ | | $ | | ||||||||
Forwards |
301,950 | 301,950 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
|
2,172,160 |
|
|
2,172,160 |
|
| | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities | ||||||||||||||||
Futures |
$ | 1,391,655 | $ | 1,391,655 | $ | | $ | | ||||||||
Forwards |
2,750 | 2,750 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
1,394,405 | 1,394,405 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net fair value |
$ | 777,755 | $ | 777,755 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
13
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
5. Financial Instrument Risks:
In the normal course of business, the Partnership is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specified terms on specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (OTC). Exchange-traded instruments are standardized and include futures and certain forward and option contracts. OTC contracts are negotiated between contracting parties and include swaps and certain forward and option contracts. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 0.0% to 6.4% of the Partnerships 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 Partnerships net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.
Market risk is the potential for changes in the value of the financial instruments traded by the Partnership due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnerships risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnerships risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership has credit risk and concentration risk as CGM or a CGM affiliate is the sole counterparty or broker with respect to the Partnerships assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnerships counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to control the Partnerships risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Partnerships business, these instruments may not be held to maturity.
6. Critical Accounting Policies:
Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
Partnerships Investments. All commodity interests held by the Partnership (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are
14
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses and Changes in Partners Capital.
Partnerships Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. GAAP also requires the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, the Partnerships 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 Partnerships Level 2 assets and liabilities.
The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
The Partnership considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). As of and for the periods ended June 30, 2012 and December 31, 2011, the Partnership did not hold any derivative instruments for which market quotations were not readily available and that were priced by broker-dealers who derive fair values for those assets and liabilities from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of managements assumptions and internal valuation pricing models (Level 3). There were no transfer of assets or liabilities between Level 1 and Level 2 during the six months ended June 30, 2012.
Futures Contracts. The Partnership trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Partnership each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
15
Tidewater Futures Fund L.P.
Notes to Financial Statements
June 30, 2012
(Unaudited)
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Partnership are cash settled based on prompt dates published by the LME. Payments (variation margin) may be made or received by the Partnership each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnerships 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 Partnerships financial statements to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The General Partner concluded that no provision for income tax is required in the Partnerships financial statements.
The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2008 through 2011 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are filed. The General Partner has assessed the subsequent events through the date of filing and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.
Recent Accounting Pronouncements. In October 2011, FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.
In December 2011, FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities which creates a new disclosure requirement about the nature of an entitys rights of setoff and the related arrangement associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership should also provide the disclosures retrospectively for all comparative periods presented. The Partnership is currently evaluating the impact that the pronouncement would have on the financial statements.
Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, Financial Highlights.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership does not engage in sales of goods or services. Its only assets are its equity in its trading account, consisting of cash and cash equivalents, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts, and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the second quarter of 2012.
The Partnerships capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading, and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
For the six months ended June 30, 2012, Partnership capital decreased 31.7% from $23,517,223 to $16,062,373. This decrease was attributable to a net loss from operations of $4,663,343, coupled with redemptions of 2,454.9927 Redeemable Units totaling $3,133,669, which was partially offset by the subscriptions of 235.2325 Redeemable Units totaling $342,162. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnerships significant accounting policies are described in detail in Note 6 of the Financial Statements.
The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
17
Results of Operations
During the Partnerships second quarter of 2012, the net asset value per unit decreased 11.9% from $1,332.86 to $1,173.74 as compared to a decrease of 20.6% in the second quarter of 2011. The Partnership experienced a net trading loss before brokerage fees and related fees in the second quarter of 2012 of $1,958,084. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, indices, livestock, metals and softs and were partially offset by gains in U.S. and non-U.S. interest rates. The Partnership experienced a net trading loss before brokerage fees and related fees in the second quarter of 2011 of $6,912,411. Losses were primarily attributable to the trading of commodity futures in energy, grains, non-U.S. interest rates, livestock, metals, softs and indices and were partially offset by gains in currencies and U.S. interest rates.
The most significant losses were incurred within the energy complex during May from long futures positions in crude oil and its related products as prices declined on signs that manufacturing is slowing in China and Europe and after stockpiles rose in the U.S. Within the agricultural complex, losses were recorded during May from long futures positions in the soybean complex as prices fell amid favorable growing conditions in the U.S. Additional losses in this sector were experienced in June from short positions in sugar futures as prices advanced after heavy rains hampered the harvest in Brazil. Within the global stock index sector, losses were incurred during April and May from long positions in U.S. and European equity index futures as prices declined amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. Meanwhile, losses were experienced within the metals markets during May from long positions in gold futures as prices moved lower amid a rise in the value of the U.S. dollar, which diminished demand for the precious metal. Losses were also recorded within the currency markets during June from short positions in the euro versus the U.S. dollar and Japanese yen as the value of the euro increased against these currencies after European Union leaders eased terms on Spanish bank loans and moved towards resolving the regions debt crisis. A portion of the Partnerships losses during the second quarter was offset by gains achieved within the global interest rate sector during April and May from Australian, U.S., and European fixed income futures as prices advanced after Standard & Poors cut Spains credit rating and Greece failed to form a unified government, adding to concern central banks and politicians are failing to contain the European debt crisis.
During the Partnerships six months ended June 30, 2012, the net asset value per unit decreased 20.6% from $1,478.65 to $1,173.74 as compared to a decrease of 9.8% during the six months ended June 30, 2011. The Partnership experienced a net trading loss before brokerage fees and related fees for the six months ended June 30, 2012 of $3,832,836. Losses were primarily attributable to the trading of commodity futures in currencies, energy, grains, indices, livestock and softs and were partially offset by gains in U.S. and non-U.S. interest rates and metals. The Partnership experienced a net trading loss before brokerage fees and related fees for the six months ended June 30, 2011 of $1,103,207. Losses were primarily attributable to the trading of commodity futures in grains, U.S. and non-U.S. interest rates, livestock, softs and indices and were partially offset by gains in currencies, energy and metals.
The most significant losses were incurred within the agricultural complex during January from short positions in cocoa futures as prices advanced on concern supplies from the Ivory Coast, the worlds largest cocoa growing country, may weaken. Losses were also recorded during May from long futures positions in the soybean complex as prices fell amid favorable growing conditions in the U.S. Additional losses in this sector were experienced in June from short positions in sugar futures as prices advanced after heavy rains hampered the harvest in Brazil. Within the currency sector, losses were incurred during January from short positions in the Swiss franc versus the U.S. dollar as the value of the franc reversed higher against the U.S. dollar. During February and March, long positions in the Mexican peso and Norwegian krone versus the U.S. dollar resulted in losses as the value of these currencies fell against the U.S. dollar after concern over earnings in China reduced demand for higher-yielding currency assets. Within the global stock index markets, losses were experienced during April and May from long positions in U.S., European, and Japanese equity index futures as prices declined amid an unexpected rise in the U.S. unemployment rate and weakening economic data from China and Europe. Meanwhile, losses were recorded in the energy sector during May from long futures positions in crude oil and its related products as prices declined on signs that manufacturing is slowing in China and Europe and after stockpiles rose in the U.S. A portion of the Partnerships losses during the first half of the year was offset by gains experienced within the global interest rate sector during April and May from Australian, U.S., and European fixed income futures as prices advanced after Standard & Poors cut Spains credit rating and Greece failed to form a unified government, adding to concern central banks and politicians are failing to contain the European debt crisis. Within the metals markets, small gains were achieved during January from long positions in gold futures as prices advanced as the U.S. Federal Reserves pledge to keep U.S. borrowing costs low drove the U.S. dollar down, boosting demand for the precious metal. Additional metals gains were recorded during March from short positions in aluminum futures as prices dropped on speculation of reduced demand from China, the worlds biggest metals purchaser.
18
Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility for profit. The profitability of the Partnership depends on the existence of major price trends and the ability of the Advisor to identify those price trends correctly. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Partnership expects to increase capital through operations.
Interest income on 80% of the average daily equity maintained in cash in the Partnerships brokerage account was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. Interest income for the three months ended June 30, 2012 increased by $805, as compared to the corresponding period in 2011. The increase in interest income was primarily due to higher U.S. Treasury bill rates during the three months ended June 30, 2012, as compared to the corresponding period in 2011. Interest income for the six months ended June 30, 2012 decreased by $5,103, as compared to the corresponding period in 2011. The decrease in interest income was primarily due to lower U.S. Treasury bill rates during the six months ended June 30, 2012, as compared to the corresponding period in 2011. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnerships account and upon interest rates over which neither the Partnership nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value on the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage fees and clearing fees for the three and six months ended June 30, 2012 decreased by $213,238 and $513,886, respectively, as compared to the corresponding periods in 2011. The decrease in brokerage fees is due to lower average adjusted net assets during the three and six months ended June 30, 2012, as compared to the corresponding periods in 2011.
Management fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Management fees for the three and six months ended June 30, 2012 decreased by $96,333 and $190,688, respectively, as compared to the corresponding periods in 2011. The decrease in management fees is due to lower average adjusted net assets as well as a reduction in the management fee rate during the three and six months ended June 30, 2012, as compared to the corresponding periods in 2011.
Incentive fees are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the management agreement among the Partnership, the General Partner and the Advisor. There were no incentive fees earned for the three and six months ended June 30, 2012 or 2011. The Advisor will not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.
In allocating the assets of the Partnership to the Advisor, the General Partner considers the Advisors past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor at any time.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnerships 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 Partnerships main line of business.
The limited partners will not be liable for losses exceeding the current net asset value of their investment.
Market movements result in frequent changes in the fair value of the Partnerships open positions and, consequently, in its earnings and cash balances. The Partnerships market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnerships open contracts and the liquidity of the markets in which it trades.
The Partnership rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnerships past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnerships speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnerships experience to date (i.e., risk of ruin). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnerships losses in any market sector will be limited to Value at Risk or by the Partnerships attempts to manage its market risk.
Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.
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Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The following tables indicate the trading Value at Risk associated with the Partnerships open positions by market category as of June 30, 2012 and December 31, 2011, and the highest, lowest and average values during the three months ended June 30, 2012 and the twelve months ended December 31, 2011. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of June 30, 2012, the Partnerships total capitalization was $16,062,373. There has been no material change in the trading Value at Risk information previously disclosed in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2011.
June 30, 2012
Three Months Ended June 30, 2012 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 388,041 | 2.42 | % | $ | 536,677 | $ | 365,037 | $ | 433,289 | ||||||||||
Energy |
143,220 | 0.89 | % | 579,550 | 83,500 | 303,187 | ||||||||||||||
Grains |
111,000 | 0.69 | % | 199,230 | 106,410 | 151,735 | ||||||||||||||
Indices |
354,178 | 2.21 | % | 876,962 | 341,026 | 551,113 | ||||||||||||||
Interest Rates U.S. |
67,800 | 0.42 | % | 123,440 | 67,800 | 86,127 | ||||||||||||||
Interest Rates Non-U.S. |
320,368 | 1.99 | % | 654,496 | 309,371 | 436,454 | ||||||||||||||
Livestock |
85,200 | 0.53 | % | 106,480 | 57,890 | 83,190 | ||||||||||||||
Metals |
579,423 | 3.61 | % | 579,423 | 210,218 | 382,954 | ||||||||||||||
Softs |
361,868 | 2.25 | % | 644,742 | 272,558 | 454,781 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 2,411,098 | 15.01 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2011, the Partnerships total capitalization was $23,517,223.
December 31, 2011
Twelve Months Ended December 31, 2011 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 1,081,085 | 4.60 | % | $ | 1,379,867 | $ | 832,855 | $ | 1,097,042 | ||||||||||
Energy |
455,800 | 1.94 | % | 863,083 | 450,550 | 622,684 | ||||||||||||||
Grains |
351,542 | 1.50 | % | 1,141,450 | 185,150 | 622,608 | ||||||||||||||
Indices |
492,553 | 2.09 | % | 2,710,265 | 295,731 | 1,524,778 | ||||||||||||||
Interest Rates U.S. |
175,100 | 0.74 | % | 179,800 | 29,500 | 109,475 | ||||||||||||||
Interest Rates Non-U.S. |
1,031,701 | 4.39 | % | 1,076,331 | 358,383 | 784,532 | ||||||||||||||
Livestock |
41,700 | 0.18 | % | 265,450 | 39,970 | 124,117 | ||||||||||||||
Metals |
362,324 | 1.54 | % | 1,316,070 | 354,331 | 791,992 | ||||||||||||||
Softs |
555,733 | 2.36 | % | 1,581,019 | 390,793 | 790,732 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 4,547,538 | 19.34 | % | ||||||||||||||||
|
|
|
|
* | Annual average of month-end Values at Risk. |
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Item 4. Controls and Procedures
The Partnerships disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934, (the Exchange Act), is recorded, processed, summarized and reported within the time periods expected in the SECs rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships external disclosures.
The General Partners President and CFO have evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2012 and, based on that evaluation, the General Partners President and CFO have concluded that, at that date, the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision of the General Partners 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 Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control over financial reporting process during the fiscal quarter ended June 30, 2012 that materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
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Item 1. Legal Proceedings.
The following information supplements and amends the discussion set forth under Part I, Item 3. Legal Proceedings in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as updated by the Partnerships Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.
This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which CGM or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.
CGM (together with Citigroup Inc. and its other subsidiaries, Citigroup) (formerly known as Salomon Smith Barney Inc.) is a New York corporation with its principal place of business at 388 Greenwich St., New York, New York 10013. CGM is registered as a broker-dealer and futures commission merchant (FCM), and provides futures brokerage and clearing services for institutional and retail participants in the futures markets. CGM and its affiliates also provide investment banking and other financial services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five years against CGM or any of its individual principals and no such actions are currently pending, except as follows.
ENRON CORP.
Beginning in 2002, Citigroup, CGM and certain executive officers and current and former employees (along with, in many cases, other investment banks and certain Enron officers and directors, lawyers and/or accountants) were named as defendants in a series of individual and alleged class action lawsuits related to Enron.
The alleged securities class action and all remaining individual actions (other than actions brought as part of Enrons Chapter 11 bankruptcy proceeding) were consolidated or coordinated in the United States District Court for the Southern District of Texas. The consolidated securities class action, brought on behalf of an alleged class of individuals who purchased Enron securities (NEWBY, ET AL. v. ENRON CORP., ET AL.), alleged violations of Sections 11 and 15 of the Securities Act of 1933, as amended, and Sections 10 and 20 of the Securities Exchange Act of 1934. Citigroup agreed to settle this action on June 10, 2005. Under the terms of the settlement, approved by the District Court on May 24, 2006, $2.18 billion was paid to an escrow account for the benefit of the settlement class, which consists of all purchasers of publicly traded equity and debt securities issued by Enron and Enron-related entities between September 9, 1997 and December 2, 2001. The amount paid to settle this action was covered by existing Citigroup litigation reserves.
On August 27, 2007, the District Court for the Southern District of New York in IN RE ENRON CORP. reversed the rulings of the federal bankruptcy court that certain bankruptcy claims held by Citigroup transferees could be equitably subordinated or disallowed solely because of the alleged misconduct of Citigroup, and remanded for further proceedings.
On April 4, 2008, Citigroup announced an agreement to settle actions filed by Enron in its Chapter 11 bankruptcy proceedings seeking to recover payments to Citigroup as alleged preferences or fraudulent conveyances, to disallow or equitably subordinate
23
claims of Citigroup and Citigroup transferees on the basis of alleged fraud, and to recover damages from Citigroup for allegedly aiding and abetting breaches of fiduciary duty. Under the terms of the settlement, approved by the Bankruptcy Court for the Southern District of New York on April 24, 2008, Citigroup made a pretax payment of $1.66 billion to Enron, and waived certain claims against Enrons estate. Enron also allowed specified Citigroup-related claims in the bankruptcy proceeding, including all of the bankruptcy claims of parties holding approximately $2.4 billion of Enron credit-linked notes (CLNs), and released all claims against Citigroup. Citigroup separately agreed to settle an action brought by certain trusts that issued the CLNs in question, by the related indenture trustee and by certain holders of those securities. The amounts paid to settle these actions were covered by existing Citigroup litigation reserves.
On February 14, 2008, Citigroup agreed to settle CONNECTICUT RESOURCES RECOVERY AUTHORITY v. LAY, ET AL., an action brought by the Attorney General of Connecticut in connection with an Enron-related transaction; subsequently, the district court dismissed the case on March 5, 2008. The amount paid to settle this action was covered by existing Citigroup litigation reserves.
Over the first two quarters of 2008, Citigroup agreed to settle the following cases, brought by clients of a single law firm in connection with the purchase and holding of Enron securities, and naming Citigroup as a third-party defendant: (1) AHLICH v. ARTHUR ANDERSEN, L.L.P.; (2) DELGADO v. FASTOW; (3) PEARSON v. FASTOW; (4) ROSEN v. FASTOW; (5) BULLOCK v. ARTHUR ANDERSEN, L.L.P.; (6) CHOUCROUN v. ARTHUR ANDERSEN, L.L.P.; (7) GUY v. ARTHUR ANDERSEN, L.L.P. (8) ADAMS v. ARTHUR ANDERSEN, L.L.P.; (9) JOSE v. ARTHUR ANDERSEN, L.L.P.; and (10) ODAM, ET AL., v. ENRON CORP., ET AL. The amount paid to settle these actions was covered by existing Citigroup litigation reserves.
On May 23, 2008, Citigroup agreed to settle SILVERCREEK MANAGEMENT INC., ET AL. v. SALOMON SMITH BARNEY, INC. ET AL., and SILVERCREEK MANAGEMENT INC., ET AL. v. CITIGROUP INC., ET AL., two actions brought by investors in Enron debt securities. The amount paid to settle this action was covered by existing Citigroup litigation reserves. On May 30, 2008, the Southern District of Texas approved Citigroups settlement of WESTPAC BANKING CORP. v. CITIBANK, N.A., an action arising out of an Enron-related credit derivative transaction between Citibank and the plaintiff. The amount paid to settle this action was covered by existing Citigroup litigation reserves. On July 9, 2008, Citigroup agreed to settle PUBLIC UTILITY DISTRICT NO. 1 OF SNOHOMISH COUNTY, WASHINGTON v. CITIGROUP, ET AL., an action brought by a utility in connection with alleged electricity overcharges by Enron. The amount paid to settle this action was covered by existing Citigroup litigation reserves.
A number of other individual actions have been settled, including, on January 21, 2009, the parties settled VANGUARD BALANCED INDEX FUND, ET AL. v. CITIGROUP, ET AL., an action filed in 2003 in Pennsylvania state court by certain investment funds, and asserting claims under state securities and common law, arising out of plaintiffs
24
purchase of certain Enron-related securities. The case had been coordinated with NEWBY (discussed above) until it was remanded to the United States District Court for the Eastern District of Pennsylvania in June 2008. Pursuant to the settlement, the case was voluntarily dismissed on February 4, 2009.
On May 14, 2009, a settlement agreement was executed among the parties in DK ACQUISITION PARTNERS, L.P., ET AL. v. J.P. MORGAN CHASE & CO., ET AL. and AVENUE CAPITAL MANAGEMENT II, L.P., ET AL. v. J.P. MORGAN CHASE & CO., ET AL. On June 3, 2009, a settlement agreement was executed among the parties in UNICREDITO ITALIANO, SpA, ET AL. v. J.P. MORGAN CHASE BANK, ET AL. The three actions, which were consolidated and pending trial in the United States District Court for the Southern District of New York, were brought against Citigroup and certain of its affiliates, and JPMorgan Chase and certain of its affiliates, in their capacity as co-agents on certain Enron revolving credit facilities. Pursuant to the settlements, the cases were dismissed with prejudice.
WORLDCOM, INC.
Beginning in 2002, Citigroup, CGM and certain executive officers and current and former employees were named as defendantsalong with twenty-two other investment banks, certain current and former WorldCom officers and directors, and WorldComs former auditorsin a consolidated class action (IN RE WORLDCOM, INC. SECURITIES LITIGATION) brought on behalf of individuals and entities who purchased or acquired publicly traded securities of WorldCom between April 29, 1999 and June 25, 2002. The class settlement became final in March 2006.
Following the resolution of all other individual actions by settlements and other resolutions, one individual action remains pending on appeal in the Second Circuit, HOLMES, et al. v. GRUBMAN, et al., which was brought by an individual and entities who opted out of the WorldCom securities class action settlement. On October 13, 2006, this action was dismissed with prejudice by the District Court for the Southern District of New York. On June 3, 2009, the Second Circuit certified certain state law questions to be resolved by the Georgia Supreme Court, which has issued an opinion answering those questions. The Second Circuit has not yet decided the appeal. On June 23, 2010, the Second Circuit affirmed the dismissal of the remaining claims in HOLMES v. GRUBMAN. Petitioners-plaintiffs submitted a petition for certiorari to the United States Supreme Court seeking review of the decision of the Second Circuit, affirming dismissal of the action.
RESEARCH
Customer Class Actions
In March 2004, an alleged research-related customer class action alleging various state law claims arising out of the issuance of allegedly misleading research analyst reports concerning numerous issuers was filed against certain Citigroup affiliates in Illinois state court. On October 13, 2011, the court entered an order dismissing with prejudice all
25
class-action claims asserted in the action on the ground that the Securities Litigation Uniform Standards Act of 1998 precludes those claims. The court granted leave for the alleged representative plaintiff to file an amended complaint asserting only his individual claims within 21 days. An amended complaint was not filed within the 21-day period. The alleged representative plaintiff has filed a notice of appeal from the courts October 13, 2011 order.
Global Crossing, Ltd.
On or about January 28, 2003, lead plaintiff in a consolidated alleged class action in the United States District Court for the Southern District of New York (IN RE GLOBAL CROSSING, LTD. SECURITIES LITIGATION) filed a consolidated complaint on behalf of purchasers of the securities of Global Crossing and its subsidiaries, which named as defendants, among others, Citigroup, CGM and certain executive officers and current and former employees, asserting claims under the federal securities laws for allegedly issuing research reports without a reasonable basis in fact and for allegedly failing to disclose conflicts of interest with Global Crossing in connection with published investment research. On March 22, 2004, lead plaintiff amended its consolidated complaint to add claims on behalf of purchasers of the securities of Asia Global Crossing. The added claims asserted causes of action under the federal securities laws and common law in connection with CGMs research reports about Global Crossing and Asia Global Crossing and for CGMs roles as an investment banker for Global Crossing and as an underwriter in the Global Crossing and Asia Global Crossing offerings. The Citigroup-Related Defendants moved to dismiss all of the claims against them on July 2, 2004. The plaintiffs and the Citigroup-Related Defendants entered into a settlement agreement that was preliminarily approved by the Court on March 8, 2005, and was finally approved on June 30, 2005. The amount to be paid in settlement is covered by existing litigation reserves.
In addition, on or about January 27, 2004, the Global Crossing Estate Representative filed in the United States Bankruptcy Court for the Southern District of New York an adversary proceeding against Citigroup and several other financial institutions seeking to rescind the payment of a $1 billion loan made to a subsidiary of Global Crossing. The Citigroup-Related Defendants moved to dismiss the latter action on May 28, 2004, which motion remains pending. In addition, actions asserting claims against Citigroup and certain of its affiliates relating to CGM Global Crossing research reports are pending in numerous arbitrations around the country. On August 20, 2008, Plaintiff filed an amended complaint that narrowed the pending claims. Citigroup has yet to respond to the amended complaint.
Telecommunications Research Class Actions
Beginning in May 2002, Citigroup, CGM and certain executive officers and current and former employees were named as defendants in a series of alleged class action lawsuits and arbitration demands by purchasers of various securities, alleging violations of the federal securities laws, including Sections 10 and 20 of the Securities Exchange Act of 1934 for allegedly issuing research reports without a reasonable basis in fact and for
26
allegedly failing to disclose conflicts of interest with companies in connection with published investment research. The Citigroup research analyst reports concerned seven issuers: AT&T Corp. (AT&T), Winstar Communications, Inc., Level 3 Communications, Inc., Metromedia Fiber Network, Inc. (MFN), XO Communications, Inc., Williams Communications Group Inc., and Focal Communications, Inc. These alleged class actions were assigned to a single judge in the United States District Court for the Southern District of New York for coordinated proceedings. The court consolidated these actions into seven separate proceedings corresponding to the seven issuers of securities involved.
On January 6, 2005, the district court granted in part and denied in part Citigroups motion to dismiss the claims against it in the MFN action, In re SALOMON ANALYST METROMEDIA LITIGATION. On June 20, 2006, the district court certified the plaintiff class in the MFN action. The District Courts class certification decision is on appeal in the United States Court of Appeals for the Second Circuit, and oral argument was held in January 2008. On September 30, 2008, the district courts class certification decision was vacated on appeal by the United States Court of Appeals for the Second Circuit. On October 1, 2008, the parties reached a settlement pursuant to which Citigroup will pay $35 million to members of the settlement class that purchased or otherwise acquired MFN securities during the class period; the settlement was preliminarily approved by the district court on November 19, 2008. On February 27, 2009, the district court approved the class action settlement, and entered a final judgment dismissing the action with prejudice.
CREDIT-CRISIS-RELATED LITIGATION AND OTHER MATTERS
Citigroup and certain of its subsidiaries have been named as defendants in numerous legal actions and other proceedings asserting claims for damages and related relief for losses arising from the global financial credit and subprime-mortgage crisis that began in 2007. Such matters include, among other types of proceedings, claims asserted by: (i) individual investors and purported classes of investors in Citigroups common and preferred stock and debt, alleging violations of the federal securities laws; (ii) individual investors and purported classes of investors in, and issuers of, auction rate securities alleging violations of the federal securities and antitrust laws; (iii) counterparties to significant transactions adversely affected by developments in the credit and subprime markets; (iv) individual investors and purported classes of investors in securities and other investments underwritten, issued or marketed by Citigroup, including collateralized debt obligations (CDOs), mortgage-backed securities (MBS), auction-rate securities (ARS), investment funds, and other structured or leveraged instruments, that have suffered losses as a result of the credit crisis; (v) municipalities, related entities and individuals asserting public nuisance claims; and (vi) individual borrowers asserting claims related to their loans. These matters have been filed in state and federal courts across the country, as well as in arbitrations before the Financial Industry Regulatory Authority (FINRA) and other arbitration associations.
In addition to these litigations and arbitrations, Citigroup continues to cooperate fully in response to subpoenas and requests for information from the Securities and Exchange
27
Commission (SEC), FINRA, the Federal Housing Finance Agency (FHFA, state attorneys general, the Department of Justice and subdivisions thereof, bank regulators, and other government agencies and authorities in connection with various formal and informal inquiries concerning Citigroups subprime and other mortgage-related conduct and business activities, as well as other business activities affected by the credit crisis. These business activities include, but are not limited to, Citigroups sponsorship, packaging, issuance, marketing, servicing, and underwriting of CDOs and residential mortgage-backed securities (RMBS) and its origination, sale or other transfer, servicing, and foreclosure of residential mortgages.
On October 19, 2011, in connection with its industry wide investigation concerning CDO-related business activities, the SEC filed a complaint in the United States District Court for the Southern District of New York regarding Citigroups structuring and sale of the Class V Funding III CDO transaction (Class V), which alleged that CGM negligently misrepresented key deal terms of the Class V CDO. On the same day, the SEC and Citigroup announced a settlement of the SECs claims, subject to judicial approval, and the SEC filed a proposed final judgment pursuant to which Citigroups U.S. broker-dealer CGM agreed to disgorge $160 million, and pay $30 million in prejudgment interest and a $95 million penalty. On November 28, 2011, the district court issued an order refusing to approve the proposed settlement and ordering trial to begin on July 16, 2012. On December 15 and 19, 2011, respectively, the SEC and CGM filed notices of appeal from the district courts November 28 order. On December 27, 2011, the United States Court of Appeals for the Second Circuit granted an emergency stay of further proceedings in the district court, pending the Second Circuits ruling on the SECs motion to stay the district court proceedings during the pendency of the appeals. On March 15, 2012, the Second Circuit granted a stay of the district court proceedings pending resolution of the appeals.
Federal and state regulators, including the SEC, also have served subpoenas or otherwise requested information related to Citigroups issuing, sponsoring, or underwriting of MBS. These inquiries include a subpoena from the Civil Division of the Department of Justice that Citigroup received on January 27, 2012.
Subprime MortgageRelated Litigation and Other Matters
Beginning in November 2007, Citigroup and a number of current and former officers, directors, and employees have been named as defendants in numerous complaints brought by Citigroup shareholders, investors, counterparties and others concerning Citigroups activities relating to subprime mortgages, including Citigroups exposure to CDOs, MBS), and structured investment vehicles, Citigroups underwriting activity for subprime mortgage lenders, and Citigroups more general involvement in subprime- and credit-related activities.
Securities Actions: Citigroup has been named as a defendant in four alleged class actions filed in the United States District Court for the Southern District of New York. On August 19, 2008, these actions were consolidated under the caption IN RE CITIGROUP INC. SECURITIES LITIGATION. The consolidated amended complaint asserts claims
28
arising under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of an alleged class of purchasers of Citigroup common stock from January 1, 2004 through January 15, 2009. On November 9, 2010, the district court issued an opinion and order dismissing all claims except those arising out of Citigroups exposure to CDOs for the time period February 1, 2007 through April 18, 2008. Fact discovery is underway. Plaintiffs have not yet quantified the alleged class alleged damages. During the alleged class period, as narrowed by the district court, the price of Citigroups common stock declined from $54.73 at the beginning of the period to $25.11 at the end of the period. (These share prices represent Citigroups common stock prices prior to its 1-for-10 reverse stock split, effective May 6, 2011.)
Citigroup and CGM have been named as defendants in two alleged class actions filed in the United States District Court for the Southern District of California, but since transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Southern District of New York. In the consolidated action, lead plaintiffs assert claims on behalf of an alleged class of participants in Citigroups Voluntary Financial Advisor Capital Accumulation Plan from November 2006 through January 2009. On June 7, 2011, the district court granted defendants motion to dismiss the complaint and subsequently entered judgment. On November 14, 2011, the district court granted in part plaintiffs motion to alter or amend the judgment and granted plaintiffs leave to amend the complaint. On November 23, 2011, plaintiffs filed an amended complaint alleging violations of Section 12 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934. Defendants filed a motion to dismiss certain of plaintiffs claims on December 21, 2011.
On September 30 and October 28, 2008, Citigroup, certain Citigroup entities, certain current and former directors and officers of Citigroup and Citigroup Funding, Inc., and certain underwriters of Citigroup notes (including CGM) were named as defendants in two alleged class actions filed in New York state court but since removed to the United States District Court for the Southern District of New York. These actions allege violations of Sections 11, 12, and 15 of the Securities Act of 1933, as amended, arising out of forty-eight corporate debt securities, preferred stock, and interests in preferred stock issued by Citigroup and related issuers over a two-year period from 2006 to 2008. On December 10, 2008, these two actions were consolidated under the caption IN RE CITIGROUP INC. BOND LITIGATION, and lead plaintiff and counsel were appointed. On January 15, 2009, plaintiffs filed a consolidated class action complaint.
On March 13, 2009, defendants filed a motion to dismiss the complaint. On July 12, 2010, the district court issued an order and opinion granting in part and denying in part defendants motion to dismiss. The courts order, among other things, dismissed plaintiffs claims under Section 12 of the Securities Act of 1933, as amended, but denied defendants motion to dismiss certain claims under Section 11 of that Act. A motion for partial reconsideration of the latter ruling in pending. On September 30, 2010, the district court entered a scheduling order in IN RE CITIGROUP INC. BOND LITIGATION. Fact discovery has commenced. On March 11, 2011, lead plaintiffs in IN RE CITIGROUP INC. BOND LITIGATION filed a motion seeking class certification. Plaintiffs have not yet quantified the alleged classs alleged damages. Because of the preliminary stage of the proceedings, Citigroup cannot at this time estimate the possible loss or range of loss, if any, for this action or predict the timing of its eventual resolution.
29
Several institutions and sophisticated investors that purchased debt and equity securities issued by Citigroup and related issuers have also filed actions on their own behalf against Citigroup and certain of its subsidiaries in the Southern District of New York and the Court of Common Pleas for Philadelphia County. These actions assert claims similar to those asserted in the IN RE CITIGROUP INC. SECURITIES LITIGATION and IN RE CITIGROUP INC. BOND LITIGATION actions described above. Collectively, these investors seek damages exceeding $1 billion.
Underwriting Actions. Certain Citigroup affiliates have been named as defendants arising out of their activities as underwriters of securities in actions brought by investors in securities of issuers adversely affected by the credit crisis, including AIG, Fannie Mae, Freddie Mac, Ambac and Lehman, among others. These matters are in various stages of litigation. As a general matter, issuers indemnify underwriters in connection with such claims. In certain of these matters, however, Citigroup affiliates are not being indemnified or may in the future cease to be indemnified because of the financial condition of the issuer.
On September 28, 2011, the United States District Court for the Southern District of New York approved a stipulation of settlement with the underwriter defendants in IN RE AMBAC FINANCIAL GROUP, INC. SECURITIES LITIGATION and judgment was entered. A member of the settlement class has appealed the judgment to the United States Court of Appeals for the Second Circuit. On December 22, 2011, the underwriter defendants moved to dismiss the appeal.
Discrimination in Lending Actions. Two alleged class actions have been filed alleging claims of racial discrimination in mortgage lending under the Equal Credit Opportunity Act, the Fair Housing Act, and/or the Civil Rights Act. The first action, PUELLO, ET AL. v. CITIFINANCIAL SERVICES, INC., ET AL., was filed against Citigroup and its affiliates in the United States District Court for the District of Massachusetts. The second action, NAACP v. AMERIQUEST MORTGAGE CO., ET AL., was filed against one of Citigroups affiliates in the United States District Court for the Central District of California. In each action, defendants motions to dismiss have been denied. On September 21, 2009, the United States District Court for the Central District of California denied defendant CitiMortgages motion for summary judgment and granted its motion to strike the jury demand.
Counterparty and Investor Actions. Citigroup and certain of its subsidiaries have been named as defendants in actions brought in various state and federal courts, as well as in arbitrations, by counterparties and investors that claim to have suffered losses as a result of the credit crisis. Those actions include claims asserted by investors in CDO-related transactions, including Moneygram Payment Systems, Inc., which filed a lawsuit in Minnesota state court on October 26, 2011, alleging misstatements in connection with the sale of CDO securities. Additional actions asserting claims related to investments or participation in CDO-related transactions may be filed in the future.
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Ambac. Counterparties to transactions involving CDOs, SIVs, credit default swaps (CDS), and other instruments related to investments in mortgage-backed securities have sued Citigroup on a variety of theories. On August 3, 2009, one such counterparty filed an actionAMBAC CREDIT PRODUCTS, LLC v. CITIGROUP INC., et al.in New York Supreme Court, County of New York, alleging various claims including fraud and breach of fiduciary duty in connection with Citigroups purchase of CDS from Ambac as credit protection for a $1.95 billion super-senior tranche of a CDO structured by Citigroup, the underlying assets of which allegedly included subprime mortgage-backed securities. Ambac alleges, among other things, that Citigroup misrepresented the nature of the risks that were being transferred. On October 7, 2009, defendants filed a motion to dismiss the complaint. On June 7, 2010, in connection with a global settlement agreement between Ambac and Citigroup, the parties stipulated to a discontinuation with prejudice.
In August 2011, two Saudi nationals and related entities commenced a FINRA arbitration against CGM alleging $380 million in losses resulting from certain options trades referencing a portfolio of hedge funds and certain credit facilities collateralized by a private equity portfolio. CGM did not serve as the counterparty or credit facility provider in these transactions. In September 2011, CGM commenced an action in the United States District Court for the Southern District of New York seeking to enjoin the arbitration. Simultaneously with that filing, the Citigroup entities that served as the counterparty or credit facility provider to the transactions commenced actions in London and Switzerland for declaratory judgments of no liability.
RMBS Litigation and Other Matters
During the period 2005 through 2008, Citigroup affiliates (including both S&B and Consumer mortgage entities) sponsored approximately $91 billion in private-label mortgage-backed securitization transactions, of which approximately $35 billion remained outstanding at September 30, 2011. Losses to date on these issuances are estimated to be approximately $9.3 billion. From time to time, investors or other parties to such securitizations have contended, or may in the future contend, that Citigroup affiliates involved in the securitizations are responsible for such losses because of misstatements or omissions in connection with the issuance and underwriting of the securities, breaches of representations and warranties with respect to the underlying mortgage loans, or for other reasons. Beginning in July 2010, several investors, including Cambridge Place Investment Management, The Charles Schwab Corporation, the Federal Home Loan Bank of Chicago, the Federal Home Loan Bank of Indianapolis, Allstate Insurance Company, the Federal Home Loan Bank of Boston, the Union Central Life Insurance Co., Ameritas Life Insurance Corp., and Acacia Life Insurance Co. and affiliated entities have filed lawsuits against Citigroup and certain of its affiliates alleging actionable misstatements or omissions in connection with the issuance and underwriting of residential mortgage-backed securities. As a general matter, plaintiffs in these actions are seeking rescission of their investments or other damages. These actions, which are in their early procedural stages, allege claims against Citigroup and certain of its affiliates in connection with approximately $1.5 billion of residential mortgage-backed securities. Because these proceedings are in their preliminary stages, Citigroup cannot at this time
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estimate the possible loss or range of loss, if any, for these actions or predict the timing of their eventual resolution. Other purchasers of MBS or CDOs sold or underwritten by Citigroup affiliates have threatened to file lawsuits asserting similar claims, some of which Citigroup has agreed to toll pending further discussions with these investors.
On July 14, 2011, plaintiff filed an amended complaint in FEDERAL HOME LOAN BANK OF INDIANAPOLIS v. BANC OF AMERICA MORTGAGE SECURITIES, INC., ET AL., which no longer names Citigroup or any of its affiliates as defendants.
On September 2, 2011, the Federal Housing Finance Agency (FHFA) filed four lawsuits against Citigroup and certain of its subsidiaries alleging actionable misstatements or omissions in connection with the issuance and/or underwriting of RMBS. The FHFA has asserted similar claims against numerous other financial institutions. The FHFA seeks rescission of investments made by Fannie Mae and Freddie Mac, and/or other damages.
On September 9, 2011, the Western & Southern Life Insurance Company and other entities filed an amended complaint against CGM, as well as other financial institutions, alleging actionable misstatements or omissions in connection with the sale of residential mortgage-backed securities. In addition, other purchasers of residential mortgage-backed securities sold or underwritten by Citigroup affiliates have threatened to file lawsuits asserting similar claims, some of which Citigroup has agreed to toll pending further discussions with those investors.
Given the continued and increased focus on mortgage-related matters, as well as the increasing level of litigation and regulatory activity relating to mortgage loans and mortgage-backed securities, the level of inquiries and assertions respecting securitizations may further increase. These inquiries and assertions could lead to actual claims for breaches of representations and warranties, or to litigation relating to such breaches or other matters.
Auction Rate SecuritiesRelated Litigation and Other Matters
Beginning in March 2008, Citigroup and certain of its subsidiaries have been named as defendants in numerous actions and proceedings brought by Citigroup shareholders and customers concerning ARS. In addition to those matters described below, these have included, among others, numerous arbitrations filed by customers of Citigroup and its subsidiaries seeking damages in connection with investments in ARS, which are in various stages of proceedings, and a derivative action filed against certain Citigroup officers and directors, which has been dismissed. A committee of Citigroups Board of Directors is reviewing a demand sent to the Board following the dismissal of the derivative action.
Securities Actions. Beginning in March 2008, Citigroup, CGM and their affiliates and certain current and former officers, directors, and employees, have been named as defendants in several individual and alleged class action lawsuits related to ARS. These have included, among others: (i) numerous lawsuits and arbitrations filed by customers of
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Citigroup and its affiliates seeking damages in connection with investments in ARS; (ii) a consolidated alleged class action asserting claims for federal securities violations, which has been dismissed and is now pending on appeal; (iii) two alleged class actions asserting violations of Section I of the Sherman Act, which have been dismissed and are now pending on appeal; and (iv) a derivative action filed against certain Citigroup officers and directors, which has been dismissed. In addition, based on an investigation, report and recommendation from a committee of Citigroups Board of Directors, the Board refused a shareholder demand that was made after dismissal of the derivative action.
Hansen Beverage Co. v. Citigroup Inc., et al. On July 11, 2008, a complaint was filed against Citigroup, CGM and Smith Barney, alleging violations of Sections 10 and 20 of the Securities Exchange Act of 1934 and the Investment Advisers Act arising out of plaintiffs investment in ARS. On September 22, 2008, the Citigroup defendants filed a motion to compel arbitration, which was granted on October 10, 2008. A motion to reconsider the district courts decision was denied on October 21, 2008. This action is currently stayed, pending arbitration.
Antitrust Actions. MAYOR & CITY COUNCIL OF BALTIMORE, MARYLAND v. CITIGROUP INC., ET AL. and RUSSELL MAYFIELD, ET AL. v. CITIGROUP INC., ET AL., are lawsuits filed in the Southern District of New York on behalf of a purported class of ARS issuers and investors, respectively, against Citigroup, CGM and various other financial institutions. In these actions, plaintiffs allege violations of Section 1 of the Sherman Act arising out of defendants alleged conspiracy to artificially restrain trade in the ARS market. On January 15, 2009, defendants filed motions to dismiss the complaints in these actions. On January 26, 2010, both actions were dismissed. The actions are now pending on appeal.
Governmental and Regulatory Matters. On August 7, 2008, Citigroup and certain of its subsidiaries reached a settlement with the New York Attorney General, the Securities and Exchange Commission, and other state regulatory agencies, pursuant to which Citigroup agreed to offer to purchase at par ARS that are not auctioning from all Citigroup individual investors, small institutions (as defined in by the terms of the settlement), and charities that purchased ARS from Citigroup prior to February 11, 2008. In addition, Citigroup agreed to pay a $50 million fine to the State of New York and a $50 million fine to the other state regulatory agencies.
Citigroup and certain of its affiliates are also subject to formal and informal investigations, as well as subpoenas and/or requests for information, from various governmental and self-regulatory agencies relating to auction rate securities. Citigroup and its affiliates are cooperating fully and are engaged in discussions on these matters.
Arbitrations. In addition to the various lawsuits discussed above, several arbitrations are pending against Citigroup and certain of its affiliates relating to ARS investments.
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ASTA/MAT and FalconRelated Litigation and Other Matters
ASTA/MAT and Falcon were alternative investment funds managed and marketed by certain Citigroup affiliates that allegedly suffered substantial losses during the credit crisis. The SEC is investigating the management and marketing of the ASTA/MAT and Falcon funds. Citigroup is cooperating fully with the SECs inquiry.
In addition, numerous investors in ASTA/MAT have filed lawsuits or arbitrations against Citigroup seeking recoupment of their alleged losses. Although many of these investor disputes have been resolved, others remain pending. In April 2011, a FINRA arbitration panel awarded two ASTA/MAT investors $54 million in damages and attorneys fees, including punitive damages, against Citigroup. In December 2011, the United States District Court for the District of Colorado entered an order confirming the FlNRA panels award. Citigroup has filed a notice of appeal to the 10th Circuit Court of Appeals.
Arbitrations: In addition to the various lawsuits discussed above, several arbitrations are pending against Citigroup and certain of its affiliates relating to ASTA/MAT investments. On April 11, 2011, a FINRA arbitration panel in Denver awarded $54 million in damages and attorneys fees, including punitive damages, to claimants Jerry Murdock Jr. and Gerald Hosier arising out of their alleged losses in the ASTA/MAT and other funds.
Governmental and Regulatory Matters. Citigroup and certain of its affiliates are subject to formal and informal investigations, as well as subpoenas and/or requests for information, from various governmental and self-regulatory agencies relating to the marketing and management of the Falcon and ASTA/MAT funds. Citigroup and its affiliates are cooperating fully and are engaged in discussions on these matters.
ADELPHIA COMMUNICATIONS CORPORATION
On July 6, 2003, an adversary proceeding was filed by the Official Committee of Unsecured Creditors on behalf of Adelphia Communications Corporation against certain lenders and investment banks, including CGM, Citibank, N.A., Citicorp USA, Inc., and Citigroup Financial Products, Inc. (together, the Citigroup Parties). The complaint alleged that the Citigroup Parties and numerous other defendants committed acts in violation of the Bank Holding Company Act, the Bankruptcy Code, and common law. It sought an unspecified amount of damages. In November 2003, a similar adversary proceeding was filed by the Equity Holders Committee of Adelphia, asserting additional statutory and common law claims. In June 2004, motions to dismiss were filed with respect to the complaints of the two committees. Those motions were decided by the bankruptcy court, and were granted in part and denied in part. The district court affirmed in part and reversed in part the bankruptcy courts decision. The Adelphia Recovery Trust (ART), which replaced the committees as the plaintiff in the action, filed an amended complaint on behalf of the Adelphia Estate, consolidating the two prior complaints; motions to dismiss the amended complaint and answers were filed. The district court granted in part and denied in part the defendants motions to dismiss the consolidated complaint. The ARTs appeal to the Second Circuit from that partial
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dismissal is pending. Before the district court, the parties are briefing summary judgment. On September 22, 2010, the ART agreed in principle to settle its claims against numerous pre-petition lenders and investment banks, including Citigroup, in the action entitled ADELPHIA RECOVERY TRUST v. BANK OF AMERICA N.A., ET AL., 05 Civ. 9050 (S.D.N.Y.). The agreement in principle is subject to execution of a final settlement agreement and court approval.
In addition, CGM is among the underwriters named in numerous civil actions brought to date by investors in Adelphia debt securities in connection with Adelphia securities offerings between September 1997 and October 2001. Three of the complaints also assert claims against Citigroup Inc. and Citibank, N.A. All of the complaints allege violations of federal securities laws, and certain of the complaints also allege violations of state securities laws and the common law. The complaint seeks unspecified damages. In December 2003, a second amended complaint was filed and consolidated before the same judge of the United States District Court for the Southern District of New York. In February 2004, motions to dismiss the class and individual actions pending in the United States District Court for the Southern District of New York were filed. In May and July of 2005, the United States District Court for the Southern District of New York granted motions to dismiss several claims, based on the running of applicable statute of limitations, asserted in the alleged class and individual actions being coordinated under IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION. With the exception of one individual action that was dismissed with prejudice, the court granted the alleged class and individual plaintiffs leave to re-plead certain of those claims the court found to be time-barred. Without admitting any liability, CGM and numerous other financial institution defendants settled IN RE ADELPHIA COMMUNICATIONS CORPORATION SECURITIES AND DERIVATIVE LITIGATION for a total of $250 million, and the settlement was approved in November 2006. Two of the additional remaining individual complaints have been settled. Following settlements of the class action, which is pending appeal, and other individual actions, two cases remain outstanding. The Second Circuit is considering whether the plaintiff in one has proper standing to sue. In September 2007, motions to dismiss in the other case were granted in part and denied in part.
IPO SECURITIES LITIGATION
In April 2002, consolidated amended complaints were filed against CGM and other investment banks named in numerous alleged class actions filed in the United States District Court for the Southern District of New York, alleging violations of certain federal securities laws (including Section 11 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934) with respect to the allocation of shares for certain initial public offerings, related aftermarket transactions and damage to investors caused by allegedly biased research analyst reports.
Defendants motion to dismiss was denied. On October 13, 2004, the court granted in part the motion to certify class actions for six focus cases in the securities litigation. CGM is not a defendant in any of the six focus cases. In December 2006, the United States Court of Appeals for the Second Circuit reversed the district court and held that the
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classes could not be certified. Plaintiffs filed a petition for rehearing in January 2007; that petition was denied, and the case was remanded to the lower court. Plaintiffs filed amended pleadings in August 2007 and a new motion for class certification in September 2007. Defendants moved to dismiss the amended pleadings in November 2007 and filed an opposition to the new motion for class certification in December 2007. On March 26, 2008, the United States District Court for the Southern District of New York denied in part and granted in part Defendants motions to dismiss the amended complaints. Following mediation, a settlement in principle was reached, subject to negotiation of definitive documentation and court approval. On June 10, 2009, the district court entered an order preliminarily approving the proposed settlement of this matter and scheduling a hearing to determine whether the proposed settlement should be finally approved. In October 2009, the district court entered an order granting final approval of the settlement.
IPO ANTITRUST LITIGATION
Beginning in March 2001, several alleged class actions that were later consolidated into a single class action were filed in the Southern District of New York against CGM and other investment banks, alleging violations of certain federal and state antitrust laws in connection with the allocation of shares in initial public offerings when acting as underwriters. A separate alleged class action was filed against the same underwriter defendants as well as certain institutional investors alleging commercial bribery claims under the Robinson Patman Act arising out of similar allegations regarding IPO allocation conduct. On November 3, 2003, the district court granted CGMs motion to dismiss the consolidated amended complaint in the antitrust case and the Robinson Patman complaint. Plaintiffs thereafter appealed the district courts order dismissing the two actions. On September 28, 2005, the Second Circuit vacated the district courts decision and ordered the cases remanded to the district court. In December 2006, the United States Supreme Court granted the underwriter defendants petition for certiorari to review the Second Circuits decision and set oral argument for March 2007.
On April 6, 2007, the Second Circuit panel that reversed the district courts class certification decision denied plaintiffs petition for rehearing. The companion petition for rehearing en banc remains pending before the Second Circuit. On June 18, 2007, the United States Supreme Court ruled that the securities law precludes application of the antitrust laws to the claims asserted by plaintiffs, effectively terminating the litigation.
WAGE & HOUR EMPLOYMENT ACTIONS
Numerous financial services firms, including Citigroup and its affiliates, were named in alleged class actions alleging that certain present and former employees in California were entitled to overtime pay under state and federal laws; were subject to certain allegedly unlawful deductions under state law; or were entitled to reimbursement for employment related expenses incurred by them. The first of these class actions filed in the Fall of 2004 in the United States District Court for the Northern District of California, BAHRAMIPOUR v. CITIGROUP GLOBAL MARKETS INC., sought damages and injunctive relief on behalf of an alleged class of California employees. Similar complaints have been subsequently filed against CGM on behalf of certain statewide or
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nationwide alleged classes in (i) the United States District Courts for the Southern District of New York, the District of New Jersey, the Eastern District of New York, the District of Massachusetts, and the Middle District of Pennsylvania; and (ii) the New Jersey Superior Court. Without admitting any liability, CGM reached an agreement in principle, which is subject to court approval, to a nationwide settlement for up to approximately $98 million of various class actions asserting violations of state and federal laws relating to overtime and violations of various state laws relating to alleged unlawful payroll deductions. Additional alleged class action lawsuits alleging a variety of violations of state and federal wage and hour laws have been filed against various other Citigroup businesses.
MUTUAL FUNDS LITIGATION
Citigroup and certain of its affiliates were named in several class action litigations in various federal District Courts arising out of alleged violations of the federal securities laws, including the Investment Company Act, and common law (including breach of fiduciary duty and unjust enrichment). The claims concern practices in connection with the sale of mutual funds, including allegations involving market timing, revenue sharing, incentive payments for the sale of proprietary funds, undisclosed breakpoint discounts for the sale of certain classes of funds, inappropriate share class recommendations and inappropriate fund investments. The litigations involving market timing have been consolidated under the Multi District rules in the United States District Court for the District of Maryland (the MDL action), and the litigations involving revenue sharing, incentive payment and other issues were filed in the United States District Court for the Southern District of New York. The plaintiffs in these litigations generally seek unspecified compensatory damages, recessionary damages, injunctive relief, costs and fees. In the principal cases concerning revenue sharing, incentive payment and other issues, the lead plaintiff filed a consolidated and amended complaint on December 15, 2004. Citigroup defendants motion to dismiss the consolidated complaint was substantially granted; a motion to dismiss the remaining claim was filed. Several derivative actions and class actions were also dismissed against Citigroup defendants in the MDL action (the class actions were dismissed with leave to replead state law claims of unjust enrichment). Issues in the mutual-fund industry continue to receive scrutiny by various government regulators and SROs. CGM reached an agreement in principle with the NYSE to settle a matter related to its market-timing practices prior to September 2003.
Several issues in the mutual fund industry have come under the scrutiny of federal and state regulators. Citigroup has received subpoenas and other requests for information from various government regulators regarding market timing, financing, fees, sales practices and other mutual fund issues in connection with various investigations. Citigroup is cooperating with all such reviews. Additionally, CGM has entered into a settlement agreement with the SEC with respect to revenue sharing and sales of classes of funds.
In May 2007, CGM finalized its settlement agreement with the NYSE and the New Jersey Bureau of Securities on the matter related to its market-timing practices prior to
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September 2003. The allegations included failure to supervise trading of mutual fund shares and variable annuity mutual fund sub-accounts, failure to prevent market-timing by its brokers and failure to comply with applicable recordkeeping requirements. CGM neither admitted nor denied any wrongdoing or liability, and paid $50 million in disgorgement and penalties.
FINRA SETTLEMENTS
On October 12, 2009, FINRA announced its acceptance of an Award Waiver and Consent (AWC) in which CGM, without admitting or denying the findings, consented to the entry of the AWC and a fine and censure of $600,000. The AWC includes findings that CGM failed to adequately supervise the activities of its equities trading desk in connection with swap and related hedge trades in U.S. and Italian equities that were designed to provide certain perceived tax advantages. CGM was charged with failing to provide for effective written procedures with respect to the implementation of the trades, failing to monitor Bloomberg messages and failing to properly report certain of the trades to the NASDAQ.
On May 22, 2012, FINRA announced its acceptance of an AWC in which CGM, without admitting or denying the findings, consented to the entry of the AWC and a fine and censure of $3.5 million. FINRA found that, in connection with several RMBS issued between January 2006 and October 2007 and underwritten by CGM, certain mortgage performance information posted to a website used for the offerings was inaccurate. In addition, FINRA found that certain of CGMs supervisory and documentation practices with respect to pricing, independent price verification and margin calls were insufficient in 2007. The charges included failure to supervise, failure to observe high standards of commercial honor and just and equitable principles of trade, and books and records violations.
TERRA FIRMA LITIGATION
In December 2009, plaintiffs, general partners of two related private equity funds, filed a complaint in New York state court, subsequently removed to the Southern District of New York, against certain Citigroup affiliates. Plaintiffs allege that during the May 2007 auction of the music company EMI, Citigroup, as advisor to EMI and as a potential lender to plaintiffs acquisition vehicle Maltby, fraudulently or negligently orally misrepresented the intentions of another potential bidder regarding the auction. Plaintiffs alleged that, but for the oral misrepresentations, Maltby would not have acquired EMl for approximately £4.2 billion. Plaintiffs further alleged that, following the acquisition of EMI, certain Citigroup entities tortiously interfered with plaintiffs business relationship with EMI. Plaintiffs sought billions of dollars in damages. On September 15, 2010, the district court issued an order granting in part and denying in part Citigroup s motion for summary judgment. Plaintiffs claims for negligent misrepresentation and tortious interference were dismissed. On October 18, 2010, a jury trial commenced on plaintiffs remaining claims for fraudulent misrepresentation and fraudulent concealment. The court dismissed the fraudulent concealment claim before sending the case to the jury. On November 4, 2010, the jury returned a verdict on the fraudulent misrepresentation claim
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in favor of Citigroup. Judgment dismissing the complaint was entered on December 9, 2010. Plaintiffs have appealed the judgment as to the negligent misrepresentation claim, the fraudulent concealment claim and the fraudulent misrepresentation claim.
OTHER MATTERS
Lehman Brothers Bankruptcy Proceedings. On March 18, 2011, Citigroup and certain of its subsidiaries were named as defendants in an adversary proceeding captioned LEHMAN BROTHERS INC. v. CITIBANK, N.A., ET AL. In the complaint, which asserts claims under federal bankruptcy and state law, the Securities Investor Protection Act Trustee alleges that a $1 billion cash deposit that Lehman Brothers Inc. (LBI), the broker dealer subsidiary of Lehman Brothers Holdings Inc. (LBHI), placed with Citibank prior to the commencement of liquidation proceedings should be returned to the bankruptcy estate, that Citibanks setoff against the $1 billion deposit to satisfy its claims against LBI should be set aside, and that approximately $342 million in additional deposits by LBI currently held by Citibank and its affiliates should be returned to the estate. Citigroup has moved to dismiss the adversary complaint.
On September 15, 2008, LBHI subsidiary Lehman Brothers International (Europe) (LBIE) entered administration under English law. Since that time, Citigroup and certain of its subsidiaries have held as custodians approximately $2 billion of proprietary assets and cash of LBIE. During the course of LBIEs administration, Citigroup and certain of its subsidiaries asserted a contractual right to retain the proprietary assets and cash as security for amounts owed to Citigroup and certain of its subsidiaries by LBIE and its affiliates (including LBHI and LBI), a right that the administrators for LBIE disputed. On June 28, 2011, Citigroup and certain of its subsidiaries entered into a settlement agreement with LBIE resolving the parties disputes with respect to LBIEs proprietary assets and cash held by Citigroup and certain of its subsidiaries as custodians. Under the terms of the settlement, Citigroup and certain of its subsidiaries will return LBIEs proprietary assets and cash and release all claims in respect of those assets and cash in exchange for releases, the payment of fees, and preservation of certain claims asserted by Citigroup and certain of its subsidiaries in LBIEs insolvency proceedings in the United Kingdom.
27001 Partnership, et al. v. BT Securities Corp., et al.: In December 2004, 46 individual purchasers of 10-1/2% Senior Subordinated Notes (the Notes) issued in 1995 in connection with the leveraged recapitalization of Brunos Inc. sued the underwriters of the Notes, including Salomon Brothers, Inc., together with Brunos auditors, in Alabama state court. Plaintiffs brought state law claims arising out of, among other things, alleged material misrepresentations and omissions in the Prospectus issued in connection with the offering. The case was filed following the prior dismissal, after years of motion practice, of a lawsuit brought in April 2000 by the investment advisor to these 46 plaintiffs on behalf of its clients, which alleged identical claims against defendants. Plaintiffs allege that they purchased $190 million of the Notes and seek compensatory damages, punitive damages, attorneys fees and costs. After the commencement of the case in 2004, the parties engaged in extensive procedural motion practice, which resulted in the dismissal of several defendants on October 14, 2005. On August 25, 2009, 27001 PARTNERSHIP
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was consolidated with W.R. HUFF ASSET MANAGEMENT CO., LLC v. KOHLBERG KRAVIS ROBERTS & CO., L.P., also pending in the Circuit Court of Jefferson County, Alabama. The circuit court further held that the parties in 27001 PARTNERSHIP are to provide certain discovery materials to the parties in W.R. HUFF ASSET MANAGEMENT, but that the two cases would be tried separately. On September 18, 2009, defendants Salomon Brothers, Inc. and Chemical Securities, Inc. moved for summary judgment. On September 18, 2009, plaintiffs moved for partial summary judgment. In January 2010, prior to trial, the Citigroup subsidiaries and affiliates (the Citigroup Defendants) entered into a settlement conditioned on court approval. On March 24, 2010, pursuant to the settlement agreement, the Alabama state court entered an Order of Final Judgment and Dismissal and bar order, dismissing the Citigroup Defendants from the Brunos actions with prejudice.
W.R. Huff Asset Management Co., LLC v. Kohlberg Kravis Roberts & Co., L.P. In August 1999, W. R. Huff Asset Management Co., LLC filed this lawsuit (the KKR Case) on behalf of its clients who purchased 101/2% Senior Subordinated Notes issued in 1995 in connection with the leveraged recapitalization of Bruno s, Inc. The case was filed in Alabama state court against Robinson Humphrey Co. LLC, which served as financial advisor to Bruno s in connection with the leveraged recapitalization (and which later became a fully owned subsidiary of Salomon Smith Barney) and others. The KKR Case arises out of the same transaction at issue in 27001 PARTNERSHIP, ET AL. v. BT SECURITIES CORP., ET AL. (the BT Securities Case described above). The allegations and potential exposure in the KKR Case and BT Securities Case are similar, with plaintiffs seeking compensatory damages, punitive damages, attorneys fees, costs and pre-judgment interest in an amount they allege to be between approximately $250 million and $750 million. After years of motion practice over jurisdictional issues, on April 29, 2009, the Court of Appeals for the Eleventh Circuit affirmed the district courts order allowing Huff to amend its complaint to substitute the same 46 individual noteholders named as plaintiffs in the BT Securities Case as plaintiffs in the KKR Case, resulting in remand of the case to Alabama state court. Defendants motion to strike the Fourth Amended Complaint and plaintiffs motion to consolidate the BT Securities and KKR Cases are pending. On August 6, 2009, the Circuit Court of Jefferson County, Alabama granted defendant Robinson Humphrey Co. LLCs motion to strike the Fourth Amended Complaint on statute of limitations grounds, thereby dismissing Robinson Humphrey Co. LLC from the case. On August 25, 2009, the case was consolidated with 27001 PARTNERSHIP for discovery purposes but not for trial. In January 2010, prior to trial, the Citigroup defendants entered into a settlement conditioned on court approval.
Terra Securities ASA Konkursbo, et al. v. Citigroup Inc., et al. On August 10, 2009, Norwegian securities firm Terra Securities ASA Konkursbo and seven Norwegian municipalities filed a complaint in the United States District Court for the Southern District of New York against Citigroup, CGM and Citigroup Alternative Investments LLC. The complaint asserts, among other things, claims under Sections 10 and 20 of the Securities Exchange Act of 1934 and state law arising out of the municipalities investment in certain notes. Plaintiffs allege that, among other things, the municipalities invested in the notes after receiving purportedly false and materially misleading marketing materials that were allegedly prepared by defendants. On October 7, 2009, defendants filed a motion to dismiss.
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Tribune Company Bankruptcy. Certain Citigroup entities have been named as defendants in adversary proceedings related to the Chapter 11 cases of Tribune Company (Tribune) pending in the U.S. Bankruptcy Court for the District of Delaware. The complaints set forth allegations arising out of the approximately $11 billion leveraged buyout (LBO) of Tribune in 2007. With respect to Citigroup, the complaints allege claims relating to Citigroups role as lender and advisor to Tribune in connection with the LBO and seek to avoid, recover, subordinate or disallow payments on LBO debt, as well as approximately $57 million in lender and advisory fees received by Citigroup and certain of its subsidiaries in connection with the LBO. The complaints also assert claims of aiding and abetting breaches of fiduciary duty by Tribune management as well as professional malpractice. The complaints have been stayed by court order pending a confirmation hearing on competing plans of reorganization. If confirmed, the plan proposed by the Debtors and others, and supported by Citigroup, would settle all claims relating to Citigroups role as lender. On February 11, 2011, Tribune and its debtor subsidiaries announced that most classes of voting creditors overwhelmingly approved the Debtors plan. The confirmation hearing before the Bankruptcy Court commenced on March 8, 2011. The parties completed their evidentiary presentations on April 12, 2011. The Bankruptcy Court confirmation hearing concluded on June 27, 2011. On October 31, 2011, the bankruptcy court denied confirmation of both the competing plans. A third amended plan of reorganization was then proposed, and confirmation proceedings are expected to take place in 2012. Certain Citigroup entities have been named as defendants in two actions brought by creditors of Tribune alleging state law constructive fraudulent conveyance claims relating to the Tribune LBO. These actions have been stayed pending confirmation of a plan of reorganization.
Asset Repurchase Matters. Beginning in March 2010, various regulators have made inquiries regarding the accounting treatment of certain repurchase transactions. Citigroup is cooperating fully with these inquiries.
Additionally, beginning in April 2011, a number of purported class actions and other private civil suits were filed in various courts against banks that served on the LIBOR panel and their affiliates, including certain Citigroup subsidiaries. The actions, which assert various federal and state law claims relating to the setting of LIBOR, have been consolidated into a multidistrict litigation proceeding before Judge Buchwald in the Southern District of New York.
In the course of its business, CGM, as a major futures commission merchant and broker-dealer, is a party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of CGM. GCM may establish reserves from time to time in connections with such actions. Additional lawsuits containing claims similar to those described above may be filed in the future.
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Item 1A. Risk Factors
There have been no material changes to the risk factors set forth under Part I, Item 1A. Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and under Part II, Item 1A. Risk Factors in the Partnerships Quarterly Report on Form 10-Q for the quarter ended March 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
For the three months ended June 30, 2012, there were no additional subscriptions of Redeemable Units. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased be accredited investors in a private offering.
Proceeds of net offering were used for the trading of commodity interests, including futures contracts, options, forwards and swap contracts.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
Period | (a) Total Number of Shares (or Units) Purchased* |
(b) Average Price Paid per Share (or Unit)** |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number May Yet Be Plans or Programs | ||||||||
April 1, 2012 - April 30, 2012 |
389.7821 | $ | 1,364.22 | N/A | N/A | |||||||
May 1, 2012 - May 31, 2012 |
501.3821 | $ | 1,246.78 | N/A | N/A | |||||||
June 1, 2012 - June 30, 2012 |
777.3328 | $ | 1,173.70 | N/A | N/A | |||||||
1,668.4970 | $ | 1,240.19 |
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for limited partners. |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. |
Item 3. Defaults Upon Senior Securities None
Item 4. Mine Safety Disclosures None
Item 5. Other Information
As of June 1, 2012, the Advisor agreed to reduce the management fee it receives from the Partnership from an annual rate of 2% of adjusted net assets to an annual rate of 1% of adjusted net assets. This management fee will remain in effect until the General Partner and the Advisor determine otherwise.
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3.1 |
Second Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.2 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
3.2 |
Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of the State of New York (filed as Exhibit 3.1 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
(a) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated February 26, 1999 (filed as Exhibit 3.1(a) to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
(b) | Certificate of Change of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated January 31, 2000 (filed as Exhibit 3.2(g) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||
(c) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 1, 2001 (filed as Exhibit 3.1(b) to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
(d) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 3.2(c) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||
(e) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.1(c) to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
(f) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.2(e) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||
(g) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 30, 2009 (filed as Exhibit 99.1(a) to the current report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |||
(h) | Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.2(h) to the current report on Form 8-K filed on July 2, 2010 and incorporated herein by reference). | |||
(i) | Certificate of Amendment of the Certificate of Limited Partnership dated September 2, 2011 (filed as Exhibit 3.1 to the current report on Form 8-K filed on
September 17, 2011 and incorporated herein by reference). |
43
10.1 |
Amended and Restated Management Agreement among the Partnership, the General Partner and Chesapeake Capital Corporation (filed as Exhibit 10.1 to the current report on Form 8-K filed on September 16, 2010 and incorporated herein by reference). | |||
10.1(a) |
Letter extending the Management Agreement between the General Partner and Chesapeake Capital Corporation (filed as Exhibit 10.1 (a) to the annual report on Form 10-K, filed March 30, 2012 and incorporated herein by reference). | |||
10.2 |
Second Amended and Restated Customer Agreement between the Partnership and Salomon Smith Barney Inc. (filed as Exhibit 10.2 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
10.3 |
Amended and Restated Agency Agreement between the Partnership, Smith Barney Futures Management LLC and Salomon Smith Barney Inc. (filed as Exhibit 10.3 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | |||
10.4 |
Form of Subscription Agreement (filed as Exhibit 10.4 to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||
10.5 |
Joinder Agreement among Citigroup Managed Futures LLC (the former name of the General Partner), Citigroup Global Markets Inc. and Morgan Stanley Smith Barney LLC (filed as Exhibit 10 to the quarterly report on Form 10-Q filed on August 14, 2009 and incorporated herein by reference). | |||
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer).
Exhibit 32.1 Section 1350 Certification (Certification of President and Director).
Exhibit 32.2 Section 1350 Certification (Certification of Chief Financial Officer). | ||||
101.INS | XBRL Instance Document. | |||
101.SCH | XBRL Taxonomy Extension Schema Document. | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TIDEWATER FUTURES FUND L.P.
| ||
By: |
Ceres Managed Futures LLC | |
(General Partner) | ||
By: | /s/ Walter Davis | |
Walter Davis | ||
President and Director | ||
Date: August 14, 2012 | ||
By: | /s/ Damian George | |
Damian George | ||
Chief Financial Officer (Principal Accounting Officer) |
Date: August 14, 2012
45
Exhibit 31.1
CERTIFICATION
I, Walter Davis, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Tidewater Futures Fund L.P.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 14, 2012
/s/ Walter Davis |
||||||
Walter Davis | ||||||
Ceres Managed Futures LLC President and Director |
Exhibit 31.2
CERTIFICATION
I, Damian George, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Tidewater Futures Fund L.P.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 14, 2012
/s/ Damian George |
||||||
Damian George | ||||||
Ceres Managed Futures LLC Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tidewater Futures Fund L.P. (the Partnership) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Walter Davis, President and Director of Ceres Managed Futures LLC, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
/s/ Walter Davis |
Walter Davis |
Ceres Managed Futures LLC President and Director |
Date: August 14, 2012
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tidewater Futures Fund L.P. (the Partnership) on Form 10-Q for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Damian George, Chief Financial Officer of Ceres Managed Futures LLC, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
/s/ Damian George |
Damian George |
Ceres Managed Futures LLC Chief Financial Officer |
Date: August 14, 2012
Financial Instrument Risks (Details Textual)
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6 Months Ended |
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Jun. 30, 2012
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Financial Instrument Risks (Textual) [Abstract] | |
Partnership contracts traded in OTC minimum | 0.00% |
Partnership contracts traded in OTC maximum | 6.40% |
Trading Activities
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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Trading Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading Activities |
3. Trading Activities: The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership’s trading activities are shown in the Statements of Income and Expenses and Changes in Partners’ Capital. The customer agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures and open forward contracts. The Partnership nets, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210-20 “Balance Sheet,” have been met. All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded by the Partnership during the three months ended June 30, 2012 and 2011 were 1,233 and 3,079. The monthly average number of futures contracts traded by the Partnership during the six months ended June 30, 2012 and 2011 were 1,515 and 3,178. The monthly average number of metal forward contracts traded by the Partnership during the three months ended June 30, 2012 and 2011 were 120 and 104. The monthly average number of metal forward contracts traded by the Partnership during the six months ended June 30, 2012 and 2011 were 82 and 134. The monthly average notional value of currency forward contracts held by the Partnership during the three months ended June 30, 2012 and 2011 were $0 and $0. The monthly average notional value of currency forward contracts held by the Partnership during the six months ended June 30, 2012 and 2011 were $1,028,110 and $0.
Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of June 30, 2012 and December 31, 2011.
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and six months ended June 30, 2012 and 2011.
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