UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period ended September 30, 2009

 

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 000-26132

 

DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P.

(Exact name of registrant as specified in its charter)

 

 

c/o Ceres Managed Futures LLC

55 East 59th Street - 10th Floor

New York, New York 10022

(Address of principal executive offices) (Zip Code)

 

(212) 599-2011

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  X      No      

 

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

 

Yes           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):

 

 

 

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

 

Yes           No  X   

 

 

As of October 31, 2009, 18,377.1918 Limited Partnership Redeemable Units were outstanding.

 

DIVERSIFIED MULTI-ADVISOR FUTURES FUND L.P.
FORM 10-Q
INDEX

 

3.2(b)		Certificate of Amendment of the Certificate of Limited Partnership, dated October 1, 1999
3.2(c)		Certificate of Amendment of the Certificate of Limited Partnership, dated May 21, 2003
3.2(d)		Certificate of Amendment of the Certificate of Limited Partnership, dated September 21, 2005
3.2(e)		Certificate of Amendment of the Certificate of Limited Partnership, dated September 19, 2008
31.1		Certification
31.2		Certification
32.1		Certification
32.2		Certification

 

		September 30,				December 31,
		2009				2008
Assets:
Investment in Partnerships, at fair value		$	36,059,404			$	49,607,769
Cash			95,476				69,501
Total assets			36,154,880				49,677,270
Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Brokerage commissions		$	165,710			$	227,687
Management fees			55,510				76,444
Incentive fees			29,522				189,867
Other			30,556				41,882
Redemptions payable			236,254				850,367
Total liabilities			517,552				1,386,247
Partners’ Capital:
General Partner, 280.4039 and 835.3289 Unit equivalents outstanding at September 30, 2009 and December 31, 2008, respectively			527,958				1,695,634
Limited Partners, 18,646.8877 and 22,954.4913 Redeemable Units of Limited Partnership Interest outstanding at September 30, 2009 and December 31, 2008, respectively			35,109,370				46,595,389
Total partners’ capital			35,637,328				48,291,023
Total liabilities and partners’ capital		$	36,154,880			$	49,677,270

 

See accompanying notes to financial statements.

 

 

See accompanying notes to financial statements.

Diversified Multi-Advisor Futures Fund L.P.
Schedule of Investments
December 31, 2008
(Unaudited)

 

 

See accompanying notes to financial statements.

Diversified Multi-Advisor Futures Fund L.P.
Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Income:
Net gains (losses) on trading of commodity interests and investment in Partnerships:
Net realized gains (losses) on investment in Partnerships		$	(713,810	)		$	339,946			$	(1,381,253	)		$	8,285,268
Change in net unrealized gains (losses) on investment in Partnerships			1,496,308				(2,290,875	)			445,861				(1,013,508	)
Gain (loss) from trading, net			782,498				(1,950,929	)			(935,392	)			7,271,760
Interest income from investment in Partnerships			8,010				144,913				26,361				493,275
Total income (loss)			790,508				(1,806,016	)			(909,031	)			7,765,035
Expenses:
Brokerage commissions including clearing fees			529,367				691,785				1,759,736				2,129,882
Management fees			169,474				224,407				572,410				684,846
Incentive fees			21,941				27,300				29,522				742,124
Other			33,853				30,519				147,495				102,253
Total expenses			754,635				974,011				2,509,163				3,659,105
Net income (loss)			35,873				(2,780,027	)			(3,418,194	)			4,105,930
Additions-General Partner			—				—				—				1,000,000
Redemptions-General Partner			—				—				(1,037,738	)			—
Redemptions-Limited Partners			(2,029,923	)			(1,324,214	)			(8,197,763	)			(4,685,935	)
Net increase (decrease) in Partners’ Capital			(1,994,050	)			(4,104,241	)			(12,653,695	)			419,995
Partners’ Capital, beginning of period			37,631,378				51,921,873				48,291,023				47,397,637
Partners’ Capital, end of period		$	35,637,328			$	47,817,632			$	35,637,328			$	47,817,632
Net Asset Value per Unit (18,927.2916 and 25,224.6678 Units outstanding at September 30, 2009 and 2008, respectively)		$	1,882.85			$	1,895.67			$	1,882.85			$	1,895.67
Net income (loss) per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent		$	3.66			$	(106.63	)		$	(147.05	)		$	153.78
Weighted average units outstanding			19,646.7281				25,713.0649				21,414.5412				26,190.0561

 

See accompanying notes to financial statements.

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

 

Diversified Multi-Advisor Futures Fund L.P., (formerly Smith Barney Diversified Futures Fund L.P.) (the “Partnership”) is a limited partnership that was organized under the partnership laws of the State of New York on August 13, 1993 to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, lumber, metals and softs. The commodity interests that are traded by the Funds, (as defined in Note 5 “Investment in Partnerships”) are volatile and involve a high degree of market risk. The Partnership commenced trading operations on January 12, 1994.

 

Ceres Managed Futures LLC (formerly Citigroup 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”), a newly registered non-clearing futures commission merchant and a member of the National Futures Association. Morgan Stanley, indirectly through various subsidiaries, owns 51% of MSSB Holdings. Citigroup Global Markets Inc. (“CGM”), the commodity broker and a selling agent for the Partnership, owns 49% of MSSB Holdings. Citigroup Inc. (“Citigroup”), indirectly through various subsidiaries, wholly owns CGM. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup.

 

As of September 30, 2009, all trading decisions are made for the Partnership by Willowbridge Associates, Inc. (“Willowbridge”), Winton Capital Management Limited (“Winton”), Graham Capital Management L.P. (“Graham”), Eckhardt Trading Company (“Eckhardt”) and Sandridge Capital LP, (“Sandridge”) (each an “Advisor” and collectively, the “Advisors”). Campbell & Company, Inc. was terminated as of May 31, 2009. Sandridge was added as an advisor to the Partnership on June 1, 2009. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors indirectly through investments in master funds.

 

The General Partner and each Limited Partner share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each except that no Limited Partner shall be liable for obligations of the Partnership in excess of their initial capital contribution and profits, if any, net of distributions.

 

The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at September 30, 2009 and December 31, 2008, and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 2009 and 2008. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2008.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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. In making these estimates and assumptions, management has considered the effects, if any, of events occurring after the date of the Partnership’s Statements of Financial Condition through November 16, 2009, which is the date the financial statements were issued. As a result, actual results could differ from these estimates.

 

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, also known as FASB Accounting Standards Codification (“ASC”) 105-10, “Generally Accepted Accounting Principles” (“ASC 105-10”) (the “Codification”). ASC 105-10 established the exclusive authoritative reference for U.S. GAAP for use in financial statements except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. Codification became the single source of authoritative accounting principles generally accepted in the United States and applies to all financial statements issued after September 15, 2009.

 

The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230-10 Statement of Cash Flows (formerly, FAS No. 102, “Statement of Cash Flows Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale”).

 

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.

 

Certain prior period amounts have been reclassified to conform to current year presentation.

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September  30, 2009
(Unaudited)

 

 

Changes in the Net Asset Value per Redeemable Unit of Limited Partnership Interest for the three and nine months ended September 30, 2009 and 2008 were as follows:

 

 

 

 

 

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.

 

 

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership’s investments are in other partnerships which trade these instruments. The results of the Partnership’s trading activities are resulting from its investment in other partnerships as 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 forward contracts. The Partnership nets, for financial reporting purposes, the unrealized gains and losses on open futures and forward contracts on the Statements of Financial Condition as the criteria under ASC 210-20, Balance Sheet (formerly, FIN No. 39, “Offsetting of Amounts Related to Certain Contracts”) have been met.

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

Brokerage commissions 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, additions and redemptions.

 

The Partnership adopted ASC 815-10, Derivatives and Hedging (formerly, FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”) as of January 1, 2009 which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. ASC 815-10 only expands the disclosure requirements for derivative instruments and related hedging activities and has no impact on the Statements of Financial Condition or Statements of Income and Expenses and Changes in Partners’ Capital.

 

 

Investments.  All commodity interests (including derivative financial instruments and derivative commodity instruments), through its investment in other partnerships, 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. 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.

 

Fair Value Measurements.  The Partnership and the Funds (as defined in Note 5 “Investment in Partnerships”) adopted ASC 820-10 Fair Value Measurements and Disclosures (formerly, FAS No. 157, “Fair Value Measurements”) as of January 1, 2008 which defines fair value 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. ASC 820-10 establishes a framework for measuring fair value and expands disclosures regarding fair value measurements in accordance with GAAP. 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. The Partnership and the Funds did not apply the deferral allowed by ASC 820-10, for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.

 

The Funds consider prices for exchange traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (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). Investments in partnerships (other commodity pools) where there are no other rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in partnerships reflects its proportional interest in the partnerships. As of and for the periods ended September 30, 2009 and December 31, 2008, the Funds did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

 

On November 1, 2004, the assets allocated to Winton for trading were invested in CMF Winton Master L.P. (“Winton Master”) a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 15,054.1946 Units of Winton Master with cash of $14,251,586, and a contribution of open commodity futures and forward contracts with a fair value of $802,609. Winton Master was formed in order to permit commodity pools managed now or in the future by Winton using its Diversified Program, a proprietary systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Winton Master. Individual and pooled accounts currently managed by Winton, including the Partnership, are permitted to be limited partners of Winton Master. The General Partner and Winton believe that trading through this structure should promote efficiency and economy in the trading process.

 

On January 1, 2005, the assets allocated to Campbell for trading were invested in CMF Campbell Master Fund L.P. (“Campbell Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 19,621.1422 Units of Campbell Master with cash of $19,428,630, and a contribution of open commodity futures and forward contracts with a fair value of $192,512. Campbell Master was formed in order to permit commodity pools managed now or in the future by Campbell using its Financials Metals and Energy (“FME”) Portfolio, a proprietary systematic trading system, to invest together in one trading vehicle. The Partnership fully redeemed its investment in Campbell Master on May 31, 2009 for cash equal to $2,818,836.

 

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Argo Master Fund L.P. (“Willowbridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 12,259.3490 Units of Willowbridge Master with cash of $11,118,119, and a contribution of open commodity futures and forward contracts with a fair value of $1,141,230. Willowbridge Master was formed in order to permit commodity pools managed now or in the future by Willowbridge using its Argo Trading Program, a proprietary systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process.

 

On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Capital Master Fund L.P. (“Graham Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 14,741.1555 Units of Graham Master with cash of $14,741,156. Graham Master was formed in order to permit accounts managed now and in the future by Graham using its K4D-12.5 Program, a proprietary systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure promotes efficiency and economy in the trading process.

 

On April 1, 2008, the assets allocated to Eckhardt for trading were invested in CMF Eckhardt Master Fund L.P. (“Eckhardt Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 7,000.0000 Units of Eckhardt Master with cash of $7,000,000. Eckhardt Master was formed in order to permit commodity pools managed now or in the future by Eckhardt using its Standard Program, a proprietary systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Eckhardt Master. Individual and pooled accounts currently managed by Eckhardt, including the Partnership, are permitted to be limited partners of Eckhardt Master. The General Partner and Eckhardt believe that trading through this structure should promote efficiency and economy in the trading process.

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

On June 1, 2009, the assets allocated to Sandridge for trading were invested in CMF Sandridge Master Fund L.P. (“Sandridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 1,370.9885 Units of Sandridge Master with cash of $2,818,836. Sandridge was formed in order to permit accounts managed now and in the future by Sandridge using its Energy Program, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Sandridge Master. Individual and pooled accounts currently managed by Sandridge, including the Partnership, are permitted to be limited partners of Sandridge Master. The General Partner and Sandridge believe that trading through this structure promotes efficiency and economy in the trading process.

 

The General Partner is not aware of any material changes to the trading programs discussed above during the fiscal quarter ended September 30, 2009.

 

Winton Master’s, Willowbridge Master’s, Graham Master’s, Eckhardt Master’s and Sandridge Master’s (collectively, the “Funds”), trading of futures, forwards and options contracts, if applicable, on commodities is done primarily on United States of America commodity exchanges and foreign commodity exchanges. The Funds engage in such trading through commodity brokerage accounts maintained with CGM.

 

 

A Limited Partner may withdraw all or part of their capital contribution and undistributed profits, if any, from the Funds in multiples of the Net Asset Value per Redeemable Unit of Limited Partnership Interest as of the end of any day (the “Redemption Date”) after a request for redemption has been made to the General Partner at least 3 days in advance of the Redemption Date. The Units are classified as a liability when the Limited Partner elects to redeem and inform the Funds.

 

Management and incentive fees are charged at the Partnership level. All exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) are borne by the Funds. All other fees including CGM’s direct brokerage commission are charged at the Partnership level.

 

As of September 30, 2009 the Partnership owned approximately 2.0%, 2.9%, 5.8%, 31.1% and 0.5% of Winton Master, Willowbridge Master, Graham Master, Eckhardt Master and Sandridge Master respectively. At December 31, 2008 the Partnership owned approximately 2.6%, 5.6%, 3.6%, 5.0% and 31.0% of Winton Master, Campbell Master, Willowbridge Master, Graham Master and Eckhardt Master, respectively. It is Winton’s, Willowbridge’s, Graham’s, Eckhardt’s and Sandridge’s intention to continue to invest the assets allocated to each by the Partnership in Winton Master, Willowbridge Master, Graham Master, Eckhardt Master and Sandridge Master respectively. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

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

 

		September 30, 2009
		Total Assets				Total Liabilities				Total Capital
Winton Master		$	524,755,608			$	442,584			$	524,313,024
Willowbridge Master			238,192,320				30,172				238,162,148
Graham Master			168,037,387				14,694				168,022,693
Eckhardt Master			18,505,502				41,281				18,464,221
Sandridge Master			621,430,942				752,175				620,678,767
Total		$	1,570,921,759			$	1,280,906			$	1,569,640,853
		December 31, 2008
		Total Assets				Total Liabilities				Total Capital
Winton Master		$	548,586,877			$	835,334			$	547,751,543
Campbell Master			127,587,225				112,263				127,474,962
Willowbridge Master			297,439,763				19,759				297,420,004
Graham Master			227,483,547				2,992,605				224,490,942
Eckhardt Master			20,544,954				15,519				20,529,435
Total		$	1,221,642,366			$	3,975,480			$	1,217,666,886

 

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

		September 30, 2009								For the three months ended September 30, 2009
		% of																				Net
		Partnership’s				Fair				Income				Expenses								Income				Investment				Redemptions
Investment		Net Assets				Value				(Loss)				Commissions				Other				(Loss)				Objective				Permitted
Winton Master			29.88	%		$	10,649,739				141,122				2,104				186				138,832			Commodity Portfolio				Monthly
Willowbridge Master			19.28	%			6,870,288				(658,676	)			2,857				574				(662,107	)		Commodity Portfolio				Monthly
Graham Master			27.51	%			9,802,011				854,818				11,841				593				842,384			Commodity Portfolio				Monthly
Eckhardt Master			16.13	%			5,750,030				281,686				5,689				6,625				269,372			Commodity Portfolio				Monthly
Sandridge Master			8.38	%			2,987,336				171,558				892				182				170,484			Energy Portfolio				Monthly
Total						$	36,059,404			$	790,508			$	23,383			$	8,160			$	758,965

13

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

 

Diversified Multi-Advisor Futures Fund L.P.
Notes to Financial Statements
September 30, 2009
(Unaudited)

 

 

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

 

Market risk is the potential for changes in the value of the financial instruments traded by the Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

 

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Funds’ risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and not represented by the contract or notional amounts of the instruments. The Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Funds have credit risk and concentration risk as the sole counterparty or broker with respect to the Funds’ assets is CGM or a CGM affiliate. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Funds’ counterparty is an exchange or clearing organization.

 

As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Funds to potentially unlimited liability; for purchased options the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Funds do not consider these contracts to be guarantees as described in ASC 460-10 Guarantees (formerly, FAS No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees”).

 

The General Partner monitors and controls the Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Funds are subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, on-line 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 instruments mature within one year of the inception date. However, due to the nature of the Funds’ businesses, these instruments may not be held to maturity.

 

Liquidity and Capital Resources

 

The Partnership does not engage in sales of goods or services. Its only assets are its investment in the Funds and cash. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investments in the Funds. While substantial losses could lead to a material decrease in liquidity, no such losses occurred during the third quarter of 2009.

 

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

 

For the nine months ended September 30, 2009, Partners’ Capital decreased 26.2% from $48,291,023 to $35,637,328. This decrease was attributable to a net loss from operations of $3,418,194 coupled with the redemption of 4,307.6036 Redeemable Units of Limited Partnership Interest totaling $8,197,763 and 554.9250 General Partner Unit equivalents totaling $1,037,738. Future redemptions could impact the amount of funds available for investment in the Funds in subsequent periods.

 

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.

 

Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows as permitted by ASC 230-10.

 

Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments), through its investment in other partnerships, 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. 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.

 

Fair Value Measurements. The Partnership and the Funds adopted ASC 820-10 as of January 1, 2008 which defines fair value 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. The Partnership and the Funds did not apply the deferral allowed by ASC 820-10 for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.

 

The Funds consider prices for exchange traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (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). Investments in partnerships (other commodity pools) where there are no other rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in partnerships reflects its proportional interest in the partnerships. As of and for the period ended September 30, 2009, the Funds did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

 

Futures Contracts.  The Funds trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery can not occur (such as S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

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

 

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

 

London Metals Exchange Forward Contracts.  Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of Aluminum, Copper, Lead, Nickel, Tin or Zinc. LME contracts traded by the Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. A contract is considered offset when all long positions have been matched with short positions. When the contract is closed at the prompt date, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because 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, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

 

Options.  The Funds may purchase and write (sell), both exchange listed and over-the-counter, options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.

 

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

 

In 2007, the Partnership adopted ASC 740-10 Income Taxes (formerly, FAS No. 48, “Accounting for Uncertainty in Income Taxes”). ASC 740-10 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. ASC 740-10 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions with respect to tax at the partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The General Partner has continued to evaluate the application of ASC 740-10 and has concluded that the adoption of ASC 740-10 had no impact on the operations of the Partnership for the nine months ended September 30, 2009 and that no provision for income tax is required in the Partnership’s financial statements.

 

The following are the major tax jurisdictions for the Partnership and the earliest tax year subject to examination: United States – 2005.

 

Recent Accounting Pronouncements. In 2009, the Partnership adopted ASC 820-10-65 Fair Value Measurements (formerly, FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”). ASC 820-10-65 reaffirms that fair value is 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. ASC 820-10-65 also reaffirms 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. The application of ASC 820-10-65 is required for interim and annual reporting periods ending after June 15, 2009. Management has concluded that based on available information in the marketplace, there has not been a decrease in the volume and level of activity in the Partnership’s Level 2 assets and liabilities. The adoption of ASC 820-10-65 had no effect on the Partnership’s Financial Statements.

 

Subsequent Events. In 2009, the Partnership adopted ASC 855-10 Subsequent Events (formerly, FAS No. 165, “Subsequent Events”). The objective of ASC 855-10 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.

 

17

Results of Operations

 

During the Partnership’s third quarter of 2009, the Net Asset Value per Redeemable Unit increased 0.2% from $1,879.19 to $1,882.85 as compared to a decrease of 5.3% in the third quarter of 2008. The Partnership experienced a net trading gain, through its investments in the Funds, before brokerage commissions and related fees in the third quarter of 2009 of $782,498. Gains were primarily attributable to the trading by the Funds of commodity futures in currencies, grains, U.S. and non-U.S. interest rates, metals, softs, and indices and were offset by losses in energy and livestock. The Partnership experienced a net trading loss, through its investments in the Funds, before brokerage commissions and related fees in the third quarter of 2008 of $1,950,929. Losses were primarily attributable to the trading by the Funds of commodity futures in energy, grains, non-U.S. interest rates, livestock, metals and softs and were partially offset by gains in currencies, U.S. interest rates, indices and lumber.

Markets around the world rose again in the third quarter of 2009. Economic activity in the U.S. further stabilized with many important sectors of the economy demonstrating marked improvements over the depressed levels reached earlier this year. The overall economy continued to face headwinds with employment further contracting, albeit at a much slower pace. Consumer confidence has bounced off record lows but remains well below historical averages. The Partnership realized gains for the quarter, primarily in equity indices, metals, and soft commodities.

The majority of the profits were earned on the back of the equity rally. The combination of strong growth news, benign inflation data and accommodative monetary policy stances from key central banks has continued to support the price action in risky assets. Gains were also recorded in metals, primarily in copper and gold, as prices established firm bullish trends that began in early 2009. The Partnership capitalized on these trends and registered strong gains. In soft commodities, profits were realized primarily from trading sugar as prices rallied to a 28-year high in August on a weaker-than-normal monsoon season which has had a negative impact on the crop in India. In addition, the harvest in Brazil, the world’s largest producer, has been delayed by excessive rainfall.

In the energy sector, losses were captured as the markets remained in contango. Natural gas demonstrated a strong bearish trend but the trend seemed to be reversing late in the quarter. Crude oil and heating oil remained mostly trend-less and volatile, thus contributing to losses.

 

During the Partnership’s nine months ended September 30, 2009, the Net Asset Value per Redeemable Unit decreased 7.2% from $2,029.90 to $1,882.85 as compared to an increase of 8.8% for the nine months ended September 30, 2008. The Partnership experienced a net trading loss, through its investments in the Funds, before brokerage commissions and related fees in the nine months ended September 30, 2009 of $935,392. Losses were primarily attributable to the trading by the Funds of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates, lumber and livestock and were partially offset by gains in metals, softs and indices. The Partnership experienced a net trading gain, through its investments in the Funds, before brokerage commissions and related fees in the nine months ended September 30, 2008 of $7,271,760. Gains were primarily attributable to the trading by the Funds of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates, indices livestock, lumber and metals and were partially offset by losses in softs.

 

Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Funds expect to increase capital through operations.

 

CGM will pay monthly interest to the Partnership on its applicable share of 80% of the average daily equity maintained in cash in the Funds’ brokerage account at a 30-day U.S. Treasury bill rate determined by CGM and/or will place all of the Funds’ assets in 90-day Treasury bills. The Partnership will receive 80% of its applicable share of the interest earned on the Treasury bills through its investments in other partnerships. Twenty percent of any interest earned on Treasury bills purchased may be retained by CGM and/or credited to the General Partner. Interest income from investment in Partnerships for the three and nine months ended September 30, 2009 decreased by $136,903 and $466,914, respectively, as compared to the corresponding periods in 2008. The decrease in interest income is primarily due to lower U.S. Treasury Bill rates for the Partnership during the three and nine months ended September 30, 2009 as compared to the corresponding periods in 2008.

 

Brokerage commissions are calculated as a percentage of the Partnership’s net asset value as of the last day of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage commissions and fees for the three and nine months ended September 30, 2009 decreased by $162,418 and $370,146, respectively, as compared to the corresponding periods in 2008. The decrease in brokerage commissions is due to lower average net assets during the three and nine months ended September 30, 2009 as compared to the corresponding periods in 2008.

 

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of the month and are affected by trading performance and redemptions. Management fees for the three and nine months ended September 30, 2009 decreased by $54,933 and $112,436, respectively, as compared to the corresponding periods in 2008. The decrease in management fees is due to lower average net assets during the three and nine months ended September 30, 2009 as compared to the corresponding periods in 2008.

 

Incentive fees are based on the new trading profits generated by each Advisor at the end of the quarter as defined in the advisory agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three and nine months ended September 30, 2009 resulted in incentive fees of $21,941 and $29,522, respectively. Trading performance for the three and nine months ended September 30, 2008 resulted in incentive fees of $27,300 and $742,124, respectively.

 

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

 

All of the Partnership’s assets are subject to the risk of trading loss through its investments in the Funds. The Funds are speculative commodity pools. The market sensitive instruments held by the Funds are acquired for speculative trading purposes, and all or substantially all of the Funds’ assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Funds’ main lines of business.

 

The risk to the Limited Partners that have purchased interests in the Partnership is limited to the amount of their capital contributions to the Partnership and their share of the Partnership’s assets and undistributed profits. This limited liability is a consequence of the organization of the Partnership as a limited partnership under applicable law.

 

Market movements result in frequent changes in the fair value of the Funds’ open positions and, consequently in their earnings and cash flow. The Funds’ market risks are influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the fair value of financial instruments and contracts, the diversification effects of the Funds’ open positions and the liquidity of the market in which they trade.

 

The Funds rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Funds’ past performances are not necessarily indicative of their future results.

 

Value at Risk is a measure of the maximum amount which the Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds’ speculative trading and the recurrence in the markets traded by the Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Funds’ experiences to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Funds’ losses in any market sector will be limited to Value at Risk or by the Funds’ attempts to manage their market risks.

 

Exchange maintenance margin requirements have been used by the Funds as the measure of their Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

 

The following tables indicates the trading Value at Risk associated with the Partnership’s investments in the Funds by market category as of September 30, 2009 and the highest, lowest and average value during the three months ended September 30, 2009. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

As of September 30, 2009, Winton Master’s total capitalization was $524,313,024, the Partnership owned approximately 2.0% of Winton Master. The Partnership’s Value at Risk for the portion of its assets that are traded indirectly through its investment in the Winton Master as of September 30, 2009 was as follows:

 

September 30, 2009
(Unaudited)

 

										Three Months Ended September 30, 2009
						% of Total				High				Low				Average
Market Sector		Value at Risk				Capitalization				Value at Risk				Value at Risk				Value at Risk*
Currencies		$	9,333,591				1.78	%		$	10,700,900			$	8,478,938			$	9,504,427
Energy			1,240,349				0.24	%			2,549,525				703,862				1,440,952
Grains			1,718,287				0.33	%			1,718,287				1,133,559				1,432,359
Interest Rates U.S.			6,173,010				1.18	%			6,518,610				2,078,339				4,522,123
Interest Rates Non-U.S.			10,044,891				1.92	%			11,661,822				4,837,528				7,726,635
Livestock			111,186				0.02	%			227,651				102,533				161,785
Metals			3,879,776				0.74	%			3,998,291				1,589,099				2,918,296
Softs			585,138				0.11	%			1,035,185				385,375				606,465
Indices			10,676,526				2.04	%			10,676,526				1,905,983				5,639,298
Total		$	43,762,754				8.36	%

 

 

 

As of September 30, 2009, Willowbridge Master’s total capitalization was $238,162,148. The Partnership owned approximately 2.9% of Willowbridge Master. The Partnership’s Value at Risk for the portion of its assets that are traded indirectly through its investment in the Willowbridge Master as of September 30, 2009 was as follows:

 

September 30, 2009
(Unaudited)

 

										Three Months Ended September 30, 2009
		Value				% of Total				High Value				Low Value				Average Value
Market Sector		at Risk				Capitalization				at Risk				at Risk				at Risk*
Currencies		$	7,855,650				3.30	%		$	14,208,480			$	2,908,305			$	8,695,042
Energy			1,451,588				0.61	%			13,037,019				685,800				6,087,536
Grains			3,415,500				1.44	%			3,415,500				1,723,410				2,429,356
Interest Rates U.S.			5,191,560				2.18	%			9,939,105				507,263				3,052,277
Interest Rates Non-U.S.			10,084,707				4.23	%			14,168,324				455,649				7,346,189
Livestock			273,240				0.12	%			410,400				133,110				209,851
Metals			8,083,122				3.39	%			8,372,754				1,909,575				5,660,365
Softs			1,841,840				0.77	%			2,445,100				981,960				1,607,183
Total		$	38,197,207				16.04	%

 

* Average of month-end Values at Risk.

 

 

 

As of September 30, 2009, Graham Master’s total capitalization was $168,022,693. The Partnership owned approximately 5.8% of Graham Master. The Partnership’s Value at Risk for the portion of its assets that are traded indirectly through its investment in the Graham Master as of September 30, 2009 was as follows:

 

September 30, 2009
(Unaudited)

 

										Three Months Ended September 30, 2009
		Value				% of Total				High Value				Low Value				Average Value
Market Sector		at Risk				Capitalization				at Risk				at Risk				at Risk*
Currencies		$	6,395,662				3.81	%		$	8,136,447			$	3,040,693			$	5,464,391
Energy			678,527				0.41	%			1,774,426				484,382				1,096,708
Grains			1,411,794				0.84	%			1,846,996				215,255				1,126,000
Interest Rates U.S.			2,238,368				1.33	%			2,365,808				87,777				682,461
Interest Rates Non-U.S.			8,320,518				4.95	%			8,320,518				471,498				2,721,058
Livestock			36,180				0.02	%			48,263				15,660				26,831
Metals			1,596,936				0.95	%			1,806,942				488,247				1,265,220
Softs			1,479,945				0.88	%			1,479,945				511,314				883,086
Indices			9,707,902				5.78	%			12,019,804				3,419,163				8,269,216
Total		$	31,865,832				18.97	%

 

 

As of September 30, 2009, Eckhardt Master’s total capitalization was $18,464,221. The Partnership owned approximately 31.1% of Eckhardt Master. The Partnership’s Value at Risk for the portion of its assets that are traded indirectly through its investment in the Eckhardt Master as of September 30, 2009 was as follows:

 

September 30, 2009
(Unaudited)

 

										Three Months Ended September 30, 2009
		Value				% of Total				High Value				Low Value				Average Value
Market Sector		at Risk				Capitalization				at Risk				at Risk				at Risk*
Currencies		$	122,663				0.66	%		$	1,191,210			$	122,663			$	654,172
Energy			51,156				0.28	%			442,311				50,550				190,696
Grains			137,399				0.74	%			138,725				62,430				102,002
Interest Rates U.S.			361,800				1.96	%			678,443				61,560				245,751
Interest Rates Non -U.S.			142,809				0.77	%			337,995				13,213				73,920
Metals			495,706				2.69	%			495,706				209,150				357,137
Softs			251,705				1.36	%			251,705				105,270				148,442
Indices			706,284				3.83	%			706,284				188,635				438,028
Total		$	2,269,522				12.29	%

 

 

As of September 30, 2009, Sandridge Master’s total capitalization was $620,678,767. The Partnership owned approximately 0.5% of Sandridge Master. The Partnership’s Value at Risk for the portion of its assets that are traded indirectly through its investment in the Sandridge Master as of September 30, 2009 was as follows:

 

September 30, 2009
(Unaudited)

 

										Three Months Ended September 30, 2009
		Value				% of Total				High Value				Low Value				Average Value
Market Sector		at Risk				Capitalization				at Risk				at Risk				at Risk*
Energy		$	25,720,664				4.14	%		$	25,720,664			$	18,754,664			$	24,319,593
Total		$	25,720,664				4.14	%

 

 

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

 

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

 

The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-115(e) under the Exchange Act) as of September 30, 2009 and, based on that evaluation, the CEO and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.

 

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

 

 

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended September 30, 2009 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

 

 

The following disclosure supplements the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Report on Forms 10-Q for the quarters ended March 31, 2009 and June 30, 2009.

 

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

 

Regulatory changes could restrict the Partnership’s operations. Regulatory changes could adversely affect the Partnership and the Funds by restricting its markets or activities, limiting its trading and/or increasing the taxes to which investors are subject. The General Partner is not aware of any definitive regulatory developments that might adversely affect the Partnership and the Funds; however, since June 2008, several bills have been proposed in the U.S. Congress in response to record energy and agricultural prices and the financial crisis. Some of the pending legislation, if enacted, could impact the manner in which swap contracts are traded and/or settled and limit trading by speculators (such as the Partnership and the Funds) in futures and OTC markets. One of the proposals would authorize the CFTC and the Commission to regulate swap transactions. Other potentially adverse regulatory initiatives could develop suddenly and without notice.

 

 

The Partnership no longer offers Redeemable Units at the Net Asset Value per Redeemable Unit as of the end of each month.

 

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