Attached files
file | filename |
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EX-32.2 - EX-32.2 - Ceres Tactical Commodity L.P. | y04617exv32w2.htm |
EX-31.2 - EX-31.2 - Ceres Tactical Commodity L.P. | y04617exv31w2.htm |
EX-32.1 - EX-32.1 - Ceres Tactical Commodity L.P. | y04617exv32w1.htm |
EX-31.1 - EX-31.1 - Ceres Tactical Commodity L.P. | y04617exv31w1.htm |
EX-10.1.B - EX-10.1.B - Ceres Tactical Commodity L.P. | y04617exv10w1wb.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2010
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-52602
BRISTOL ENERGY FUND L.P.
(Exact name of registrant as specified in its charter)
New York | 20-2718952 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
522 Fifth Avenue - 14th Floor
New York, New York 10036
522 Fifth Avenue - 14th Floor
New York, New York 10036
(Address and Zip Code of principal executive offices)
(212) 296-1999
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: Redeemable Units
of Limited Partnership Interest
(Title of Class)
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes
No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes
No X
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K [X]
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 (Do not check if a smaller reporting company) |
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
Limited
Partnership Redeemable Units with an aggregate value of $317,485,331 were outstanding and
held by non-affiliates as of the last business day of the registrants most recently completed
second calendar month.
As of
February 28, 2011, 243,014.3176 Limited Partnership Redeemable Units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
[None]
[None]
PART I
Item 1. Business.
(a) General
Development of Business. Bristol Energy Fund L.P. (the
Partnership), is a limited partnership organized on April 20, 2005 under the partnership laws of
the state of New York to engage, directly or indirectly, in the speculative trading
of commodity interests, including options, commodity futures contracts, forwards and swap contracts on
United States exchanges and certain foreign exchanges. In addition, the Master (as defined below) may enter into
swap and derivative contracts on energy related products. The commodity interests that are traded by the Partnership, through the Master, are
volatile and involve a high degree of market risk.
Between May 15, 2005 (commencement of the offering period) and September 1, 2005, 11,925
redeemable units of Limited Partnership Interest (Redeemable Units) were sold at $1,000 per
Redeemable Unit. The proceeds of the initial offering were held in an escrow account until
September 6, 2005 at which time they were remitted to the Partnership for trading. The Partnership
was authorized to sell 100,000 Redeemable Units during its initial
offering period. The Partnership privately and continously offers up
to 500,000 Redeemable Units to qualified investors. There is no maximum number of units that may be sold by the Partnership. Subscriptions and redemptions of
Redeemable Units and general partner contributions and redemptions for the years ended December 31,
2010, 2009 and 2008 are reported in the Statements of Changes in
Partners Capital on page 26
under Item 8. Financial Statements and Supplementary Data.
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 Global Markets Inc. (CGM), the commodity broker and a selling agent for
the Partnership, owns a minority equity interest in 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 December 31, 2010, all trading decisions for the Partnership are made by the Advisor (defined below).
On December 1, 2005, the Partnership allocated substantially all of its capital to CMF
SandRidge Master Fund L.P. (the Master), a limited partnership organized under the partnership
laws of the State of New York. The Partnership purchased 14,410.6191 units of the Master
with cash equal to $14,477,858 and a contribution of open commodity futures and option contracts
with a fair value of $(16,018). The Master was formed in order to permit commodity pools managed
now or in the future by SandRidge Capital, L.P. (SandRidge or the Advisor) using its Energy
Program, a proprietary discretionary trading system, to invest together in one trading vehicle.
A description of the trading activities and focus of the Advisor is
included on page 7 under
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
In addition, the Advisor is a Special Limited
Partner (defined herein) of the Partnership. The General Partner is also the general partner of the
Master. Individual and pooled accounts currently managed by SandRidge, including the Partnership,
are permitted to be limited partners of the Master. The General Partner and SandRidge believe that
trading through this master/feeder structure should promote efficiency and economy in the trading
process. Expenses to investors as a result of the investment in the Master are approximately the same and
redemption rights are not affected.
The General Partner is not aware of any material changes to the trading program discussed
above during the fiscal year ended December 31, 2010.
For the period January 1, 2010 through December 31, 2010, the approximate average
market sector allocation for the Partnership was 100% energy.
At
December 31, 2010 and 2009, the Partnership owned approximately
76.1% and 70.1%, respectively, of the
Master. The Partnership intends to continue to invest substantially all of its assets in the
Master. The performance of the Partnership is directly affected by the performance of the Master.
The Masters trading of futures, forwards, swaps and options contracts, if applicable, on
commodities is done primarily on United States of America commodity exchanges and foreign commodity
exchanges. The Master engages in such trading through a commodity brokerage account maintained with
CGM.
The Partnership will be
liquidated upon the first of the following to occur: December 31, 2025; the net asset value per
Redeemable Unit falls below $400 as of the close of any business day;
a decline in net assets after
trading commences to less than $1,000,000; or under certain circumstances as defined in the Limited Partnership Agreement of the Partnership (the Limited Partnership Agreement).
2
Under the Limited Partnership Agreement, the General Partner has sole responsibility for the
administration of the business and affairs of the Partnership
including selecting one or
more trading advisors
to make trading decisions for the Partnership.
The Partnership pays the General Partner a monthly administrative
fee in return for its services to the Partnership equal to 1/24 of 1% (0.5% per year) of month-end
Net Assets of the Partnership. Month-end Net Assets, for the purpose of calculating administrative fees are
Net Assets, as defined in the Limited Partnership Agreement, prior to
the reduction of the current months management fee, profit share allocation accrual, the General Partners administrative fee and any
redemptions or distributions as of the end of such month.
This fee may be increased or decreased at the discretion of the General Partner.
The General Partner has entered into a management agreement (the Management Agreement) with
SandRidge, a registered commodity trading advisor. SandRidge is not
affiliated with the General Partner or CGM and is not responsible for the organization or
operation of the Partnership. Pursuant to the terms of the Management Agreement, the Partnership
pays the SandRidge a monthly management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets
allocated to SandRidge. Month-end Net Assets, for the purpose of calculating management fees are
Net Assets, as defined in the Limited Partnership Agreement, prior to
the reduction of the current months management fee, profit share allocation accrual, the General Partners administrative fee and any redemptions or distributions as of the end of such month. The Management Agreement may be terminated upon notice by either party.
In addition, SandRidge is a special limited partner (the Special Limited Partner) of the Partnership and will receive a
quarterly profit share allocation to its capital account in the
Partnership in the form of units of the Partnership, the value of
which shall be equal to 20% of New
Trading Profits, as defined in the Management Agreement earned on behalf of the Partnership during each
calendar quarter and are issued as Special Limited Partners Redeemable Units. The
Advisor will not receive a profit share until the Advisor recovers
the net loss incurred and earns additional new trading profits for
the Partnership.
In allocating substantially all the assets of the Partnership to the
Master, 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 and may allocate assets
to additional advisors at any time.
The Partnership has entered into a customer agreement with CGM (the Customer Agreement)
which provides that the Partnership will pay CGM a monthly brokerage
fee equal to 5/16 of 1% (3.75%
per year) of month-end Net Assets, allocated pro rata from the Master, in lieu of brokerage
fees on a per trade basis. Month-end Net Assets, for the purpose of calculating the
brokerage fees are Net Assets, as defined in the Limited Partnership Agreement, prior to the
reduction of the current months brokerage fee, management fee,
profit share allocation accrual, the General Partners
administrative fee, other expenses and any redemptions or
distributions as of the end of such month. Brokerage fees
will be paid for the life of the Partnership, although the rate
at which such fees are paid may be changed. This fee may be increased or decreased at any time at CGMs discretion upon written notice to the Partnership. CGM will pay a
portion of its brokerage
fees to other properly registered selling agents and
to
financial advisors who have sold Redeemable Units. All National Futures Association (NFA) fees, exchange fees, clearing fees, give-up fees,
user fees and floor brokerage fees (collectively the clearing
fees), will be borne by the Master and allocated to the Partnership through its investment in the Master.
All of the
Partnerships assets, not held in the Masters account
at CGM, are deposited in the Partnerships account at CGM.
The Partnerships cash is deposited by CGM in segregated
bank accounts to the extent required by Commodity Futures
Trading Commission regulations. CGM has agreed to pay the
Partnership interest on its allocable share of 80% of the
average daily equity maintained in cash in the Masters
account during each month at a
30-day
U.S. Treasury bill rate determined weekly by CGM based on
the average noncompetitive yield on
3-month
U.S. Treasury bills maturing in 30 days from the date
on which such weekly rate is determined.
The Customer Agreement between the
Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses. The
Customer Agreement may be terminated upon notice by either party.
(b) Financial Information about Segments. The Partnerships business consists
of only one segment, speculative trading of commodity interests. The Partnership does not engage in
sales of goods or services. The Partnerships net income
(loss) from operations for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 is set forth under Item 6. Selected Financial Data. The
Partnerships Capital as of December 31, 2010 was
$378,107,253.
(c) Narrative Description of Business.
See Paragraphs (a) and (b) above.
(i) through (xii) Not applicable.
(xiii) The Partnership has no employees.
(d) Financial Information About Geographic Areas. The Partnership does not engage in
the sale of goods or services or own any long-lived assets, and therefore this item is not
applicable.
3
(e) Available
Information.
The Partnership does not have Internet address. The Partnership will provide paper copies of its annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports free
of charge upon request.
(f) Reports to Security Holders. Not applicable.
(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable.
(h) Smaller
Reporting Companies. Not applicable.
Item 1A. Risk Factors.
As a result of leverage, small changes in the price of the Partnerships positions may result
in major losses.
The trading of commodity interests is speculative, volatile and involves a high degree of
leverage. A small change in the market price of a commodity interest contract can produce major
losses for the Master.
Market prices can be influenced by, among other things, changing supply and demand relationship,
governmental, agricultural, commercial and trade programs and policies, national and international
political and economic events, weather and climate conditions, insects and plant disease, purchases
and sales by foreign countries and changing interest rates.
An investor may lose all of its investment.
Due to the speculative nature of trading commodity interests, an investor could lose all of
its investment in the Partnership.
The Partnership will pay substantial fees and expenses regardless of profitability.
Regardless of its trading performance, the Partnership will incur fees and expenses, including
brokerage fees and management fees. Fees will be paid to the trading advisor even if the Partnership
experiences a net loss for the full year.
An investors ability to redeem units is limited.
An investors ability to redeem Redeemable
Units is limited and no market exists for the Redeemable Units.
Conflicts of interest exist.
The Partnership is subject to numerous conflicts of interest including those that arise from
the facts that:
1. | The General Partner and the Partnerships/Masters commodity broker are affiliates; | ||
2. | The Advisor, the Partnerships/Masters commodity broker and their principals and affiliates may trade in commodity interests for their own accounts; and | ||
3. | An investors financial advisor will receive ongoing compensation for providing services to the investors account. |
Investing in units might not provide the desired diversification of an investors overall
portfolio.
The Partnership will not provide any benefit of diversification of an investors overall
portfolio unless it is profitable and produces returns that are independent from stock and bond
market returns.
Past performance is no assurance of future results.
The Advisors trading strategies may not perform as they have performed in the past. The
Advisor has from time to time incurred substantial losses in trading on behalf of clients.
An investors tax liability may exceed cash distributions.
Investors are taxed on their share of the Partnerships income, even though the Partnership
does not intend to make any distributions.
Regulatory changes could restrict the Partnerships operations.
Regulatory changes could adversely affect the Partnership by restricting its markets or
activities, limiting its trading and/or increasing the taxes to which investors are subject.
Pursuant to the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, signed into law on July 21, 2010, the CFTC and the Securities and Exchange Commission (the SEC) may promulgate
rules to regulate swaps dealers, require that swaps be traded on an exchange or swap
execution facilities, mandate additional reporting and disclosure requirements and require
that derivatives (such as those traded by the Partnership) be moved into central
clearinghouses. These rules, if promulgated, may negatively impact the manner in which
swap contracts are traded and/or settled and limit trading by speculators (such as the
Partnership) in futures and over-the-counter markets.
Speculative position and trading limits may reduce profitability.
The CFTC and U.S. exchanges have established speculative position limits on the maximum net long or net
short positions which any person may hold or control in particular futures and options on futures.
The trading instructions of an Advisor may have to be modified, and positions held by the Partnership may have
to be liquidated in order to avoid exceeding these limits. Such modification or liquidation could adversely affect
the operations and profitability of the Partnership by increasing transaction costs to liquidate
positions and foregoing potential profits.
4
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner operates out of
facilities provided by MSSB Holdings.
Item 3. Legal Proceedings.
This section describes the major pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which CGM
is a party or to which any of their
property is subject. There are no material legal proceedings pending against the Partnership or the
General Partner.
CGM is a New York corporation with its principal place of business at 388 Greenwich St., New York,
New York 10013. CGM is registered as a broker-dealer and futures commission merchant (FCM), and
provides futures brokerage and clearing services for institutional and retail participants in the
futures markets. CGM and its affiliates also provide investment banking and other financial
services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five years
against CGM or any of its individual
principals and no such actions are currently pending, except as follows.
Credit-Crisis-Related Litigation and Other Matters
Citigroup and CGM continue to
cooperate fully in response to subpoenas and requests for information from the SEC, FINRA, the
Federal Housing Finance Agency, 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 MBS and CDOs and its origination, sale or other transfer,
servicing, and foreclosure of residential mortgages.
Subprime Mortgage-Related Litigation and Other Matters
The SEC, among other regulators, is investigating Citigroups subprime
and other mortgage-related conduct and business activities, as well as other business activities
affected by the credit crisis, including an ongoing inquiry into Citigroups
structuring and sale of CDOs. Citigroup is cooperating fully with the
SECs inquiries.
On July 29, 2010, the SEC announced the settlement
of an investigation into certain of Citigroups 2007 disclosures
concerning its subprime-related business activities. On October 19, 2010, the
United States District Court for the District of Columbia entered a Final Judgment
approving the settlement, pursuant to which Citigroup agreed to pay a $75 million civil
penalty and to maintain certain disclosure policies, practices and procedures for a three-year
period. Additional information relating to this action is publicly available in court filings under
the docket number 10 Civ. 1277 (D.D.C.) (Huvelle, J.).
The Federal Reserve Bank, the OCC and the FDIC, among other federal and state
authorities, are investigating issues related to the conduct of certain mortgage servicing
companies, including Citigroup affiliates, in connection with mortgage foreclosures. Citigroup is
cooperating fully with these inquiries.
Certain of these regulatory matters assert claims for substantial or indeterminate damages.
Some of these matters already have been resolved, either through settlements or court proceedings,
including the complete dismissal of certain complaints or the rejection of certain claims following
hearings.
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.
Item 4. [Removed and Reserved].
5
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
(a) | Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units. | ||
(b) | Holders. The number of holders of Redeemable Units as of December 31, 2010 was 4,367. | ||
(c) | Dividends. The Partnership did not declare a distribution in 2010 or 2009. The Partnership does not intend to declare distributions in the foreseeable future. | ||
(d) | Securities Authorized for Issuance Under Equity Compensatory Plans. None. | ||
(e) | Performance Graph. Not applicable. | ||
(f) | Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. For the year ended December 31, 2010, there were additional subscriptions of 79,891.6932 Redeemable Units totaling $122,716,000. For the year ended December 31, 2009, there were additional subscriptions of 94,176.4822 Redeemable Units totaling $154,716,468, General Partner contributions representing 1,461.7931 unit equivalents totaling $2,500,000 and an allocation of 3,832.7087 Redeemable Units of Special Limited Partner Interest totaling $6,371,890. For the year ended December 31, 2008, there were additional subscriptions of 80,923.5894 Redeemable Units totaling $120,116,000, General Partner contributions representing 1,320.0586 unit equivalents totaling $2,000,000 and an allocation of 10,030.0211 Redeemable Units of Special Limited Partner Interest totaling $15,059,328. | ||
The Redeemable Units and the redeemable units of Special Limited Partnership Interest were purchased by accredited investors as described in Regulation D. | |||
Proceeds from the additional subscriptions of Redeemable Units are used in the trading of commodity interests including futures contracts, options and forward contracts. | |||
(g) | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. | ||
The following chart sets forth the purchases of Redeemable Units by the Partnership. |
|
||||||||||||||||||||
|
(d) Maximum Number |
|||||||||||||||||||
(c) Total Number |
(or Approximate
Dollar |
|||||||||||||||||||
|
of Redeemable Units |
Value) of Redeemable
|
||||||||||||||||||
(a) Total Number
|
(b) Average |
Purchased as Part
of |
Units that May Yet
Be |
|||||||||||||||||
of Redeemable Units |
Price Paid per |
Publicly Announced |
Purchased Under
the |
|||||||||||||||||
Period | Purchased* | Redeemable Unit** | Plans or Programs | Plans or Programs | ||||||||||||||||
October 1, 2010 - October 31, 2010 |
6,941.0487 | $ | 1,298.64 | N/A | N/A | |||||||||||||||
November 1, 2010 - November 30, 2010 |
11,201.5927 | $ | 1,306.35 | N/A | N/A | |||||||||||||||
December 1, 2010- December 31, 2010 |
17,531.0375 | $ | 1,267.09 | N/A | N/A | |||||||||||||||
35,673.6789 | $ | 1,285.56 | ||||||||||||||||||
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the last day 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. No fee will be charged for redemptions. |
6
Item 6. Selected Financial Data.
Net realized and unrealized trading gains (losses), interest income, net income (loss) ,
increase (decrease) in net asset value per unit and net asset
value per unit for the years ended December 31, 2010,
2009, 2008, 2007 and 2006, and total assets at December 31,
2010, 2009, 2008,
2007 and 2006 were as follows:
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net realized
and unrealized trading gains (losses) net of expenses allocated
from the Master and brokerage
fees (including clearing fees) of $17,510,544, $15,712,498, $11,245,204,
$6,869,475, and $3,746,194, respectively |
$ | (113,408,742 | ) | $ | 57,088,217 | $ | 57,508,623 | $ | 19,685,242 | $ | (1,037,567 | ) | ||||||||
Interest
income allocated from Master |
409,291 | 276,735 | 2,824,017 | 6,174,844 | 3,873,346 | |||||||||||||||
$ | (112,999,451 | ) | $ | 57,364,952 | $ | 60,332,640 | $ | 25,860,086 | $ | 2,835,779 | ||||||||||
Net income
(loss) before allocation to Special Limited
Partner |
$ | (124,945,780 | ) | $ | 46,693,535 | $ | 52,530,383 | $ | 20,972,211 | $ | 207,112 | |||||||||
Allocation to Special Limited Partner |
$ | | $ | (6,371,890 | ) | $ | (15,059,328 | ) | $ | (2,014,644 | ) | $ | (659,994 | ) | ||||||
Net income
(loss) after allocation to Special Limited Partner |
$ | (124,945,780 | ) | $ | 40,321,645 | $ | 37,471,055 | $ | 18,957,567 | $ | (452,882 | ) | ||||||||
Increase
(decrease) in net asset value per unit |
$ | (378.64 | ) | $ | 178.97 | $ | 236.71 | $ | 131.40 | $ | 59.66 | |||||||||
Net asset value per unit |
$ | 1,267.09 | $ | 1,645.73 | $ | 1,466.76 | $ | 1,230.05 | $ | 1,098.65 | ||||||||||
Total assets |
$ | 402,501,983 | $ | 479,968,308 | $ | 338,957,991 | $ | 207,910,511 | $ | 156,089,358 | ||||||||||
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
The
Partnership, through its investment in the Master, seeks to achieve substantial capital
appreciation through speculative trading directly or indirectly in U.S. and international markets
for currencies, interest rates, stock indices, agricultural and energy products and precious and
base metals. The Master may employ futures, options on futures, and forward, spot and swap
contracts in those markets.
The General Partner manages all business of the Partnership. The General Partner has delegated
its responsibility for the investment of the Partnerships assets to SandRidge. The General Partner
employs a team of approximately 40 professionals whose primary emphasis is on attempting to
maintain quality control among the advisors to the partnerships operated or managed by the General
Partner. A full-time staff of due diligence professionals use propriety technology and on-site
evaluations to monitor new and existing futures money managers. The accounting and operations staff
provide processing of trading activity and reporting to limited partners and regulatory
authorities. In selecting the Advisor for the Partnership, the General Partner considered 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.
Responsibilities of the General Partner include:
| due diligence examinations of the Advisor; | ||
| selection, appointment and termination of the Advisor; | ||
| negotiation of the Management Agreement; and | ||
| monitoring the activity of the Advisor. |
In addition, the General Partner prepares the books and records and provides the
administrative and compliance services that are required by law or regulation, from time to time, in
connection with the operation of the Partnership/Master. These services include the preparation of
required books and records and reports to limited partners, government agencies and regulators;
computation of net asset value; calculation of fees; effecting subscriptions, redemptions and
limited partner communications; and preparation of offering documents and sales literature.
The General Partner seeks the best prices and services available in its commodity futures
brokerage transactions.
SandRidge
Capital, L.P.
Since December 1, 2005, SandRidge has traded the Partnerships assets in accordance with its
Energy Program, a discretionary trading program. SandRidge will primarily attempt to achieve the Partnerships objective through the
speculative trading of energy-related commodity interests, including, but not limited to, natural
gas, crude oil, heating oil and gasoline. With the prior approval of the General Partner, SandRidge
may trade in other commodity interests that are now traded, or may be traded in the future, on
exchanges and markets located in the United States and abroad.
SandRidge is a discretionary trader that employs primarily fundamental analysis. Fundamental
analysis examines factors external to the trading market that affect the supply and demand for a
particular group or type of commodity in order to predict future prices. Effective risk management
is an important aspect of SandRidges trading program. An accounts size, volatility of the market
traded and the nature of other positions taken are all factors used in deciding whether to initiate
a position and in determining the amount of equity committed to that position. While SandRidge
relies heavily on fundamental research to develop its overall point of view, it also employs
technical analysis in its trading to help determine entry and exit points. Technical analysis
includes moving averages, index rolls and Stochastic/relative strength indicators. Technical
analysis is based on the theory that the study of the markets themselves provides a means of
7
anticipating price movements. SandRidge may employ various strategies for phasing an account
in and out of the markets. Entry points are based on a number of price breakout and retracement
indicators. Position exits are based on multiple strategies including trailing stops, target prices
and technical reversals. If SandRidge believes that the markets traded are unstable, SandRidge may
temporarily reduce positions or exit the markets entirely and therefore hold no open positions for
a period of time. SandRidge estimates that, generally, 10% to 15% of the Partnerships assets
allocated to SandRidge will be committed to margin at any one time. The actual amount committed as
such may be substantially more. Trading decisions will require the exercise of judgment by
SandRidge.
SandRidges success depends to a great extent upon the occurrence of market conditions
favorable to its trading strategy. Factors such as lack of major price trends or increased
governmental control of, or participation in, the markets, may reduce SandRidges ability to trade
profitably in the future.
As a managed futures partnership, the Partnerships/Masters performance is dependent upon the
successful trading of the Partnerships Advisor to achieve the Partnerships/Masters objectives.
It is the business of the General Partner to monitor the Advisors performance to assure compliance
with the Partnerships/Masters trading policies and to determine if the Advisors performance is
meeting the Partnerships/Masters objectives. Based on 2010 results, the General Partner continues
to believe the Advisor and the Energy Program have met the Partnerships/Masters
objectives and expects to continue to allocate the Partnerships/Masters assets to the Advisor and
this program unless otherwise indicated.
(a) Liquidity.
The Partnership does not engage in sales of goods or services. Its only assets are its
investment in the Master and cash. The Master does not engage in sales of
goods or services. 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 investment in the Master. While substantial losses could lead to a material decrease in
liquidity, no such illiquidity occurred during the year ended
December 31, 2010.
To minimize the risk relating to low margin deposits, the Master follows certain trading
policies, including:
(i) | The Master invests its assets only in commodity interests that the Advisor believes are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisor believes will permit it to enter and exit trades without noticeably moving the market. | ||
(ii) | The Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 ⅔% of the Masters net assets allocated to that Advisor. | ||
(iii) | The Master may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position is fully hedged. | ||
(iv) | The Master does not employ the trading technique commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. | ||
(v) | The Master does not utilize borrowings other than short-term borrowings if the Master takes delivery of any cash commodities. | ||
(vi) | The Advisor may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Master. Spread and straddle describes a commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets. |
8
(vii) | The Master will not permit the churning of its commodity trading account. The term churning refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, indicating the desire to generate commission income. |
From
January 1, 2010 through December 31, 2010, the Partnerships
average margin to equity ratio (i.e., the percentage of assets
on deposit required for margin) was approximately 10.0%. The foregoing
margin to equity ratio takes into account cash held in the
Partnerships name, as well as the allocable value of the
positions and cash held on behalf of the Partnership in the name of
the Master.
In
the normal course of business, the Partnership, through its investment in the Master, is party to financial instruments with off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These financial instruments may include forwards,
futures, options and swaps, whose values are based upon an underlying asset, index, or reference
rate, and generally represent future commitments to exchange
currencies or cash balances, to purchase
or sell other financial instruments at specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable possibility to be settled in cash, through
physical delivery or with another financial instrument. These instruments may be traded on an
exchange or over-the-counter (OTC). Exchange-traded instruments are standardized and include
futures and certain forwards and option contracts. OTC contracts are negotiated between contracting
parties and include swaps, certain forwards and option contracts. Specific market movements of commodities or futures contracts underlying an
option cannot accurately be predicted. The purchase of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. 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 Master 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
Master 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/Masters 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 Partnerships/Masters risk of
loss is reduced through the use of legally enforceable master netting agreements with counterparties
that permit the Partnership/Master to offset
unrealized gains and losses and other assets and liabilities with such counterparties
upon the occurrence of certain events. The Partnership/Master has credit risk and
concentration risk as the sole counterparty or broker with respect to the
Partnerships/Masters assets is CGM or a CGM affiliate. Credit
risk with respect to exchange-traded instruments is reduced to the extent
that, through CGM, the Partnerships/Masters counterparty is an
exchange or clearing organization.
The Advisor will concentrate the Partnerships/Masters trading in energy-related markets.
Concentration in a limited number of commodity interests may subject the Partnerships/Masters
account to greater volatility than if in a more diversified portfolio of contracts were traded on behalf of the
Partnership/Master.
As
both a buyer and seller of options, the Master pays or receives a premium at
the outset and then bears the risk of unfavorable changes in the price of the contract
underlying the option. Written options expose the Master 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
Master does not consider these contracts to be guarantees.
The
General Partner monitors and attempts to control the Partnerships/Masters 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/Master 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, exchange cleared-swaps and options positions by sector,
margin requirements, gain and loss transactions and collateral positions. (See also Item 8.
Financial Statements and Supplementary Data for further information on financial
instrument risk included in the notes to the financial statements.)
9
Other than the risks inherent in commodity futures and swaps trading, the Master knows of no
trends, demands, commitments, events or uncertainties which will result in or which are reasonably
likely to result in the Masters liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, in its discretion, cause the
Master to cease trading operations and liquidate all open positions under certain circumstances
including a decrease in net asset value per Redeemable Unit to less than $400 as of the close of
business on any business day.
(b) Capital resources.
(i) The Partnership has made no material commitments for capital expenditures.
(ii) The Partnerships capital consists of the capital contributions of the partners as
increased or decreased by gains or losses allocated from the Master on trading and by expenses,
interest income allocated from the Master, redemptions of Redeemable Units and distributions of
profits, if any. Gains or losses on trading cannot be predicted.
Market movements in commodities are
dependent upon fundamental and technical factors which the Advisor may or may not be able to
identify, such as changing supply and demand relationships, weather, government agricultural,
commercial and trade programs and policies, national and international political and economic
events and changes in interest rates. Partnership expenses consist of, among other things, brokerage
fees, advisory fees and administrative fees. The level of these expenses is dependent upon
trading performance and
the level of Net Assets maintained. In addition,
the amount of interest income payable by CGM is dependent upon interest rates over which the
Partnership has no control.
No forecast can be made as to the level of redemptions in any given period. A limited partner may require
the Partnership to redeem some or all of its Redeemable Units at their net asset value as of the last day of
each month on three business days notice to the General Partner. There is no fee charged to limited partners in
connection with redemptions. Redemptions generally are funded out of the Partnerships cash holdings. For
the year ended December 31, 2010, 67,436.9309 Redeemable Units were redeemed totaling $90,262,473.
For the year ended December 31, 2009, 28,700.7737 Redeemable Units were redeemed totaling
$46,455,006 and 11,261.9528 Redeemable Units of Special Limited Partner Interest were redeemed
totaling $18,994,343. For the year ended December 31, 2008, 28,475.0102 Redeemable Units were
redeemed totaling $41,596,424 and 4,169.3687 Redeemable Units of Special Limited Partner Interest were
redeemed totaling $6,099,870.
Redeemable Units were sold to persons and entities who are accredited investors as that term is
defined in rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the Securities Act).
For the year ended December 31, 2010, there were additional subscriptions of 79,891.6932 Redeemable Units
totaling $122,716,000. For the year ended December 31, 2009, there were additional subscriptions of 94,176.4822
Redeemable Units totaling $154,716,468, General Partner contributions representing 1,461.7931 unit
equivalents totaling $2,500,000 and an allocation of 3,832.7087 Redeemable Units of Special Limited
Partner Interest totaling $6,371,890. For the year ended December 31, 2008, there were additional subscriptions of
80,923.5894 Redeemable Units totaling $120,116.000, General Partner contributions representing
1,320.0586 Unit equivalents totaling $2,000,000 and an allocation of 10,030.0211 Redeemable Units of
Special Limited Partner Interest totaling $15,059,328.
(c) Results of Operations.
For the year ended December 31, 2010, the net asset value per unit decreased 23.0% from
$1,645.73 to $1,267.09. For the year ended December 31, 2009, the net asset value per unit
increased 12.2% from $1,466.76 to $1,645.73. For the year ended December 31, 2008, the net asset value
per unit increased 19.2% from $1,230.05 to $1,466.76.
The
Partnership, through its investment in the Master, experienced a net
trading loss of $94,706,661
before fees and expenses for the year ended December 31, 2010. Losses were primarily
attributable to the Masters trading of NYMEX Natural Gas and
ICE Natural Gas. The net trading gain or loss for the Partnership is
discussed on page 25 under Item 8. Financial Statements and Supplementary Data.
Natural Gas markets made a seismic shift in 2010 as the movements in the curve
throughout the front-end were significant. The changes in the dynamics of the Natural Gas term
structure made for a very difficult trading environment as the volatile market moves caused
significant dislocations in the market. SandRidge was able to navigate these conditions fairly well
during the earlier part of the year but suffered significant losses over the summer months given
their extremely bearish positioning and a strong rally in the front-end of the curve. This bearish
posturing was supported strongly from a fundamental perspective. As production and inventories
rose over earlier industry forecasts, SandRidge expected Natural gas prices to fall
precipitously, but unexpectedly extreme weather one of the hottest summers on record resulted
in a huge increase in demand, driving up near-term prices, while bearish producers sold the back
to lock in profits before prices fell. SandRidge thus suffered losses both in its short front month
positions, as well as in its hedged long positioning in the back months.
As losses reached the -20% threshold, SandRidge de-levered the portfolio and looked to
find more directional opportunities in the front-end and back-end of the curve. As noted earlier
the volatile market movements in Natural Gas caused a seismic shift in the term structure of the
Natural Gas curve and with it took out a lot of the more traditional opportunities within spread
trading and relative value trades in Natural Gas. The absence of these types of trading
opportunities forced SandRidge into a much more directional portfolio positioning but the
directionality in Natural Gas was extremely volatile and made for a continued choppy
market. The majority of the years losses were incurred in the summer months in 2010. Small
profits were made throughout the last quarter of the year but the risk on/risk off
environment that dominated in commodities throughout 2010 saw a lot of these gains taken away
at the end of December.
The Partnership, through its investment in the Master, experienced a net trading gain of $73,411,677 before
fees and expenses for the year ended December 31, 2009. Gains were primarily attributable to the
Masters trading of NYMEX Natural Gas, ICE Natural Gas, NYMEX Gasoline and NYMEX Heating Oil.
The
Partnership posted gains for the year 2009, as profits accumulated from fundamental trading in
natural gas. The strategy realized most of the profits in the energy sector by capturing a
meaningful part of the bearish trend in the first eight months of the year as natural gas
prices tumbled from $5.971 to about $2.977 per MMBtu. Prices stabilized in late summer and rebounded
in September. Natural gas prices plummeted through Labor Day weekend with the October contract
trading as low as $2.400/MMBtu. A tighter supply and demand balance led prices higher. Some
lingering power demand helped the market tighten further. The Partnership continued to capture
profits as the rally continued. The Partnership suffered losses in December. With large storage
balances at the beginning of the month and a relatively bearish supply and demand balance (using
normal weather assumptions), the portfolio contained a bearish bias. Unfortunately, the
apparent tightening in the supply and demand balance and larger storage withdrawals have been
a factor of the extreme cold weather, reducing the Partnerships profit for the year.
10
Interest income on 80% of the Partnerships daily average equity allocated to it by the Master
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 allocated from the Master for the three and twelve months ended December 31, 2010
increased by $73,465 and $132,556, respectively, as compared to the
corresponding periods in 2009. The
increase in interest income is primarily due to higher U.S. Treasury bill rates during the three and twelve
months ended December 31, 2010, as compared to the corresponding periods in 2009. Interest earned by
the Partnership will increase the net asset value of the Partnership.
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. Accordingly, they must be
compared in relation to the fluctuations in the monthly net asset values. Brokerage fees for the three and
twelve months ended December 31, 2010 decreased by $537,835 and
increased $1,798,046, respectively, as compared
to the corresponding periods in 2009. The decrease in brokerage fees is due to lower average net assets
during the three months ended December 31, 2010, as compared to the corresponding periods in
2009.
The increase in brokerage fees is due to higher
average net assets during the twelve months ended December 31, 2010,
as compared to the corresponding periods in 2009.
Management fees are calculated as a percentage of the Partnerships 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 twelve months ended December 31, 2010 decreased by $312,136 and
increased by $956,920, respectively, as
compared to the corresponding periods in 2009. The decrease in management fees is due to lower average
net assets during the three months ended December 31, 2010, as compared to the corresponding
periods in 2009.
The increase in management fees is due to higher
average net assets during the twelve months ended December 31, 2010,
as compared to the corresponding periods in 2009.
Administrative fees are calculated as a percentage of the Partnerships net asset value as of the end of each
month and are affected by trading performance, additions and redemptions. Administrative fees for the
three and twelve months ended December 31, 2010 decreased by $78,034
and increased by $239,230, respectively, as
compared to the corresponding periods in 2009. The decrease in administrative fees is due to lower average net assets
during the three months ended December 31, 2010, as compared to the corresponding
periods in 2009.
The increase in administrative fees is due to higher
average net assets during the twelve months ended December 31, 2010,
as compared to the corresponding periods in 2009.
Special Limited Partner profit share allocations (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. The profit
share allocation accrued for the three and twelve months ended December 31, 2010 was $0. The profit
share allocation accrued for the three and twelve months ended December 31, 2009 was $0 and $6,371,890,
respectively.
The Partnership pays
professional fees, which generally include legal and accounting expenses. Professional fees for the years ended December 31, 2010 and 2009
were $227,258 and $165,907, respectively.
The Partnership
pays other expenses, which generally include filing, reporting and data
processing fees. Other expenses for the years ended December 31, 2010 and 2009 were $83,545 and $66,134, respectively.
The Partnership, through its investment in the Master, experienced a net trading gain of $69,232,908 before
fees and expenses for the year ended December 31, 2008. Gains were primarily attributable to the
Masters trading of NYMEX Natural Gas and ICE Natural Gas, and were partially offset by losses in
NYMEX Crude Oil.
The Partnership posted gains for the year 2008 as profits accumulated from the Masters trading in natural
gas. The strategy realized most of the profits in the energy sector by capturing a meaningful part of the
bearish trend in the first half of the year as natural gas prices plunged from $14 to about $7 per MMBtu per month.
Prices stabilized in late summer and remained range bound for the balance of the year, slightly offsetting
gains for the portfolio. The milder weather year-over-year also added to the storage deficit decline,
providing basis for traders to speculate a storage surplus by the end of the injection season. While prices
continued to trade lower, sharp reversals on concerns over hurricane storm risk created a difficult trading
environment for the strategy.
In the General Partners opinion, the Advisor continues to employ its trading methods in a
consistent and disciplined manner and its results are consistent with the objectives of the
Partnership and expectations for the Advisors programs. The General Partner continues to monitor
the Advisors performance on a daily, weekly, monthly and annual
basis.
Commodity
markets are highly volatile. Broad and rapid price fluctuations and
rapid inflation
increase the risks involved in commodity trading, but also increases the possibility of profit.
The profitability of the Partnership depends on the existence of major price trends and the ability
of the Advisor 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 Advisor is
able to identify them, the Partnership expects to increase capital through operations.
11
In allocating substantially all of the assets of the Partnership to the Master, the General Partner considered 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 and allocate assets to additional advisors at any time.
(d) Off-balance
sheet Arrangements. None
(e) Contractual
Obligations
. None
(f) Operational Risk
The Partnership, through its investment in the Master, is directly exposed to market risk and
credit risk, which arise in the normal course of its business activities. Slightly less direct, but
of critical importance, are risks pertaining to operational and back office support. This is
particularly the case in a rapidly changing and increasingly global environment with increasing
transaction volumes and an expansion in the number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk the risk of financial and opportunity loss and legal liability
attributable to operational problems, such as inaccurate pricing of transactions, untimely trade
execution, clearance and/or settlement, or the inability to process large volumes of transactions.
The Partnership/Master is subject to increased risks with respect to its trading activities in emerging market
securities, where clearance, settlement, and custodial risks are often greater than in more
established markets.
Technological Risk the risk of loss attributable to technological limitations or hardware
failure that constrain the Partnerships/Masters ability to gather, process, and communicate information
efficiently and securely, without interruption, to customers within the Partnership and the
Master, and in the markets where the Partnership and the Master participate.
Legal/Documentation Risk the risk of loss attributable to deficiencies in the documentation
of transactions (such as trade confirmations) and customer relationships (such as master netting
agreements) or errors that result in noncompliance with applicable legal and regulatory
requirements.
Financial Control Risk the risk of loss attributable to limitations in financial systems
and controls. Strong financial systems and controls ensure that assets are safeguarded, that
transactions are executed in accordance with managements authorization, and that financial
information utilized by management and communicated to external parties, including the
Partnerships Redeemable Unit holders, creditors, and regulators, is free of material errors.
(g) Critical Accounting Policies.
Partnerships Investments. The Partnership value its investment in the Master at its net
asset value per unit as calculated by the Master. The Master values its investments as described in Note 2, Accounting Policies, on the attached Masters financial statements.
Partnerships
and Masters 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. Accounting principles generally accepted in the United States of America (GAAP) also requires the need to use judgement 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
Masters Level 1 assets and liabilities are
actively traded.
The
Partnership will separately present purchases, sales issuances, and settlements in their
reconciliation of Level 3 fair value measurements (i.e. to
present such items on a gross basis rather than on a net basis), and make disclosures regarding the level
of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall
within either Level 2 or Level 3 of the fair value hierachy as required under GAAP.
The
Partnership values investments in the Master where there are no other rights or obligations
inherent within the ownership interest held by the Partnership
based on the end of the day net asset value of the Master
(Level 2). The value of the Partnerships investments
in the Master reflects its proportional interest in the Master.
As of and for the years ended December 31, 2010 and 2009, the Partnership did not hold any
derivative instruments that are based on unadjusted quoted prices in active
markets for identical assets (Level 1) or priced at
fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing
models (Level 3).
The Master 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 and which are priced by
broker-dealers who derive fair values for those assets from
observable inputs (Level 2). As of and for the years ended
December 31, 2010 and 2009, the Master did
not hold any derivative instruments for which market quotations are
not readily available and which are priced by broker-dealers who derive fair
values for those assets from observable inputs (Level 2) or that are
priced at fair value using unobservable inputs through the application
of managements assumptions and internal valuation pricing
models (Level 3).
Futures
Contracts. The Master trades futures contracts and exchange-cleared swaps.
Exchange-cleared swaps are traded as futures.
A futures contract is a firm
commitment to buy or sell a specified quantity of investments, currency or a standardized amount of
a deliverable grade commodity, at a specified price on a specified future date, unless the contract
is closed before the delivery date or if the delivery quantity is
something where physical delivery cannot occur (such as the S&P 500
Index), whereby such contract is settled in cash. Payments
(variation margin) may be made or received by the
Master 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 Master. When the contract is
closed, the Master 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, through the futures broker, directly with the exchange on which the contracts are traded. Realized gains (losses) and changes in unrealized gains (losses) on futures
contracts are included in the Statements of Income and Expenses.
Options.
The Master may purchase and write (sell) both
exchange-listed and OTC options on commodities or
financial instruments. An option is a contract allowing,
but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or
financial instrument at a
12
specified price during a specified time period. The option premium is the total price paid or
received for the option contract. When the Master writes an option, the premium received is
recorded as a liability in the Statements of Financial Condition and marked to market daily. When
the Master purchases 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Introduction
All of the Partnerships assets are subject to the risk of trading loss through its investment in the Master. The Master 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, through its investment in the Master. Unlike an operating
company, the risk of market sensitive instruments is integral, not incidental, to the Masters and
the Partnerships main line 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 Partnership
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 market value of the Masters open
positions and, consequently, in its earnings and cash flow. The Masters and 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 Masters open positions and the liquidity of the
markets in which it trades.
13
The Master 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 Masters past performance is not necessarily indicative
of its future results.
Value
at Risk is a measure of the maximum amount which the Master could reasonably be expected
to lose in a given market sector. However, the inherent uncertainty of the Masters speculative
trading and the recurrence in the markets traded by the Master of market movements far exceeding
expectations could result in actual trading or non-trading losses far beyond the indicated Value at
Risk or the Masters 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 Masters losses in any market sector will be limited to Value at Risk or by
the Masters attempts to manage its market risk.
Materiality as used in this section, Qualitative and Quantitative Disclosures About Market
Risk, is based on an assessment of reasonably possible market movements and the potential losses
caused by such movements, taking into account the leverage, optionality and multiplier features of
the Masters market sensitive instruments.
Quantifying the Partnerships/Masters Trading Value at Risk
The following quantitative disclosures regarding the Masters market
risk exposures contain forward-looking statements within the meaning of the safe harbor from
civil liability provided for such statements by the Private Securities Litigation Reform Act of
1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)). All
quantitative disclosures in this section are deemed to be forward-looking statements for purposes
of the safe harbor except for statements of historical fact (such as the terms of particular
contracts and the number of market risk sensitive instruments held during or at the end of the
reporting period).
The
Masters and the Partnerships risk exposure in the various market sectors traded by the
Advisor is quantified below in terms of Value at Risk. Due to the Masters mark-to-market
accounting, any loss in the fair value of the Masters open
portion is directly
reflected in the Partnerships earnings (realized or unrealized
allocated from the Master).
Exchange maintenance margin
requirements have been used by the Master 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. The
maintenance margin levels are established by dealers and exchanges using historical price studies
as well as an assessment of current market volatility (including the implied volatility of the
options on a given futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. 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.
In
the case of market sensitive instruments which are not exchange-traded,
the margin requirements for the equivalent futures positions
have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers margins have been used.
The fair value of the Masters futures and forward positions does not have any optionality
component. However, the Advisor may trade commodity options. The Value at Risk associated with
options is reflected in the following table as the margin requirement attributable to the
instrument underlying each option. Where this instrument is a futures contract, the futures margin,
and where this instrument is a physical commodity, the futures-equivalent maintenance margin has
been used. This calculation is conservative in that it assumes that the fair value of an option
will decline by the same amount as the fair value of the underlying instrument, whereas, in fact,
the fair values of the options traded by the Master in almost all cases fluctuate to a lesser
extent than those of the underlying instruments.
In quantifying the Masters Value at Risk, 100% positive correlation in the different
positions held in each market risk category has been assumed. Consequently, the margin requirements
applicable to the open contracts have simply been added to determine each trading categorys
aggregate Value at Risk. The diversification effects resulting from the fact that the Masters positions are rarely, if
ever, 100% positively correlated have not been reflected.
14
The
Masters Trading Value at Risk in Different Market Sectors
Value at risk tables represent a probabilistic assessment of the risk of loss in market sensitive instruments. The following tables indicate the trading Value at Risk associated with the Masters open
positions by market category as of December 31, 2010 and 2009, and the highest, lowest and average
value at any point during the year. All open position trading risk exposures of the Master have
been included in calculating the figures set forth below. As of
December 31, 2010, the Masters
total capitalization was $528,735,257 and the Partnership owned
approximately 76.1% of the Master. The Partnership invests substantially all of its assets in the Master.
The Masters Value at Risk as of December 31, 2010 was as follows:
December 31,
2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Energy |
$ | 61,391,255 | 11.61% | $ | 85,692,107 | $ | 18,754,664 | $ | 56,852,448 | |||||||||||
Total |
$ | 61,391,255 | 11.61% | |||||||||||||||||
* | Annual average of month-end Value at Risk. |
As
of December 31, 2009, the Masters total capitalization was
$684,908,493 and the Partnership owned approximately 70.1% of the Master.
The Masters Value at Risk as of December 31, 2009 was as follows:
December 31,
2009
Low | Average | |||||||||||||||||||
% of Total | High | Value at | Value at | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Risk | Risk* | |||||||||||||||
Energy |
$ | 19,220,494 | 2.81% | $ | 40,574,022 | $ | 11,157,117 | $ | 24,955,810 | |||||||||||
Total |
$ | 19,220,494 | 2.81% | |||||||||||||||||
* | Annual average of month-end Value at Risk. |
15
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Master is typically many times the
applicable maintenance margin requirement (margin requirements generally range between 2% and 15%
of contract face value) as well as many times the capitalization of the Master. The magnitude of
the Masters open positions creates a risk of ruin not typically found in most other investment
vehicles. Because of the size of its positions, certain market conditions unusual, but
historically recurring from time to time could cause the Master to incur severe losses over a
short period of time. The foregoing Value at Risk table as well as the past performance of the
Master give no indication of this risk of ruin.
Non-Trading Risk
The Master has non-trading market risk on its foreign cash balances not needed for margin.
However, these balances (as well as any market risk they represent) are immaterial.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Masters market risk exposures except
for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how
the Master manages its primary market risk exposures constitute forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Masters primary
market risk exposures as well as the strategies used and to be used by the General Partner and the
Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks,
any one of which could cause the actual results of the Masters risk controls to differ materially
from the objectives of such strategies. Government interventions, defaults and expropriations,
illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in
historical price relationships, an influx of new market participants, increased regulation and many
other factors could result in material losses as well as in material changes to the risk exposures
and the management strategies of the Master. There can be no assurance that the Masters current
market exposure and/or risk management strategies will not change materially or that any such
strategies will be effective in either the short or long term. Investors must be prepared to lose
all or substantially all of their investment in the Partnership.
The
following were the primary trading risk exposures of the Master as of
December 31, 2010, by market sector.
Energy.
Energy-related products, such as oil and natural gas, constitute the
principal market exposure of the Master. The Master has substantial
market exposure to natural gas. Political developments in other
countries or regions can also materially impact upon the prices of
energy products, as could changing supply and demand relationships,
weather, governmental, commercial and trade programs and policies,
and other significant economic events. Energy prices can be volatile
and substantial profits and losses have been and are expected to
continue to be experienced in these markets.
The
Master engages in swap transactions in crude oil and other energy
related products. In this connection, the Master contracts with its
counterparty to exchange a stream of payments computed by reference
to a notional amount and the price of the energy product that is the
subject of the swap. Swap
contracts are not guaranteed by an exchange or clearinghouse. CGM
does not engage in swap transactions as a principal.
The
Master usually enters into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment
date or dates specified in the agreement, with the Master receiving
or paying, as the case may be, only the net amount of the two
payments. Swaps do not involve the delivery of underlying assets or
principal. Accordingly, the risk of loss with respect to swaps is
limited to the net amount of payments that the Master is
contractually obligated to make. If the counterparty to a swap
defaults, the Masters risk of loss consists of the net amount of
payments that the Master is contractually entitled to receive.
16
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The
General Partner monitors and attempts to control the Partnerships, through its investment in the
Master, 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 Master may be subject.
The General Partner monitors the Masters performance and the concentration of open
positions, and consults with the Advisor concerning the Masters overall risk profile. If the
General Partner felt it necessary to do so, the General Partner could require the Advisor to close
out positions as well as enter positions traded on behalf of the Master.
However, any such intervention would be a highly unusual event. The General Partner primarily
relies on the Advisors own risk control policies while maintaining a general supervisory overview
of the Masters market risk exposures.
The Advisor applies its own risk management policies to its trading. The Advisor often follows
diversification guidelines, margin limits and stop loss points to exit a position. The Advisors
research of risk management often suggests ongoing modifications to its trading programs.
As part of the General Partners risk management, the General Partner periodically meets with
the Advisor to discuss its risk management and to look for any material changes to the Advisors
portfolio balance and trading techniques. The Advisor is required to notify the General Partner of
any material changes to its programs.
17
Item 8. Financial Statements and Supplementary Data.
BRISTOL ENERGY FUND L.P.
The following financial statements and related items of the Partnership are filed
under this Item 8: Oath or Affirmation, Managements Report on Internal Control over
Financial Reporting, Reports of Independent Registered Public Accounting Firms, for the
years ended December 31, 2010, 2009, and 2008; Statements of Financial Condition at
December 31, 2010 and 2009; Statements of Income and Expenses for the years ended
December 31, 2010, 2009, and 2008; Statements of Changes in Partners Capital for the
years ended December 2010, 2009, and 2008; and Notes to Financial Statements.
18
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.

By: | Walter Davis |
President and Director
Ceres Managed Futures LLC
General Partner,
Bristol Energy Fund L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
212-296-1999
19
Managements
Report on Internal Control over
Financial Reporting
Financial Reporting
The management of Bristol Energy Fund L.P., (the
Partnership), Ceres Managed Futures LLC, is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934 and for our
assessment of internal control over financial reporting. The
Partnerships internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Partnerships internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Partnership;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Partnership are being made only in
accordance with authorizations of management and directors of
the Partnership; and
(iii) provide reasonable assurance regarding prevention or
timely detection and correction of unauthorized acquisition, use
or disposition of the Partnerships assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
The management of Bristol Energy Fund L.P. has assessed the
effectiveness of the Partnerships internal control over
financial reporting as of December 31, 2010. In making this
assessment, management used the criteria set forth in the
Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our assessment, management concluded that the
Partnership maintained effective internal control over financial
reporting as of December 31, 2010 based on the criteria
referred to above.
![]() Walter
Davis
President and Director Ceres Managed Futures LLC General Partner, Bristol Energy Fund L.P. |
![]() Jennifer Magro Chief Financial Officer and Director Ceres Managed Futures LLC General Partner, Bristol Energy Fund L.P. |
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Bristol Energy Fund L.P.:
Bristol Energy Fund L.P.:
We have audited the accompanying statements of financial condition of Bristol Energy Fund L.P.
(the Partnership) as of December 31, 2010 and 2009, and the related statements of income and
expenses, and changes in partners capital for the years then ended. These financial statements
are the responsibility of the Partnerships management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial statements of the
Partnership for the year ended December 31, 2008 were audited by other auditors whose report,
dated March 26, 2009, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Partnerships internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such 2010 and 2009 financial statements present fairly, in all material respects,
the financial position of Bristol Energy Fund L.P. as of December 31, 2010 and 2009, and the
results of its operations and its changes in partners capital for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 23, 2011
New York, New York
March 23, 2011
21
Report of Independent Registered Public Accounting Firm
To the Partners of
Bristol Energy Fund L.P.:
Bristol Energy Fund L.P.:
In our opinion, the accompanying statement of income and expenses, and statement of changes in
partners capital present fairly, in all material respects, the financial position of Bristol
Energy Fund L.P. (formerly known as Smith Barney Bristol Energy Fund L.P.) at December 31, 2008 and
the results of its operations for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Partnership
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Partnerships
management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions on these financial statements and
on the Partnerships internal control over financial reporting based on our integrated audit. We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed 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. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
22
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
23
Bristol Energy
Fund L.P.
Statements of Financial Condition
December 31, 2010 and 2009
Statements of Financial Condition
December 31, 2010 and 2009
2010 | 2009 | |||||||
Assets:
|
||||||||
Investment in Master, at fair value (Note 1)
|
$ | 402,350,613 | $ | 479,820,291 | ||||
Cash (Note 3c)
|
151,370 | 148,017 | ||||||
Total assets
|
$ | 402,501,983 | $ | 479,968,308 | ||||
Liabilities and Partners Capital:
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Brokerage fees (Note 3c)
|
$ | 1,257,819 | $ | 1,499,901 | ||||
Management fees (Note 3b)
|
668,594 | 797,316 | ||||||
Administrative fees (Note 3a)
|
167,149 | 199,329 | ||||||
Professional fees
|
73,647 | 59,629 | ||||||
Other
|
14,119 | 19,136 | ||||||
Redemptions payable (Note 5)
|
22,213,402 | 6,793,491 | ||||||
Total liabilities
|
24,394,730 | 9,368,802 | ||||||
Partners Capital: (Notes 1 and 5)
|
||||||||
General Partner, 3,346.8277 unit equivalents outstanding at
December 31, 2010 and 2009, respectively
|
4,240,732 | 5,507,975 | ||||||
Special Limited Partner, 800.7772 Redeemable Units outstanding
at December 31, 2010 and 2009, respectively
|
1,014,657 | 1,317,863 | ||||||
Limited Partners, 294,258.5619 and 281,803.7996 Redeemable Units
outstanding at December 31, 2010 and 2009, respectively
|
372,851,864 | 463,773,668 | ||||||
Total partners capital
|
378,107,253 | 470,599,506 | ||||||
Total liabilities and partners capital
|
$ | 402,501,983 | $ | 479,968,308 | ||||
Net asset value per unit
|
$ | 1,267.09 | $ | 1,645.73 | ||||
See accompanying notes to financial statements.
24
Bristol Energy
Fund L.P.
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income:
|
||||||||||||
Net realized gains (losses) on closed contracts allocated from
Master
|
$ | (79,184,747 | ) | $ | 10,866,259 | $ | 155,738,943 | |||||
Change in net unrealized gains (losses) on open contracts
allocated from Master
|
(15,521,914 | ) | 62,545,418 | (86,506,035 | ) | |||||||
Interest income allocated from Master
|
409,291 | 276,735 | 2,824,017 | |||||||||
Expenses allocated from Master
|
(1,191,537 | ) | (610,962 | ) | (479,081 | ) | ||||||
Total income (loss)
|
(95,488,907 | ) | 73,077,450 | 71,577,844 | ||||||||
Expenses:
|
||||||||||||
Brokerage fees (Note 3c)
|
17,510,544 | 15,712,498 | 11,245,204 | |||||||||
Management fees (Note 3b)
|
9,308,420 | 8,351,500 | 5,976,427 | |||||||||
Administrative fees (Note 3a)
|
2,327,106 | 2,087,876 | 1,494,106 | |||||||||
Professional fees
|
227,258 | 165,907 | 257,814 | |||||||||
Other
|
83,545 | 66,134 | 73,910 | |||||||||
Total expenses
|
29,456,873 | 26,383,915 | 19,047,461 | |||||||||
Net income (loss) before allocation to Special Limited Partner
|
(124,945,780 | ) | 46,693,535 | 52,530,383 | ||||||||
Allocation to Special Limited Partner (Note 3b)
|
| (6,371,890 | ) | (15,059,328 | ) | |||||||
Net income (loss) after allocation to Special Limited Partner
|
$ | (124,945,780 | ) | $ | 40,321,645 | $ | 37,471,055 | |||||
Net income (loss) per unit (Note 6)
|
$ | (378.64 | ) | $ | 178.97 | $ | 236.71 | |||||
Weighted average units outstanding
|
324,536.1059 | 254,181.1224 | 203,840.2947 | |||||||||
See accompanying notes to financial statements.
25
Bristol Energy
Fund L.P.
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Special |
||||||||||||||||
Limited |
Limited |
General |
||||||||||||||
Partners | Partner | Partner | Total | |||||||||||||
Partners Capital at December 31, 2007
|
$ | 201,579,372 | $ | 2,914,442 | $ | 694,949 | $ | 205,188,763 | ||||||||
Subscriptions of 80,923.5894 Redeemable Units and 1,320.0586
General Partner unit equivalents
|
120,116,000 | | 2,000,000 | 122,116,000 | ||||||||||||
Allocation of 10,030.0211 Redeemable Units of Special Limited
Partner Interest (Note 3b)
|
| 15,059,328 | | 15,059,328 | ||||||||||||
Redemptions of 28,475.0102 Redeemable Units
|
(41,596,424 | ) | | | (41,596,424 | ) | ||||||||||
Redemptions of 4,169.3687 Redeemable Units of Special Limited
Partner Interest
|
| (6,099,870 | ) | | (6,099,870 | ) | ||||||||||
Net income (loss) available for pro rata distribution
|
37,203,545 | 197,566 | 69,944 | 37,471,055 | ||||||||||||
Partners Capital at December 31, 2008
|
317,302,493 | 12,071,466 | 2,764,893 | 332,138,852 | ||||||||||||
Subscriptions of 94,176.4822 Redeemable Units and 1,461.7931
General Partner unit equivalents
|
154,716,468 | | 2,500,000 | 157,216,468 | ||||||||||||
Allocation of 3,832.7087 Redeemable Units of Special Limited
Partner Interest (Note 3b)
|
| 6,371,890 | | 6,371,890 | ||||||||||||
Redemptions of 28,700.7737 Redeemable Units
|
(46,455,006 | ) | | | (46,455,006 | ) | ||||||||||
Redemptions of 11,261.9528 Redeemable Units of Special Limited
Partner Interest
|
| (18,994,343 | ) | | (18,994,343 | ) | ||||||||||
Net income (loss) available for pro rata distribution
|
38,209,713 | 1,868,850 | 243,082 | 40,321,645 | ||||||||||||
Partners Capital at December 31, 2009
|
463,773,668 | 1,317,863 | 5,507,975 | 470,599,506 | ||||||||||||
Subscriptions of 79,891.6932 Redeemable Units
|
122,716,000 | | | 122,716,000 | ||||||||||||
Redemptions of 67,436.9309 Redeemable Units
|
(90,262,473 | ) | | | (90,262,473 | ) | ||||||||||
Net income (loss) available for pro rata distribution
|
(123,375,331 | ) | (303,206 | ) | (1,267,243 | ) | (124,945,780 | ) | ||||||||
Partners Capital at December 31, 2010
|
$ | 372,851,864 | $ | 1,014,657 | $ | 4,240,732 | $ | 378,107,253 | ||||||||
Net asset value per unit:
|
2008:
|
$ | 1,466.76 | ||
2009:
|
$ | 1,645.73 | ||
2010:
|
$ | 1,267.09 | ||
See accompanying notes to financial statements.
26
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
1. | Partnership Organization: |
Bristol Energy Fund L.P. (the Partnership) is a
limited partnership organized on April 20, 2005 under the
partnership laws of the state of New York to engage, directly or
indirectly, in the speculative trading of commodity interests,
including options, commodity futures contracts, forwards and
swaps contracts on exchanges and markets located in the United
States and abroad. In addition, the Master (as defined below)
may enter into swap and derivative contracts on energy related
products. The commodity interests that are traded by the
Partnership, through its investment in the Master, are volatile
and involve a high degree of market risk. During the initial
offering period, the Partnership sold 11,925 redeemable units of
limited partnership interest (Redeemable Units). The
Partnership commenced trading on September 6, 2005. The
Partnership privately and continuously offers up to 500,000
Redeemable Units to qualified investors. There is no maximum
number of 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 Global Markets Inc. (CGM),
the commodity broker and a selling agent for the Partnership,
owns a minority equity interest in 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
December 31, 2010, all trading decisions for the
Partnership are made by the Advisor (defined below).
On December 1, 2005, the Partnership allocated
substantially all of its capital to the CMF SandRidge Master
Fund L.P. (the Master), a limited partnership
organized under the partnership laws of the State of New York.
The Partnership purchased 14,410.6191 units of the Master
with cash equal to $14,477,858 and a contribution of open
commodity futures and option contracts with a fair value of
$(16,018). The Master was formed in order to permit commodity
pools managed now or in the future by SandRidge Capital, L.P.
(SandRidge or the Advisor) 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 the Master. In addition, the Advisor
is a special limited partner (the, Special Limited
Partner) of the Partnership. Individual and pooled
accounts currently managed by SandRidge, including the
Partnership, are permitted to be limited partners of the Master.
The Masters commodity broker is CGM. The General Partner
and SandRidge believe that trading through this master/feeder
structure promotes efficiency and economy in the trading process.
The General Partner is not aware of any material changes to the
trading program discussed above during the fiscal year ended
December 31, 2010.
At December 31, 2010 and 2009, the Partnership owned
approximately 76.1% and 70.1%, respectively, of the Master.
It is the Partnerships intention to continue to invest
substantially all of its assets in the Master. The performance
of the Partnership is directly affected by the performance of
the Master. Expenses to investors as a result of the investment
in the Master are approximately the same and redemption rights
are not affected.
The financial statements of the Master, including the Condensed
Schedule of Investments, are contained elsewhere in this report
and should be read together with the Partnerships
financial statements.
The General Partner and each limited partner share in the
profits and losses of the Partnership, after the allocation to
the Special Limited Partner, 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, net of
distributions.
27
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The Partnership will be liquidated upon the first to occur of
the following: December 31, 2025; the Net Asset Value per
Redeemable Unit decreases to less than $400 per Redeemable Unit
as of a close of any business day; a decline in net assets after
trading commences to less than $1,000,000; or under certain
other circumstances as defined in the Limited Partnership
Agreement of the Partnership (the Limited Partnership
Agreement).
2. | Accounting Policies: |
a. | Use of Estimates. 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. | |
b. | Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows. | |
c. | Partnerships Investments. The Partnership values its investment in the Master at its net asset value per unit as calculated by the Master. The Master values its investments as described in Note 2, Accounting Policies, on the attached Masters financial statements. |
Partnerships and Masters 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
judgement 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 Masters
Level 1 assets and liabilities are actively traded.
The Partnership will separately present purchases, sales,
issuances, and settlements in their reconciliation of
Level 3 fair value measurements (i.e. to present such items
on a gross basis rather than on a net basis), and make
disclosures regarding the level of disaggregation and the inputs
and valuation techniques used to measure fair value for
measurements that fall within either Level 2 or
Level 3 of the fair value hierarchy as required under GAAP.
The Partnership values investment in the Master where there are
no other rights or obligations inherent within the ownership
interest held by the Partnership based on the end of the day net
asset value of the Master (Level 2). The value of the
Partnerships investments in the Master reflects its
proportional interest in the Master. As of and for the years
ended December 31, 2010 and 2009, the Partnership did not
hold any derivative instruments that are based on unadjusted
quoted prices in active markets for identical assets
(Level 1) or priced at fair value using unobservable
inputs through the application of managements assumptions
and internal valuation pricing models (Level 3).
28
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Master
|
$ | 402,350,613 | $ | | $ | 402,350,613 | $ | | ||||||||
Total fair value
|
$ | 402,350,613 | $ | | $ | 402,350,613 | $ | | ||||||||
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Investment in Master
|
$ | 479,820,291 | $ | | $ | 479,820,291 | $ | | ||||||||
Total fair value
|
$ | 479,820,291 | $ | | $ | 479,820,291 | $ | | ||||||||
Masters Investments and Fair Value
Measurements. For disclosures regarding the
Masters investments and fair value measurements, see
Note 2, Accounting Policies, on the attached
Masters financial statements.
d. | 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 has 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. Generally, the 2007 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
e. | Subsequent Events. Management of the Partnership evaluates events that occur after the balance sheet date but before financial statements are filed. Management has assessed the subsequent events through the date of filings and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements. |
f. | Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 6, Financial Highlights. |
3. Agreements:
a. | Limited Partnership Agreement: |
The General Partner administers the business and affairs of the
Partnership including selecting one or more advisors to make
trading decisions for the Partnership. The Partnership will pay
the General Partner a monthly administrative fee in return for
its services to the Partnership equal to 1/24 of 1% (0.5% per
year) of month-end Net Assets of the Partnership. Month-end Net
Assets,
29
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
for the purpose of calculating administrative fees are Net
Assets, as defined in the Limited Partnership Agreement, prior
to the reduction of the current months management fee,
profit share allocation accrual, the General Partners
administrative fee and any redemptions or distributions as of
the end of such month. This fee may be increased or decreased at
the discretion of the General Partner.
b. | Management Agreement: |
The General Partner, on behalf of the Partnership, has entered
into a management agreement (the Management
Agreement) with SandRidge, a registered commodity trading
advisor. SandRidge is not affiliated with the General Partner or
CGM and is not responsible for the organization or operation of
the Partnership. The Partnership pays SandRidge a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net
Assets allocated to SandRidge. Month-end Net Assets, for the
purpose of calculating management fees are Net Assets, as
defined in the Limited Partnership Agreement, prior to the
reduction of the current months management fee, profit
share allocation accrual, the General Partners
administrative fee and any redemptions or distributions as of
the end of such month. The Management Agreement may be
terminated upon notice by either party.
In addition, the Special Limited Partner of the Partnership
receives a quarterly profit share allocation to its capital
account in the Partnership in the form of units of the
Partnership, the value of which shall be equal to 20% of the New
Trading Profits, as defined in the Management Agreement, earned
on behalf of the Partnership during each calendar quarter and
are issued as Special Limited Partner Redeemable Units. The
Advisor will not receive a profit share until the Advisor
recovers the net loss incurred and earns additional new trading
profits for the Partnership.
In allocating substantially all the assets of the Partnership to
the Master, 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 and may
allocate assets to additional advisors at any time.
c. | Customer Agreement: |
The Partnership has entered into a customer agreement (the
Customer Agreement) which provides that the
Partnership will pay CGM a monthly brokerage fee equal to 5/16
of 1% (3.75% per year) of month-end Net Assets, allocated pro
rata from the Master, in lieu of brokerage fees on a per trade
basis. Month-end Net Assets, for the purpose of calculating fees
are Net Assets, as defined in the Limited Partnership Agreement,
prior to the reduction of the current months brokerage
fees, management fee, profit share allocation accrual, the
General Partners administrative fee, other expenses and
any redemptions or distributions as of the end of such month.
Brokerage fees will be paid for the life of the Partnership,
although the rate at which such fees are paid may be changed.
This fee may be increased or decreased at any time at CGMs
discretion upon written notice to the Partnership. CGM will pay
a portion of its brokerage fees to other properly registered
selling agents and to financial advisors who have sold
Redeemable Units. All National Futures Association fees,
exchange, clearing, user,
give-up and
floor brokerage fees (collectively, the clearing
fees) will be borne by the Master and allocated to the
Partnership through its investment in the Master. All of the
Partnerships assets, not held in the Masters account
at CGM, are deposited in the Partnerships account at CGM.
The Partnerships cash is deposited by CGM in segregated
bank accounts to the extent required by Commodity Futures
Trading Commission regulations. CGM has agreed to pay the
Partnership interest on its allocable share of 80% of the
average daily equity maintained in cash in the Masters
account during each month at a
30-day
U.S. Treasury bill rate determined weekly by CGM based on
the average noncompetitive yield on
3-month
U.S. Treasury bills maturing in 30 days from the date
on which
30
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
such weekly rate is determined. The Customer Agreement may be
terminated upon notice by either party.
4. | Trading Activities: |
The Partnerships pro-rata share of the results of the
Masters trading activities are shown in the Statements of
Income and Expenses.
The Customer Agreements between the Partnership and CGM and the
Master and CGM give the Partnership and the Master,
respectively, the legal right to net unrealized gains and losses
on open futures contracts. The Master nets, for financial
reporting purposes, the unrealized gains and losses on open
futures and exchange-cleared swaps contracts on the Statements
of Financial Condition.
Brokerage fees are calculated as a percentage of the
Partnerships adjusted net asset value on the last business
day of each month and are affected by trading performance,
additions and redemptions.
For disclosures regarding the Masters trading activities,
see Note 4, Trading Activities, on the attached
Masters financial statements.
5. | Subscriptions, Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become limited partners on the first day of the month after
their subscription is processed. Distributions of profits, if
any, will be made at the sole discretion of the General Partner
and at such times as the General Partner may decide. A limited
partner may require the Partnership to redeem their Redeemable
Units at their net asset value per Redeemable Unit as of the
last day of each month on three business days notice to
the General Partner. There is no fee charged to limited partners
in connection with redemptions.
6. | Financial Highlights: |
Changes in the net asset value per unit for the years ended
December 31, 2010, 2009 and 2008 were as follows:
2010 | 2009 | 2008 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | (342.15 | ) | $ | 246.59 | $ | 346.08 | |||||
Interest income allocated from Master
|
1.23 | 1.13 | 14.60 | |||||||||
Expenses and allocation to Special Limited Partner**
|
(37.72 | ) | (68.75 | ) | (123.97 | ) | ||||||
Increase (decrease) for the year
|
(378.64 | ) | 178.97 | 236.71 | ||||||||
Net asset value per unit, beginning of year
|
1,645.73 | 1,466.76 | 1,230.05 | |||||||||
Net asset value per unit, end of year
|
$ | 1,267.09 | $ | 1,645.73 | $ | 1,466.76 | ||||||
* | Includes Partnership brokerage fees and expenses allocated from Master. | |
** | Excludes Partnership brokerage fees and expenses allocated from Master and includes allocation to Special Limited Partner. |
31
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
2010 | 2009 | 2008 | ||||||||||
Ratios to average net assets:
|
||||||||||||
Net investment income (loss) before allocation to Special
Limited Partner***
|
(6.6 | )% | (6.6 | )% | (5.8 | )% | ||||||
Operating expenses
|
6.7 | % | 6.7 | % | 6.8 | % | ||||||
Allocation to Special Limited Partner
|
| % | 1.6 | % | 5.3 | % | ||||||
Total expenses and allocation to Special Limited Partner
|
6.7 | % | 8.3 | % | 12.1 | % | ||||||
Total return:
|
||||||||||||
Total return before allocation to Special Limited Partner
|
(23.0 | )% | 13.7 | % | 24.7 | % | ||||||
Allocation to Special Limited Partner
|
| % | (1.5 | )% | (5.5 | )% | ||||||
Total return after allocation to Special Limited Partner
|
(23.0 | )% | 12.2 | % | 19.2 | % | ||||||
*** | Interest income allocated from Master less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average
net assets.
7. | Financial Instrument Risks: |
In the normal course of business, the Partnership, through its
investment in the Master, is party to financial instruments with
off-balance sheet risk, including derivative financial
instruments and derivative commodity instruments. These
financial instruments may include forwards, futures, options and
swaps, whose values are based upon an underlying asset, index,
or reference rate, and generally represent future commitments to
exchange currencies or cash balances, to purchase or sell other
financial instruments at specific terms at specified future
dates, or, in the case of derivative commodity instruments, to
have a reasonable possibility to be settled in cash, through
physical delivery or with another financial instrument. These
instruments may be traded on an exchange or
over-the-counter
(OTC). Exchange-traded instruments are standardized
and include futures and certain forwards and option contracts.
OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Specific market
movements of commodities or futures contracts underlying an
option cannot accurately be predicted. The purchaser of an
option may lose the entire premium paid for the option. The
writer, or seller, of an option has unlimited risk. Each of
these instruments is subject to various risks similar to those
related to the underlying financial instruments including market
and credit risk. In general, the risks associated with OTC
contracts are greater than those associated with exchange-traded
instruments because of the greater risk of default by the
counterparty to an OTC contract.
The risk to the limited partners that have purchased interests
in the Partnership in limited the amount of their capital
contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. The limited
liability is a consequence of the Partnership as a limited
Partnership under applicable law.
Market risk is the potential for changes in the value of the
financial instruments traded by the Partnership/Master 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/Master 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/Masters 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
32
Bristol Energy
Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
the contract or notional amounts of the instruments. The
Partnerships/Masters risk of loss is reduced through
the use of legally enforceable master netting agreements with
counterparties that permit the Partnership/Master to offset
unrealized gains and losses and other assets and liabilities
with such counterparties upon the occurrence of certain events.
The Partnership/Master has credit risk and concentration risk as
the sole counterparty or broker with respect to the
Partnerships/Masters assets is CGM or a CGM
affiliate. Credit risk with respect to exchange-traded
instruments is reduced to the extent that, through CGM, the
Partnerships/Masters counterparty is an exchange or
clearing organization.
The Advisor will concentrate the
Partnerships/Masters trading in energy related
markets. Concentration in a limited number of commodity
interests may subject the Partnerships/Masters
account to greater volatility than if in a more diversified
portfolio of contracts were traded on behalf of the
Partnership/Master.
As both a buyer and seller of options, the Master pays or
receives a premium at the outset and then bears the risk of
unfavorable changes in the price of the contract underlying the
option. Written options expose the Master 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 Master does not consider these contracts to
be guarantees.
The General Partner monitors and attempts to control the
Partnerships/Masters 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/Master 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,
on-line monitoring systems provide account analysis of futures,
exchange cleared swaps 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
Partnerships/Masters business, these instruments may
not be held to maturity.
33
Selected unaudited quarterly financial data for the Partnership for the years ended December 31,
2010 and 2009 is summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2010 to | July 1, 2010 to | April 1, 2010 to | January 1, 2010 to | |||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Net realized and
unrealized trading
gains (losses), expenses and interest income allocated from Master, net
of brokerage
fees |
$ | (8,384,185 | ) | $ | (35,878,471 | ) | $ | (53,430,224 | ) | $ | (15,306,571 | ) | ||||
Net income
(loss) before allocation to Special Limited Partner |
$ | (11,098,051 | ) | $ | (38,695,212 | ) | $ | (56,669,678 | ) | $ | (18,482,839 | ) | ||||
Net income
(loss) after allocation to Special Limited Partner |
$ | (11,098,051 | ) | $ | (38,695,212 | ) | $ | (56,669,678 | ) | $ | (18,482,839 | ) | ||||
Increase (decrease)
in net asset value
per unit |
$ | (35.19 | ) | $ | (115.04 | ) | $ | (168.96 | ) | $ | (59.45 | ) |
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and
unrealized trading
gains (losses), expenses and interest income allocated from Master, net
of brokerage
fees |
$ | (9,553,007 | ) | $ | 20,517,794 | $ | 19,523,892 | $ | 26,876,273 | |||||||
Net income
(loss) before allocation to Special Limited Partner |
$ | (12,631,348 | ) | $ | 17,717,287 | $ | 17,032,345 | $ | 24,575,251 | |||||||
Net income (loss) after allocation to Special Limited Partner |
$ | (12,631,348 | ) | $ | 14,192,729 | $ | 14,185,013 | $ | 24,575,251 | |||||||
Increase (decrease)
in net asset value
per unit |
$ | (42.52 | ) | $ | 56.55 | $ | 59.29 | $ | 105.65 |
34
To the Limited
Partners of
CMF SandRidge Master Fund L.P.
CMF SandRidge Master Fund L.P.
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.

By: | Walter Davis |
President and Director
Ceres Managed Futures LLC
General Partner,
CMF SandRidge Master Fund L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
212-296-1999
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
CMF SandRidge Master Fund L.P.:
We have audited the accompanying statements of financial condition of CMF SandRidge Master Fund
L.P. (the Partnership), including the condensed schedules of investments, as of December 31,
2010 and 2009, and the related statements of income and expenses, and changes in partners capital
for the years then ended. These financial statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these financial statements based on our
audits. The financial statements of the Partnership for the year ended December 31, 2008 were
audited by other auditors whose report, dated March 26, 2009, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Partnerships internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such 2010 and 2009 financial statements present fairly, in all material respects,
the financial position of CMF SandRidge Master Fund L.P. as of December 31, 2010 and 2009, and the
results of its operations and its changes in partners capital for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
New York, New York
March 23, 2011
New York, New York
March 23, 2011
36
Report of Independent Auditors
To the Partners of
CMF SandRidge Master Fund L.P.:
CMF SandRidge Master Fund L.P.:
In our opinion, the accompanying statement of income and expenses, and statement of changes in
partners capital present fairly, in all material respects, the financial position of CMF SandRidge
Master Fund L.P. at December 31, 2008, and the results of its operations for the year then
ended in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
37
CMF SandRidge
Master Fund L.P.
Statements of Financial Condition
December 31, 2010 and 2009
Statements of Financial Condition
December 31, 2010 and 2009
2010 | 2009 | |||||||
Assets:
|
||||||||
Equity in trading account:
|
||||||||
Cash (Note 3c)
|
$ | 508,243,783 | $ | 691,877,329 | ||||
Cash margin (Note 3c)
|
71,084,284 | 22,651,198 | ||||||
Options purchased, at fair value (cost $3,846,540 and $1,392,000
at December 31, 2010 and 2009, respectively)
|
2,303,244 | 1,092,800 | ||||||
Total assets
|
$ | 581,631,311 | $ | 715,621,327 | ||||
Liabilities and Partners Capital:
|
||||||||
Liabilities:
|
||||||||
Net unrealized depreciation on open futures and exchange-cleared
swap contracts
|
$ | 52,768,215 | $ | 29,412,753 | ||||
Options premium received, at fair value (premium $45,000 and
$994,000 at December 31, 2010 and 2009, respectively)
|
24,250 | 1,249,600 | ||||||
Accrued expenses:
|
||||||||
Professional fees
|
103,589 | 49,481 | ||||||
Total liabilities
|
52,896,054 | 30,711,834 | ||||||
Partners Capital:
|
||||||||
General Partner, 0.0000 unit equivalents at December 31,
2010 and 2009
|
| | ||||||
Limited Partners, 293,086.2072 and 311,109.5773 Redeemable Units
outstanding at December 31, 2010 and 2009, respectively
|
528,735,257 | 684,909,493 | ||||||
Total liabilities and partners capital
|
$ | 581,631,311 | $ | 715,621,327 | ||||
Net asset value per unit
|
$ | 1,804.03 | $ | 2,201.51 | ||||
See accompanying notes to financial statements.
38
CMF SandRidge
Master Fund L.P.
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures and Exchange-Cleared Swap Contracts Purchased
|
||||||||||||
Energy
|
||||||||||||
ICE Henry Hub Natural Gas Swap Mar. 11 Dec. 14
|
39,104 | $ | (34,520,010 | ) | (6.52 | )% | ||||||
NYMEX Henry Hub Natural Gas Swap Mar. 11 Dec. 14
|
19,716 | (65,069,790 | ) | (12.31 | ) | |||||||
NYMEX Henry Hub Natural Gas Oct. 11 Apr. 12
|
1,381 | (204,317 | ) | (0.04 | ) | |||||||
NYMEX Henry Hub Penultimate Apr. 11
|
308 | 216,370 | 0.04 | |||||||||
Total futures and exchange-cleared swap contracts purchased
|
(99,577,747 | ) | (18.83 | ) | ||||||||
Futures and Exchange-Cleared Swap Contracts Sold
|
||||||||||||
Energy
|
||||||||||||
ICE Henry Hub Natural Gas Swap Apr. 11
|
13,080 | 17,903,400 | 3.39 | |||||||||
NYMEX Henry Hub Natural Gas Swap Feb. 11 Dec. 13
|
14,996 | 35,275,930 | 6.67 | |||||||||
NYMEX Henry Hub Natural Gas Feb. 11 Jan. 12
|
10,765 | (6,369,798 | ) | (1.21 | ) | |||||||
Total futures and exchange-cleared swap contracts sold
|
46,809,532 | 8.85 | ||||||||||
Options Purchased
|
||||||||||||
Puts
|
||||||||||||
Energy
|
4,228 | 2,303,244 | 0.44 | |||||||||
Total options purchased
|
2,303,244 | 0.44 | ||||||||||
Options Premium Received
|
||||||||||||
Puts
|
||||||||||||
Energy
|
50 | (24,250 | ) | (0.01 | ) | |||||||
Total options premium received
|
(24,250 | ) | (0.01 | ) | ||||||||
Total fair value
|
$ | (50,489,221 | ) | (9.55 | )% | |||||||
See accompanying notes to financial statements.
39
CMF SandRidge
Master Fund L.P.
Condensed Schedule of Investments
December 31, 2009
Condensed Schedule of Investments
December 31, 2009
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures and Exchange-Cleared Swap Contracts Purchased
|
||||||||||||
Energy
|
||||||||||||
ICE Henry Hub Natural Gas Swap Apr. 10 Dec. 14
|
33,801 | $ | (11,509,797 | ) | (1.68 | )% | ||||||
NYMEX Henry Hub Natural Gas Swap Mar. 10 Dec. 14
|
14,452 | (7,309,750 | ) | (1.07 | ) | |||||||
NYMEX Henry Hub Natural Gas May 10 May 11
|
4,825 | (5,954,147 | ) | (0.87 | ) | |||||||
NYMEX Henry Hub Penultimate Mar. 10
|
524 | 495,220 | 0.07 | |||||||||
Total futures and exchange-cleared swap contracts purchased
|
(24,278,474 | ) | (3.55 | ) | ||||||||
Futures and Exchange-Cleared Swap Contracts Sold
|
||||||||||||
Energy
|
||||||||||||
ICE Henry Hub Natural Gas Swap Mar. 10 March 11
|
22,040 | (6,466,193 | ) | (0.94 | ) | |||||||
NYMEX Henry Hub Natural Gas Swap May 10 Dec. 13
|
10,108 | 5,801,850 | 0.84 | |||||||||
NYMEX Henry Hub Natural Gas Mar. 10 Sept. 10
|
6,621 | (4,469,936 | ) | (0.65 | ) | |||||||
Total futures and exchange-cleared swap contracts sold
|
(5,134,279 | ) | (0.75 | ) | ||||||||
Options Purchased
|
||||||||||||
Puts
|
||||||||||||
Energy
|
240 | 1,092,800 | 0.16 | |||||||||
Total options purchased
|
1,092,800 | 0.16 | ||||||||||
Options Premium Received
|
||||||||||||
Calls
|
||||||||||||
Energy
|
240 | (1,249,600 | ) | (0.18 | ) | |||||||
Total options premium received
|
(1,249,600 | ) | (0.18 | ) | ||||||||
Total fair value
|
$ | (29,569,553 | ) | (4.32 | )% | |||||||
See accompanying notes to financial statements.
40
CMF SandRidge
Master Fund L.P.
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income:
|
||||||||||||
Net gains (losses) on trading of commodity interests:
|
||||||||||||
Net realized gains (losses) on closed contracts
|
$ | (108,429,533 | ) | $ | 18,484,633 | $ | 209,086,188 | |||||
Change in net unrealized gains (losses) on open contracts
|
(24,323,208 | ) | 80,708,073 | (109,479,479 | ) | |||||||
Gain (loss) from trading, net
|
(132,752,741 | ) | 99,192,706 | 99,606,709 | ||||||||
Interest income
|
569,344 | 388,904 | 4,119,717 | |||||||||
Total income (loss)
|
(132,183,397 | ) | 99,581,610 | 103,726,426 | ||||||||
Expenses:
|
||||||||||||
Clearing fees
|
1,277,117 | 623,298 | 390,792 | |||||||||
Professional fees
|
378,018 | 210,642 | 269,306 | |||||||||
Total expenses
|
1,655,135 | 833,940 | 660,098 | |||||||||
Net income (loss)
|
$ | (133,838,532 | ) | $ | 98,747,670 | $ | 103,066,328 | |||||
Net income (loss) per unit (Note 6)
|
$ | (395.76 | ) | $ | 388.51 | $ | 468.42 | |||||
Weighted average units outstanding
|
335,607.0115 | 275,661.9324 | 241,781.3550 | |||||||||
See accompanying notes to financial statements.
41
CMF SandRidge
Master Fund L.P.
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Partners |
||||
Capital | ||||
Partners Capital at December 31, 2007
|
$ | 312,531,725 | ||
Net income (loss)
|
103,066,328 | |||
Subscriptions of 80,081.4747 Redeemable Units
|
141,534,374 | |||
Redemptions of 61,402.1561 Redeemable Units
|
(103,294,264 | ) | ||
Distribution of interest income to feeder funds
|
(4,119,717 | ) | ||
Partners Capital at December 31, 2008
|
449,718,446 | |||
Net income (loss)
|
98,747,670 | |||
Subscriptions of 127,771.5856 Redeemable Units
|
270,602,300 | |||
Redemptions of 64,512.0418 Redeemable Units
|
(133,770,019 | ) | ||
Distribution of interest income to feeder funds
|
(388,904 | ) | ||
Partners Capital at December 31, 2009
|
684,909,493 | |||
Net income (loss)
|
(133,838,532 | ) | ||
Subscriptions of 93,708.5149 Redeemable Units
|
199,373,500 | |||
Redemptions of 111,731.8850 Redeemable Units
|
(221,139,860 | ) | ||
Distribution of interest income to feeder funds
|
(569,344 | ) | ||
Partners Capital at December 31, 2010
|
$ | 528,735,257 | ||
Net asset value per unit:
2008:
|
$ | 1,814.48 | ||
2009:
|
$ | 2,201.51 | ||
2010:
|
$ | 1,804.03 | ||
See accompanying notes to financial statements.
42
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
1. | Partnership Organization: |
CMF SandRidge Master Fund L.P. (the Master) is
a limited partnership that was organized under the partnership
laws of the State of New York to engage in the speculative
trading of commodity interests including futures contracts,
options, swaps and forward contracts. The commodity interests
that are traded by the Master are volatile and involve a high
degree of market risk. The Master may trade commodity futures
and option contracts of any kind but intends initially to trade
solely energy and energy related products. The Master is
authorized to sell an unlimited number of redeemable units of
Limited Partnership Interest (Redeemable Units).
Ceres Managed Futures LLC, a Delaware limited liability
company, acts as the general partner (the General
Partner) and commodity pool operator of the Master. 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 Global Markets Inc.
(CGM), the commodity broker for the Master, owns a
minority equity interest in 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
December 31, 2010, all trading decisions for the Master are
made by the Advisor (defined below).
On December 1, 2005 (commencement of trading operations),
Bristol Energy Fund L.P. (Bristol) allocated
substantially all of its capital to the Master. Bristol
purchased 14,410.6191 Redeemable Units with cash equal to
$14,477,858 and a contribution of open commodity futures and
options contracts with a fair value of $(16,018). On May 1,
2006, two separate private investors (Private Investor
I and Private Investor II) each allocated
substantially all of their capital to the Master. Private
Investor I purchased 23,073.5521 Redeemable Units with cash
equal to $28,000,000 and Private Investor II purchased
4,944.3326 Redeemable Units with cash equal to $6,000,000. On
October 1, 2006, CMF SandRidge Feeder (Cayman) Ltd.
(SandRidge Feeder) and Energy Advisors Portfolio
L.P. (Energy Advisors) each allocated substantially
all of their capital to the Master. SandRidge Feeder purchased
22,075.2638 Redeemable Units with cash equal to $25,000,000.
Energy Advisors purchased 2,092.7350 Redeemable Units with cash
equal to $2,370,000. On April 1, 2007, Diversified 2000
Futures Fund L.P. (Diversified 2000) purchased
7,659.0734 Redeemable Units with cash equal to $9,635,703. On
March 1, 2009, Tactical Diversified Futures Fund L.P.
(Tactical Diversified), purchased 14,408.1177
Redeemable Units with cash equal to $27,000,000. On June 1,
2009, Diversified Multi-Advisor Futures Fund L.P.,
(Diversified) and Diversified Multi-Advisors Futures
Fund L.P. II, (Diversified II) each allocated a
portion of their capital to the Master. Diversified purchased
1,370.9885 Redeemable Units with cash equal to $2,818,836.
Diversified II purchased 2,086.0213 Redeemable Units with cash
equal to 4,288,986. On June 30, 2010 SandRidge Feeder
redeemed its investment in the Master. This amounted to
16,487.2770 Redeemable Units with cash equal to $32,251,755. The
Master was formed to permit commodity pools managed now and in
the future by SandRidge Capital, L.P. (the Advisor)
using the Energy Program, the Advisors proprietary
systematic trading program, to invest together in one trading
vehicle.
The Master operates under a structure where its investors are
Bristol, Private Investor I, Private Investor II, Energy
Advisors, Diversified 2000, Tactical Diversified, Diversified
and Diversified II (each a Feeder, collectively
the Funds) each of which owns approximately 76.1%,
5.8%, 0.4%, 1.4%, 1.5%, 13.8%, 0.4% and 0.6% investments in the
Master at December 31, 2010, respectively. Bristol, Private
Investor I, Private Investor II, SandRidge Feeder, Energy
Advisors, Diversified 2000, Tactical Diversified, Diversified
and Diversified II had approximately 70.1%, 4.2%, 0.7%,
9.0%, 1.3%, 2.0%, 11.7%, 0.4% and 0.6% investments in the Master
at December 31, 2009, respectively.
43
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The Master will be liquidated upon the first to occur of the
following: December 31, 2025; or under certain other
circumstances as defined in the Limited Partnership Agreement of
the Master (the Limited Partnership Agreement).
2. | Accounting Policies: |
a. | Use of Estimates. 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. | |
b. | Statement of Cash Flows. The Master is not required to provide a Statement of Cash Flows. | |
c. | Masters Investments. All commodity interests of the Master (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. 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. |
Masters 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
Masters Level 1 assets and liabilities are actively traded.
The Master will separately present purchases, sales, issuances,
and settlements in their reconciliation of Level 3 fair
value measurements (i.e. to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the
level of disaggregation and the inputs and valuation techniques
used to measure fair value for measurements that fall within
either Level 2 or Level 3 of the fair value hierarchy
as required under GAAP.
The Master 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 that
derive fair values for those assets from observable inputs
(Level 2). As of and for the years ended December 31,
2010 and 2009, the Master did not hold any derivative
instruments for which market quotations are not available and
which were priced by broker-dealers that derive fair values for
those assets 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). The
44
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
gross presentation of the fair value of the Masters
derivatives by instruments type is shown in Note 4,
Trading Activities.
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Sets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Options purchased
|
$ | 2,303,244 | $ | 2,303,244 | $ | | $ | | ||||||||
Total assets
|
2,303,244 | 2,303,244 | | | ||||||||||||
Liabilities
|
||||||||||||||||
Futures and Exchange-Cleared Swaps
|
$ | 52,768,215 | $ | 52,768,215 | $ | | $ | | ||||||||
Options premium received
|
24,250 | 24,250 | | | ||||||||||||
Total liabilities
|
52,792,465 | 52,792,465 | | | ||||||||||||
Total fair value
|
$ | (50,489,221 | ) | $ | (50,489,221 | ) | $ | | $ | | ||||||
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Sets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Options purchased
|
$ | 1,092,800 | $ | 1,092,800 | $ | | $ | | ||||||||
Total assets
|
$ | 1,092,800 | $ | 1,092,800 | $ | | $ | | ||||||||
Liabilities
|
||||||||||||||||
Futures and Exchange-Cleared Swaps
|
$ | 29,412,753 | $ | 29,412,753 | $ | | $ | | ||||||||
Options premium received
|
1,249,600 | 1,249,600 | | | ||||||||||||
Total liabilities
|
30,662,353 | 30,662,353 | | | ||||||||||||
Total fair value
|
$ | (29,569,553 | ) | $ | (29,569,553 | ) | $ | | $ | | ||||||
d. | Futures Contracts. The Master trades futures contracts and exchange-cleared swaps. Exchange-cleared swaps are traded as futures. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Master 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 Master. When the contract is closed, the Master 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, through the futures broker, directly with the exchange on which the contracts are traded. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses. | |
e. | Options. The Master may purchase and write (sell), both exchange listed and over-the-counter (OTC), options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial |
45
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
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 Master writes an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Master purchases 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. |
f. | Income and Expenses Recognition. All of the income and expenses and realized and unrealized gains and losses on trading of commodity interests are determined on each valuation day and allocated pro rata among the Funds at the time of such determination. | |
g. | Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on their share of the Masters 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
Masters 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 Master 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 Masters financial statements.
The Master files U.S. federal and various state and local tax
returns. No income tax returns are currently under examination.
Generally, the 2007 through 2010 tax years remain subject to
examination by U.S. federal and most state tax authorities.
Management does not believe that there are any uncertain tax
positions that require recognition of a tax liability.
h. | Subsequent Events. Management of the Master evaluates events that occur after the balance sheet date but before financial statements are filed. Management 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. | |
i. | Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 6, Financial Highlights. |
3. | Agreements: |
a. | Limited Partnership Agreement: |
The General Partner administers the business and affairs of the
Master including selecting one or more advisors to make trading
decisions for the Master.
b. | Management Agreement: |
The General Partner, on behalf of the Master, has entered into a
management agreement (the Management Agreement) with
the Advisor, a registered commodity trading advisor. The Advisor
is not affiliated with the General Partner or CGM and is not
responsible for the organization or operation of the Master. The
Management Agreement provides that the Advisor has sole
discretion in determining the investment of the assets of the
Master. All management fees in connection with the Management
Agreement are borne by the Funds. The Management Agreement may
be terminated upon 30 days notice by either party.
46
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
c. | Customer Agreement: |
The Master has entered into a customer agreement (the
Customer Agreement) with CGM whereby CGM provides
services which include, among other things, the execution of
transactions for the Masters account in accordance with
orders placed by the Advisor. All exchange, clearing, user,
give-up,
floor brokerage and National Futures Association fees
(collectively the clearing fees) are borne by the
Master. All other fees including CGMs direct brokerage
fees shall be borne by the Funds. All of the Masters
assets are deposited in the Masters account at CGM. The
Masters cash is deposited by CGM in segregated bank
accounts to the extent required by Commodity Futures Trading
Commission regulations. At December 31, 2010 and 2009, the
amounts of cash held by the Master for margin requirements were
$71,084,284 and $22,651,198, respectively. The Customer
Agreement may be terminated upon notice by either party.
4. | Trading Activities: |
The Master was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial
instruments and derivative commodity interests. The results of
the Masters trading activities are shown in the Statements
of Income and Expenses.
The Customer Agreement between the Master and CGM gives the
Master the legal right to net unrealized gains and losses on
open futures and exchange cleared swap contracts. The Master
nets, for financial reporting purposes, the unrealized gains and
losses on open futures and forward contracts on the Statements
of Financial Condition.
All of the commodity interests owned by the Master are held for
trading purposes. The average number of futures and
exchange-cleared swap contracts traded for the years ended
December 31, 2010 and 2009, based on a monthly calculation,
were 160,688 and 64,145, respectively. The average number of
options contracts traded for the years ended December 31,
2010 and 2009, based on a monthly calculation, were 2,052 and
2,755, respectively. In prior year, the average contracts were
based on a quarterly and not a monthly calculation. The amounts
for the year ended December 31, 2009 have been revised
accordingly.
47
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The following tables indicate the gross fair values of
derivative instruments of futures, exchange cleared swap and
option contracts as separate assets and liabilities for the
years ended December 31, 2010 and 2009.
December 31, 2010 | ||||
Assets
|
||||
Futures and Exchange-Cleared Swap Contracts
|
||||
Energy
|
$ | 69,685,031 | ||
Total unrealized appreciation on open futures and
exchange-cleared swap contracts
|
$ | 69,685,031 | ||
Liabilities
|
||||
Futures and Exchange-Cleared Swap Contracts
|
||||
Energy
|
$ | (122,453,246 | ) | |
Total unrealized depreciation on open futures and
exchange-cleared swap contracts
|
$ | (122,453,246 | ) | |
Net unrealized depreciation on open futures and exchange-cleared
swap contracts
|
$ | (52,768,215 | )* | |
Assets
|
||||
Options Purchased
|
||||
Energy
|
$ | 2,303,244 | ||
Options purchased
|
$ | 2,303,244 | ** | |
Liabilities
|
||||
Options Premium Received
|
||||
Energy
|
$ | (24,250 | ) | |
Options premium received
|
$ | (24,250 | )*** | |
* | This amount is in Net unrealized depreciation on open futures and exchange-cleared swap contracts on the Statements of Financial Condition. | |
** | This amount is in Options purchased, at fair value on the Statements of Financial Condition. | |
*** | This amount is in Options premium received, at fair value on the Statements of Financial Condition. |
48
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
December 31, 2009 | ||||
Assets
|
||||
Futures and Exchange-Cleared Swap Contracts
|
||||
Energy
|
$ | 37,079,802 | ||
Total unrealized appreciation on open futures and
exchange-cleared swap contracts
|
$ | 37,079,802 | ||
Liabilities
|
||||
Futures and Exchange-Cleared Swap Contracts
|
||||
Energy
|
$ | (66,492,555 | ) | |
Total unrealized depreciation on open futures and
exchange-cleared swap contracts
|
$ | (66,492,555 | ) | |
Net unrealized depreciation on open futures and exchange-cleared
swap contracts
|
$ | (29,412,753 | )* | |
Assets
|
||||
Options Purchased
|
||||
Energy
|
$ | 1,092,800 | ||
Options purchased
|
$ | 1,092,800 | ** | |
Liabilities
|
||||
Options Premium Received
|
||||
Energy
|
$ | (1,249,600 | ) | |
Options premium received
|
$ | (1,249,600 | )*** | |
* | This amount is in Net unrealized depreciation on open futures and exchange-cleared swap contracts on the Statements of Financial Condition. | |
** | This amount is in Options purchased, at fair value on the Statements of Financial Condition. | |
*** | This amount is in Options premium received, at fair value on the Statements of Financial Condition. |
The following tables indicate the trading gains and losses, by
market sector, on derivative instruments for the years ended
December 31, 2010 and 2009.
December 31, 2010 |
December 31, 2009 |
|||||||
Sector | Gain (loss) from trading | Gain (loss) from trading | ||||||
Energy
|
$ | (132,752,741 | ) | $ | 99,192,706 | |||
Total
|
$ | (132,752,741 | )**** | $ | 99,192,706 | **** | ||
**** | This amount is in Gain(loss) from trading, net on the Statements of Income and Expenses. |
5. | Subscriptions, Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become limited partners on the first day of the month after
their subscription is processed. A limited partner may withdraw
all or part of their capital contribution and undistributed
profits, if any, from the Master in multiples of the net asset
value per Redeemable Unit as of the end day 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 Redeemable Units are classified as a
liability when the limited partner elects to redeem and informs
the Master.
49
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
6. | Financial Highlights: |
Changes in the net asset value per unit for the years ended
December 31, 2010, 2009 and 2008 were as follows:
2010 | 2009 | 2008 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | (396.32 | ) | $ | 387.81 | $ | 451.86 | |||||
Interest income
|
1.72 | 1.48 | 17.69 | |||||||||
Expenses**
|
(1.16 | ) | (0.78 | ) | (1.13 | ) | ||||||
Increase (decrease) for the year
|
(395.76 | ) | 388.51 | 468.42 | ||||||||
Distribution of interest income to feeder funds
|
(1.72 | ) | (1.48 | ) | (17.69 | ) | ||||||
Net asset value per unit, beginning of year
|
2,201.51 | 1,814.48 | 1,363.75 | |||||||||
Net asset value per unit, end of year
|
$ | 1,804.03 | $ | 2,201.51 | $ | 1,814.48 | ||||||
* | Includes clearing fees. | |
** | Excludes clearing fees. |
2010 | 2009 | 2008 | ||||||||||
Ratios to average net assets:
|
||||||||||||
Net investment income (loss)***
|
(0.2 | )% | (0.1 | )% | 0.9 | % | ||||||
Operating expenses
|
0.3 | % | 0.1 | % | 0.2 | % | ||||||
Total return
|
(18.1 | )% | 21.3 | % | 34.3 | % | ||||||
*** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the limited partner class using
the limited partners share of income, expenses and average
net assets.
7. | Financial Instrument Risks: |
In the normal course of business, the Master is party to
financial instruments with off-balance sheet risk, including
derivative financial instruments and derivative commodity
instruments. These financial instruments may include forwards,
futures, options and swaps whose values are based upon an
underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash
balances, to purchase or sell other financial instruments at
specific terms at specified future dates, or, in the case of
derivative commodity instruments, to have a reasonable
possibility to be settled in cash, through physical delivery or
with another financial instrument. These instruments may be
traded on an exchange or OTC. Exchange-traded instruments are
standardized and include futures and certain forwards and option
contracts. OTC contracts are negotiated between contracting
parties and include certain forwards and option contracts.
Specific market movements of commodities or futures contracts
underlying an option cannot accurately be predicted. The
purchaser of an option may lose the entire premium paid for the
option. 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 Master 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 Master is
exposed to a market risk equal to the value of futures and
forward contracts purchased and unlimited liability on such
contracts sold short.
50
CMF SandRidge
Master Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
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 Masters risk of loss in the event of
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 Masters risk of loss is reduced through
the use of legally enforceable master netting agreements with
counterparties that permit the Master to offset unrealized gains
and losses and other assets and liabilities with such
counterparties upon the occurrence of certain events. The Master
has credit risk and concentration risk as the sole counterparty
or broker with respect to the Masters assets is CGM or a
CGM affiliate. Credit risk with respect to exchange-traded
instruments is reduced to the extent that, through CGM, the
Masters counterparty is an exchange or clearing
organization.
The Advisor will concentrate the Masters trading in energy
related markets. Concentration in a limited number of commodity
interests may subject the Masters account to greater
volatility than if a more diversified portfolio of contracts.
As both a buyer and seller of options, the Master pays or
receives a premium at the outset and then bears the risk of
unfavorable changes in the price of the contract underlying the
option. Written options expose the Master 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 Master does not consider these contracts to
be guarantees.
The General Partner monitors and attempts to control the
Masters 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 Master 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, on-line monitoring systems provide account analysis
of futures, exchange cleared swaps 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 Masters
business, these instruments may not be held to maturity.
51
Selected unaudited quarterly financial data for the Master for the years ended December 31,
2010 and 2009 is summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2010 to | July 1, 2010 to | April 1, 2010 to | January 1, 2010 to | |||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Net realized and unrealized trading
gains (losses) net of brokerage
fees and clearing fees
including interest income |
$ | (5,661,827 | ) | $ | (43,128,767 | ) | $ | (69,249,622 | ) | $ | (15,420,298 | ) | ||||
Net income (loss) |
$ | (5,770,015 | ) | $ | (43,234,755 | ) | $ | (69,339,310 | ) | $ | (15,494,452 | ) | ||||
Increase
(decrease) in net asset
value per unit |
$ | (20.91 | ) | $ | (130.16 | ) | $ | (198.93 | ) | $ | (45.76 | ) |
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and
unrealized trading
gains (losses) net of
brokerage
fees and
clearing fees
including interest
income |
$ | (7,776,936 | ) | $ | 34,084,889 | $ | 31,810,672 | $ | 40,839,687 | |||||||
Net income (loss) |
$ | (7,833,376 | ) | $ | 34,047,914 | $ | 31,760,955 | $ | 40,772,177 | |||||||
Increase
(decrease) in net
asset value per
unit |
$ | (21.17 | ) | $ | 125.50 | $ | 122.39 | $ | 161.79 |
52
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
PricewaterhouseCoopers LLP (PwC)
was previously the principal accountant for the Partnership through
July 22, 2009. On July 22, 2009, PWC was dismissed as principal accountant and on July 23, 2009
Deloitte & Touche LLP (Deloitte) was engaged as the independent registered public accounting
firm. The decision to change accountants was approved by the General Partner of the Partnership.
In connection with the audit of the fiscal year ended December 31, 2008, and through July 22,
2009, there
were no disagreements with PwC respectively, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference thereto in its report
on the financial statements for the corresponding year.
The
audit report of PwC on the financial statements of the Partnership as
of and for the years ended December 31, 2008, did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope,
or accounting principle.
Item 9A. 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 Chief Executive Officer (the CEO) and Chief Financial
Officer (the 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 Partnerships
external disclosures.
The General Partners CEO 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 December 31, 2010 and, based on that evaluation, the
General Partners CEO 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 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:
| 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. |
The
report included in Item 8. Financial Statements and Supplementary
Data. includes managements report on internal control over financial reporting (Managements Report).
There were no changes in the Partnerships internal control
over financial reporting process during the fiscal quarter ended
December 31, 2010 that materially affected, or are reasonably
likely to materially affect, the Partnerships internal
control over financial reporting.
Item 9B. Other Information.
None.
53
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The
Partnership has no officers, directors or employees and its affairs are managed by its General Partner. Investment decisions are made by the Advisor.
The officers and directors of the General Partner are Walter Davis (President and Chairman of the
Board of Directors), Jennifer Magro (Chief Financial Officer and Director), Michael McGrath
(Director), Douglas J. Ketterer (Director), Ian Bernstein (Director), Harry Handler (Director),
Patrick T. Egan (Director) and Alper Daglioglu (Director). Each director of the General Partner holds office until the
earlier of his or her death, resignation or removal. Vacancies on the board of directors may be
filled by either (i) the majority vote of the remaining directors or (ii) Morgan Stanley Smith
Barney Holdings LLC, as the sole member of the General Partner. The officers of the General
Partner are designated by the General Partners board of directors. Each officer will hold office
until his or her successor is designated and qualified or until his or her death, resignation or
removal.
Walter Davis, age 46, is President and Chairman of the Board of Directors of the General Partner
(since June 2010). Mr. Davis was registered as an associated person of the General Partner and
listed as a principal in June 2010. Mr. Davis is responsible for the oversight of the General
Partners funds and accounts. Prior to the combination of Demeter Management LLC (Demeter) and the General Partner
effective December 1, 2010, Mr. Davis served as Chairman of the Board of Directors and
President of Demeter, a registered commodity pool operator. Mr. Davis was a principal and
associated person of Demeter from May 2006 to December 2010 and July 2006 to December
2010, respectively. Mr. Davis was an associated person of Morgan Stanley DW Inc., a financial
services firm, from August 2006 to April 2007, when, because of the merger of Morgan Stanley
DW Inc. into Morgan Stanley & Co. Incorporated (MS & Co), a global financial services firm, he became an associated person of MS
& Co. (due to the transfer of his original registration as an associated person of Morgan Stanley
DW Inc.). Prior to becoming an associated person in August 2006, Mr. Davis was responsible for
overseeing the sales and marketing of MS & Co.s managed futures funds to high net worth and
institutional investors on a global basis. Mr. Davis withdrew as an associated person of MS &
Co. in June 2009. Mr. Davis has been an associated person of Morgan Stanley Smith Barney
LLC since June 2009. Morgan Stanley Smith Barney LLC is registered as a broker-dealer with
FINRA, an investment adviser with the SEC and a futures commission merchant with the CFTC.
Mr. Davis is a Managing Director of Morgan Stanley Smith Barney LLC and the Director of
Morgan Stanley Smith Barney LLCs Managed Futures Department. Prior to joining Morgan
Stanley in September 1999, Mr. Davis worked for Chase Manhattan Banks Alternative
Investment Group from January 1992 until September 1999, where his principal duties included
marketing managed futures funds to high net worth investors, as well as developing and
structuring managed futures funds. Throughout his career, Mr. Davis has been involved with the
development, management and marketing of a diverse array of commodity pools, hedge funds
and other alternative investment vehicles. Mr. Davis received an MBA in Finance and
International Business from the Columbia University Graduate School of Business in 1992 and a
BA in Economics from the University of the South in 1987.
Jennifer Magro, age 39, is Chief Financial Officer and Director of the General Partner (since
October 2006 and May 2005, respectively). Ms. Magro was listed as a principal in June 2005.
Ms. Magro served as Vice President and Secretary of the General Partner from August 2001 to
December 2010 and June 2010 to December 2010, respectively. She was also a Managing
Director of Citi Alternative Investments (CAI), a division of Citigroup that administered its
hedge fund and fund of funds business, and was Chief Operating Officer of CAIs Hedge Fund
Management Group from October 2006 to July 2009. Ms. Magro is responsible for the financial,
administrative and operational functions of the General Partner. She is also responsible for the
accounting and financial and regulatory reporting of the General Partners managed futures funds.
From March 1999 to July 2009, Ms. Magro was responsible for the accounting and financial and
regulatory reporting of Citigroups managed futures funds. She had similar responsibilities with
CAIs Hedge Fund Management Group (from October 2006 to July 2009). Prior to joining the
General Partner in January 1996, Ms. Magro was employed by Prudential Securities Inc., a
securities brokerage services company, (from July 1994) as a staff accountant whose duties
included the calculation of net asset values for commodity pools and real estate investment
products. Ms. Magro received a BS in Accounting from the State University of New York,
Oswego in 1993.
Michael McGrath, age 41, has been a Director of the General Partner since June 2010. Mr.
McGrath was listed as a principal in June 2010. Mr. McGrath was a principal and Director of
Demeter from May 2006 until Demeters combination with the General Partner in December
2010. Mr. McGrath is a Managing Director of Morgan Stanley Smith Barney LLC and currently
serves as the Head of Alternative Investments for the Global Wealth Management Group of
Morgan Stanley Smith Barney LLC. He also serves on the Management Committee of the Global
Wealth Management Group. Prior to his current role, Mr. McGrath served as the Director of
Product Management for the Consulting Services Group in Morgan Stanley as well as the Chief
Operating Officer for Private Wealth Management North America and Private Wealth
Management Latin America (the Americas) and the Director of Product Development for Morgan
Stanleys Global Wealth Management Group. Mr. McGrath served as a Managing Director of
Morgan Stanley from May 2004 until May 2009, when Mr. McGrath became a Managing
Director of Morgan Stanley Smith Barney LLC. Mr. McGrath joined Morgan Stanley from
Nuveen Investments, a publicly traded investment management company headquartered in
Chicago, Illinois, where he worked from July 2001 to May 2004. At Nuveen Investments, Mr. McGrath served as a Managing Director and oversaw the development of alternative investment
products catering to high net worth investors. Mr. McGrath received his BA degree from Saint
Peters College in 1990, and currently serves on the schools Board of Regents. He received his
MBA in Finance from New York University in 1996.
54
Douglas J. Ketterer, age 45, has been a Director of the General Partner since December 2010. Mr.
Ketterer was listed as a principal in December 2010. Mr. Ketterer was a principal of Demeter
from October 2003 until Demeters combination with the General Partner in December 2010. Mr.
Ketterer is a Managing Director and Head of the U.S. Private Wealth Management Group within
Morgan Stanley Smith Barney LLC. Mr. Ketterer joined MS & Co. in March 1990 and has
served in many roles in the corporate finance/investment banking, asset management, and wealth
management divisions of the firm; most recently as Chief Operating Officer, Wealth Management
Group and Head of the Products Group with responsibility for a number of departments
(including, among others, the Alternative Investments Group, Consulting Services Group,
Annuities & Insurance Department and Retirement & Equity Solutions Group) which offered
products and services through MS & Co.s Global Wealth Management Group. Mr. Ketterer
received his MBA from New York Universitys Leonard N. Stern School of Business and his BS
in Finance from the University at Albanys School of Business.
Ian Bernstein, age 48, is a Director of the General Partner. Mr. Bernstein has been a Director, and
listed as a principal of the General Partner since December 2010. Mr. Bernstein held various
positions, including Managing Director, within the Capital Markets group at Morgan Stanley DW
Inc. from October 1984 to April 2007, when Morgan Stanley DW Inc. was merged into, its
institutional affiliate, MS & Co. and became the Global Wealth Management Division of MS &
Co. Mr. Bernstein first served as a Managing Director with MS & Co. in March 2004, prior to its
merger with Morgan Stanley DW Inc. Since June 1, 2009, Mr. Bernstein has served as a
Managing Director of Capital Markets at Morgan Stanley Smith Barney LLC, a new broker-dealer formed as a result of a joint venture between Citigroup and Morgan Stanley. The
respective retail business of MS & Co. and Citigroup (formerly known as Smith Barney) was
contributed to Morgan Stanley Smith Barney LLC. Mr. Bernstein has continued as Managing
Director of both Morgan Stanley Smith Barney LLC, the retail broker-dealer, and MS & Co., the
institutional broker-dealer, up to the present. Mr. Bernstein received his MBA from New York
Universitys Leonard N. Stern School of Business in 1988, and his BA from the University of
Buckingham in 1980.
Harry Handler, age 51, has been a Director of the General Partner since December 2010. Mr.
Handler became registered as an associated person of the General Partner and listed as a principal
in December 2010. Mr. Handler was a principal and associated person of Demeter from May
2005 until Demeters combination with the General Partner in December 2010, and from April
2006 until December 2010, respectively. He has been an associate member of the NFA since
August 1985. Mr. Handler was an associated person of Morgan Stanley DW Inc., a financial
services firm, from February 1984 to April 2007, when, because of the merger of Morgan Stanley
DW Inc. into MS & Co., he became an associated person of MS & Co. due to the transfer of his
original registration as an associated person of Morgan Stanley DW Inc. Mr. Handler withdrew
as an associated person of MS & Co. in June 2009. Mr. Handler has been an associated person of
Morgan Stanley Smith Barney LLC since June 2009. Mr. Handler serves as an Executive
Director at Morgan Stanley Smith Barney LLC in the Global Wealth Management Group. Mr.
Handler works in the Capital Markets Division and is responsible for Electronic Equity and
Securities Lending. Additionally, Mr. Handler serves as Chairman of the Global Wealth
Management Groups Best Execution Committee. In his prior position, Mr. Handler was a
Systems Director in Information Technology, in charge of Equity and Fixed Income Trading
Systems along with the Special Products, such as Unit Trusts, Managed Futures, and Annuities.
Prior to his transfer to the Information Technology Area, Mr. Handler managed the Foreign
Currency and Precious Metals Trading Desk of Dean Witter, a financial services firm and
predecessor company to Morgan Stanley, from July 1982 until January 1984. He also held
various positions in the Futures Division where he helped to build the Precious Metals Trading
Operation at Dean Witter. Before joining Dean Witter, Mr. Handler worked at Mocatta Metals, a
precious metals trading firm and futures broker that was sold to Standard Charted Bank in the
1980s, as an Assistant to the Chairman from March 1980 until June 1982. His roles at Mocatta
Metals included positions on the Futures Order Entry Desk and the Commodities Exchange
Trading Floor. Additional work included building a computerized Futures Trading System and
writing a history of the company. Mr. Handler graduated on the Deans List from the University
of Wisconsin-Madison with a BA degree and a double major in History and Political Science.
Patrick T. Egan, age 41, has been a Director of the General Partner since December 2010. Mr.
Egan became registered as an associated person of the General Partner and listed as a principal in
December 2010. Mr. Egan has been an associate member of the NFA since December 1997. He
has been an associated person of Morgan Stanley Smith Barney LLC since November 2010. Mr.
Egan was an associated person of Morgan Stanley DW Inc., a financial services firm, from
February 1998 to April 2007, when, because of the merger of Morgan Stanley DW Inc. into MS
& Co., he became an associated person of MS & Co. due to the transfer of his original
registration as an associated person of Morgan Stanley DW Inc. Mr. Egan withdrew as an
associated person of MS & Co. in November 2010. Mr. Egan is an Executive Director at Morgan
Stanley Smith Barney LLC and currently serves as the Co- Chief Investment Officer for Morgan
Stanley Smith Barney LLCs Managed Futures Department. Prior to his current role, Mr. Egan
served as the Head of Due Diligence & Manager Research for Morgan Stanleys Managed
Futures Department from October 2003 until the formation of Morgan Stanley Smith Barney
LLC in June 2009. From March 1993 through September 2003, Mr. Egan was an analyst and
manager within the Managed Futures Department for Morgan Stanley DW Inc., and its
predecessor firm, Dean Witter Reynolds, Inc., a financial services firm, with his primary
responsibilities being dedicated to the product development, due diligence, investment analysis
and risk management of the firms commodity pools. Mr. Egan began his career in August 1991,
joining Dean Witter Intercapital, the asset management arm of Dean Witter Reynolds, Inc., until
March 1993 when he joined the firms Managed Futures Department. Mr. Egan received a
Bachelor of Business Administration with a concentration in Finance from the University of
Notre Dame in May 1991. Mr. Egan is a former Director to the Managed Funds Associations
Board of Directors, a position he was elected to by industry peers for two consecutive two-year
terms, from November 2004 to October 2006 and November 2006 to October 2008.
Alper Daglioglu, age 33, has been a Director, and listed as a principal of the General Partner since
December 2010. Mr. Daglioglu is an Executive Director at Morgan Stanley Smith Barney LLC
and the Co-Chief Investment Officer for Morgan Stanley Smith Barney LLCs Managed Futures
Department. Mr. Daglioglu also serves on the Alternative Investments Product Review
Committee of Morgan Stanley Smith Barney LLCs Alternative Investments Group. Prior to his
current role, Mr. Daglioglu was a Senior Analyst at the Product Origination Group within Morgan
Stanley Managed Futures Department from December 2003 until the formation of Morgan
Stanley Smith Barney LLC in June 2009. In addition to his responsibilities within Managed
Futures Department, Mr. Daglioglu was also the lead investment analyst for Global Macro and
Managed Futures strategies within Morgan Stanley Graystone Research Group from February
2007 to June 2009. Mr. Daglioglu served as a consultant at the Product Origination Group within
Morgan Stanley Managed Futures Department from June 2003 to November 2003. Mr.
Daglioglu received a BS degree in Industrial Engineering from Galatasaray University in June
2000 and a MBA degree in Finance from the University of Massachusetts-Amhersts Isenberg
School of Management in May 2003. Mr. Daglioglu was awarded a full merit scholarship and
research assistantship at the Center for International Securities and Derivatives Markets during
his graduate studies. In this capacity, he worked with various major financial institutions in
performance monitoring, asset allocation and statistical analysis projects and specialized on
alternative approaches to risk assessment for hedge funds and managed futures. Mr. Daglioglu
wrote and published numerous research papers on alternative investments. Mr. Daglioglu is a
Chartered Alternative Investment Analyst charterholder.
The Partnership has not adopted a code of ethics that applies to officers because it has no officers. In
addition, the Partnership has not adopted any procedures by which
investors may recommend nominees to the Parterships board of directors, and has
not established and audit committee because it has no board of directors.
55
Item 11. Executive Compensation.
The
Partnership has no directors or officers. Its affairs are managed by
Ceres Managed
Futures LLC, its General Partner. CGM, an affiliate of the General Partner, is the
commodity broker for the Partnership and receives brokerage fees for such services,
as described under Item 1. Business, Brokerage fees and
clearing fees of $17,510,544
were earned for
the year ended December 31, 2010. Management fees of $9,308,420 were earned by the Advisor
for the year ended December 31, 2010. Administrative fees of
$2,327,106 were
earned by the General Partner for the year ended December 31, 2010.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
(a) Security
ownership of certain beneficial owners. As of February 28, 2011, the Partnership knows of no
person who beneficially owns more than 5% of the Redeemable Units outstanding.
(b) Security ownership of management. Under the terms of the Limited Partnership
Agreement, the Partnerships affairs are managed by the General
Partner. The following table indicates securities owned by management as of December 31, 2010:
(1) Title of Class |
(2) Name of Beneficial Owner |
(3) Amount and Nature of Beneficial Ownership |
(4) Percent of Class |
General Partner unit equivalents | General Partner | 3,346.8277 | 1.1% |
(c) Changes in control. None.
Item 13. Certain Relationships and Related Transactions and Director Independence.
(a) Transactions
with related persons. None
(b)
Review,
approval or ratification of transactions with related persons. Not
applicable
(c)
Promoters and certain control persons. CGM and
the General Partner would be considered promoters for purposes of item 404 (c) of
Regulation S-K. The nature and the amounts of compensation each promoter will receive
from the
Partnership are set forth under Item 1. Business. Item 8. Financial Statements and Supplementary Data, and Item 11. Executive Compensation.
Item 14. Principal Accountant Fees and Services.
(1)
Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional
services rendered by Deloitte for the year ended December 31, 2010
and for the period from July 23, 2009
through December 31, 2009, PwC for the period from January 1, 2009 through July 22, 2009 for the audit of the
Partnerships annual financial statements, review of financial statements included in the
Partnerships Forms 10-Q and 10-K and other services normally provided in connection with
regulatory filings or engagements were:
Deloitte | PwC | |||
2010 | $ | 93,100 | $ | N/A |
2009 | $ | 86,900(1) | $ | 9,169(2) |
(1) | For the period July 23, 2009 to December 31, 2009. | |
(2) | For the period January 1, 2009 to July 22, 2009. |
(2) Audit-Related
Fees. None
(3)
Tax Fees. In the last two fiscal years, Deloitte did not provide
any professional services for tax compliance, tax advice or tax planning.
The aggregate fees billed for each of the last two fiscal years for professional
services rendered by PwC for tax compliance and tax advice given in the preparation of
the Partnerships Schedule K1s, the preparation of the Partnerships
Form 1065 and preparation of all State Tax Returns were:
2010 $26,250
2009
$25,000
(4) All Other Fees. None.
(5) Not Applicable.
(6) Not Applicable.
56
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements:
Statements of Financial Condition at December 31, 2010 and 2009. | |||
Condensed Schedules of Investments at December 31, 2010 and 2009. | |||
Statements of Income and Expenses for the years ended December 31, 2010, 2009 and 2008. | |||
Statements of Changes in Partners Capital for the years ended December 31, 2010, 2009 and 2008. | |||
Notes to Financial Statements. |
(2) Exhibits:
3.1
|
(a) | Certificate of Limited Partnership dated April 15, 2005 (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). | ||
(b) | Certificate of Amendment of the Certificate of Limited Partnership dated September 21, 2005 (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). | |||
(c) | Certificate of Amendment of the Certificate of Limited Partnership dated September 19, 2008 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | |||
(d) | Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). | |||
(e) | Certificate of Amendment of the Certificate of Limited Partnership dated June 30, 2010 (filed as Exhibit 3.1(e) to the Current Report on Form 8-K filed on July 2, 2010 and incorporated herein by reference). | |||
3.2
|
Third Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on April 27, 2010 and incorporated herein by reference). | |||
10.1
|
(a) | Advisory Agreement among the Partnership, the General Partner and SandRidge Capital, L.P. (filed as Exhibit 10.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2007 and incorporated herein by reference). | ||
(b) | Letter from the General Partner to SandRidge Capital, L.P. extending the Advisory Agreement through June 30, 2011 (filed herein). | |||
10.2
|
(a) | Customer Agreement between the Partnership, the General Partner and CGM (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). | ||
(b) | Addendum to the Customer Agreement between the Partnership, the General Partner and CGM (filed as Exhibit 10.2(a) 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, the General Partner and CGM and MSSB (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 3, 2010 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 the Partnership, the General Partner, CGM 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). | |||
16.1
|
Letter dated July 23, 2009 from PricewaterhouseCoopers LLP regarding Change in Certifying Accountant (filed as Exhibit 16.1 to the Form 8-K filed on July 24, 2009). | |||
16.2
|
Letter dated June 26, 2008 from KPMG LLP regarding Change in Certifying Accountant (filed as Exhibit 16.1 to the Form 8-K filed on July 1, 2008). |
The exhibits required to be filed by Item 601 of regulation S-K are incorporated herein by reference | |||
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) | |||
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director) | |||
Exhibit 32.1 Section 1350 Certification (Certification of President and Director) | |||
Exhibit 32.2 Section 1350 Certification (Certification of Chief Financial Officer and Director) |
57
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned.
BRISTOL ENERGY FUND L.P. |
||||
By: | Ceres Managed Futures LLC | |||
(General Partner) | ||||
By: | /s/ Walter Davis | |||
Walter Davis President & Director |
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Date: March 31, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ Walter Davis
|
/s/ Michael McGrath | |||
Walter
Davis President and Director |
Michael McGrath Director |
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Ceres
Managed Futures LLC
|
Ceres Managed Futures LLC | |||
Date:
March 31, 2011
|
Date: March 31, 2011 | |||
/s/ Jennifer Magro
|
/s/ Douglas J. Ketterer | |||
Jennifer Magro Chief Financial Officer and Director (Principal Accounting Officer) |
Douglas J. Ketterer Director Ceres Managed Futures LLC |
|||
Ceres
Managed Futures LLC
|
||||
Date:
March 31, 2011
|
Date: March 31, 2011 | |||
/s/
Patrick T. Egan |
/s/ Alper Daglioglu | |||
Patrick T. Egan Director Ceres Managed Futures LLC |
Alper Daglioglu Director Ceres Managed Futures LLC |
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Date:
March 31, 2011
|
Date: March 31, 2011 | |||
/s/ Ian Bernstein |
/s/ Harry Handler | |||
Ian Bernstein Director Ceres Managed Futures LLC |
Harry Handler Director Ceres Managed Futures LLC |
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Date:
March 31, 2011
|
Date: March 31, 2011 |
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
Annual Report to Limited Partners
No proxy material has been sent to limited partners.
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