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EX-32.2 - EX-32.2 - POTOMAC FUTURES FUND LPy04772exv32w2.htm
EX-31.2 - EX-31.2 - POTOMAC FUTURES FUND LPy04772exv31w2.htm
EX-31.1 - EX-31.1 - POTOMAC FUTURES FUND LPy04772exv31w1.htm
EX-32.1 - EX-32.1 - POTOMAC FUTURES FUND LPy04772exv32w1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
 
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from            to           
 
Commission File Number 000-50735
 
POTOMAC FUTURES FUND L.P.
 
(Exact name of registrant as specified in its charter)
 
     

New York
  13-3937275
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 
c/o Ceres Managed Futures LLC
522 Fifth Avenue - 14th Floor
New York, New York 10036
 
(Address of principal executive offices) (Zip Code)
 
(212) 296-1999
 
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes X  No  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes    No  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer    Accelerated filer    Non-accelerated filer X Smaller reporting company   
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
 
Yes    No X
 
As of April 30, 2011, 27,780.4899 Limited Partnership Redeemable Units were outstanding.


 

POTOMAC FUTURES FUND L.P.
 
FORM 10-Q
 
INDEX
 
         
        Page
        Number
 
PART I - Financial Information:
   
         
Item 1.
  Financial Statements:    
         
    Statements of Financial Condition
at March 31, 2011 (unaudited) and December 31, 2010
  3
         
    Statements of Income and Expenses
and Changes in Partners’ Capital for the three
months ended March 31, 2011 and 2010 (unaudited)
  4
 
    Notes to Financial Statements, including the Financial
Statements of CMF Campbell Master Fund L.P.
(unaudited)
  5 - 21
         
Item 2.
  Management’s Discussion and
Analysis of Financial Condition
and Results of Operations
  22 – 24
         
Item 3.
  Quantitative and Qualitative
Disclosures about Market Risk
  25 – 26
         
Item 4.
  Controls and Procedures   27
     
PART II - Other Information
  28 – 32
 
Exhibits        
Exhibit 31.1 Certification    
Exhibit 31.2 Certification    
Exhibit 32.1 Certification    
Exhibit 32.2 Certification    


2


 

 
PART I
 
Item 1. Financial Statements
 
 
Potomac Futures Fund L.P.
Statements of Financial Condition
 
                 
    (Unaudited)
March 31,
    December 31,
 
    2011     2010  
 
Assets:
               
Investment in Master, at fair value
  $ 37,752,203     $   36,378,264  
Cash
    51,348       51,367  
                 
Total assets
  $ 37,803,551     $ 36,429,631  
                 
Liabilities and Partners’ Capital:
               
Liabilities:
               
Accrued expenses:
               
Brokerage fees
  $ 173,266     $ 166,969  
Management fees
    62,657       60,366  
Other
    36,171       43,141  
Redemptions payable
    520,560       288,124  
                 
Total liabilities
    792,654       558,600  
                 
Partners’ Capital:
               
General Partner, 337.4926 unit equivalents outstanding at March 31, 2011 and December 31, 2010
    460,326       488,490  
Limited Partners, 26,797.3965 and 24,445.4336 Redeemable Units outstanding at March 31, 2011 and December 31, 2010, respectively
    36,550,571       35,382,541  
                 
Total partners’ capital
    37,010,897       35,871,031  
                 
Total liabilities and partners’ capital
  $ 37,803,551     $ 36,429,631  
                 
Net asset value per unit
  $ 1,363.96     $ 1,447.41  
                 
 
See accompanying notes to financial statements.


3


 

 
Potomac Futures Fund L.P.
Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Investment Income:
               
Interest income allocated from Master
  $ 7,384     $ 5,768  
 
           
Expenses:
               
Expenses allocated from Master
    36,631       37,371  
Brokerage fees
    526,824       766,568  
Management fees
    190,385       234,084  
Other
    60,200       55,477  
 
           
Total expenses
    814,040       1,093,500  
 
           
Net investment income (loss)
    (806,656 )     (1,087,732 )
 
           
Trading Results:
               
Net realized gains (losses) on closed contracts allocated from Master
    (197,686 )     (3,039,275 )
Change in net unrealized gains (losses) on open contracts allocated from Master
    (1,258,108 )     1,858,685  
 
           
Total trading results allocated from Master
    (1,455,794 )     (1,180,590 )
 
           
Net income (loss)
    (2,262,450 )     (2,268,322 )
Subscriptions — Limited Partners
    5,371,395       105,000  
Redemptions — Limited Partners
    (1,969,079 )     (2,278,834 )
 
           
Net increase (decrease) in Partners’ Capital
    1,139,866       (4,442,156 )
Partners’ Capital, beginning of period
    35,871,031       50,141,327  
 
           
Partners’ Capital, end of period
  $ 37,010,897     $ 45,699,171  
 
           
Net asset value per unit (27,134.8891 and 35,550.9289 units outstanding at March 31, 2011 and 2010, respectively)
  $ 1,363.96     $ 1,285.46  
 
           
Net income (loss) per unit*
  $ (83.45 )   $ (60.29 )
 
           
Weighted average units outstanding
    26,783.8069       36,945.2836  
 
           
*   Based on change in net asset value per unit.
 
See accompanying notes to financial statements.


4


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
1.   General:
 
Potomac Futures Fund L.P. (the “Partnership”) is a limited partnership which was organized on March 14, 1997 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, metals and softs. The commodity interests that are indirectly traded by the Partnership through its investment in the Master (as defined below) are volatile and involve a high degree of market risk. The Partnership was authorized to sell an unlimited number of redeemable units of limited partnership interest (“Redeemable Units”) during its initial offering period. The Partnership privately and continuously offers up to 250,000 Redeemable Units in the Partnership 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 March 31, 2011, all trading decisions for the Partnership are made by the Advisor (defined below).
 
On January 1, 2005, the Partnership allocated substantially all of its capital to the CMF Campbell Master Fund L.P. (the “Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 173,788.6446 units of the Master with cash equal to $172,205,653 and a contribution of open commodity futures and forward positions with a fair value of $1,582,992. The Master was formed in order to permit accounts managed by Campbell & Company, Inc. (“Campbell” or the “Advisor”) using Campbell’s Financial, Metal and Energy Large Portfolio Program (“FME”), a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of the Master. Individual and pooled accounts currently managed by the Advisor, including the Partnership, are permitted to be limited partners of the Master. The General Partner and the Advisor believe that trading through this master/feeder structure promotes 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 quarter ended March 31, 2011.
 
As of March 31, 2011 and December 31, 2010, the Partnership owned 100% 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 Master’s trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. The Master engages in such trading through a commodity brokerage account maintained with CGM. The Master’s Statements of Financial Condition, including Condensed Schedules of Investments and Statements of Income and Expenses and Changes in Partners’ Capital are included herein.
 
The General Partner and each limited partner share in the profits and losses of the Partnership in proportion to the amount of partnership interest owned by each except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions.
 


5


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at March 31, 2011 and December 31, 2010, and the results of its operations for the three months ended March 31, 2011 and 2010. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2010.
 
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, revenues and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could differ from these estimates.
 
 
Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.
 


6


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
The Master’s Statements of Financial Condition and Condensed Schedules of Investments as of March 31, 2011 and December 31, 2010 and Statements of Income and Expenses and Changes in Partners’ Capital for the three months ended March 31, 2011 and 2010 are presented below:
 
CMF Campbell Master Fund L.P.
Statements of Financial Condition
 
                 
    (Unaudited)        
    March 31,     December 31,  
    2011     2010  
Assets:
               
Equity in trading account:
               
Cash
  $ 32,768,669     $ 32,330,637  
Cash margin
    5,197,082       2,935,375  
Net unrealized appreciation on open futures contracts
    237,072       360,633  
Net unrealized appreciation on open forward contracts
          714,542  
Options purchased, at fair value (cost $65,780 and $99,341 at March 31, 2011 and December 31, 2010, respectively)
    110,220       130,648  
 
           
Total assets
  $ 38,313,043     $ 36,471,835  
 
           
 
               
Liabilities and Partners’ Capital:
               
Liabilities:
               
Net unrealized depreciation on open forward contracts
  $ 434,037     $  
Options premium received, at fair value (premium $43,000 and $18,835 at March 31, 2011 and December 31, 2010, respectively)
    79,619       56,353  
Accrued expenses:
               
Professional fees
    48,769       39,490  
 
           
Total liabilities
    562,425       95,843  
 
           
 
               
Partners’ Capital:
               
General Partner, 0.0000 unit equivalents at March 31, 2011 and December 31, 2010
           
Limited Partners, 30,215.8214 and 27,995.8787 units outstanding at March 31, 2011 and December 31, 2010, respectively
    37,750,618       36,375,992  
 
           
Total liabilities and partners’ capital
  $ 38,313,043     $ 36,471,835  
 
           
Net asset value per unit
  $ 1,249.37     $ 1,299.33  
 
           


7


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
CMF Campbell Master Fund L.P.
Condensed Schedule of Investments
March 31, 2011
(Unaudited)
 
                         
    Notional ($)/ Number             % of Partners’  
    of Contracts     Fair Value     Capital  
Futures Contracts Purchased
                       
Energy
    74     $ 166,537       0.44 %
Grains
    43       23,443       0.06  
Indices
    165       183,061       0.48  
Interest Rates Non-U.S.
    303       (141,772 )     (0.38 )
Interest Rates U.S.
    260       (148,777 )     (0.39 )
Livestock
    22       14,240       0.04  
Metals
    29       66,630       0.18  
Softs
    29       25,329       0.07  
 
                   
Total futures contracts purchased
            188,691       0.50  
 
                   
Futures Contracts Sold
                       
Grains
    13       (27,470 )     (0.07 )
Indices
    3       (12,791 )     (0.03 )
Interest Rates Non-U.S.
    205       84,711       0.22  
Interest Rates U.S.
    41       (2,094 )     (0.01 )
Metals
    2       6,025       0.02  
 
                   
Total futures contracts sold
            48,381       0.13  
 
                   
Unrealized Appreciation on Open Forward Contracts
                       
Currencies
  $196,301,869       2,211,140       5.86  
Metals
    44       65,105       0.17  
 
                   
Total unrealized appreciation on open forward contracts
            2,276,245       6.03  
 
                   
Unrealized Depreciation on Open Forward Contracts
                       
Currencies
  $181,713,586       (2,550,807 )     (6.76 )
Metals
    65       (159,475 )     (0.42 )
 
                   
Total unrealized depreciation on open forward contracts
            (2,710,282 )     (7.18 )
 
                   
Options Purchased
                       
Currencies
                       
Calls
  $5,320,597,950       102,662       0.27  
Puts
  $2,770,151,605       7,558       0.02  
 
                   
Total options purchased
            110,220       0.29  
 
                   
Options Premium Received
                       
Currencies
                       
Calls
  $752,243,938       (58,993 )     (0.16 )
Puts
  $35,847,383,403       (20,626 )     (0.05 )
 
                   
Total options premium received
            (79,619 )     (0.21 )
 
                   
Net fair value
          $ (166,364 )     (0.44 )%
 
                   


8


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
CMF Campbell Master Fund L.P.
Condensed Schedule of Investments
December 31, 2010
 
                         
    Notional ($)/
             
    Number of
          % of Partners’
 
    Contracts     Fair Value     Capital  
 
Futures Contracts Purchased
                       
Energy
    69     $ 80,412       0.22 %
Grains
    56       126,606       0.35  
Indices
    338       10,189       0.03  
Interest Rates Non-U.S. 
    163       22,693       0.06  
Interest Rates U.S. 
    78       22,062       0.06  
Livestock
    10       550       0.00 *
Metals
    15       96,690       0.27  
Softs
    31       100,006       0.27  
                         
Total futures contracts purchased
            459,208       1.26  
                         
Futures Contracts Sold
                       
Energy
    13       (29,230 )     (0.08 )
Grains
    1       (2,870 )     (0.01 )
Indices
    2       4,022       0.01  
Interest Rates Non-U.S. 
    66       (44,183 )     (0.12 )
Interest Rates U.S. 
    32       (24,734 )     (0.07 )
Livestock
    1       (1,580 )     (0.00 )*
                         
Total futures contracts sold
            (98,575 )     (0.27 )
                         
Unrealized Appreciation on Open Forward Contracts
                       
Currencies
    $124,455,128       3,015,962       8.29  
Metals
    31       184,969       0.50  
                         
Total unrealized appreciation on open forward contracts
            3,200,931       8.79  
                         
Unrealized Depreciation on Open Forward Contracts
                       
Currencies
    $111,245,655       (2,455,912 )     (6.75 )
Metals
    7       (30,477 )     (0.08 )
                         
Total unrealized depreciation on open forward contracts
            (2,486,389 )     (6.83 )
                         
Options Purchased
                       
Currencies
                       
Calls
    $3,525,490,581       104,466       0.29  
Puts
    $13,652,298,260       26,182       0.07  
                         
Total options purchased
            130,648       0.36  
                         
Options Premium Received
                       
Currencies
                       
Calls
    $11,412,894,676       (55,752 )     (0.15 )
Puts
    $8,668,304,279       (601 )     (0.00 )*
                         
Total options premium received
            (56,353 )     (0.15 )
                         
Net fair value
          $ 1,149,470       3.16 %
                         
* Due to rounding.
                       


9


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
CMF Campbell Master Fund L.P.
Statements of Income and Expenses and Changes in Partners’ Capital
(Unaudited)
 
 
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Investment Income:
               
Interest income
  $ 7,384     $ 6,486  
 
           
Expenses:
               
Clearing fees
    17,352       31,142  
Professional fees
    19,279       11,528  
 
           
Total expenses
    36,631       42,670  
 
           
Net investment income (loss)
    (29,247 )     (36,184 )
 
           
Trading Results:
               
Net gains (losses) on trading of commodity interests:
               
Net realized gains (losses) on closed contracts
    (197,686 )     (3,557,353 )
Change in net unrealized gains (losses) on open contracts
    (1,258,108 )     1,994,729  
 
           
Total trading results
    (1,455,794 )     (1,562,624 )
 
           
Net income (loss)
    (1,485,041 )     (1,598,808 )
Subscriptions — Limited Partners
    5,371,395       105,000  
Redemptions — Limited Partners
    (2,504,344 )     (9,527,204 )
Distribution of interest income to feeder funds
    (7,384 )     (6,486 )
 
           
Net increase (decrease) in Partners’ Capital
    1,374,626       (11,027,498 )
Partners’ Capital, beginning of period
    36,375,992       62,525,663  
 
           
Partners’ Capital, end of period
  $ 37,750,618     $ 51,498,165  
 
           
Net asset value per unit (30,215.8214 and 47,688.8913 units outstanding at March 31, 2011 and 2010, respectively)
  $ 1,249.37     $ 1,079.88  
 
           
Net income (loss) per unit*
  $ (49.71 )   $ (25.51 )
 
           
Weighted average units outstanding
    30,239.9191       54,543.8885  
 
           
*   Based on change in net asset value per unit.


10


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
2.   Financial Highlights:
 
Changes in net asset value per unit for the three months ended March 31, 2011 and 2010 were as follows:
 
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Net realized and unrealized gains (losses) allocated from Master*
  $ (73.61 )   $ (52.34 )
Interest income allocated from Master
    0.28       0.16  
Expenses **
    (10.12 )     (8.11 )
 
           
Increase (decrease) for the period
    (83.45 )     (60.29 )
Net asset value per unit, beginning of period
    1,447.41       1,345.75  
 
           
Net asset value per unit, end of period
  $ 1,363.96     $ 1,285.46  
 
           
 
* Includes Partnership brokerage fees and clearing fees allocated from the Master.
 
** Excludes Partnership brokerage fees and clearing fees allocated from the Master.
 
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Ratio to average net assets:***
               
Net investment income (loss) before incentive fees****
    (8.9 )%     (9.4 )%
 
           
Operating expenses
    8.9 %     9.4 %
Incentive fees
    %     %
 
           
Total expenses
    8.9 %     9.4 %
 
           
 
               
Total return:
               
Total return before incentive fees
    (5.8 )%     (4.5 )%
Incentive fees
    %     %
 
           
Total return after incentive fees
    (5.8 )%     (4.5 )%
 
           
 
*** Annualized (other than incentive fees).
 
**** 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 period. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average net assets.


11


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
Financial Highlights of the Master:
 
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Net realized and unrealized gains (losses)*
  $ (49.31 )   $ (25.41 )
Interest income
    0.25       0.13  
Expenses **
    (0.65 )     (0.23 )
 
           
Increase (decrease) for the period
    (49.71 )     (25.51 )
Distribution of interest income to feeder funds
    (0.25 )     (0.13 )
Net asset value per unit, beginning of period
    1,299.33       1,105.52  
 
           
Net asset value per unit, end of period
  $ 1,249.37     $ 1,079.88  
 
           
 
*     Includes clearing fees.
 
**   Excludes clearing fees.
                 
    Three Months Ended  
    March 31,  
    2011     2010  
Ratios to Average Net Assets:***
               
Net investment income (loss)****
    (0.3 )%     (0.3 )%
 
           
 
               
Operating expenses
    0.4 %     0.3 %
 
           
 
               
Total return
    (3.8 )%     (2.3 )%
 
           
 
***   Annualized.
 
****   Interest income less total expenses.
The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average net assets.
 
3. Trading Activities:
 
The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests substantially all of its assets through a “master/feeder” structure. The Partnership’s pro-rata share of the results of the Master’s trading activities are shown in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
The customer agreements between the Partnership and CGM and the Master and CGM give the Partnership and the Master, respectively, the legal right to net unrealized gains and losses on open futures and on open forward contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open futures and on open forward contracts on the Statements of Financial Condition.
 
Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions.


12


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
All of the commodity interests owned by the Master are held for trading purposes. The monthly average number of futures contracts traded during the three months ended March 31, 2011 and 2010 were 1,149 and 2,241, respectively. The monthly average number of metals forward contracts traded during the three months ended March 31, 2011 and 2010 were 104 and 107, respectively. The monthly average notional values of currency forward contracts during the three months ended March 31, 2011 and 2010 were $477,891,035 and $524,237,787, respectively. The monthly average notional values of currency option contracts during the three months ended March 31, 2011 and 2010 were $30,370,089,242 and $49,778,808,104, respectively. The following tables indicate the gross fair values of derivative instruments of futures, forward and options contracts as separate assets and liabilities as of March 31, 2011 and December 31, 2010.
         
Assets   March 31, 2011  
 
Futures Contracts
       
Energy
  $ 166,537  
Grains
    37,504  
Indices
    189,240  
Interest Rates Non-U.S.
    96,833  
Interest Rates U.S.
    2,781  
Livestock
    14,240  
Metals
    75,085  
Softs
    62,525  
 
     
Total unrealized appreciation on open futures contracts
  $ 644,745  
 
     
 
       
Liabilities
       
Futures Contracts
       
Grains
  $ (41,531 )
Indices
    (18,970 )
Interest Rates Non-U.S.
    (153,894 )
Interest Rates U.S.
    (153,652 )
Metals
    (2,430 )
Softs
    (37,196 )
 
     
Total unrealized depreciation on open futures contracts
  $ (407,673 )
 
     
Net unrealized appreciation on open futures contracts
  $ 237,072 *
 
     
 
       
Assets
       
Forward Contracts
       
Currencies
  $ 2,211,140  
Metals
    65,105  
 
     
Total unrealized appreciation on open forward contracts
  $ 2,276,245  
 
     
 
       
Liabilities
       
Forward Contracts
       
Currencies
  $ (2,550,807 )
Metals
    (159,475 )
 
     
Total unrealized depreciation on open forward contracts
  $ (2,710,282 )
 
     
Net unrealized depreciation on open forward contracts
  $ (434,037 )**
 
     
 
This amount is in “Net unrealized appreciation on open futures contracts” on the Master’s Statements of Financial Condition.
 
** This amount is in “Net unrealized depreciation on open forward contracts” on the Master’s Statements of Financial Condition.
 


13


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
         
Assets   March 31, 2011  
 
Options Purchased
       
Currencies
  $ 110,220  
         
Total options purchased
  $ 110,220 ***
         
         
Liabilities
       
Options Premium Received
       
Currencies
  $ (79,619 )
         
Total options premium received
  $ (79,619 )****
         
 
***   This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.
 
**** This amount is in “Options premium received, at fair value” on the Master’s Statements of Financial Condition.
 
Assets   December 31, 2010  
 
Futures Contracts
       
Energy
  $ 104,562  
Grains
    126,606  
Indices
    110,856  
Interest Rates Non-U.S. 
    32,933  
Interest Rates U.S. 
    22,063  
Livestock
    700  
Metals
    97,200  
Softs
    118,914  
         
Total unrealized appreciation on open futures contracts
  $ 613,834  
         
         
Liabilities
       
Futures Contracts
       
Energy
  $ (53,380 )
Grains
    (2,870 )
Indices
    (96,645 )
Interest Rates Non-U.S. 
    (54,423 )
Interest Rates U.S. 
    (24,734 )
Livestock
    (1,730 )
Metals
    (510 )
Softs
    (18,909 )
         
Total unrealized depreciation on open futures contracts
  $ (253,201 )
         
Net unrealized appreciation on open futures contracts
  $ 360,633 *
         
 
This amount is in “Net unrealized appreciation on open futures contracts” on the Master’s Statements of Financial Condition.
         
Assets      
 
Forward Contracts
       
Currencies
  $ 3,015,962  
Metals
    184,969  
         
Total unrealized appreciation on open forward contracts
  $ 3,200,931  
         
         
Liabilities
       
Forward Contracts
       
Currencies
  $ (2,455,912 )
Metals
    (30,477 )
         
Total unrealized depreciation on open forward contracts
  $ (2,486,389 )
         
Net unrealized appreciation on open forward contracts
  $ 714,542 **
         
 
** This amount is in “Net unrealized appreciation on open forward contracts” on the Master’s Statements of Financial Condition.


14


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
         
Assets   December 31, 2010  
 
Options Purchased
       
Currencies
  $ 130,648  
         
Total options purchased
  $ 130,648 ***
         
         
Liabilities
       
Options Premium Received
       
Currencies
  $ (56,353 )
         
Total options premium received
  $ (56,353 )****
         
 
*** This amount is in “Options purchased, at fair value” on the Master’s Statements of Financial Condition.
 
**** This amount is in “Options premium received, at fair value” on the Master’s Statements of Financial Condition.
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three months ended March 31, 2011 and 2010.
                 
    Three Months Ended  
    March 31,  
Sector   2011     2010  
Currencies
  $ (721,447   $ (336,483
Energy
    804,281     (519,788 )
Grains
    (261,074     29,711  
Indices
    (795,217     (1,232,613
Interest Rates U.S.
    (229,757     501,539
Interest Rates Non-U.S.
    (378,016     536,561
Livestock
    (27,350 )     18,480  
Metals
    (130,337     (512,210
Softs
    283,123       (47,821 )
 
           
Total
  $ (1,455,794 )*****   $ (1,562,624 )*****
 
           
 
*****   This amount is in “Total trading results” on the Master’s Statements of Income and Expenses and Changes in Partners’ Capital.
 
4.   Fair Value Measurements:
 
Partnership’s 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 of the Master’s notes to the annual financial statements as of December 31, 2010.
     Partnership’s 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, there has not been a significant decrease in the volume and level of activity in the Partnership’s Level 2 assets.
     The Partnership will separately present purchases, sales, issuances, and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.


15


 

Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
     The Partnership values its 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 Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended March 31, 2011 and December 31, 2010, 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 management’s assumptions and internal valuation pricing models (Level 3).
 
                                 
          Quoted Prices
             
          in Active Markets
    Significant Other
    Significant
 
          for Identical
    Observable Inputs
    Unobservable
 
    March 31, 2011     Assets (Level 1)     (Level 2)     Inputs (Level 3)  
 
Assets
                               
Investment in Master
  $ 37,752,203     $      —     $ 37,752,203     $      —  
                                 
Net fair value
  $ 37,752,203     $     $ 37,752,203     $  
                                 
                                 
            Quoted Prices in              
            Active Markets     Significant Other     Significant  
            for Identical     Observable Inputs     Unobservable  
    December 31, 2010     Assets (Level 1)     (Level 2)     Inputs (Level 3)  
 
                               
Assets
                               
Investment in Master
  $ 36,378,264     $     $ 36,378,264     $  
 
                       
Net fair value
  $ 36,378,264     $     $ 36,378,264     $  
 
                       
     Master’s 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. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.
     Master’s Fair Value Measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Master’s Level 1 assets and liabilities are actively traded.
     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, there has not been a significant decrease in the volume and level of activity in the Master’s Level 2 assets and liabilities.
     The Master will separately present purchases, sales, issuances, and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.


16


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
     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 who derive fair values for those assets from observable inputs (Level 2). As of and for the periods ended March 31, 2011 and December 31, 2010, the Master did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).
 
                                 
            Quoted Prices in              
            Active Markets     Significant Other     Significant  
            for Identical     Observable Inputs     Unobservable  
    March 31, 2011     Assets (Level 1)     (Level 2)     Inputs (Level 3)  
Assets
                               
Futures
  $ 644,745     $ 644,745     $     $  
Forwards
    2,276,245       65,105       2,211,140        
Options purchased
    110,220             110,220        
 
                       
Total assets
    3,031,210       709,850       2,321,360        
 
                       
 
                               
Liabilities
                               
Futures
  $ 407,673     $ 407,673     $     $  
Forwards
    2,710,282       159,475       2,550,807        
Options premium received
    79,619             79,619        
 
                       
Total liabilities
    3,197,574       567,148       2,630,426        
 
                       
Net fair value
  $ (166,364 )   $ 142,702     $ (309,066 )   $  
 
                       
 
            Quoted Prices in              
            Active Markets     Significant Other     Significant  
            for Identical     Observable Inputs     Unobservable  
    December 31, 2010*     Assets (Level 1)     (Level 2)     Inputs (Level 3)  
Assets
                               
Futures
  $ 613,834     $ 613,834     $     $  
Forwards
    3,200,931       184,969       3,015,962        
Options purchased
    130,648             130,648        
 
                       
Total assets
    3,945,413       798,803       3,146,610        
 
                       
 
                               
Liabilities
                               
Futures
  $ 253,201     $ 253,201     $     $  
Forwards
    2,486,389       30,477       2,455,912        
Options premium received
    56,353             56,353        
 
                       
Total liabilities
    2,795,943       283,678       2,512,265        
 
                       
Net fair value
  $ 1,149,470     $ 515,125     $ 634,345     $  
 
                       
 
*   The amounts have been reclassified from the December 31, 2010 prior year financial statements to conform to current year presentation based on new fair value guidance.


17


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
5.   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, or 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. 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 is limited to the amount of their capital contributions to the Partnership and their share of the Partnership’s assets and undistributed profits. This limited liability is a consequence of the organization of the Partnership as a limited partnership under applicable law.
 
Market 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 Partnership’s/Master’s risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnership’s/Master’s 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 Partnership’s/Master’s assets is CGM or a CGM affiliate. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnership’s/Master’s counterparty is an exchange or clearing organization.
 
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 Partnership’s/Master’s 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, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.
 
The majority of these instruments mature within one year of the inception date. However, due to the nature of the Partnership’s/Master’s business, these instruments may not be held to maturity.
 


18


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
6.  Critical Accounting Policies
 
Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
 
Partnership’s 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 of the Master’s notes to the annual financial statements as of December 31, 2010.
     Partnership’s and Master’s Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Masters’s Level 1 assets and liabilities are actively traded.
     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, there has not been a significant decrease in the volume and level of activity in the Partnership’s and Master’s Level 2 assets and liabilities.
     The Partnership will separately present purchases, sales, issuances, and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.
     The Partnership values its 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 Partnership’s investment in the Master reflects its proportional interest in the Master. As of and for the periods ended March 31, 2011 and December 31, 2010, 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 management’s 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 are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). As of and for the periods ended March 31, 2011 and December 31, 2010, the Master did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).


19


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
Futures Contracts. The Master trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the 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. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
Forward Foreign Currency Contracts. Foreign currency contracts are those contracts where the Master agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Master’s net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
The Master does not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in net gain (loss) on investments in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Master are cash settled based on prompt dates published by the LME. 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. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the 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 LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.
     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 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. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Changes in Partners’ Capital.
 
Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses.


20


 

 
Potomac Futures Fund L.P.
Notes to Financial Statements
March 31, 2011
(Unaudited)
 
GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner concluded that no provision for income tax is required in the Partnership’s financial statements.
 
The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. 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.
 
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 filing and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.
 
Net Income (Loss) per unit.  Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, “Financial Highlights”.
 


21


 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Liquidity and Capital Resources
 
The Partnership does not engage in sales of goods or services. Its only assets are its 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 in the first quarter of 2011.
 
The Partnership’s capital consists of the capital contributions of the partners, as increased or decreased by income (loss) from its investment in the Master, expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any.
 
For the three months ended March 31, 2011, Partnership capital increased 3.2% from $35,871,031 to $37,010,897. This increase was attributable to the additional subscriptions of 3,732.5404 Redeemable Units totaling $5,371,395, which was partially offset by a net loss from operations of $2,262,450 coupled with the redemption of 1,380.5775 Redeemable Units totaling $1,969,079. Future redemptions can impact the amount of funds available for investment in the Master in subsequent periods.
 
The Master’s capital consists of the capital contributions of the partners as increased or decreased by realized and/or unrealized gains or losses on trading, expenses, interest income, redemptions of units and distributions of profits, if any.
 
For the three months ended March 31, 2011, the Master’s capital increased 3.8% from $36,375,992 to $37,750,618. This increase was attributable to the additional subscriptions of 4,129.2569 units totaling $5,371,395, which was partially offset by a net loss from operations of $1,485,041 coupled with the redemption of 1,909.3142 units totaling $2,504,344 and distribution of interest income to feeder funds totaling $7,384. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.
 
Critical Accounting Policies
 
     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 6 of the Financial Statements.
     The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized and change in net unrealized trading gain (loss) in the Statements of Income and Expenses and Changes in Partners’ Capital.


22


 

 
Results of Operations
 
     During the Partnership’s first quarter of 2011, the net asset value per unit decreased 5.8% from $1,447.41 to $1,363.96 as compared to a decrease of 4.5% in the first quarter of 2010. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the first quarter of 2011 of $1,455,794. Losses were primarily attributable to the Master's trading of commodity futures in currencies, grains, U.S. and non-U.S. interest rates, livestock, metals, and indices and were partially offset by gains in energy and softs. The Partnership, through its investment in the Master, experienced a net trading loss before brokerage fees and related fees in the first quarter of 2010 of $1,180,590. Losses were primarily attributable to the Master's trading of commodity futures in currencies, energy, metals, softs and indices and were partially offset by gains in grains, U.S. and non-U.S. interest rates, and livestock.
     The most significant losses were incurred within the global stock index sector, primarily during March, due to long positions in European, Pacific Rim, and U.S. equity index futures as prices moved sharply lower following the worst earthquake and tsunami in Japanese history. Within the global interest rate sector, losses were recorded throughout the majority of the quarter. In January, long positions in short-term European fixed-income futures resulted in losses as prices declined after European Central Bank President Jean-Claude Trichet said inflationary pressures in the euro region may increase. During February, short positions in U.S. fixed-income futures resulted in losses as prices rose after concern over unrest in the Middle East spurred demand for the relative “safety” of government debt. Further losses were experienced in March from both long and short positions in fixed-income futures as prices moved without consistent direction throughout the month. Losses were experienced within the currency markets, primarily during January, from long futures positions in the South African rand and Japanese yen versus the U.S. dollar, as well as short positions in the euro versus the U.S. dollar. The value of the South African rand and Japanese yen declined against the U.S. dollar following the release of minutes from the latest U.S. Federal Reserve meeting that showed optimism about the U.S. economy and boosted demand for the U.S. currency, while the euro ended higher as European sovereign debt worries abated. Within the metals markets, losses were incurred primarily during January from long futures positions in gold and silver as prices fell amid a strengthening U.S. dollar, which reduced the “safe-haven” appeal of precious metals. In March, additional losses were recorded in the metals sector from long futures positions in copper, nickel, and zinc as prices moved lower amid concern that rising energy costs associated with mounting unrest in the Middle East may slow the global economy.
     A portion of the Partnership’s losses for the quarter was offset by gains achieved within the energy markets throughout a majority of the quarter due to long futures positions in crude oil and its related products as prices rose amid an escalation in political instability in the Middle East and North Africa, prompting concerns that crude supplies may be disrupted. Within the agricultural complex, gains were experienced primarily in January and February due to long positions in cotton futures as prices increased on signs global output may fail to keep pace with rising demand in China, the world’s biggest buyer of the fiber.
 
Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership (and the Master) 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 (and the Master) expects to increase capital through operations.


23


 

 
Interest income on 80% of the Partnership’s average daily 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 months ended March 31, 2011 increased by $1,616, as compared to the corresponding period in 2010. The increase in interest income is primarily due to higher average daily equity and higher U.S. Treasury bill rates during the three months ended March 31, 2011 as compared to the corresponding period in 2010. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnership’s account and upon interest rates over which neither the Partnership nor CGM has control.
 
Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Brokerage fees for the three months ended March 31, 2011 decreased by $239,744, as compared to the corresponding period in 2010. The decrease in brokerage and fees is due to a decrease in average net assets during the three months ended March 31, 2011 as compared to the corresponding period in 2010.
 
Management fees are calculated as a percentage of the Partnership’s net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Management fees for the three months ended March 31, 2011 decreased by $43,699, as compared to the corresponding period in 2010. The decrease in management fees is due to a decrease in average net assets during the three months ended March 31, 2011 as compared to the corresponding period in 2010.
 
Incentive fees are based on the new trading profits generated by the Advisor at the end of the quarter, as defined in the advisory agreements between the Partnership, the General Partner and the Advisor. There were no incentive fees earned for the three months ended March 31, 2011 and 2010. The Advisor will not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.
In allocating substantially all of the assets of the Partnership to the Master, the General Partner considers the Advisor’s 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.


24


 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
All of the Partnership’s assets are subject to the risk of trading loss through its investment in the Master. The Master is a speculative commodity pool. The market sensitive instruments held by the Master are acquired for speculative trading purposes, and all or substantially all of the Partnership’s assets is 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 Master’s and the Partnership’s 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 the Partnership’s assets and undistributed profits. This limited liability is a consequence of the organization of the Partnership as a limited partnership under applicable law.
 
Market movements result in frequent changes in the fair market value of the Master’s open positions and, consequently, in their earnings and cash balances. The Master’s 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 Master’s open positions and the liquidity of the markets in which they trade.
 
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 Master’s 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 Master’s 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 Master’s 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 Master’s losses in any market sector will be limited to Value at Risk or by the Master’s attempts to manage its market risk.
 
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. 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.


25


 

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The following tables indicate the trading Value of Risk associated with the Master’s open positions by market category as of March 31, 2011 and December 31, 2010, and the highest, lowest and average values during the three months ended March 31, 2011 and for the twelve months ended December 31, 2010 . All open position trading risk exposures of the Master have been included in calculating the figures set forth below. As of March 31, 2011, the Master’s total capitalization was $37,750,618 and the Partnership owned 100.0% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of March 31, 2011 was as follows:
 
March 31, 2011
 
                                         
                    Three Months Ended March 31, 2011  
            % of Total     High     Low     Average  
Market Sector   Value at Risk     Capitalization     Value at Risk     Value at Risk     Value at Risk*  
Currencies
  $ 1,866,660       4.94 %   $ 2,527,349     $ 883,986   $ 1,456,795
Energy
    357,260       0.94 %     440,210       160,800       316,177  
Grains
    70,100       0.19 %     208,500       43,400       129,075  
Indices
    723,589       1.92 %     2,014,273       341,913       1,242,752  
Interest Rates U.S.
    285,880       0.76 %     355,800       166,950       159,544  
Interest Rates Non-U.S.
    569,643       1.51 %     618,267       231,396       404,297  
Livestock
    26,900       0.07 %     26,900       2,450       13,933  
Metals
    392,491       1.04 %     655,142       155,338       402,233  
Softs
    136,500       0.36 %     215,100       116,500       152,433  
 
                                   
Total
  $ 4,429,023       11.73 %                        
 
                                   
 
 
*     Average of Month-end Values at Risk.
     As of December 31, 2010, the Master’s total capitalization was $36,375,992 and the Partnership owned 100.0% of the Master. The Partnership invests substantially all of its assets in the Master. The Master’s Value at Risk as of December 31, 2010 was as follows:
                                         
 
    December 31, 2010        
 
          Twelve Months Ended December 31, 2010  
            % of Total     High     Low     Average  
Market Sector   Value at Risk     Capitalization     Value at Risk     Value at Risk     Value at Risk*  
Currencies
  $ 1,263,212       3.47 %        $ 3,076,532     $ 45,857     $ 1,544,875  
Energy
    275,400       0.76 %     561,250       56,374       256,720  
Grains
    109,562       0.30 %     335,050       12,500       109,901  
Indices
    1,190,652       3.27 %     1,974,159       444,941       1,162,418  
Interest Rates U.S.
    23,067       0.06 %     889,400       23,067       400,082  
Interest Rates Non-U.S.
    200,338       0.55 %     1,860,915       142,880       919,067  
Livestock
    10,050       0.03 %     33,350       1,000       11,913  
Metals
    322,981       0.89 %     913,240       69,732       419,922  
Softs
    128,500       0.35 %     317,000       5,200       116,413  
 
                                   
Total
  $ 3,523,762       9.68 %                        
 
                                   
 
*   Annual average of month-end Values at Risk.


26


 

Item 4.   Controls and Procedures
 
The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
 
Management is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.
 
The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2011 and, based on that evaluation, the General Partner’s CEO and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.
 
The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:
 
  •   pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;
 
  •   provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and
 
  •   provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.
 
There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended March 31, 2011 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.


27


 

 
PART II. OTHER INFORMATION
 
Item 1.   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 (formerly known as Salomon Smith Barney) or any of its individual principals and no such actions are currently pending, except as follows.
Mutual Funds
     Several issues in the mutual fund industry have come under the scrutiny of federal and state regulators. Citigroup has received subpoenas and other requests for information from various government regulators regarding market timing, financing, fees, sales practices and other mutual fund issues in connection with various investigations. Citigroup is cooperating with all such reviews. Additionally, CGM has entered into a settlement agreement with the SEC with respect to revenue sharing and sales of classes of funds.
     On May 31, 2005, Citigroup announced that Smith Barney Fund Management LLC and CGM completed a settlement with the SEC resolving an investigation by the SEC into matters relating to arrangements between certain Smith Barney mutual funds, an affiliated transfer agent and an unaffiliated sub-transfer agent. Under the terms of the settlement, Citigroup agreed to pay fines totaling $208.1 million. The settlement, in which Citigroup neither admitted nor denied any wrongdoing or liability, includes allegations of willful misconduct by Smith Barney Fund Management LLC and CGM in failing to disclose aspects of the transfer agent arrangements to certain mutual fund investors.
     In May 2007, CGM finalized its settlement agreement with the NYSE and the New Jersey Bureau of Securities on the matter related to its market-timing practices prior to September 2003.
FINRA Settlement
     On October 12, 2009, FINRA announced its acceptance of an Award Waiver and Consent (“AWC”) in which CGM, without admitting or denying the findings, consented to the entry of the AWC and a fine and censure of $600,000. The AWC includes findings that CGM failed to adequately supervise the activities of its equities trading desk in connection with swap and related hedge trades in U.S. and Italian equities that were designed to provide certain perceived tax advantages. CGM was charged with failing to provide for effective written procedures with respect to the implementation of the trades, failing to monitor Bloomberg messages and failing to properly report certain of the trades to the NASDAQ.
Auction Rate Securities
     On May 31, 2006, the SEC instituted and simultaneously settled proceedings against CGM and 14 other broker-dealers regarding practices in the auction rate securities market. The SEC alleged that the broker-dealers violated Section 17(a)(2) of the Securities Act of 1933, as amended. The broker-dealers, without admitting or denying liability, consented to the entry of an SEC cease-and-desist order providing for censures, undertakings and penalties. CGM paid a penalty of $1.5 million.
     On August 7, 2008, Citigroup reached a settlement with the New York Attorney General, the SEC, and other state regulatory agencies, pursuant to which Citigroup agreed to offer to purchase at par auction rate securities from all Citigroup individual investors, small institutions (as defined by the terms of the settlement), and charities that purchased auction rate securities from Citigroup prior to February 11, 2008. In addition, Citigroup agreed to pay a $50 million fine to the State of New York and a $50 million fine to the other state regulatory agencies.


28


 

Subprime Mortgage-Related Actions
     The SEC, among other regulators, is investigating Citigroup’s 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 Citigroup’s structuring and sale of collateralized debt obligations. Citigroup is cooperating fully with the SEC’s inquiries.
     On July 29, 2010, the SEC announced the settlement of an investigation into certain of Citigroup’s 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.
Credit Crisis Related Matters
     Beginning in the fourth quarter of 2007, certain of Citigroup’s, and CGM’ regulators and other state and federal government agencies commenced formal and informal investigations and inquiries, and issued subpoenas and requested information, concerning Citigroup’s subprime mortgage-related conduct and business activities. Citigroup and certain of its affiliates, including CGM, are involved in discussions with certain of its regulators to resolve certain of these matters.
     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.


29


 

 
Item 1A.  Risk Factors
 
There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
 
For the three months ended March 31, 2011, there were additional subscriptions of 3,732.5404 Redeemable Units totaling $5,371,395. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder.
 
Proceeds of net offering were used for the trading of commodity interests, including futures contracts, options, forwards and swap contracts.
 
The following chart sets forth the purchases of Redeemable Units by the Partnership.
 
These units were purchased by accredited investors as defined in Regulation D.
 
                                         
                              (d) Maximum Number
 
                              (or Approximate
 
                      (c) Total Number
      Dollar Value) of
 
      (a) Total
              of Redeemable Units
      Redeemable Units that
 
      Number of
      (b) Average
      Purchased as Part
      May Yet Be
 
      Redeemable
      Price Paid per
      of Publicly Announced
      Purchased Under the
 
 Period     Units Purchased*       Redeemable Unit**       Plans or Programs       Plans or Programs  
January 1, 2011 -
January 31, 2011
      417.6175       $ 1,431.23         N/A         N/A  
February 1, 2011 -
February 28, 2011
      581.3065       $ 1,463.62         N/A         N/A  
March 1, 2011 -
March 31, 2011
      381.6535       $ 1,363.96         N/A         N/A  
        1,380.5775       $ 1,426.27                      
                                         
 
* Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners.
 
** Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day.
 
Item 3.   Defaults Upon Senior Securities – None
 
Item 4.   [Removed and Reserved]
 
Item 5.   Other Information – None.


30


 

Item 6.   Exhibits
 
3.1   Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated March 13, 1997 (filed as Exhibit 3.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(a)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated February 26, 1999 (filed as Exhibit 3.4 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(b)   Certificate of Change of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.3 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(c)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 1, 2001 (filed as Exhibit 3.2 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(d)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 21, 2003 (filed as Exhibit 3.5 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(e)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.1(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
(f)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.1(f) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
(g)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 30, 2009 and incorporated herein by reference).
 
(h)   Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 29, 2010 (filed as Exhibit 3.1(h) to the Form 8-K filed on June 30, 2010 and incorporated herein by reference).
 
3.2   Third Amended and Restated Limited Partnership Agreement, dated February 22, 2010 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on February 25, 2010 and incorporated herein by reference).
 
10.1   Form of Subscription Agreement (filed as Exhibit 10.1 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
10.2   Second Amended and Restated Customer Agreement between the Partnership and Salomon Smith Barney Inc., dated April 1, 2001 (filed as Exhibit 10.2 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
10.3   Second Amended and Restated Agency Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated July 29, 2010 (filed as Exhibit 10.3 to the Form 8-K filed on August 3, 2010 and incorporated herein by reference).
 
10.4   Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference).
 
10.5   Escrow Agreement among the Partnership, Smith Barney Futures Management Inc., Smith Barney Inc. and European American Bank, dated April 15, 1997 (filed as Exhibit 10.5 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
 
10.6   Management Agreement among the Partnership, Smith Barney Futures Management Inc. and Campbell & Company, Inc., dated April 1, 1997 (filed as Exhibit 10.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(a)   First Amendment to the Management Agreement among the Partnership, Smith Barney Futures Management Inc., Campbell & Company, Inc. and SFG Global Investments, Inc., dated March 1, 1999 (filed as Exhibit 10.1(a) to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(b)   Second Amendment to the Management Agreement among the Partnership, Smith Barney Futures Management LLC and Campbell & Company, Inc., dated April 1, 2001 (filed as Exhibit 10.1(b) to the General Form for Registration of Securities on Form 10 filed on April 30, 2004 and incorporated herein by reference).
 
(c)   Letter extending Management Agreement between the General Partner and Campbell & Company, Inc. for 2010, dated June 1, 2010 (filed as Exhibit 10.6(c) to the Form 10-K filed on March 31, 2011 and incorporated herein by reference).
 
31.1   Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).
 
31.2   Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director).
 
32.1   Section 1350 Certification (Certification of President and Director).
 
32.2   Section 1350 Certification (Certification of Chief Financial Officer and Director).


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
     
POTOMAC FUTURES FUND L.P.
     
By:
  Ceres Managed Futures LLC
(General Partner)
     
By:
 
/s/  Walter Davis

Walter Davis
President and Director
 
Date: May 16, 2011
     
By:
 
/s/  Jennifer Magro

Jennifer Magro
Chief Financial Officer and Director
(Principal Accounting Officer)
 
Date: May 16, 2011


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