FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 333-53111
Atlas Futures Fund, Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware
51-0380494
(State or other jurisdiction of incorporation
(I.R.S. Employer
or organization)
Identification No.)
505 Brookfield Drive, Dover, DE 19901
(Address of principal executive offices, including zip code)
(800) 331-1532
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [ ] Not Applicable.
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 definition 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 Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) f the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Not Applicable.
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The reviewed financial statements for the Registrant for the six months ended June 30, 2012 are attached hereto at page F-1 and made a part hereof.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
General Information
During the past quarter and in the future, Registrant, did and will, pursuant to the terms of the Limited Partnership Agreement, engage in the business of speculative and high risk trading of commodity futures and options markets through the services of one or more commodity trading advisors it selects.
Description of Fund Business
The Fund grants the commodity trading advisors a power of attorney that is terminable at the will of either party to trade the equity assigned by the Fund. Clarke Capital Management, Inc. was granted a power of attorney by the Fund and served as a trading advisor for the Fund since the Fund’s inception. Effective April 11, 2012, the Fund's Advisory Agreement with Clarke Capital Management, Inc. was terminated and all open positions were closed. Hamer Trading Inc., an independent registered Commodity Trading Advisor, now serves as the Fund's sole trading advisor and trades its Diversified Systematic Program on behalf of the Fund, commencing April 12, 2012. Since April 12, 2002, Hamer was the sole trading advisor to the Fund. The commodity trading advisors selected to trade for the Fund have discretion to select the trades and do not disclose the methods they use to make those determinations in their disclosure documents or to the Fund or general partner. There is no promise or expectation of a fixed return to the partners. The partners must look solely to trading profits for a return their investment as the interest income is expected to be less than the fixed expenses to operate the Fund.
Assets
The general partner has sole authority to determine the percentage of our assets that will be held on deposit with the futures commission merchant, used for other investments, and held in bank accounts to pay current obligations. As of the date of this Report, the partnership maintains approximately 62% of its total assets in a Treasury Direct Account maintained with the United States Department of the Treasury. Funds maintained with the Department of Treasury and any cash management fund are held in the name of the partnership and not commingled with those of any other entity. As of the date of this Report, the general partner maintained approximately 22% of our total assets with the futures commission merchant (“FCM”) for margin for trading by the trading advisor. As of February 10, 2011, the FCM was changed to Vision Financial Markets LLC. Approximately 16% of our total assets was maintained as cash and cash equivalents, including bank accounts and Wells Fargo 100% Treasury money market fund. The Fund assets at the FCM consist of cash used as margin to secure futures (formerly called commodity) trades entered on its behalf by the commodity trading advisors it selects. The Fund deposits its cash with one or more FCM’s (brokers) that hold and allocate the cash to use as margin to secure the trades made. The futures held in the Fund accounts are valued at the market price on the close of business each day by the FCM that holds the Fund equity made available for trading.
The Capital accounts of the Partners are immediately responsible for all profit and losses incurred by trading and payment and accrual of the expenses of offering partnership interests for sale and the operation of the partnership. During the periods of this Report, the fixed costs of operation of the Fund include continuing offering costs, fixed brokerage commissions of 11%, and accounting, legal and other operating fees that must be paid before the limited partners may earn a profit on their investment. The trading advisor is paid a 1% management fee calculated on the prior month-end net assets allocated to it by the Fund to trade, along with a 20% quarterly incentive fee on New Net Profits, as that term is defined in the Fund's Prospectus.
The Fund has not in the past and does not intend in the future to borrow from third parties. Its trades are entered pursuant to a margin agreement with the futures commission merchant which obligates the fund to the actual loss, if
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any, without reference or limit by the amount of cash posted to secure the trade. The limited partners are not personally liable for the debts of the Fund, including any trading losses. On October 29, 2010, the Fund requested withdrawal of a previously filed post effective amendment and filed an S-1 registration statement to register additional $10,000,000 in Units. Upon effectiveness, the Units will be offered and sold pursuant to a prospectus under similar terms to the previous offering; however, there will be compensation to the affiliated selling agent, Futures Investment Company, of a 6% up front selling commission calculated on the gross subscription amount, in addition to $2,000 paid by the Fund for legal fees associated with the review of the offering by FINRA. As of the date of this Report, $14,213,748 has been sold pursuant to a previous registration statement and, upon redemption by the holder, will not be resold.
An Investment in the Fund Depends upon Redemption of Fund Units
The Fund Units are not traded and they have no market value. Liquidity of an investment in the Fund depends upon the credit worthiness of the exchanges, brokers, and third parties of off exchange traded futures that hold Fund equity or have a lien against Fund assets for payment of debts incurred. Those parties must honor their obligations to the Fund for the Fund to be able to obtain the return of its cash from the futures commission merchant that holds the Fund account.
The commodity trading advisors select the markets and the off exchange instruments to be traded. The General Partner selects the futures commission merchants to hold the Fund assets. Both the commodity trading advisors and the general partner believe all parties who hold Fund assets or are otherwise obligated to pay value to the Fund are credit worthy. Margin is an amount to secure the entry of a trade and is not a limit of the profit or loss to be gained from the trade. The general partner currently allocates nearly 100% of the Fund equity to be used as margin to enter trades. Although it is customary for the commodity trading advisors to use 40% or less of the equity available as margin, there is no limit imposed by the Fund upon the amount of equity the advisors may commit to margin. It is possible for the Fund to suffer losses in excess of the margin it posts to secure the trades made.
To have the purchase price or appreciation, if any, of the Units paid to them, partners must use the redemption feature of the Partnership. Distributions, although possible in the sole discretion of the general partner, are not expected to be made. There is no current market for the Units sold, none is expected to develop and the limited partnership agreement limits the ability of a partner to transfer the Units.
Results of Operations
The Fund is subject to ongoing offering and operating expenses; however, profits or losses are primarily generated by the commodity trading advisor by methods that are proprietary to it. These results are not to be construed as an expectation of similar profits in the future. See the Registration Statements, incorporated by reference herein, for an explanation of the operation of the Fund.
The Limited Partnership Agreement grants solely to the General Partner the right to select the trading advisor or advisors and to otherwise manage the operation of the Fund. Clarke Capital Management, Inc. was responsible for the selection of all trades though April 11, 2012 and, thereafter, Hamer Trading Inc. was responsible for all trades. Most of the operational profits and losses for the periods covered in this report have been due to the trading activity of the trading advisors. Net unit value has increased since inception, from $1,000 in October, 1999 to $2,816.16 as of June 30, 2012. Past performance is not necessarily indicative of future results, however.
The gain (loss) in registrant’s net asset value per unit during the three months ended June 30, 2012 and 2011, respectively, was (5.88)% and 0.86%. The difference over the periods was primarily due to the difference in operational profits (losses) due to trading, which were (2.20)% and 4.19% for the same respective periods (expressed as a percentage of the periods' beginning net asset value per unit). Operational losses due to expenses, similarly calculated, were (3.69)% and (3.36)% for the same respective periods.
The gain (loss) in registrant’s net asset value per unit during the six months ended June 30, 2012 and 2011, respectively, was (12.54)% and (12.32)%. Over the two six month periods ended June 30, 2012 and 2011, operational profits (losses) due to trading were (5.60)% and (6.49%), respectively, and operational losses due to expenses were (6.96)% and (5.89)%, respectively. The increase in expenses as a percentage of beginning net unit
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value for the six month period in 2012 was primarily due to the lower net asset value of the Fund without a commensurate reduction in fixed expenses.
Net asset value per unit is calculated to eliminate the effects of capital contributions and redemptions; however, fixed costs will become a greater percentage of overall net assets when net assets decline. Net assets over the six months ended June 30, 2012 and 2011 were down from beginning to end of the period, and were (24.69)% and (21.79)%, respectively. The decrease in net assets is due mainly to trading results, described above, and redemptions. Redemptions were $(723,729) and $(1,108,203) over the same respective periods (13.72)% and (9.85)% of beginning net assets, respectively). There were no capital contributions over the same periods.
The Fund is charged fixed brokerage commissions of 11%, which are calculated on the Fund’s total trading equity as of the beginning of each month and, therefore, vary according to monthly trading performance, subscriptions and redemptions. The same factors that contribute to increases or decreases in average net assets, therefore, contribute to changes in brokerage commissions paid.
The above described performance was primarily due to the trading of the trading advisors, which traded for the Fund via proprietary methods. The general trading strategy of both Clarke's and Hamer's programs is trend following. Most, but not all, trade initiations and liquidations are in the direction of the trend.
When the previous trading advisor, Clarke, traded its Alpha program for the Fund, it traded approximately 37 domestic and international commodity interests utilizing twelve models with a medium-to-long time frame, risk control and profit-taking characteristics. The current trading advisor, Hamer, trades primarily in futures and options thereon in a variety of 32 markets, including but not limited to grain, currency, metal, energy, financial, stock index, fiber, softs (coffee, cocoa, sugar, and orange juice) markets, both foreign and domestic. It should be noted that there will be times when there is significant correlation between markets within a market sector or between market sectors, possibly in an adverse direction to positions held in the Fund's account. This factor alone, although there are others, will lead to periods of extreme volatility and possibly very large drawdowns in Fund equity.
If a large price movement occurs in a sector that a trading advisor trades, such as agriculture, financials, metals or softs, it does not necessarily mean that the trading advisor will engage in trades that capture such moves. Accordingly, market movements and conditions are not necessarily correlated with Fund performance. As always, past performance is not necessarily indicative of future results.
Pursuant to the Trading Advisory Agreement, the Fund pays a quarterly incentive fee to the trading advisor on new net profits, or those profits achieved on a per unit basis above the advisor's previous high water mark. See Note 5 to the financial statements herein for the current incentive fees. Because Clarke had not recouped prior trading losses prior to its termination, it was not paid an incentive fee in any of the periods covered by this report. Because Hamer did not achieve a New Net Profit, it was not paid an incentive fee in the three month period ended June 30, 2012, the only period covered by this report in which it traded.
The balance of the Fund's income that does not derive from the trading activity of the trading advisor comes from interest income. However, short term interest rates were so low as to produce negligible interest income for the Fund over the periods covered by this report.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
The business of the Fund is speculative and involves a high degree of risk of loss. See the Fund’s Registration Statement and prospectus contained therein, incorporated herein, for a full description of the risks attendant to Fund business.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Registrant has adopted procedures in connection with the operation of its business including, but not limited to, the review of account statements sent to the General Partner before the open of business each day that disclose the
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positions held overnight in the Fund accounts, the margin to hold those positions, and the amount of profit or loss on each position, and the net balance of equity available in each account. The Fund brokerage account statements and financial books and records accounts are prepared by an independent CPA Firm and then are reviewed each quarter and audited each year by a different independent CPA firm.
The General Partner of the Fund, under the actions of its sole principal, Michael Pacult, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Fund as of the end of the period covered by this Report. Based on their evaluation, Mr. Pacult has concluded that these disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in the General Partner’s internal control over financial reporting during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting applicable to the Fund.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no legal proceedings against the Fund, its General Partner, the CTA, the FCM, the IB or any of their Affiliates, directors or officers, except against the FCM, as follows:
Vision Financial Services LLC
On May 18, 2011, simultaneously with the issuance of a complaint by the NFA, Vision Financial Markets LLC ("Vision") consented to a finding based on a one-count complaint for failure to supervise guaranteed IBs in violation of NFA Compliance Rule 2-9(a). The alleged activities occurred prior to 2009. Without admitting or denying the findings in the Committee’s Decision, Vision consented to pay a fine of $500,000 and to retain an independent consultant to review its supervisory procedures relating to guaranteed IBs. Vision undertook to implement revised procedures for supervising GIBs within 6 months. Finally, Vision consented to a restriction on guaranteeing new introducing brokers until 2013, unless it petitions the NFA to lift the restriction earlier.
The FCM has acted only as clearing brokers for the Fund’s futures accounts and as such it has been paid commissions for executing and clearing trades. The FCM has not passed upon the adequacy or accuracy of the Fund’s prospectus or this report and will not act in any supervisory capacity with respect to the CPO or the CTA, as the case may be, nor participate in the management of the CPO or of the Fund or of the CTA. Therefore, investors should not rely on the FCM in deciding whether or not to participate in the Fund.
The Fund is not aware of any threatened or potential claims or legal proceedings to which the Fund is a party or to which any of its assets are subject. The FCM has represented to the General Partner that that none of the events reported above would interfere with its performance as a clearing broker for the Fund’s account.
Item 1A. Risk Factors
There have been no material changes from risk factors as previously disclosed in the Fund’s 2011 Form 10-K. The risks of the Fund are (1) described fully in its prospectus filed with its registration statement on Form S-1, which is incorporated herein by reference (2) described in summary in Part I of this Form 10-Q, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
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Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
Not Applicable
Item 5. Other Information
(a)
None
(b)
None
Item 6. Exhibits
31.1
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-Q for the period ended June 30, 2012, to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant:
Atlas Futures Fund, Limited Partnership
By Ashley Capital Management, Incorporated
Its General Partner
By:
/s/ Michael Pacult
Mr. Michael Pacult
Sole Director, Sole Shareholder,
President, and Treasurer of the General Partner
Date: August 14, 2012
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