UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20192020

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 Number000-50735

POTOMAC FUTURES FUND L.P.

(Exact name of registrant as specified in its charter)

c/o Ceres Managed Futures LLC

522 Fifth Avenue

New York, New York 10036

(Address of principal executive offices) (Zip Code)

(855)672-4468

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.

YesX    No    

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

YesX    No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes      NoX

As of OctoberJuly 31, 2019, 26,173.59682020, 20,194.0158 Limited Partnership Class A Redeemable Units were outstanding and 22.3230 Limited Partnership Class Z Redeemable Units were outstanding.

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements.

Potomac Futures Fund L.P.

Statements of Financial Condition

See accompanying notes to financial statements.

1

Potomac Futures Fund L.P.

Condensed Schedule of Investments

SeptemberJune 30, 20192020

(Unaudited)

*      Due to rounding.

See accompanying notes to financial statements.

2

Potomac Futures Fund L.P.

Condensed Schedule of Investments

December 31, 20182019

*      

See accompanying notes to financial statements.

3

Potomac Futures Fund L.P.

Statements of Income and Expenses

(Unaudited)

* Represents the change in net asset value per Redeemable Unit during the period.

See accompanying notes to financial statements.

4

Potomac Futures Fund L.P.

Statements of Changes in Partners’ Capital

For the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019

(Unaudited)

See accompanying notes to financial statements.

5

Potomac Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

Potomac Futures Fund L.P. (the “Partnership”) is a limited partnership organized on March 14, 1997 under the partnership laws of the State of New York to engage, directly and indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures, option, swap and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. andnon-U.S. interest rates, livestock, metals and softs. The Partnership commenced trading operations on October 1, 1997. The commodity interests traded directly by the Partnership are volatile and involve a high degree of market risk. The General Partner (as defined below) may also determine to invest up to all of the Partnership’s assets in United States (“U.S.”) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates. The Partnership is authorized to sell an unlimited number of redeemable units of limited partnership interest (“Redeemable Units”). The Partnership privately and continuously offers Redeemable Units in the Partnership to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. The General Partner is awholly-owned subsidiary of Morgan Stanley Domestic Holdings, Inc. (“MSD Holdings”). MSD Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses. All trading decisions for the Partnership are made by Campbell & Company, LP (the “Advisor”).

During the reporting periods ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership’s commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. During prior reporting periods included in this report, the Partnership deposited a portion of its cash innon-trading bank accounts at JPMorgan Chase Bank, N.A.

As of March 22, 2016, the Partnership began offering two classes of limited partnership interests, Class A Redeemable Units and Class Z Redeemable Units. All Redeemable Units issued prior to February 29, 2016 were deemed “Class A Redeemable Units.” The rights, liabilities, risks, and fees associated with investment in Class A Redeemable Units were not changed. Class A Redeemable Units and Class Z Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes.” Class A Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions, andnon-U.S. investors. Class Z Redeemable Units were first issued on July 1, 2016 at $1,000 per Redeemable Unit. Class Z Redeemable Units are offered to limited partners who receive advisory services from Morgan Stanley Smith Barney LLC (doing business as Morgan Stanley Wealth Management) (“Morgan Stanley Wealth Management”) and may also be offered to certain employees of Morgan Stanley and/or its subsidiaries (and their family members). Class A Redeemable Units and Class Z Redeemable Units are identical, except that Class Z Redeemable Units are not subject to monthly ongoing selling agent fees.

As of July 17, 2017, the Advisor commenced trading the Partnership’s assets directly pursuant to the Campbell Managed Futures Portfolio, a proprietary, systematic trading program.

The General Partner is not aware of any material changes to the trading program other than as discussed above during the fiscal quarter ended SeptemberJune 30, 2019.2020.

The Partnership’s trading of futures, forward, swap and option contracts, if applicable, on commodities are done primarily on U.S. and foreign commodity exchanges. The Partnership engages in such trading through commodity brokerage accounts maintained with MS&Co.

The Partnership has entered into a foreign exchange brokerage account agreement and a futures brokerage account agreement with MS&Co. The Partnership pays MS&Co. (or will reimburse MS&Co., if previously paid) its allocable share of all trading fees for the clearing and, where applicable, execution of transactions as well as exchange, user,give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”).

6

Potomac Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

The Partnership has also entered into a selling agent agreement with Morgan Stanley Wealth Management (as amended, the “Selling Agreement”). Pursuant to the Selling Agreement, Morgan Stanley Wealth Management receivesreceived a monthly ongoing selling agent fee equal to 2.0% per year of the Partnership’s adjustedmonth-end net assets for Class A Redeemable Units. Class Z Redeemable Units are not subject to the ongoing selling agent fee. The ongoing selling agent fee received by Morgan Stanley Wealth Management will be shared with the properly registered/licensed financial advisors of Morgan Stanley Wealth Management who sell Class A Redeemable Units in the Partnership.

Effective January 1, 2019, the General Partner fee was reduced to 1/12 of 0.90% (0.90% per year) ofmonth-end adjusted Net Assets per Class.

Effective January 1, 2017, the General Partner instituted a cap on the Partnership’s operating expenses such that the General Partner will be responsible for any such expenses to the extent they exceed 0.50% of the Partnership’s net assets in any calendar year.

In July 2015, theThe General Partner has delegated certain administrative functions to SS&C Technologies, Inc., a Delaware corporation, currently doing business as SS&C GlobeOp (the “Administrator”). Pursuant to a Master Services Agreement, the Administrator furnishes certain administrative, accounting, regulatory reporting, tax and other services as agreed from time to time. In addition, the Administrator maintains certain books and records of the Partnership. The cost of retaining the Administrator is allocated among the pools operated by the General Partner, including the Partnership.

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at SeptemberJune 30, 2019,2020, the results of its operations and the changes in partners’ capital for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on Form10-K (the “Form10-K”) filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2018.2019. The December 31, 20182019 information has been derived from the audited financial statements as of and for the year ended December 31, 2018.2019.

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.

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the General Partner 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, and those differences could be material.

Profit Allocation. The General Partner and each limited partner of the Partnership share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each except that no limited partner is liable for obligations of the Partnership in excess of its capital contributions and profits, if any, net of distributions, redemptions and losses, if any.

Statement of Cash Flows. The Partnership has not provided a Statement of Cash Flows, as permitted by Accounting Standards Codification (“ASC”) 230,“Statement of Cash Flows.” The Statements of Changes in Partners’ Capital is included herein, and as of and for the periods ended SeptemberJune 30, 20192020 and 2018,2019, the Partnership carried no debt and substantially all of the Partnership’s investments were carried at fair value and classified as Level 1 and Level 2 measurements.

Partnership’s Investments. The valuation of the Partnership’s investments, including the classification within the fair value hierarchy of the investments held by the Partnership, are described in Note 5, “Fair Value Measurements.”

7

Potomac Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

All commodity interests of the Partnership, including derivative financial instruments and derivative commodity instruments, are held for trading purposes. The commodity interests for the Partnership are recorded on the trade date and open contracts are recorded at fair value (as described in Note 5, “Fair Value Measurements”) at the measurement date. The Partnership’s 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 for the Partnership are realized when contracts are liquidated and are determined using thefirst-in,first-out method. Unrealized gains or losses on open contracts are included as a component of equity in trading account in the Partnership’s Statements of Financial Condition. Net realized gains or losses and net change in unrealized gains or losses are included in the Partnership’s Statements of Income and Expenses.

The Partnership does not isolate the 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 total trading results in the Partnership’s Statements of Income and Expenses.

Partnership’s Cash. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At SeptemberJune 30, 20192020 and December 31, 2018,2019, the amount of cash held for margin requirements was $9,851,055$7,565,621 and $3,230,953,$10,484,390, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. The Partnership’s restricted and unrestricted cash includes cash denominated in foreign currencies of $170,530$(62,300) (proceeds of $62,291) at June 30, 2020 and $308,671 (cost of $170,554) at September 30, 2019 and $380,451 (cost of $379,908)$308,475) at December 31, 2018.2019.

Income Taxes. Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The Partnership follows the guidance of ASC 740,“Income Taxes,” which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are“more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet themore-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnership’s Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Partnership’s Statements of Income and Expenses in the period in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 20152016 through 20182019 tax years remain subject to examination by U.S. federal and most state tax authorities.

Investment Company Status. Effective January 1, 2014, the Partnership adopted Accounting Standards Update2013-08,“Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and based on the General Partner’s assessment, theThe Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Topic 946Accounting Standards Update 2013-08“FinancialServices—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses.

Net Income (Loss) per Redeemable Unit. Net income (loss) per Redeemable Unit for each Class is calculated in accordance with ASC 946,“Financial Services – Investment Companies.” See Note 3, “Financial Highlights.”

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form10-K for the year ended December 31, 2018.2019.

8

Potomac Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

Financial highlights for the limited partner class as a whole for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 were as follows:

The above ratios and total return may vary for individual investors based on the timing of capital transactions during the period.

9

Potomac Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

Trading and transaction fees are based on the number of trades executed by the Advisor. All clearing fees paid to MS&Co. for direct trading are directly charged to the Partnership.

All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded by the Partnership during the three months ended SeptemberJune 30, 2020 and 2019 were 2,015 and 2018 were 2,885 and 1,286,3,643, respectively. The monthly average number of futures contracts traded by the Partnership during the ninesix months ended SeptemberJune 30, 2020 and 2019 were 2,093 and 2018 were 3,305 and 1,327,3,516, respectively. The monthly average number of metals forward contracts traded by the Partnership during the three months ended SeptemberJune 30, 20192020 and 20182019 were 567 and 145,495, respectively. The monthly average number of metals forward contracts traded by the Partnership during the ninesix months ended SeptemberJune 30, 2020 and 2019 were 572 and 2018 were 475 and 152,428, respectively. The monthly average notional values of currency forward contracts traded by the Partnership during the three months ended SeptemberJune 30, 2020 and 2019 were $317,819,336 and 2018 were $642,832,216 and $154,752,785,$760,666,346, respectively. The monthly average notional values of currency forward contracts traded by the Partnership during the ninesix months ended SeptemberJune 30, 2020 and 2019 were $420,818,478 and 2018 were $660,522,968 and $159,450,559,$669,368,344, respectively.

The following tables summarize the gross and net amounts relating to assets and liabilities of the Partnership’s derivatives and their offsetting subject to master netting arrangements or similar agreements as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.

10