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EX-31.1 - EX-31.1 - CERES ORION L.P. | y03606exv31w1.htm |
EX-32.2 - EX-32.2 - CERES ORION L.P. | y03606exv32w2.htm |
EX-31.2 - EX-31.2 - CERES ORION L.P. | y03606exv31w2.htm |
EX-32.1 - EX-32.1 - CERES ORION L.P. | y03606exv32w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K/A
Amendment
No. 1 to Form 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Transition period from
to
Commission File Number 0-50271
ORION FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York | 22-3644546 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o Ceres Managed Futures LLC
55 East 59th Street 10th Fl.
New York, New York 10022
55 East 59th Street 10th Fl.
New York, New York 10022
(Address and Zip Code of principal executive offices)
(212) 559-2011
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered
pursuant to Section 12(g)
of the Act: Redeemable Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or 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
Limited Partnership Redeemable Units with an aggregate value of $847,800,103 were outstanding and
held by non-affiliates as of the last business day of the registrants most recently completed
second calendar month.
As of
February 28, 2010, 326,294.7792 Limited Partnership Redeemable Units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
[None]
Explanatory Note
This Amendment No. 1 on Form 10-K/A (Amendment No. 1) amends the Annual Report for Orion
Futures Fund L.P. filed on Form 10-K for the year ended December 31, 2009, as initially filed with
the Securities and Exchange Commission (the SEC) on March 31, 2010 (the Original Report). This
Amendment No. 1 amends Part II, Item 7: Managements Discussion and Analysis of Financial Condition
and Results of Operations to include disclosure that was inadvertently omitted from the Original
Report. This Amendment No. 1 does not alter any part of the content of the Original Report, except
for the changes and additional information provided herein. This Amendment No. 1 otherwise
describes conditions as of the date of the Original Report and has not been updated to disclose
events that may have occurred at a later date.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Partnership directly and through its investment in the Funds, seeks to achieve substantial
capital appreciation through speculative trading, directly or indirectly, in U.S. and international
markets for currencies, interest rates, stock indices, agricultural and energy products and
precious and base metals. The Partnership may employ futures, options on futures, and forward
contracts in those markets. The Partnership may also enter into swap transactions relating to the
value of crude oil and other energy related products.
The General Partner manages all business of the Partnership. The General Partner has delegated
its responsibility for the investment of the Partnerships capital to AAA, Willowbridge, and
Winton. The General Partner employs a team of approximately 20 professionals whose primary emphasis
is on attempting to maintain quality control among the Advisors to the partnerships operated or
managed by the General Partner. A full-time staff of due diligence professionals use proprietary
technology and on-site evaluations to monitor new and existing futures money managers. The
accounting and operations staff provide processing of trading activity and reporting to limited
partners and regulatory authorities. In selecting the Advisors for the Partnership, the General
Partner considered past performance, trading style, volatility of markets traded and fee
requirements.
Responsibilities of the General Partner include:
| due diligence examinations of the Advisors; |
| selection, appointment and termination of the Advisors; |
| negotiation of the Management Agreements; and |
| monitoring the activity of the Advisors. |
In addition, the General Partner prepares the books and records and provides the
administrative and compliance services that are required by law or regulation from time to time in
connection with operation of the Partnership. These services include the preparation of required
books and records and reports to limited partners, government agencies and regulators; computation
of net asset value; calculation of fees; effecting subscriptions, redemptions and limited partner
communications; and preparation of offering documents and sales literature.
The
General Partner seeks the best prices and services available in its commodity futures
brokerage transactions.
The programs traded by each Advisor on behalf of the Partnership are: AAA Energy Program
Futures and Swaps; Willowbridge Argo; Vulcan, Consolidated Commodities Technical and
Consolidated Commodities Fundamental Trading Systems; and Winton Diversified Program. As of
December 31, 2009, the Partnerships assets were allocated among the trading Advisors in the
following approximate percentages: AAA, 35%, Willowbridge, 30%, and
Winton, 35%. The General Partner may modify or terminate the
allocation of assets among trading advisors at any time and may
allocate assets to additional advisors at any time.
AAA Capital Management Advisors, Ltd.
The portion of the Partnerships assets that are currently allocated to AAA for trading are
not invested in commodity interests directly. AAAs allocation of the Partnerships assets is
currently invested in AAA Master. AAA trades AAA Masters, and thereby the Partnerships, assets in
accordance with its Energy Program Futures and Swaps, a
discretionary trading system.
AAA Master currently trades energy futures contracts and options on energy futures contracts
on domestic and international exchanges, as well as the Goldman Sachs Commodity Index (an index
future comprised of energy and other products) traded on the Chicago Mercantile Exchange. AAA
Master also currently engages in swap transactions involving crude oil and other energy related
products. References herein to energy and energy related products include all of the foregoing.
AAA generally bases its trading decisions on fundamental factors, namely supply and demand
for a particular group or type of commodity. AAA attempts to buy undervalued commodities and sell
overvalued commodities, often but not always simultaneously. AAA uses options to attempt either to
reduce or define risks.
AAA is aware of price trends but does not trade upon trends. AAA often takes profits in
positions with specific trends even though that trend may still be intact or perhaps even strong.
AAA occasionally establishes positions that are countertrend.
Effective risk management is a crucial aspect of AAAs trading program. Account size,
expectation, volatility of the market traded and the nature of other positions taken are all
factors in determining the amount of equity committed to each trade. AAA Master is AAAs largest
account.
1
Willowbridge Associates, Inc.
The portion of the Partnerships assets that are currently allocated to Willowbridge for
trading are invested in commodity interests directly, and is also invested in Willowbridge Master.
Willowbridge trades the Partnerships assets allocated to it in accordance with its Select
Investment Program, whereby the General Partner determined the initial allocation of the
Partnerships assets among one or more of Willowbridges strategies and may determine subsequent
reallocations (if any). Of the Partnerships assets allocated to Willowbridge, 29% is currently
traded using the Vulcan Trading System (Vulcan), 55% is currently traded using the Argo Trading
System (Argo), 5% is currently traded using Consolidated Commodities Technical (CCT) and 11%
is currently traded using Consolidated Commodities Fundamental (CCF) each of which is described
below.
For each of these systems, risk is managed on a market by market level as well as on an
overall portfolio level. On the market level, risk is managed primarily by utilizing proprietary
volatility filters. When these filters detect a certain excessive level of volatility in the
markets traded, they will signal that the systems should no longer be trading in the markets in
which the filters have detected excessive volatility. In this way, the systems do not participate
in markets in which there are extremes in market action. On the portfolio level, risk is managed by
utilizing a proprietary portfolio cutback rule. When cumulative profits have reached a certain
level, this rule determines that positions should be halved across the entire portfolio. In this
way, risk is reduced while allowing the systems to continue to participate in the markets, albeit
at a reduced level. After the portfolio has been traded at half, the portfolio cutback rule will
then determine when to increase positions to again trade at the full level.
Vulcan, which commenced trading in 1988, is a computerized technical trading system. It is not
a trend-following system, but does ride a trend when the opportunity arises. Vulcan uses the
concepts of pattern recognition, support/resistance levels, and counter-trend liquidations (as
defined below) in making trading decisions. In effect, Vulcan is more akin to a systematic
technical charting system, as opposed to most computer systems which are based on pure
trend-following calculations.
Vulcan is based on general technical trading principles. It applies these principles to a
diversified portfolio of commodities and currencies. Given that the system is based on general
principles, the system parameters used are the same for all items in the portfolio and are not
optimized. In this manner, the Vulcan minimizes the problem of data-fitting.
Argo commenced trading in 1988. Argo essentially incorporates Vulcans concepts of pattern
recognition, support/resistance levels and counter-trend liquidations (as defined below) to trade a
portfolio similar to Vulcan. However, Argo has a relatively slower time horizon than Vulcan and
attempts to capture longer-term price moves.
Pattern recognition, support/resistance levels and counter-trend liquidations are defined as
follows:
Pattern recognition is the ability to identify patterns that appear to have acted as
precursors of price advances or declines in the past.
A support level is a previous lowa price level under the current market price at which point
buying interest is expected to be sufficiently strong to overcome selling pressure.
A resistance level is a previous higha price level over the current market price at which
point selling pressure is expected to overcome buying pressure and a price advance is expected to
be turned back.
A counter-trend liquidation is the closing out of a position after a significant price move on
the assumption that the market is due for a correction.
The Consolidated Commodities program is a trading approach through which Willowbridges
founder and principal trader makes discretionary decisions on a diversified portfolio of commodity
interests. These include energies, grains, tropical products, livestock, base metals and precious
metals. The trading decisions are based on reward-to risk expectations derived from the principals
experience in analyzing the fundamental outlook for the commodity markets as well as applying
anecdotal information and technical factors.
2
Winton Capital Management Limited
The portion of the Partnerships assets that are currently allocated to Winton for trading are
not invested in commodity interests directly. Wintons allocation of the Partnerships assets is
currently invested in Winton Master. Winton trades its Diversified Program on behalf of Winton
Master. The Diversified Program trades approximately 95 futures and forward contracts on U.S. and
non-U.S. exchanges and markets.
Winton employs a fully
systematic, computerized, technical, trend-following trading system developed by
its principals. This system tracks the daily price movements from these markets around the world,
and carries out certain computations to determine each day how long or short the portfolio should
be in an attempt to maximize profit within a certain range of risk. If rising prices in a
particular market are anticipated, a long position will be established in that market; if prices in
a particular market are expected to fall, a short position in that market will be established.
Technical analysis refers to analysis based on data intrinsic to a market, such as price and
volume. In contrast, fundamental analysis relies on factors external to a market, such as supply
and demand. The Winton Program employs no fundamental factors.
A trend-following system is one that attempts to take advantage of the observable tendency of
the markets to trend, and to tend to make exaggerated movements in both upward and downward
directions as a result of such trends. These exaggerated movements are largely explained as a
result of the influence of crowd psychology or the herd instinct among market participants.
A trend-following system does not anticipate a trend. In fact, trend-following systems are
frequently unprofitable for long periods of time in particular markets or market groups, and
occasionally they are unprofitable for periods of more than a year. However, the principals believe
that such an approach will, in the long term, be profitable.
Trade selection is not subject to intervention by Wintons principals and therefore is not
subject to the influences of individual judgment. As a mechanical trading system, the Winton model
embodies all the expert knowledge required to analyze market data and direct trades, thus
eliminating the risk of basing a trading program on one indispensable person. Equally as important
is the fact that mechanical systems can be tested in simulation for long periods of time and the
models empirical characteristics can be measured.
The systems output is rigorously adhered to in trading the portfolio and intentionally no
importance is given to any external or fundamental factors. While it may be seen as unwise to
ignore information of obvious value, such as that pertaining to political or economic developments,
Winton believes that the disadvantage of this approach is far outweighed by the advantage of the
discipline that rigorous adherence to such a system instills. Winton believes that significant
profits may be realized by the Winton system by holding on to positions for much longer than
conventional wisdom would dictate. Winton believes that a trader who pays attention to day-to-day
events could be distracted from the chance of fully capitalizing on such trends.
The Winton system trades in all liquid U.S. and non-U.S. futures and forward contracts.
Forward markets include major currencies and precious and base metals, the latter two categories
being traded on the London Metal Exchange. Winton seeks out new opportunities to add additional
markets to the portfolio, with the goal of increasing the portfolios diversification.
Winton believes that taking positions in a variety of unrelated markets will, over time,
decrease system volatility. By employing a sophisticated and systematic method for placing orders
in a wide array of markets, Winton believes that profits can be realized over time.
No assurance can be given that Advisors strategies will be successful or that they will
generate profits for the Partnership.
3
Average
Allocation by Commodity Market Sector for the period January 1, 2009 through December
31, 2009
CMF Willowbridge Argo Master Fund L.P.
Currencies |
23.4 | % | ||
Energy |
17.8 | % | ||
Grains |
8.3 | % | ||
Interest Rates Non-U.S. |
16.6 | % | ||
Interest Rates U.S. |
9.5 | % | ||
Livestock |
0.4 | % | ||
Metals |
18.1 | % | ||
Softs |
5.9 | % |
Willowbridge Associates Inc.
Currencies |
18.8 | % | ||
Energy |
21.1 | % | ||
Grains |
11.5 | % | ||
Interest Rates Non-U.S. |
13.0 | % | ||
Interest Rates U.S. |
7.2 | % | ||
Livestock |
0.4 | % | ||
Metals |
21.9 | % | ||
Softs |
6.2 | % |
AAA Master Fund LLC
Energy |
100 | % |
CMF Winton Master L.P.
Currencies |
26.1 | % | ||
Energy |
4.3 | % | ||
Grains |
5.6 | % | ||
Interest Rates Non-U.S. |
20.5 | % | ||
Interest Rates U.S. |
11.1 | % | ||
Livestock |
0.8 | % | ||
Metals |
9.0 | % | ||
Softs |
3.0 | % | ||
Stock Indices |
19.6 | % |
(a) Liquidity.
The Partnership does not engage in the sales of goods or services. The Partnerships assets
are its (i) investment in partnerships, (ii) equity in its commodity futures trading account,
consisting of cash and cash equivalents, net unrealized appreciation on open futures contracts,
net unrealized appreciation on open forward contracts, and (iii) distribution and interest receivable.
Because of the low margin deposits normally required in commodity futures trading, relatively small
price movements may result in substantial losses to the Partnership. While substantial losses could
lead to a material decrease in liquidity, no such illiquidity occurred during the year ended December
31, 2009.
4
To minimize this risk relating to low margin deposits, the Partnership and Funds follow
certain trading policies, including:
(i) | The Partnership and Funds invest their assets only in commodity interests that the Advisors believe are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisors believe will permit it to enter and exit trades without noticeably moving the market. |
(ii) | An Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Partnerships net assets allocated to that Advisor. |
(iii) | The Partnership and Funds may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position is fully hedged. |
(iv) | The Partnership and Funds do not employ the trading technique commonly known as pyramiding, in which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. |
(v) | The Partnership and Funds do not utilize borrowings other than short-term borrowings if the Partnership/Funds take delivery of any cash commodities. |
(vi) | The Advisors may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership/Funds. Spreads and Straddles describe commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets. |
(vii) | The Partnership/Funds will not permit the churning of its commodity trading account. The term churning refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, driven by the desire to generate commission income. |
From January 1, 2009 through December 31, 2009, the Partnerships average margin to
equity ratio (i.e., the percentage of assets on deposit required for margin) was
approximately 10.4%. The foregoing margin to equity ratio takes into account cash held
in the Partnerships name, as well as the allocable value of the positions and cash held on
behalf of the Partnership in the name of the Funds.
In
the normal course of business, the Partnership and the Funds are
parties to financial
instruments with off-balance sheet risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments 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 specified terms at specified future dates, or, in the case of derivative commodity
instruments, to have a reasonable possibility to be settled in cash, through physical delivery or
with another financial instrument. These instruments may be traded on an exchange or
over-the-counter (OTC). Exchange traded instruments are standardized and include futures and
certain forwards and option contracts. OTC contracts are negotiated between contracting parties and
include swaps and certain forwards and option contracts. Each of these instruments is subject to
various risks similar to those relating to the underlying financial instruments including market
and credit risk. In general, the risks associated with OTC contracts are greater than those
associated with exchange traded instruments because of the greater risk of default by the
counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership and Funds due to market changes, including interest and foreign exchange rate
movements and fluctuations in commodity or security prices. Market risk is directly impacted by the
volatility and liquidity in the markets in which the related underlying assets are traded. The
Partnership and the Funds are exposed to a market risk equal to the value of futures and forward
contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to
perform according to the terms of a contract. The Partnership and the Funds risk of loss in the
event of counterparty default is typically limited to the amounts recognized in the Statements of
Financial Condition and not represented by the contract or notional amounts of the instruments. The
Partnership and the Funds risk of loss is reduced through the use of legally enforceable master
netting agreements with counterparties that permit the Partnership and the Funds to offset
unrealized gains and losses and other assets and liabilities with such counterparties upon the
occurrence of certain events. The Partnership and the Funds have credit risk and concentration risk
because the sole counterparty or broker with respect to the Partnership and the Funds assets is CGM
or a CGM affiliate. Credit risk with respect to exchange traded
5
instruments is reduced to the extent that, through CGM, the Partnership and the Funds
counterparty is an exchange or clearing organization.
As both a buyer and seller of options, the Partnership/Funds pay or receive a premium at the
outset and then bear the risk of unfavorable changes in the price of the contract underlying the
option. Written options expose the Partnership/Funds to potentially unlimited liability; for
purchased options the risk of loss is limited to the premiums paid. Certain written put options
permit cash settlement and do not require the option holder to own the reference asset. The
Partnership/Funds do not consider these contracts to be guarantees as described in ASC 460
Guarantees (formerly, FAS No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees).
The
General Partner/Managing Member monitors and attempts to control the Partnerships/Funds risk
exposure on a daily basis through financial, credit and risk management monitoring systems, and
accordingly, believes that it has effective procedures for evaluating and limiting the credit and
market risks to which the Partnership/Funds may be subject. These
monitoring systems generally allow the general
partner/managing member to statistically analyze actual trading results with risk adjusted
performance indicators and correlation statistics. In addition, on-line monitoring systems provide
account analysis of futures, forwards and options positions by sector, margin requirements, gain
and loss transactions and collateral positions. (See also Item 8. Financial Statements and
Supplementary Data for further information on financial instrument risk included in the notes
to financial statements.)
Other
than the risks inherent in commodity futures and other derivatives trading, the Partnership knows of
no trends, demands, commitments, events or uncertainties which will result in or which are
reasonably likely to result in the Partnerships liquidity increasing or decreasing in any material
way. The Limited Partnership Agreement provides that the Partnership
shall terminate under certain
circumstances including a decrease in Net Asset Value per Redeemable Unit to less than $400 as of
the close of business on any business day.
(b) Capital Resources.
(i) The Partnership has made no material commitments for capital expenditures.
(ii) The Partnerships capital consists of the capital contributions of the partners as
increased or decreased by gains or losses on trading and by expenses, interest income, redemptions
of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be
predicted. Market movements in commodities are dependent upon fundamental and technical factors which
the Advisors may or may not be able to identify, such as changing supply and demand relationships,
weather, government agricultural, commercial and trade programs and policies, national and
international political and economic events and changes in interest rates. Partnership expenses
consist of, among other things, brokerage commissions, advisory fees and administrative fees. The level of
these expenses is dependent upon trading performance and the level of Net
Assets maintained. In addition, the amount of interest income payable by CGM is dependent upon
interest rates over which the Partnership has no control.
The Partnership continues to offer Redeemable Units at the Net Asset Value per Redeemable Unit
of Limited Partnership Interest as of the end of each month. For the year ended December 31, 2009,
there were additional sales of 124,540.6216 Redeemable Units totaling $346,650,226 and 1,661.7798
General Partner Unit equivalents totaling $4,500,000 . For the year ended December 31, 2008, there
were additional sales of 73,057.0497 Redeemable Units totaling $175,479,000 and 852.6005 General
Partner Unit equivalents totaling $1,973,412. For the year ended December 31, 2007, there were
additional sales of 75,753.5122 Redeemable Units totaling $144,306,000.
No forecast can be made as to the level of redemptions in any given period. A Limited Partner
may require the Partnership to redeem their Redeemable Units at their Net Asset Value as of the
last day of a month on 10 business days notice to the General Partner. There is no fee charged to
Limited Partners in connection with redemptions.
Redemptions generally are funded out of the Partnerships cash holdings.
For the year ended December 31, 2009, 52,022.5263
Redeemable Units were redeemed totaling $145,003,724. For the year ended December 31, 2008,
61,071.3615 Redeemable Units were redeemed totaling $155,777,201. For the year ended December 31,
2007, 28,154.4589 Redeemable Units were redeemed totaling $54,941,617 and 436.3952 General Partner
Unit equivalents were redeemed totaling $750,133
Redeemable Units of Limited Partnership Interest were sold to persons and entities who are
accredited investors as that term is defined in rule 501(a) of Regulation D under the Securities
Act of 1933 as amended (the Securities Act), as well as to those persons who are not accredited
investors but who have either a net worth (exclusive of home, furnishings and automobile) either
individually or jointly with the investors spouse of at least three times their investment in the
Partnership (the minimum investment for which was $25,000) or gross income for the two previous years and projected gross income for the current
fiscal year of not less than three times their investment in the Partnership for each year.
6
(c) Results of Operations.
For the year ended December 31, 2009 the Net Asset Value per Redeemable Unit decreased 5.1%
from $2,836.93 to $2,693.18. For the year ended December 31, 2008 the Net Asset Value per
Redeemable Unit increased 33.0% from $2,132.59 to $2,836.93. For the year ended December 31, 2007
the Net Asset Value per Redeemable Unit increased 16.7% from $1,827.79 to $2,132.59 The Partnership
experienced a net trading loss of $10,150,920 before commissions and expenses in 2009. Losses were
primarily attributable to the Partnerships/Funds trading of currencies, grains, U.S. and non-U.S.
interest rates, livestock, softs, and indices and were primarily offset by gains recognized
in energy and metals.
2009 was a volatile year for the financial markets. The U.S. stock market entered 2009 reeling
from the financial turmoil of 2008. The results of the sub-prime fallout, bank bailouts, auto
industry bankruptcies, and capitulating economic data overwhelmed not just stock prices, but fueled
extraordinarily high levels of risk aversion. The markets recovery was driven by stability in the
banking sector and a rapid recovery in global markets. By mid-year
2009, the market had hit
bottom, in March, banks were seeking to return TARP bailout money and leading indicators were
recovering. The Partnership realized losses as trends were volatile and sensitivity to news shocks
and contrary economic data.
Losses were realized in trading fixed income instruments. With the economic backdrop of 2009,
yields started to exhibit asymmetric volatility due to extreme uncertainty prevailing in the longer
time horizon. Encouraged by the continuing efforts of the Obama administration to stabilize the
U.S. economy, the markets finally began to recover a degree of risk-taking confidence in March,
resulting in the reversal of many of the trends that had driven returns in late 2008. Losses were
also taken in trading the currencies, primarily in December as the Japanese yen reversed sharply on
Japanese Prime Minister Yukio Hatoyamas dissatisfaction over the high value of the Yen. In
agricultural commodities, losses were realized primarily in corn and wheat. Prices of corn and
wheat both unexpectedly rallied in October as cold and wet weather threatened to delay harvest and
concerns over the acres likely to be seeded for the new crop. Losses were incurred in sugar after
prices hit a 28 year high, which led many countries to reduce their expected sugar imports.
The
Partnership experienced a net trading gain, before brokerage commissions and related fees,
in 2008 of $222,522,937. Gains were primarily attributable to the Partnerships/Funds trading of
currencies, energy, metals, grains, U.S. and non-U.S. interest rates, livestock, lumber and
indices and were primarily offset by losses recognized in softs.
The net trading gain (or loss) realized from each of the Funds is
included on page F-24 under Item 8. Financial
Statements and Supplementary Data.
In 2008, the liquidity crisis that began in 2007 rapidly spread to all corners of the globe,
significantly pushing down global economic growth and presenting the U.S. economy with the hardest
challenges since the Great Depression. During the year, the worlds credit markets virtually seized
up, commodity prices plunged and most major equity indices declined dramatically, while some of the
largest U.S. financial institutions were under pressure. Faced with unprecedented rapid
deterioration in economic data and outlook, and fearing a snowball adverse effect of the credit
crunch, global central banks reacted with aggressive campaigns of interest rate cuts and
coordinated capital injections. As the markets re-priced the cost of risk, several strong trends
emerged. The Partnership strongly capitalized on the trends and was profitable in almost every
sector.
Profits were primarily realized from trading in energy, fixed income, and currency. The
Partnership realized most of the profits in the energy sector by capturing both the bullish and the
bearish trends. In the earlier part of the year, crude oil pushed towards a historic high of $147
per barrel and in the latter part, the trend suddenly reversed and a strong negative trend emerged
with crude oil dropping to about $32 per barrel. Natural gas also contributed to profits as prices
plunged from $14 to about $5 per BTU. The Partnership was also profitable in interest rates as the yield on
short term notes dropped significantly. Short term U.S. Treasury bills were in such high demand due
to flight-to-quality that the yields had dropped below zero during the year. While the 10Yr T-bill
yielded on an average between 3.5%-4% most of the year, the yield dropped to 2% in December.
Non-U.S. interest rates also showed tremendous volatility as the rates dropped precipitously due to
the actions of the central banks. The Partnership also benefited from strong trends that emerged in
the currencies and realized gains for the year. U.S. Dollar was relatively strong compared with
most of the other developed economy currencies. Euro was put to its first major test since its
inception. UK, Germany and France continued to show weak growth earlier in the year and as the
situations worsened in the later part of the year, these countries officially entered a recession.
As investors sought U.S. Dollar denominated assets for relative safety, the Dollar emerged stronger
relative to other currencies. Japanese Yen remained an exception and showed extraordinary strength
as the carry trade reversed. Slightly offsetting gains were small losses in soft commodities such
as coffee.
Interest income is earned on 100% of the Partnerships average daily equity maintained in cash in the Partnerships (or the Partnerships allocable portion of a Funds) brokerage account 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 from the date on which
such weekly rate is determined. CGM may continue to maintain the Partnerships assets in cash
and/or place all of the Partnerships (or a Funds) assets in 90-day Treasury bills and pay the Partnership 100%
of the interest earned on the Treasury bills purchased. Interest income for the three and twelve
months ended December 31, 2009 decreased by $189,390 and $5,283,266, respectively as compared to
the corresponding periods in 2008. The decrease in interest income is primarily due to lower U.S.
Treasury Bill rates for the Partnership during the three and twelve months ended December 31, 2009,
as compared to the corresponding periods in 2008.
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 Partnerships and the Funds accounts and upon interest rates over which neither the Partnership nor CGM has control.
7
Brokerage commissions are calculated as a percentage of the Partnerships adjusted net asset value
on the last day of each month and are affected by trading performance, additions and redemptions.
Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values.
Brokerage commissions and fees for the three and twelve months ended December 31, 2009 increased by
$1,044,861 and $1,065,109, respectively as compared to the corresponding periods in 2008. The
increase in brokerage commissions and fees primarily due to an increase in the number of trades
during the three and twelve months ended December 31, 2009, as compared to the corresponding
periods in 2008.
Management fees are calculated as a percentage of the Partnerships net asset value as of the end
of each month and are affected by trading performance, additions and redemptions. Management fees
for the three and twelve months ended December 31, 2009, increased by $639,105 and $2,491,654,
respectively as compared to the corresponding periods in 2008. The increase in management fees is
due to an increase in average net assets for the three and twelve months ended December 31, 2009,
as compared to the corresponding periods in 2008.
Administrative fees are paid to the General Partner for administering the business and affairs of
the Partnership, These fees are calculated as a percentage of the Partnerships net asset value as
of the end of each month and are affected by trading performance, additions and redemptions.
Administrative fees for the three and twelve months ended
December 31, 2009 increased by $181,289
and $661,641, respectively as compared to the
corresponding periods in 2008. The increase in administrative fees is due to an increase in average
net assets during the three and twelve months ended December 31, 2009, as compared to the
corresponding periods in 2008.
Incentive fees are based on the new trading profits generated by the Advisor at the end of the year
as defined in the management agreements between the Partnership, the General Partner and each
Advisor. Trading performance for the three and twelve months ended December 31, 2009 resulted in
incentive fees of $4,138,088. Trading performance for the three and twelve months ended December
31, 2008 resulted in incentive fees of $10,922,553 and $40,256,797, respectively.
The Partnership pays professional fees, which generally include legal and accounting expenses.
Professional fees for the years ended December 31, 2009 and 2008 were $495,318 and $520,640, respectively.
The Partnership pays other expenses,
which generally include filing, reporting and data processing fees. Other expenses for the years ended December 31, 2009 and 2008
were $111,113 and $89,922, respectively.
The Partnership experienced a net trading gain of $71,875,976 before commissions and expenses
in 2007. Gains were primarily attributable to the Partnerships/Funds trading of currencies,
energy, grains, U.S. and non-U.S. interest rates, livestock and lumber and were primarily offset by
losses recognized in metals, softs and indices.
In 2007, the Partnership profited from macro-economic developments that stimulated volatility
and asset price trends of a favorable duration to the underlying Advisors trading strategies.
Negative developments in the U.S. mortgage markets and the increasing probability of recession
resonated throughout the capital and commodity markets. A surge in volatility in the global equity
markets in February was driven by a tumble in Chinese stock valuations that curbed sentiment for
global risk assets and sparked a material sell-off in global stock prices. The year would go on to
be highlighted by two additional measurable equity market corrections in the summer and fall. By
mid-summer, dislocations in U.S. asset-backed and mortgage-backed credit markets emerged as the
central focal point of global capital markets shifted. The ensuing re-pricing of credit risk
resulted in a flight-to-quality driven rally in prices of sovereign debt, especially in the U.S.
Treasury markets as the Federal Open Market Committee acted rapidly to stem the negative
implications for growth. As a result of the series of rate cuts and negative economic data, the
U.S. dollar became less attractive and weakened materially against most major currencies during the
latter part of the year. Commodity markets continued to signal inflation, further clouding the
economic landscape, as global demand for most food and raw materials continued to be robust. Prices
moved rather erratically at times.
Gains were also generated by substantially rising oil prices, which reached all-time contract
highs due to robust global demand, ongoing geopolitical concerns and increased speculative
participation in the commodity. Profits were realized in fixed income trading as turbulence in
asset backed credit markets became a catalyst for significant directional moves in yields and
strong bias towards price rallies across Treasury curves. The
Partnership also benefited from persistent
trends in the currency sector, notably in Japanese Yen, New Zealand Dollar and British Pounds.
Trading gains were offset slightly by losses related to trading in metals and soft
commodities. Sporadic rallies in the U.S. dollar negatively impacted positions in certain precious
metals, which tend to demonstrate inverse price movements. Prices of industrial metals also moved
erratically during most of the year, mainly due to fluctuating estimates of Chinese and emerging
market economic growth resulting in unfavorable price action for the Advisors. Losses were also
experienced in trading soft commodities such as coffee and cocoa. Excess exports from growers in
Africa and Indonesia in the month of August resulted in a surprising fall in process driven by
increased supply.
In the General Partners opinion, the Partnerships Advisors continue to employ trading
methods consistent with the objectives of the Partnership/Funds. The General Partner/Managing
Member monitors the Advisors performance on a daily, weekly, monthly and annual basis to assure
these objectives are met.
8
It should be noted that commodity markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also increase the possibility
of profit. The profitability of the Funds and the Partnership depends on the Advisors ability to
forecast changes in energy and energy related commodities. Such price changes 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 the Advisors correctly make such
forecasts, the Funds and the Partnership expect to increase capital through operations.
In allocating the assets of the Partnership among the Advisors, the General Partner considered
past performance, trading style, volatility of markets traded and fee requirements. The General
Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets
to additional advisors at any time.
(d) Off-balance
Sheet Arrangements. None
(e) Contractual
Obligations. None
(f) Operational Risk.
The Partnership is directly exposed to market risk and credit risk, which arise in the normal
course of its business activities. Slightly less direct, but of critical importance, are risks
pertaining to operational and back office support. This is particularly the case in a rapidly
changing and increasingly global environment with increasing transaction volumes and an expansion
in the number and complexity of products in the marketplace.
Such risks include:
Operational/Settlement Risk the risk of financial and opportunity loss and legal liability
attributable to operational problems, such as inaccurate pricing of transactions, untimely trade
execution, clearance and/or settlement, or the inability to process large volumes of transactions.
The Partnership/Funds are subject to increased risks with respect to its trading activities in
emerging market securities, where clearance, settlement, and custodial risks are often greater than
in more established markets.
Technological Risk the risk of loss attributable to technological limitations or hardware
failure that constrain the Partnerships ability to gather, process, and communicate information
efficiently and securely, without interruption, to customers and in the markets where the
Partnership/Funds participates.
Legal/Documentation Risk the risk of loss attributable to deficiencies in the documentation
of transactions (such as trade confirmations) and customer relationships (such as master netting
agreements) or errors that result in noncompliance with applicable legal and regulatory
requirements.
Financial Control Risk the risk of loss attributable to limitations in financial systems
and controls. Strong financial systems and controls ensure that assets are safeguarded, that
transactions are executed in accordance with managements authorization, and that financial
information utilized by management and communicated to external parties, including the
Partnerships Redeemable Unit holders, creditors, and regulators, is free of material errors.
9
(g) 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. In making these estimates and
assumptions, management has considered the effects, if any, of events occurring after the date the
Partnerships Statements of Financial Condition through the date the
financial statements were issued. As a result, actual results could differ from these estimates.
Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows
as permitted by ASC 230, Statement of Cash Flows (formerly, FAS No. 102, Statement of Cash
Flows-Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities
Acquired for Resale).
Partnerships
and the Funds Investments. All commodity interests held by
the Partnership and the Funds (including derivative
financial instruments and derivative commodity instruments) are held for trading purposes. The
commodity interests are recorded on trade date and open contracts are recorded at fair value (as
described below) at the measurement date. Investments in commodity interests denominated in foreign
currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement
date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on
open contracts are included as a component of equity in trading account on the
Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains
or losses from the preceding period are reported in the Statements of Income and Expenses.
Partnerships and the Funds Fair Value Measurements. The Partnership and the Funds adopted
ASC 820, Fair Value Measurements and Disclosures (formerly, FAS No. 157, Fair Value Measurements)
as of January 1, 2008 which defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Partnership did not apply the deferral allowed by ASC 820, for nonfinancial
assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.
The Partnership and the Funds consider prices for exchange traded commodity futures, forwards
and options contracts to be based on quoted prices in active markets for identical assets (Level
1). The values of non-exchange traded forwards, swaps and certain options contracts for which
market quotations are not readily available, are priced by broker-dealers who derive fair values
for those assets from observable inputs (Level 2). Investments in partnerships (other commodity
pools) where there are no other rights or obligations inherent within the ownership interest held
by the Partnership are priced based on the end of the day net asset value (Level 2). The value of
the Partnerships investments in partnerships reflects its proportional interest in the
partnerships. As of and for
the years ended December 31, 2009 and 2008, the Partnership and the Funds did not hold any derivative
instruments that are priced at fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing models (Level 3).
Futures
Contracts. The Partnership and the Funds trade futures contracts.
Exchange cleared swaps included in futures and exchange cleared swaps
and swaps that are traded as futures. A futures contract
is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized
amount of a deliverable grade commodity, at a specified price on a specified future date, unless
the contract is closed before the delivery date or if the delivery quantity is something where
physical delivery can not 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 Partnership and the Funds each
business day, depending on the daily fluctuations in the value of the underlying contracts, and are
recorded as unrealized gains or losses by the Partnership. When the contract is closed, the
Partnership and the Funds record a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was closed. Because
transactions in futures contracts require participants to make both initial margin deposits of cash
or other assets and variation margin deposits directly, through the futures broker, directly with
the exchange on which the contracts are traded, credit exposure is limited. Realized gains (losses)
and changes in unrealized gains (losses) on futures contracts are included in the Statements of
Income and Expenses.
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 Partnership and the Funds are cash settled based
on prompt dates published by the LME. Payments (variation margin) may be made or received by the
Partnership and the Funds each business day, depending on the daily fluctuations in the value of
the underlying contracts, and are recorded as unrealized gains or losses by the Partnership and the
Funds. A contract is considered offset when all long positions have been matched with short
positions. When the contract is closed at the prompt date, the Partnership and the Funds record a
realized gain or loss equal to the difference between the value of the contract at the time it was
opened and the value at the time it was closed. Because transactions in LME contracts require
participants to make both initial margin deposits of cash or other assets and variation margin
deposits, through the broker, directly with the LME, credit exposure is limited. Realized gains
(losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements
of Income and Expenses.
Options. The Partnership and the Funds purchase and write (sell) both exchange listed and
over-the-counter, options on commodities or financial instruments. An option is a contract
allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard
commodity or financial instrument at a specified price during a specified time period. The option
premium is the total price paid or received for the option contract. When the Partnership and the
Funds writes an option, the premium received is recorded as a liability in the Statements of
Financial Condition and marked to market daily. When the Partnership and the Funds purchase an
option, the premium paid is recorded as an asset in the Statements of Financial Condition and
marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options
contracts are included in the Statements of Income and Expenses.
Brokerage Commissions. Commission charges to open and close futures and exchange traded swap
contracts are expensed at the time the positions are opened. Commission charges on option contracts
are expensed at the time the position is established and when the option contract is closed.
10
Income Taxes. Income taxes have not been provided as each partner is individually liable for
the taxes, if any, on their share of the Partnerships income and expenses.
In 2007, the Partnership adopted ASC 740,
Income Taxes (formerly, FAS 48 Accounting for
Uncertainty in Income Taxes). ASC 740 provides guidance for how uncertain tax positions should
be recognized, measured, presented and disclosed in the financial statements. ASC 740 requires
the evaluation of tax positions taken or expected to be taken in the course of preparing the
Partnerships financial statements to determine whether the tax positions are
more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect
to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The General Partner has concluded that no
provision for income tax is required in the Partnerships financial statements.
The following is the major tax jurisdiction for the Partnership and the earliest tax year
subject to examination: United States 2006.
Subsequent Events. In 2009, the Partnership adopted ASC 855 Subsequent events (formerly,
FAS No. 165 Subsequent Events). The Objective of ASC 855 is to establish general standards of
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. Management
has determined that these were no subsequent events requiring
adjustment on disclosure in the financial statements.
Recent Accounting Pronouncements. In January 2010, the FASB issued Accounting Standards Update
No. 2010-06 (ASU 2010-06), Improving Disclosures about Fair Value Measurements, which , among
other things, amends ASC 820 to require entities to separately present purchases, sales, issuances,
and settlements in their reconciliation of Level 3 fair value measurements (i.e. to present such
items on a gross basis rather than on a net basis), and which clarifies existing disclosure
requirements provided by ASC 820 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. ASU 2010-06 is effective for interim and annual periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value measurements (which are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years).
Management is currently assessing the impact that the adoption of ASU 2010-06 will have on the
Partnerships financial statements disclosures.
In February 2010,
the FASB issued Accounting Standards Update No. 2010-09 (ASU 2010-09), Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements, which among other things amended
ASC 855 to remove the requirement for an SEC filer to disclose the date through which subsequent events
have been evaluated. This change alleviates potential conflicts
between ASC 855 and the
SECs requirements. All of the amendments in this update are effective upon issuance of this
update. Management has included the provision of these amendments in the financial statements.
Certain prior period amounts have been reclassified to conform to the current year
presentation.
11
The exhibits required to be filed by Item 601 of Regulations S-K are 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). |
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the
7th day of June 2010.
ORION FUTURES FUND L.P. |
||||
By: | Ceres Managed Futures LLC | |||
(General Partner) | ||||
By: | /s/ Walter Davis | |||
Walter Davis, President & Director | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/ Walter Davis
|
/s/ Shelley Deavitt Ullman | |
Walter Davis |
Shelley Deavitt Ullman | |
President and Director Ceres Managed Futures LLC |
Director Ceres Managed Futures LLC |
|
/s/ Jennifer Magro
|
/s/ Michael P. McGrath | |
Jennifer Magro
|
Michael P. McGrath | |
Chief
Financial Officer, Secretary and Director (Principal Accounting Officer) Ceres Managed Futures LLC |
Director Ceres Managed Futures LLC |
|
/s/ Raymond Nolte
|
||
Raymond Nolte |
||
Director Ceres Managed Futures LLC |
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the
Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
Annual Report to Limited Partners
No proxy material has been sent to Limited Partners.
13