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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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 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

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)

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 X No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		Accelerated filer		Non-accelerated filer X		Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    No X

As of October 31, 2014, 358,350.5868 Limited Partnership Class A Redeemable Units were outstanding and 2,212.5782 Limited Partnership Class Z Redeemable Units were outstanding.

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ORION FUTURES FUND L.P.

FORM 10-Q

INDEX

 

						Page Number
PART I - Financial Information:
		Item 1.		Financial Statements:
				Statements of Financial Condition at September 30, 2014 (unaudited) and December 31, 2013		3
				Schedule of Investments at September 30, 2014 (unaudited) and December 31, 2013		4 – 5
				Statements of Income and Expenses for the three and nine months ended September 30, 2014 and 2013 (unaudited)		6
				Statements of Changes in Partners’ Capital for the three and nine months ended September 30, 2014 and 2013 (unaudited)		7
				Notes to Financial Statements (unaudited)		8 – 19
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 – 22
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk		23 – 27
		Item 4.		Controls and Procedures		28
PART II - Other Information
		Item 1.		Legal Proceedings		29 – 35
		Item 1A.		Risk Factors		36
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		37
		Item 5.		Other Information		37
		Item 6.		Exhibits		38 – 39

 

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PART I

Item 1. Financial Statements

Orion Futures Fund L.P.

Statements of Financial Condition

 

		(Unaudited) September 30, 2014				December 31, 2013
Assets:
Investment in Funds, at fair value		$	1,049,643,989			$	1,181,894,789
Equity in trading account:
Cash			347,618				291,074
Total trading equity			1,049,991,607				1,182,185,863
Interest receivable			—				4
Total assets		$	1,049,991,607			$	1,182,185,867
Liabilities and Partners’ Capital:
Liabilities:
Accrued expenses:
Ongoing selling agent fees			3,649,118				2,845,117
Management fees			774,317				870,277
Administrative fees			435,920				491,299
Incentive fees			1,221,827				5,166,773
Other			134,130				74,763
Redemptions payable to General Partner			2,014,925				—
Redemptions payable to Limited Partners			15,197,692				56,683,184
Total liabilities			23,427,929				66,131,413
Partners’ Capital:
General Partner, Class Z, (10,602.7003 and 13,996.6223 unit equivalents outstanding at September 30, 2014 and December 31, 2013, respectively)			11,050,000				13,679,599
Limited Partners, Class A, (361,615.0888 and 414,767.3528 Redeemable Units outstanding at September 30, 2014 and December 31, 2013, respectively)			1,013,207,757				1,100,058,092
Limited Partners, Class Z, (2,212.5782 and 2,370.5202 Redeemable Units outstanding at September 30, 2014 and December 31, 2013, respectively)			2,305,921				2,316,763
Total partners’ capital			1,026,563,678				1,116,054,454
Total liabilities and partners’ capital		$	1,049,991,607			$	1,182,185,867
Class A, net asset value per unit		$	2,801.90			$	2,652.23
Class Z, net asset value per unit		$	1,042.19			$	977.35

See accompanying notes to financial statements.

 

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Orion Futures Fund L.P.

Schedule of Investments

September 30, 2014

(Unaudited)

 

		Fair Value				% of Partners' Capital
Investment in Funds
AAA Master Fund LLC		$	171,957,782				16.75	%
Morgan Stanley Smith Barney TT II, LLC			428,573,761				41.75	%
CMF Winton Master L.P.			409,930,175				39.93	%
CMF Willowbridge Master Fund L.P.			39,182,271				3.82	%
Total investment in Funds, at fair value		$	1,049,643,989				102.25	%

See accompanying notes to financial statements.

 

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Orion Futures Fund L.P.

Schedule of Investments

December 31, 2013

 

		Fair Value				% of Partners’ Capital
Investment in Funds
AAA Master Fund LLC		$	222,758,285				19.96	%
Morgan Stanley Smith Barney TT II, LLC			484,523,274				43.41
CMF Winton Master L.P.			474,613,230				42.53
Total investment in Funds, at fair value		$	1,181,894,789				105.90	%

See accompanying notes to financial statements.

 

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Orion Futures Fund L.P.

Statements of Income and Expenses

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Investment Income:
Interest income		$	—			$	30			$	—			$	166
Interest income from investment in Funds			19,518				35,025				95,004				209,979
Total investment income			19,518				35,055				95,004				210,145
Expenses:
Ongoing selling agent fees			4,326,719				4,586,882				11,216,259				16,225,369
Clearing fees allocated from Funds			911,654				841,735				2,313,507				3,180,805
Management fees			3,595,780				4,932,615				11,131,010				15,663,394
Administrative fees			1,295,047				1,537,104				3,995,462				4,904,949
Incentive fees			7,145,910				—				12,203,793				—
Other			171,326				192,393				583,451				605,067
Total expenses			17,446,436				12,090,729				41,443,482				40,579,584
Net investment income (loss)			(17,426,918	)			(12,055,674	)			(41,348,478	)			(40,369,439	)
Trading Results:
Net gains (losses) on trading of commodity interests and investment in Funds:
Net realized gains (losses) on investment in Funds			33,562,348				(32,500,592	)			123,719,783				(37,399,902	)
Change in net unrealized gains (losses) on investment in Funds			9,288,621				2,266,580				(25,818,087	)			4,175,378
Total trading results			42,850,969				(30,234,012	)			97,901,696				(33,224,524	)
Net income (loss)		$	25,424,051			$	(42,289,686	)		$	56,553,218			$	(73,593,963	)
Net income (loss) allocation by class:
Class A		$	24,967,776			$	(41,793,218	)		$	55,514,135			$	(72,883,881	)
Class Z		$	456,275			$	(496,468	)		$	1,039,083			$	(710,082	)
Net asset value per unit:
Class A (361,615.0888 and 460,378.1048 units outstanding at September 30, 2014 and 2013, respectively)		$	2,801.90			$	2,507.68			$	2,801.90			$	2,507.68
Class Z (12,815.2785 and 17,094.1615 units outstanding at September 30, 2014 and 2013, respectively)		$	1,042.19			$	921.97			$	1,042.19			$	921.97
Net income (loss) per unit:*
Class A		$	68.58			$	(86.09	)		$	149.67			$	(148.78	)
Class Z		$	29.33			$	(28.97	)		$	64.84			$	(41.35	)
Weighted average units outstanding:
Class A			370,534.0905				481,331.8191				389,878.3157				495,429.8369
Class Z			15,826.1865				17,142.0492				16,192.8683				17,126.7742

 

*	Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

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Orion Futures Fund L.P.

Statements of Changes in Partners’ Capital

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

		Class A								Class Z								Total
		Amount				Units				Amount				Units				Amount				Units
Partners’ Capital December 31, 2013		$	1,100,058,092				414,767.3528			$	15,996,362				16,367.1425			$	1,116,054,454				431,134.4953
Net income (loss)			55,514,135				—				1,039,083				—				56,553,218				—
Subscriptions - Limited Partners			52,507,115				19,692.4240				121,200				126.9820				52,628,315				19,819.4060
Redemptions - General Partner			—				—				(3,514,911	)			(3,393.9220	)			(3,514,911	)			(3,393.9220	)
Redemptions - Limited Partners			(194,871,585	)			(72,844.6880	)			(285,813	)			(284.9240	)			(195,157,398	)			(73,129.6120	)
Partners’ Capital September 30, 2014		$	1,013,207,757				361,615.0888			$	13,355,921				12,815.2785			$	1,026,563,678				374,430.3673
Partners’ Capital December 31, 2012		$	1,344,261,470				506,035.4958			$	16,219,127				16,836.7425			$	1,360,480,597				522,872.2383
Net income (loss)			(72,883,881	)			—				(710,082	)			—				(73,593,963	)			—
Subscriptions - Limited Partners			120,982,469				46,032.1680				657,010				686.8310				121,639,479				46,718.9990
Allocation from the General Partner			12,204,538				4,603.2970				23,436				24.2900				12,227,974				4,627.5870
Redemptions - Limited Partners			(250,083,113	)			(96,292.8560	)			(429,173	)			(453.7020	)			(250,512,286	)			(96,746.5580	)
Partners’ Capital September 30, 2013		$	1,154,481,483				460,378.1048			$	15,760,318				17,094.1615			$	1,170,241,801				477,472.2663

See accompanying notes to financial statements.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

1.    General:

Orion Futures Fund L.P. (the “Partnership”), is a limited partnership organized on March 22, 1999, under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including futures contracts, options, swaps and forward contracts. The sectors traded include currencies, energy, grains, livestock, indices, U.S. and non-U.S. interest rates, softs and metals. The commodity interests that are traded by the Partnership and the Funds (as defined in Note 5, “Investment in Funds”) are volatile and involve a high degree of market risk. The Partnership commenced trading on June 10, 1999. The Partnership privately and continuously offers redeemable units of limited partnership interest (“Redeemable Units”) 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 wholly owned by Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”). MSSB 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. Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings, and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.

As of September 30, 2014, all trading decisions are made for the Partnership by Transtrend B.V. (“Transtrend”), Winton Capital Management Limited (“Winton”), AAA Capital Management Advisors, Ltd. (“AAA”) and Willowbridge Associates, Inc. (“Willowbridge”) (each an “Advisor” and, collectively, the “Advisors”), each of which is a registered commodity trading advisor. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors indirectly through investments in master funds. In addition, the General Partner may allocate the Partnership’s assets to additional non-major trading advisors (i.e., commodity trading advisors intended to be allocated less than 10% of the Partnership’s assets). Information about advisors allocated less than 10% of the Partnership’s assets may not be disclosed.

On June 1, 2011, the Partnership began offering “Class A” Redeemable Units and “Class Z” Redeemable Units pursuant to the offering memorandum. All Redeemable Units issued prior to June 1, 2011, were deemed Class A Redeemable Units. The rights, powers, duties and obligations associated with investment in Class A Redeemable Units were not changed. On August 1, 2011, Class Z Redeemable Units were first issued to certain employees of Morgan Stanley Smith Barney LLC (d/b/a Morgan Stanley Wealth Management) and its affiliates (and their family members). Class A Redeemable Units and Class Z Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Redeemable Units that a limited partner receives upon a subscription will generally depend upon the status of the limited partner, although the General Partner may determine to offer Redeemable Units to investors at its discretion.

During the nine months ended September 30, 2014, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. During prior periods included in this report, Citigroup Global Markets Inc. (“CGM”) also served as a commodity broker.

During the second quarter of 2013, CMF Winton Master L.P. (“Winton Master”) entered into a foreign exchange brokerage account agreement with MS&Co. During the third quarter of 2013, Winton Master also entered into a futures brokerage account agreement with MS&Co. Winton Master commenced foreign exchange trading through accounts at MS&Co. on or about May 1, 2013 and Winton Master commenced futures trading through an account at MS&Co. on or about July 22, 2013. During the third quarter of 2013, AAA Master LLC (“AAA Master”) entered into a futures brokerage account agreement with MS&Co. and commenced futures trading through an account at MS&Co. on or about September 9, 2013. Morgan Stanley Smith Barney TT II, LLC (“Transtrend Master”) has been party to a futures brokerage account agreement with MS&Co. and CMF Willowbridge Master Fund L.P. has been a party to a futures brokerage account agreement with MS&Co. since July 29, 2013. Effective October 29, 2013, the Partnership entered into a futures brokerage account agreement with MS&Co. and began transferring the brokerage account of the Partnership from CGM to MS&Co. As of October 29, 2013, the Partnership ceased paying a brokerage commission to CGM and began paying a brokerage commission to MS&Co. equal to (i) $18.00 per round-turn on futures transactions, up to an equivalent amount for swaps and $9.00 per side on options transactions for Class A Redeemable Units, and (ii) $3.00 per round-turn on futures transactions, up to an equivalent amount for swaps and $1.50 per side on options transactions for Class Z Redeemable Units. The brokerage commissions were inclusive of applicable floor brokerage fees. Also effective October 29, 2013, the Partnership entered into a selling agreement with Morgan Stanley Wealth Management.

Effective March 1, 2014, the Partnership entered into a new futures brokerage account agreement with MS&Co. and ceased paying brokerage commissions to MS&Co. Effective that same date, the Partnership terminated its existing selling agreement and entered into a new selling agreement with Morgan Stanley Wealth Management (the “Selling Agreement”). Pursuant to the Selling Agreement, Morgan Stanley Wealth Management receives a monthly selling agent fee, the amount of which is calculated by multiplying (i) the Partnership’s round turn futures transactions by $18.00 each, swaps by up to an equivalent amount and options transactions by $9.00 each per side for Class A Redeemable Units and (ii) the Partnership’s round turn futures transactions by $3.00 each, swaps by up to an equivalent amount and options transactions by $1.50 each per side for Class Z Redeemable Units. The ongoing selling agent fee amount is reduced by applicable floor brokerage. Morgan Stanley Wealth Management pays a portion of its ongoing selling agent fees to other properly licensed and/or registered selling agents and to financial advisers who have sold Redeemable Units in the Partnership.

Effective October 1, 2014, the monthly ongoing selling agent fee was (i) reduced from $18.00 each for round turn futures transactions and up to an equivalent amount for swaps to $15.00 each for round turn futures transactions and up to an equivalent amount for swaps, and from $9.00 each per side for options transactions to $7.50 each per side for options transactions, with respect to Class A Redeemable Units and (ii) eliminated for Class Z Redeemable Units. The ongoing selling agent fee amount continues to be reduced by applicable floor brokerage. As of the same date, the administrative fee was increased from an annual rate of 0.50% to an annual rate of 0.75%. The October 1, 2014 fee changes are not expected to have a materially adverse effect on the fees payable by the Partnership.

The Partnership, through its investment in the Funds, pays MS&Co. trading fees for the clearing and, where applicable, execution of transactions.

Certain prior period amounts have been reclassified to conform to current period presentation. Amounts reported separately on the Statements of Income and Expenses and Changes in Partners’ Capital as ongoing selling agent fees and clearing fees were previously combined and presented as brokerage commissions.

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 contribution and profits, if any, net of distributions and losses, if any.

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 statement of the Partnership’s financial condition at September 30, 2014 and December 31, 2013, and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 2014 and 2013. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2013.

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.

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.

In May 2013, the General Partner discovered an overstatement of brokerage commissions for the Partnership occurring during the period from June 2011 to March 2013 (the “Time Period”). As a result, the General Partner contributed the amount of the overstatement, $14,069,403, to the Partnership. This contribution was applied to current limited partners of the Partnership as well as former limited partners whose redemption proceeds were impacted by the overstatement. The Statements of Changes in Partners’ Capital reflects an allocation from the General Partner of $12,227,974 for the then current limited partners. The impact of the overstatement on the financial statements during the Time Period was not considered material.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

2.    Financial Highlights:

Changes in the net asset value per unit for each Class for the three and nine months ended September 30, 2014 and 2013 were as follows:

 

		Three Months Ended September 30, 2014								Three Months Ended September 30, 2013								Nine Months Ended September 30, 2014								Nine Months Ended September 30, 2013
		Class A				Class Z				Class A				Class Z				Class A				Class Z				Class A				Class Z
Net realized and unrealized gains (losses)1		$	101.07			$	41.39			$	(72.50	)		$	(23.99	)		$	221.03			$	91.27			$	(107.11	)		$	(26.16	)
Interest income			0.05				0.02				0.08				0.03				0.23				0.09				0.41				0.15
Expenses2			(32.54	)			(12.08	)			(13.67	)			(5.01	)			(71.59	)			(26.52	)			(42.08	)			(15.34	)
Increase (decrease) for the period			68.58				29.33				(86.09	)			(28.97	)			149.67				64.84				(148.78	)			(41.35	)
Net asset value per unit, beginning of period			2,733.32				1,012.86				2,593.77				950.94				2,652.23				977.35				2,656.46				963.32
Net asset value per unit, end of period		$	2,801.90			$	1,042.19			$	2,507.68			$	921.97			$	2,801.90			$	1,042.19			$	2,507.68			$	921.97

 

1

Includes ongoing selling agent fees and clearing fees. Net realized and unrealized gains (losses) excluding ongoing selling agent fees and clearing fees for the three months ended September 30, 2014 and 2013, and for the nine months ended September 30, 2014 and 2013, for Class A were $115.17, $(61.29), $255.92 and $(68.78), respectively. Net realized and unrealized gains (losses) excluding ongoing selling agent fees and clearing fees for the three months ended September 30, 2014 and 2013, and for the nine months ended September 30, 2014 and 2013, for Class Z were $42.77, $(22.47), $94.82 and $(25.23), respectively.

2

Excludes ongoing selling agent fees and clearing fees. Total expenses including ongoing selling agent fees and clearing fees for the three months ended September 30, 2014 and 2013, and for the nine months ended September 30, 2014 and 2013, for Class A were $(46.64), $(24.88), $(106.48) and $(80.41), respectively. Total expenses including ongoing selling agent fees and clearing fees for the three months ended September 30, 2014 and 2013, and for the nine months ended September 30, 2014 and 2013, for Class Z were $(13.46), $(6.53), $(30.07) and $(16.27), respectively.

 

		Three Months Ended September 30, 2014								Three Months Ended September 30, 2013								Nine Months Ended September 30, 2014								Nine Months Ended September 30, 2013
		Class A				Class Z				Class A				Class Z				Class A				Class Z				Class A				Class Z
Ratios to Average Net Assets:3
Net investment income (loss)			(4.7	)%			(3.7	)%			(3.9	)%			(2.8	)%			(4.9	)%			(4.3	)%			(4.2	)%			(2.3	)%
Incentive fees			0.7	%			0.8	%			—	%			—	%			1.2	%			1.4	%			—	%			—	%
Net investment loss before incentive fees4			(4.0	)%			(2.9	)%			(3.9	)%			(2.8	)%			(3.7	)%			(2.9	)%			(4.2	)%			(2.3	)%
Operating expense			4.0	%			2.9	%			4.0	%			2.8	%			3.7	%			2.9	%			4.2	%			2.3	%
Incentive fees			0.7	%			0.8	%			—	%			—	%			1.2	%			1.4	%			—	%			—	%
Total expenses			4.7	%			3.7	%			4.0	%			2.8	%			4.9	%			4.3	%			4.2	%			2.3	%
Total return:
Total return before incentive fees			3.2	%			3.7	%			(3.3	)%			(3.0	)%			6.8	%			8.0	%			(5.6	)%			(4.3	)%
Incentive fees			(0.7	)%			(0.8	)%			—	%			—	%			(1.2	)%			(1.4	)%			—	%			—	%
Total return after incentive fees			2.5	%			2.9	%			(3.3	)%			(3.0	)%			5.6	%			6.6	%			(5.6	)%			(4.3	)%

 

3	Annualized (other than incentive fees).

4	Interest income less total expenses.

The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner Classes using the limited partners’ share of income, expenses and average net assets.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

3.    Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. However, the Partnership’s investments are in other funds. The results of the Partnership’s trading activities resulting from its investments in the Funds are shown in the Statements of Income and Expenses.

The customer agreement among the Partnership, the Funds and MS&Co. gives, and the Customer Agreements between the Partnership and CGM and each of the Funds and CGM gave, the Partnership and the Funds the legal right to net unrealized gains and losses on open futures, exchange-cleared swaps and open forward contracts. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures, exchange-cleared swaps and open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210 - 20, “Balance Sheet,” have been met.

All commodity interests owned by the Funds are held for trading purposes.

Brokerage commissions previously paid to CGM and MS&Co. were, and selling agent fees paid to MS&Co are, based on the number of trades executed by the Advisors and the Partnership’s ownership of the Funds.

Trading and transaction fees are based on the number of trades executed by the Advisors and the Partnership’s ownership of the Funds.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

4.    Fair Value Measurements:

Partnership’s 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. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

Partnership’s and the Funds’ Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement falls in its entirety shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds’ Level 1 assets and liabilities are actively traded.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the markets become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnership’s and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation as well as the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required by GAAP.

On October 1, 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-04, “Technical Corrections and Improvements,” which makes minor technical corrections and clarifications to ASC 820, “Fair Value Measurements and Disclosures.” When the FASB issued Statement 157 (codified in ASC 820), it conformed the use of the term “fair value” in certain pre-codification standards but not others. ASU 2012-04 conforms the term’s use throughout the ASC “to fully reflect the fair value measurement and disclosure requirements” of ASC 820. ASU 2012-04 also amends the requirements that must be met for an investment company to qualify for the exemption from presenting a statement of cash flows. Specifically, it eliminates the requirements that substantially all of an entity’s investments be carried at “market value” and that the investments be highly liquid. Instead, it requires substantially all of the entity’s investments to be carried at “fair value” and classified as Level 1 or Level 2 measurements under ASC 820.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

The Partnership and the Funds consider prices for exchange-traded commodity futures, forward, swaps and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forward, swaps and certain options contracts, for which market quotations are not readily available, are priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (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 Partnership’s investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended September 30, 2014, and December 31, 2013, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). During the nine months ended September 30, 2014 and the twelve months ended December 31, 2013, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

		September 30, 2014				Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Investment in Funds		$	1,049,643,989			$	0			$	1,049,643,989			$	0
Net fair value		$	1,049,643,989			$	0			$	1,049,643,989			$	0
		December 31, 2013				Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Investment in Funds		$	1,181,894,789			$	0			$	1,181,894,789			$	0
Net fair value		$	1,181,894,789			$	0			$	1,181,894,789			$	0

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

5.    Investment in Funds:

On September 1, 2001, the assets allocated to AAA for trading were invested in AAA Master, a limited liability company organized under the limited liability company laws of the State of New York. The Partnership purchased 5,173.4381 units of AAA Master with cash equal to $5,173,438. AAA Master permits accounts managed by AAA using the Energy Program – Futures and Swaps, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the managing member of AAA Master. Individual and pooled accounts currently managed by AAA, including the Partnership, are permitted to be non-managing members of AAA Master. The General Partner and AAA believe that trading through this structure should promote efficiency and economy in the trading process.

On November 1, 2004, the assets allocated to Winton for trading were invested in Winton Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 35,389.8399 units of Winton Master with cash equal to $33,594,083 and a contribution of open commodity futures and forward contracts with a fair value of $1,795,757. Winton Master permits accounts managed by Winton using the Diversified Program as applied without equities, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Winton Master. Individual and pooled accounts currently managed by Winton, including the Partnership, are permitted to be limited partners of Winton Master. The General Partner and Winton believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Winton have agreed that Winton will trade the Partnership’s assets allocated to Winton at a level that is up to 1.5 times the amount of the assets allocated.

On June 1, 2011, the Partnership allocated a portion of its assets with cash equal to $384,370,435 to Transtrend Master, a limited liability company organized under the limited liability company laws of the State of Delaware. Transtrend Master permits accounts managed by Transtrend using the Diversified Trend Program-Enhanced Risk Profile (US Dollar), a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the trading manager of Transtrend Master. Individual and pooled accounts managed by Transtrend, including the Partnership are permitted to be non-managing members of Transtrend Master. The General Partner and Transtrend believe that trading through this structure should promote efficiency and economy in the trading process.

On August 1, 2014, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Master Fund L.P. (“Willowbridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 9,633.9313 units of Willowbridge Master with cash equal to $21,000,000. Willowbridge Master permits accounts managed by Willowbridge using its wPraxis Futures Trading Approach, a proprietary, discretionary trading system, to invest together using one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Willowbridge have agreed that Willowbridge will trade the Partnership’s assets at a level that is up to three times the amount of the assets allocated.

The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal quarter ended September 30, 2014.

AAA Master’s, Transtrend Master’s, Winton Master’s and Willowbridge Master’s (collectively, the “Funds”) trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges and foreign commodity exchanges. During the nine months ended September 30, 2014, the Funds engaged in such trading through commodity brokerage accounts maintained with MS&Co. During prior periods included in this report, certain of the Funds also engaged in such trading through commodity brokerage accounts maintained with CGM.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

A limited partner/non-managing member of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds in multiples of the net asset value per unit as of the end of any day (the “Redemption Date”) after a request has been made to the General Partner at least 3 days in advance of the Redemption Date. Such withdrawals are classified as a liability when the limited partner/non-managing member elects to redeem and informs the Funds.

Management, administrative and incentive fees are charged at the Partnership level, except for fees payable to Transtrend which are charged at the Transtrend Master level. All trading, exchange, clearing, user, give-up, and National Futures Association fees (collectively the “clearing fees”) are borne by the Funds and allocated to their limited partners/non-managing members, including the Partnership. All other fees are charged at the Partnership level.

At September 30, 2014, the Partnership owned approximately 48.9% of AAA Master, 96.6% of Transtrend Master, 68.3% of Winton Master and 33.2% of Willowbridge Master. At December 31, 2013, the Partnership owned approximately 48.1% of AAA Master, 95.1% of Transtrend Master and 67.3% of Winton Master. It is the Partnership’s intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.

Summarized information reflecting the total assets, liabilities and capital of the Funds are shown in the following tables.

 

		September 30, 2014
		Total Assets				Total Liabilities				Total Capital
AAA Master		$	366,918,505			$	15,066,350			$	351,852,155
Transtrend Master			450,025,157				6,549,861				443,475,296
Winton Master			610,247,441				10,411,061				599,836,380
Willowbridge Master			118,333,859				180,327				118,153,532
		December 31, 2013
		Total Assets				Total Liabilities				Total Capital
AAA Master		$	477,308,200			$	14,562,596			$	462,745,604
Transtrend Master			510,373,650				2,117,241				508,256,409
Winton Master			705,230,510				4,281,078				700,949,432

Summarized information reflecting the net investment income (loss), total trading results and net income (loss) of the Funds are shown in the following tables.

 

		For the three months ended September 30, 2014
		Net Investment Income (Loss)				Total Trading Results				Net income (loss)
AAA Master		$	(487,960	)		$	(7,372,341	)		$	(7,860,301	)
Transtrend Master			(7,955,935	)			38,585,921				30,629,986
Winton Master			(219,958	)			11,255,160				11,035,202
Willowbridge Master			(166,398	)			3,692,929				3,526,531
		For the nine months ended September 30, 2014
		Net Investment Income (Loss)				Total Trading Results				Net income (loss)
AAA Master		$	(938,300	)		$	(12,628,653	)		$	(13,566,953	)
Transtrend Master			(11,905,340	)			65,705,835				53,800,495
Winton Master			(623,336	)			56,938,229				56,314,893
Willowbridge Master			(379,676	)			2,654,368				2,274,692
		For the three months ended September 30, 2013
		Net Investment Income (Loss)				Total Trading Results				Net income (loss)
AAA Master		$	(660,061	)		$	(22,410,824	)		$	(23,070,885	)
Transtrend Master			(2,643,512	)			(14,467,982	)			(17,111,494	)
Winton Master			(190,181	)			(7,546,703	)			(7,736,884	)

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

		For the nine months ended September 30, 2013
		Net Investment Income (Loss)				Total Trading Results				Net income (loss)
AAA Master		$	(2,785,348	)		$	(70,511,331	)		$	(73,296,679	)
Transtrend Master			(8,199,723	)			(23,194,871	)			(31,394,594	)
Winton Master			(621,568	)			33,352,188				32,730,620

Summarized information reflecting the Partnership’s investments in, and the operations of, the Funds are as shown in the following tables.

 

		September 30, 2014								For the three months ended September 30, 2014
		% of Partnership’s Net Assets				Fair Value				Income (Loss)				Expenses								Management Fees				Incentive Fee				Net Income (Loss)				Investment Objective		Redemptions Permitted
Funds														Clearing Fees				Other
AAA Master			16.75	%		$	171,957,782			$	(3,618,897	)		$	222,965			$	23,037			$	—			$	—			$	(3,864,899	)		Energy Markets			Monthly
Transtrend Master			41.75	%			428,573,761				37,280,850				521,365				—				1,292,989				5,924,083				29,542,413			Commodity Portfolio			Monthly
Winton Master			39.93	%			409,930,175				7,651,557				143,434				19,176				—				—				7,488,947			Commodity Portfolio			Monthly
Willowbridge Master			3.82	%			39,182,271				1,556,977				23,890				4,897				—				—				1,528,190			Commodity Portfolio			Monthly
Total						$	1,049,643,989			$	42,870,487			$	911,654			$	47,110			$	1,292,989			$	5,924,083			$	34,694,651
		September 30, 2014								For the nine months ended September 30, 2014
		% of Partnership’s Net Assets				Fair Value				Income (Loss)				Expenses								Management Fees				Incentive Fee				Net Income (Loss)				Investment Objective		Redemptions Permitted
Funds														Clearing Fees				Other
AAA Master			16.75	%		$	171,957,782			$	(6,333,981	)		$	348,982			$	133,835			$	—			$	—			$	(6,816,798	)		Energy Markets			Monthly
Transtrend Master			41.75	%			428,573,761				63,552,175				1,506,362				—				4,040,595				5,924,083				52,081,135			Commodity Portfolio			Monthly
Winton Master			39.93	%			409,930,175				39,221,529				434,273				54,069				—				—				38,733,187			Commodity Portfolio			Monthly
Willowbridge Master			3.82	%			39,182,271				1,556,977				23,890				4,897				—				—				1,528,190			Commodity Portfolio			Monthly
Total						$	1,049,643,989			$	97,996,700			$	2,313,507			$	192,801			$	4,040,595			$	5,924,083			$	85,525,714

 

		December 31, 2013								For the three months ended September 30, 2013
		% of Partnership’s Net Assets				Fair Value				Income (Loss)				Expenses								Management Fees				Net Income (Loss)				Investment Objective				Redemptions Permitted
Funds														Clearing Fees				Other
AAA Master			19.96	%		$	222,758,285			$	(11,569,727	)		$	312,906			$	38,155			$	—			$	(11,920,788	)			Energy Markets				Monthly
Transtrend Master			43.41	%			484,523,274				(13,654,974	)			394,495				—				2,074,335				(16,123,804	)			Commodity Portfolio				Monthly
Winton Master			42.53	%			474,613,230				(4,974,286	)			134,335				13,428				—				(5,122,049	)			Commodity Portfolio				Monthly
Total						$	1,181,894,789			$	(30,198,987	)		$	841,736			$	51,583			$	2,074,335			$	(33,166,641	)
		December 31, 2013								For the nine months ended September 30, 2013
		% of Partnership’s Net Assets				Fair Value				Income (Loss)				Expenses								Management Fees				Net Income (Loss)				Investment Objective				Redemptions Permitted
Funds														Clearing Fees				Other
AAA Master			19.96	%		$	222,758,285			$	(34,369,305	)		$	1,311,144			$	141,694			$	—			$	(35,822,143	)			Energy Markets				Monthly
Transtrend Master			43.41	%			484,523,274				(21,881,797	)			1,400,008				—				6,248,110				(29,529,915	)			Commodity Portfolio				Monthly
Winton Master			42.53	%			474,613,230				23,236,557				469,654				70,202				—				22,696,701				Commodity Portfolio				Monthly
Total						$	1,181,894,789			$	(33,014,545	)		$	3,180,806			$	211,896			$	6,248,110			$	(42,655,357	)

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

6.    Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forwards, options and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying on option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those 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. The General Partner estimates that at any given time approximately 18.4% to 25.3% of the Fund’s contracts are traded OTC.

The risk to the limited partners that have purchased Redeemable Units is limited to the amount of their share of the Partnership’s net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

Market risk is the potential for changes in the value of the financial instruments traded by the 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 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’s/Funds’ risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnership’s/Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds had credit risk and concentration risk during the reporting period and prior periods included in this report, as MS&Co. and/or CGM or their affiliates were the sole counterparties or brokers with respect to the Partnership’s and the Funds’ assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through MS&Co. or CGM, the Partnership’s/Funds’ counterparty is an exchange or clearing organization. The Partnership/Funds continue to be subject to such risks with respect to MS&Co.

As both a buyer and seller of options, the Funds pay or receive a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the 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 Funds do not consider these contracts to be guarantees.

Management monitors and attempts to control the Partnership’s/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 management to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, exchange-cleared swaps, forwards and options contracts by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Funds’ businesses, these instruments may not be held to maturity.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

7.    Critical Accounting Policies:

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with 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.

Partnership’s 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 the trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

Partnership’s and the Funds’ Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. Management has concluded that based on available information in the marketplace, the Funds’ Level 1 assets and liabilities are actively traded.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the markets become inactive. Management has concluded that based on available information in the marketplace, there has not been a significant decrease in the volume and level of activity in the Partnership’s and the Funds’ Level 2 assets and liabilities.

The Partnership and the Funds will separately present purchases, sales, issuances and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation as well as the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

The Partnership and the Funds consider prices for exchange-traded commodity futures, forwards, swaps and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2). Investments in funds (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 Partnership’s investments in the Funds reflects its proportional interest in the Funds. As of and for the periods ended September 30, 2014 and December 31, 2013, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the management’s assumptions and internal valuation pricing models (Level 3). During the nine months ended September 30, 2014, and the twelve months ended December 31, 2013, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

Futures Contracts. The Funds trade futures contracts and exchange-cleared swaps. Exchange-cleared swaps are 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 cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the 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 Funds. When the contract is closed, 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. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses.

Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed-upon future date. Forward foreign currency contracts are valued daily, and the Funds’ net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses.

The Funds do not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations due to changes in market prices of investments held. Such fluctuations are included in net income (loss) 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 Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by 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 Funds. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the 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. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and changes in net unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses.

Options. The Funds may purchase and write (sell) both exchange-listed and OTC options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchase an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses.

Ongoing Selling Agent Fees. Ongoing selling agent fees to open and close futures and exchange-cleared swap contracts were expensed at the time the positions were opened. Ongoing selling agent fees on option contracts were expensed at the time the position was established and when the option contract was closed.

Investment Company Status. Effective January 1, 2014, the Partnership adopted, ASU (“ASU 2013-08”), “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements.” ASU 2013-08 changes the approach to the investment company assessment, requires non-controlling ownership interests in other investment companies to be measured at fair value, and requires additional disclosures about the investment company’s status as an investment company. ASU 2013-08 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of this ASU did not have a material impact on the Partnership’s financial statements. Based on management’s assessment, the Partnership has been deemed to be an investment company since inception. It has all of the fundamental and typical characteristics of an investment company.

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses.

 

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Orion Futures Fund L.P.

Notes to Financial Statements

September 30, 2014

(Unaudited)

 

GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner concluded that no provision for income tax is required in the Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2010 through 2013 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Net income (loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, “Financial Highlights.”

Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are issued. The General Partner has assessed the subsequent events through the date of issuance and determined that, other than as referenced in Note 1 to the financial statements, there were no subsequent events requiring adjustment of or disclosure in the financial statements.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are its investments in the (i) Funds, (ii) equity in its trading account, consisting of cash and (iii) interest receivable. The Funds’ only assets are their equity in trading accounts, consisting of cash and cash margin, net unrealized appreciation on open futures contracts, net unrealized appreciation on forward contracts and commodity options purchased, if applicable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investments in the Funds. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the third quarter of 2014.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income, subscriptions and redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2014, Partnership capital decreased 8.0% from $1,116,054,454 to $1,026,563,678. This decrease was attributable to redemptions of 72,844.6880 Class A Redeemable Units totaling $194,871,585, redemptions of 284.9240 Class Z Redeemable Units totaling $285,813 and redemptions of 3,393.9220 General Partner Unit equivalents totaling $3,514,911, which were partially offset by net income of $56,553,218 coupled with subscriptions of 19,692.4240 Class A Redeemable Units totaling $52,507,115 and subscriptions of 126.9820 Class Z Redeemable Units totaling $121,200. Future redemptions can impact the amount of funds available for investment in the Funds in subsequent periods.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. The General Partner believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 7 of the Financial Statements.

The Partnership/Funds records all investments at fair value in their financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses.

Results of Operations

During the Partnership’s third quarter of 2014, the net asset value per unit for Class A increased 2.5% from $2,733.32 to $2,801.90, as compared to a decrease of 3.3% in the third quarter of 2013. During the Partnership’s third quarter of 2014, the net asset value per unit for Class Z increased 2.9% from $1,012.86 to $1,042.19, as compared to a decrease of 3.0% in the third quarter of 2013. The Partnership experienced a net trading gain before fees and expenses in the third quarter of 2014 of $42,850,969. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, energy, grains, non-U.S. interest rates, metals and softs and were partially offset by losses in U.S. interest rates, livestock and indices. The Partnership experienced a net trading loss before fees and expenses in the third quarter of 2013 of $30,234,012. Losses were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, energy, non-U.S. interest rates, metals and softs and were partially offset by gains in grains, U.S. interest rates, indices and livestock.

Trading results in the currencies were relatively flat for the quarter and had no material impact on the Fund’s performance. The most significant gains were achieved within the global interest rate sector, primarily during August, from long positions in European fixed income futures as prices advanced after reports showed euro-area manufacturing output expanded less than expected during July, boosting speculation the European Central Bank would increase stimulus measures. Additional gains were recorded during August from long positions in British fixed income futures as investors speculated that interest rates were rising at a slower pace than previously estimated in the U.K. Within the metals sector, gains were recorded during September from short positions in silver and gold futures as prices declined as a strengthening U.S. dollar eroded investor demand for the precious metals. Within the agricultural markets, gains were achieved from short positions in corn and wheat futures during September as favorable growing conditions in the U.S. Midwest reinforced analysts’ predictions that U.S. farms are heading for record crop harvests in 2014. Additional gains in this sector were recorded during August and September from short positions in sugar futures as prices moved lower as bumper crops in Thailand and India added to a growing global supply glut. Within the energies sector, gains were experienced, primarily during September, from short positions in heating oil and gasoil futures as prices moved lower on news that fuel inventory levels were higher than previous estimates predicted during the third quarter. A portion of the Partnership’s gains for the quarter was offset by losses incurred within the global stock index sector during September from long positions in U.S. and Asian equity index futures as weak economic growth in Asia and declining consumer confidence levels in the U.S. moved prices lower. Additional losses were incurred during July from long positions in European and U.S. equity index futures as prices declined as U.S. and European leaders threatened tougher sanctions against Russia over its suspected role in the shooting down of a Malaysian airliner in Ukrainian airspace.

        During the Partnership’s nine months ended September 30, 2014, the net asset value per unit for Class A increased 5.6% from $2,652.23 to $2,801.90, as compared to a decrease of 5.6% during the nine months ended September 30, 2013. During the Partnership’s nine months ended September 30, 2014, the net asset value per unit for Class Z increased 6.6% from $977.35 to $1,042.19, as compared to a decrease of 4.3% during the nine months ended September 30, 2013. The Partnership experienced a net trading gain before fees and expenses for the nine months ended September 30, 2014 of $97,901,696. Gains were primarily attributable to the Partnership’s/Funds trading of commodity futures in currencies, grains, non-U.S. interest rates, livestock and softs and were partially offset by losses in energy, U.S. interest rates, metals and indices. The Partnership experienced a net trading loss before fees and expenses for the nine months ended September 30, 2013 of $33,224,524. Losses were primarily attributable to the Partnership’s/Funds trading of commodity futures in currencies, energy, U.S and non-U.S. interest rates and were partially offset by gains in grains, indices, livestock, metals and softs.

Trading results in the energy sector were relatively flat for the first nine months of the year and had no material impact on the Fund’s performance. The most significant gains were achieved within the global interest rate sector during August from long positions in European fixed income futures as prices advanced after reports showed euro-area manufacturing output expanded less than expected during July, boosting speculation the European Central Bank would increase stimulus measures. Gains were also recorded during May from long positions in European fixed income futures as prices advanced as German unemployment unexpectedly increased and euro-area lending contracted, boosting demand for the relative “safety” of government debt. Additional gains in the fixed income sector were recorded during January from long positions in European fixed income futures as prices moved higher amid concerns of economic stability in emerging market economies which boosted demand for safer assets. Within the agricultural sector, gains were experienced during April from long positions in soybean and soybean meal futures as prices rallied after a U.S. Department of Agriculture forecast predicted near record level demand for U.S. crops. Additional gains were achieved during September from short positions in wheat futures as favorable growing conditions in the U.S. Midwest reinforced analysts’ predictions that U.S. farms are heading for record crop harvests in 2014. Within the currency sector, gains were recorded during August from short positions in the euro versus the U.S. dollar as the relative value of the dollar rallied as strong economic data in the U.S. increased investor speculation the Federal Reserve will raise interest rates as early as next year. The Partnership’s gains for the first nine months of the year were partially offset by losses incurred within the metals sector during June from short positions in gold and silver futures as prices rallied as increased turmoil in the Ukraine and Iraq spurred investors to the relative safety of the precious metals. Within the global stock index markets, losses were incurred primarily during January from long positions in U.S., European, and Asian equity index futures as prices declined as economic growth momentum in China weakened and the U.S. Federal Reserve announced measures to further taper its quantitative easing program. Additional losses in this sector were experienced during September from long positions in U.S. and Asian equity index futures as weak economic growth in Asia and declining consumer confidence levels in the U.S. moved prices lower.

 

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Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increases the risks involved in commodity trading, but also increase the possibility for profit. The profitability of the Partnership/Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Partnership/Funds expects to increase capital through operations.

Interest income on 100% of the average daily equity maintained in cash in the Partnership’s (or the allocable portion of the AAA Master’s, Winton Master’s and Willowbridge Master’s) brokerage account during each month was earned at a 30-day U.S. Treasury bill rate determined weekly 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 was determined or at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate, as applicable. MS&Co. credits Transtrend Master on 100% of the average daily equity maintained in cash in Transtrend Master Fund’s account during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month. Interest income earned by the Partnership for the three and nine months ended September 30, 2014 decreased by $15,537 and $115,141, respectively, as compared to the corresponding periods in 2013. The decrease in interest income was primarily due to lower average daily equity and lower U.S. Treasury bill rates during the three and nine months ended September 30, 2014, as compared to the corresponding periods in 2013. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnership’s and the Funds’ accounts and upon interest rates over which neither the Partnership/Funds nor CGM/MS&Co. has control.

Ongoing selling agent fees are based on the number of trades executed by the Advisors. Accordingly, they must be compared in relation to the number of trades executed during the period. Ongoing selling agent fees for the three and nine months ended September 30, 2014 decreased by $260,163 and $5,009,110, respectively, as compared to the corresponding periods in 2013. The decrease in ongoing selling agent fees is primarily due to a decrease in the number of trades during the three and nine months ended September 30, 2014, as compared to the corresponding periods in 2013.

Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees for the three months ended September 30, 2014 increased by $69,919 and for the nine months ended September 30, 2014 decreased by $867,298, as compared to the corresponding periods in 2013. This increase in clearing fees during the three months ended September 30, 2014 is primarily due to an increase in the number of trades during the period, while the decrease during the nine months ended September 30, 2014 was due to a decrease in the number of trades during the period, as compared to the corresponding periods in 2013.

 

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Management fees, except fees payable to Transtrend, are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees payable to Transtrend are charged at the Transtrend Master level and are affected by trading performance, subscriptions and redemptions of Transtrend Master. Management fees for the three and nine months ended September 30, 2014 decreased by $1,336,835 and $4,532,384, respectively, as compared to the corresponding periods in 2013. The decrease in management fees is due to lower average adjusted net assets during the three and nine months ended September 30, 2014, as compared to the corresponding periods in 2013.

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 Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Administrative fees for the three and nine months ended September 30, 2014 decreased by $242,057 and $909,487, respectively, as compared to the corresponding periods in 2013. The decrease in administrative fees is due to lower average adjusted net assets during the three and nine months ended September 30, 2014, as compared to the corresponding periods in 2013.

Incentive fees paid by the Partnership are based on the new trading profits generated by each Advisor at the end of the quarter, as defined in the respective management agreement among the Partnership, the General Partner and each Advisor. Trading performance for the three and nine months ended September 30, 2014 resulted in incentive fees of $7,145,910 and $12,203,793, respectively. There were no incentive fees earned for the three and nine months ended September 30, 2013.

In allocating the assets of the Partnership among the trading Advisors, the General Partner considers each Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among trading advisors and may allocate assets to additional advisors at any time.

As of September 30, 2014 and June 30, 2014, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages:

 

Advisor		September 30, 2014				September 30, 2014				June 30, 2014				June 30, 2014
AAA Capital Management Advisors, Ltd.		$	171,008,647				17	%		$	192,261,349				18	%
Transtrend B.V.		$	416,576,986				39	%		$	421,676,770				41	%
Winton Capital Management Limited		$	400,212,913				40	%		$	422,276,830				41	%
Willowbridge Associates, Inc.		$	38,765,132				4	%

 

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Partnership/Funds are speculative commodity pools. The market sensitive instruments held by the Partnership/Funds are acquired for speculative trading purposes, and all or substantially all of the Partnership’s/Funds’ assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership’s/Funds’ main line of business.

The limited partners will not be liable for losses exceeding the current net asset value of their investment.

Market movements result in frequent changes in the fair value of the Partnership’s/Funds’ open contracts and, consequently, in their earnings and cash balances. The Partnership’s/Funds’ market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s/Funds’ open contracts and the liquidity of the markets in which they trade.

The Partnership/Funds rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnership’s/Funds’ past performances are not necessarily indicative of their future results.

“Value at Risk” is a measure of the maximum amount which the Partnership/Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s/Funds’ speculative trading and the recurrence in the markets traded by the Partnership/Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership’s/Funds’ experience to date (i.e., “risk of ruin”). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnership’s/Funds’ losses in any market sector will be limited to Value at Risk or by the Partnership’s/Funds’ attempts to manage their market risk.

Exchange margin requirements have been used by the Partnership/Funds as the measure of their Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors currently trade the Partnership’s assets indirectly in master fund managed accounts established in the name of the master funds over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investments in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by each Fund separately. There has been no material change in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category, through its investment in Funds, as of September 30, 2014, and December 31, 2013. As of September 30, 2014, the Partnership’s total capitalization was $1,026,563,678.

September 30, 2014

 

Market Sector		Value at Risk				% of Total Capitalization
Commodity		$	50,114,546				4.88	%
Currencies			51,567,836				5.02	%
Equities			38,488,703				3.75	%
Interest Rates			30,970,687				3.02	%
Total		$	171,141,772				16.67	%

 

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As of December 31, 2013, the Partnership’s total capitalization was $1,116,054,454.

December 31, 2013

 

Market Sector		Value at Risk				% of Total Capitalization
Commodity		$	59,572,508				5.34	%
Currencies			61,223,862				5.49	%
Indices			42,067,207				3.77	%
Interest Rates			17,100,894				1.53	%
Total		$	179,964,471				16.13	%

The following tables indicate the trading Value at Risk associated with the Partnership’s investments in the Funds by market category as of September 30, 2014 and December 31, 2013, and the highest, lowest and average value at any point during the three months ended September 30, 2014 and for the twelve months ended December 31, 2013. All open positions trading risk exposures have been included in calculating the figures set forth below.

As of September 30, 2014, AAA Master’s total capitalization was $351,852,155. The Partnership owned approximately 48.9% of AAA Master. As of September 30, 2014, AAA Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to AAA for trading) was as follows:

September 30, 2014

 

										Three months ended September 30, 2014
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Energy		$	25,244,293				7.17	%		$	28,036,788			$	19,741,342			$	26,704,046
Total		$	25,244,293				7.17	%

 

*	Average of month-end Values at Risk.

As of December 31, 2013, AAA Master’s total capitalization was $462,745,604. The Partnership owned approximately 48.1% of AAA Master. As of December 31, 2013, AAA Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to AAA for trading) was as follows:

December 31, 2013

 

										Twelve months ended December 31, 2013
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Energy		$	27,869,465				6.02	%		$	79,359,618			$	22,538,703			$	39,574,084
Total		$	27,869,465				6.02	%

 

*	Annual average of month-end Values at Risk.

 

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As of September 30, 2014, Winton Master’s total capitalization was $599,836,380. The Partnership owned approximately 68.3% of Winton Master. As of September 30, 2014, Winton Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Winton for trading) was as follows:

September 30, 2014

 

										Three months ended September 30, 2014
Market Sector		Value at Risk				% of  Total Capitalization				High Value at  Risk				Low Value at  Risk				Average Value at  Risk*
Currencies		$	44,393,957				7.40	%		$	46,206,758			$	39,273,456			$	43,701,292
Energy			5,660,091				0.94	%			5,660,091				2,948,878				4,678,506
Grains			4,205,890				0.70	%			5,125,342				3,943,543				4,595,554
Indices			33,242,011				5.54	%			37,510,960				26,319,539				33,413,147
Interest Rates U.S.			9,928,139				1.66	%			13,373,014				9,550,564				11,450,947
Interest Rates Non-U.S.			15,570,661				2.60	%			15,570,661				13,959,190				14,920,483
Livestock			675,840				0.11	%			743,160				578,655				652,153
Metals			10,026,791				1.67	%			10,026,791				5,014,250				7,011,836
Softs			1,185,140				0.20	%			1,951,338				1,135,915				1,516,468
Total		$	124,888,520				20.82	%

 

*	Average of month-end Values at Risk.

As of December 31, 2013, Winton Master’s total capitalization was $700,949,432. The Partnership owned approximately 67.3% of Winton Master. As of December 31, 2013, Winton’s Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Winton for trading) was as follows:

December 31, 2013

 

										Twelve months ended December 31, 2013
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Currencies		$	40,074,908				5.72	%		$	53,282,510			$	9,219,914			$	35,805,300
Energy			2,872,198				0.41	%			6,779,740				1,102,060				3,240,209
Grains			5,279,340				0.75	%			5,815,140				132,268				4,554,349
Indices			38,072,737				5.43	%			38,378,719				15,347,959				31,596,652
Interest Rates U.S.			4,620,256				0.66	%			15,396,649				589,442				4,984,234
Interest Rates Non-U.S.			7,956,794				1.14	%			15,292,772				3,303,641				8,302,908
Livestock			421,487				0.06	%			673,961				306,526				434,267
Metals			7,063,365				1.01	%			15,870,129				3,251,406				8,046,324
Softs			1,503,158				0.21	%			2,445,348				1,145,513				1,855,849
Total		$	107,864,243				15.39	%

 

*	Annual average of month-end Values at Risk.

 

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As of September 30, 2014, Transtrend Master’s total capitalization was $443,475,296. The Partnership owned approximately 96.6% of Transtrend Master. As of September 30, 2014, Transtrend Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Transtrend for trading) was as follows:

September 30, 2014

 

										Three months ended September 30, 2014
Market Sector		Value at Risk				% of Total Capitalization				High Value at  Risk				Low Value at  Risk				Average Value at  Risk*
Commodity		$	23,405,404				5.28	%		$	23,821,522			$	19,108,518			$	21,391,203
Currencies			20,946,119				4.72	%			43,738,616				17,675,583				29,145,931
Equities			16,374,380				3.69	%			23,852,304				5,875,439				16,776,978
Interest Rates			13,040,964				2.94	%			17,228,800				11,296,180				14,078,676
Total		$	73,766,867				16.63	%

 

*	Average of month-end Values at Risk.

As of December 31, 2013, Transtrend Master’s total capitalization was $508,256,409. The Partnership owned 95.1% of Transtrend Master. As of December 31, 2013, Transtrend Master’s Value at Risk for its assets (including the portion of the Partnerships’s assets allocated to Transtrend for trading) was as follows:

December 31, 2013

 

										Twelve months ended December 31, 2013
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Commodity		$	36,416,803				7.17	%		$	41,246,716			$	14,327,064			$	24,069,926
Currencies			36,018,348				7.09	%			37,638,813				5,474,243				17,624,769
Interest Rates			9,081,535				1.79	%			25,815,930				3,277,243				11,818,184
Equity			17,291,541				3.40	%			29,020,570				6,586,655				16,916,915
Total		$	98,808,227				19.45	%

 

*	Annual average of month-end Values at Risk.

 

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As of September 30, 2014, Willowbridge Master’s total capitalization was $118,153,532. The Partnership owned approximately 33.2% of Willowbridge Master. As of September 30, 2014, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

September 30, 2014

 

										Three months ended September 30, 2014
Market Sector		Value at Risk				% of Total Capitalization				High Value at  Risk				Low Value at  Risk				Average Value at  Risk*
Currencies		$	3,184,358				2.70	%		$	9,184,633			$	12,311			$	4,789,533
Energy			977,130				0.83	%			1,407,351				188,567				382,054
Interest Rates U.S.			1,485,356				1.26	%			5,476,741				652,776				2,669,265
Interest Rates Non-U.S.			1,475,288				1.24	%			2,138,186				493,906				1,152,574
Total		$	7,122,132				6.03	%

 

*	Average of month-end Values at Risk.

 

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Item 4.    Controls and Procedures

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (the “CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2014, and, based on that evaluation, the General Partner’s President and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:

 

•

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

 

•

provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and

 

•

provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over the financial reporting process during the fiscal quarter ended September 30, 2014, that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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Part II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

There are no material legal proceedings pending against the Partnership nor the General Partner.

The following information supplements and amends the discussion set forth under Part I, Item 3 “Legal Proceedings” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as updated by the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014.

On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC.

MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the Securities and Exchange Commission as required by the Exchange Act, which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, please refer to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for 2013, 2012, 2011, 2010, and 2009.

In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.

MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of NFA.

On May 7, 2009, MS&Co. was named as a defendant in a purported class action lawsuit brought under Sections 11, 12 and 15 of the Securities Act of 1933, as amended, which is now styled In re Morgan Stanley Mortgage Pass-Through Certificates Litigation and is pending in the United States District Court for the Southern District of New York (“SDNY”). The third amended complaint, filed on September 30, 2011, alleges, among other things, that the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 contained false and misleading information concerning the pools of

 

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residential loans that backed these securitizations. The plaintiffs seek, among other relief, class certification, unspecified compensatory and rescissionary damages, costs, interest and fees. On July 22, 2014, the parties reached an agreement in principle to settle the litigation. The settlement is subject to approval by the court, which has set a final approval hearing for December 18, 2014.

On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and an affiliate and other defendants in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On October 18, 2010, defendants filed a motion to dismiss the action. By orders dated June 23, 2011 and July 18, 2011, the court denied defendants’ omnibus motion to dismiss plaintiff’s amended complaint and on August 15, 2011, the court denied MS&Co.’s individual motion to dismiss the amended complaint. At June 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $54 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss for this action up to the difference between the $54 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co. and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiff’s purchase of such certificates. On August 11, 2011, plaintiff’s Securities Act of 1933, as amended, claims were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On February 9, 2012, defendants’ demurrers with respect to all other claims were overruled. On December 20, 2013, plaintiff’s negligent misrepresentation claims were dismissed with prejudice. A bellwether trial is currently scheduled to begin in January 2015. MS&Co. is not a defendant in connection with the securitizations at issue in that trial. On May 23, 2014, plaintiff and the defendants in the bellwether trial filed motions for summary adjudication, which were denied. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $291 million, and the certificates had incurred actual losses of approximately $6 million. Based on currently available information, MS&Co. believes it could incur a loss for this

 

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action up to the difference between the $291 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co. and its affiliates and other defendants in the Circuit Court of the State of Illinois styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. The complaint alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. and/or its affiliates in this action was approximately $203 million. The complaint raises claims under Illinois law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On March 24, 2011, the court granted plaintiff leave to file an amended complaint. MS&Co. and its affiliates filed an answer on December 21, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $55 million and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $55 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. and certain of its affiliates in the Supreme Court of NY, styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to plaintiffs by MS&Co. and/or its affiliates was approximately $104 million. The complaint raises common law claims of fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with plaintiffs’ purchases of such certificates. On March 15, 2013, the court denied in substantial part the defendants’ motion to dismiss the amended complaint, which order MS&Co. and its affiliates appealed on April 11, 2013. On May 3, 2013, MS&Co. and its affiliates filed an answer to the amended complaint. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $82 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $82 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to an offset for interest received by the plaintiff prior to a judgment.

 

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On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against MS&Co. and certain affiliates and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by MS&Co. and/or its affiliates was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs’ purchases of such certificates. MS&Co. and its affiliates filed an answer on August 17, 2012. Trial is currently scheduled to begin in July 2015. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $111 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $111 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to an offset for interest received by the plaintiff prior to a judgment.

On November 4, 2011, the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Franklin Bank S.S.B., filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation, as Receiver for Franklin Bank S.S.B. v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to the plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. The complaints each raised claims under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiff’s purchase of such certificates. On March 20, 2012, MS&Co. filed answers to the complaints in both cases. On June 7, 2012, the two cases were consolidated. On January 10, 2013, MS&Co. filed a motion for summary judgment and special exceptions with respect to plaintiff’s claims. On February 6, 2013, the FDIC filed an amended consolidated complaint. On February 25, 2013, MS&Co. filed a motion for summary judgment and special exceptions, which motion was denied in substantial part on April 26, 2013. On May 3, 2013, the FDIC filed a second amended consolidated complaint. On October 7, 2014, the court denied MS&Co.’s motion for reconsideration of the court’s order denying its motion for summary judgment and granted its motion for reconsideration of the court’s order denying permission for interlocutory appeal. On October 22, 2014, MS&Co. filed a petition for permissive interlocutory appeal with the appellate court. Trial is currently scheduled to begin in March 2015. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $44 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $44 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

 

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On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Superior Court of the State of New Jersey styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. The complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. is approximately $1 billion. The complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud and tortious interference with contract and seeks, among other things, compensatory damages, punitive damages, rescission and rescissionary damages associated with plaintiffs’ purchases of such certificates. On October 16, 2012, plaintiffs filed an amended complaint which, among other things, increases the total amount of the certificates at issue by approximately $80 million, adds causes of action for fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey Racketeer Influenced and Corrupt Organizations Act, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants’ motion to dismiss the amended complaint. On April 26, 2013, the defendants filed an answer to the amended complaint. On June 5, 2014, the defendants filed a renewed motion to dismiss the amended complaint. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $613 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $613 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against MS&Co. and certain affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 19, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co. and/or its affiliates or sold to plaintiff by MS&Co. and/or its affiliates was approximately $385 million. The amended complaint raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October 11, 2012, defendants filed motions to dismiss the amended complaint, which was granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. Plaintiff voluntarily dismissed its claims against MS&Co. and its affiliates with respect to two of the securitizations at issue. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $66 million, and the certificates had

 

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not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $66 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. and/or its affiliates to plaintiff was approximately $141 million. The complaint alleges causes of action against MS&Co. and its affiliates for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On April 22, 2014, the defendants’ motion to dismiss was denied in substantial part. On August 29, 2014, the defendants filed an answer to the complaint, and on September 18, 2014, the defendants filed a notice of appeal from the ruling denying their motion to dismiss. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $73 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $73 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs.

On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint against MS&Co., certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. and/or its affiliates to plaintiff was approximately $694 million. The complaint alleges causes of action against MS&Co. and its affiliates for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court denied defendants’ motion to dismiss. On July 10, 2014, MS&Co. and its affiliates filed a renewed motion to dismiss with respect to two certificates at issue in the case. On October 13, 2014, MS&Co. filed its answer to the complaint. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $300 million, and the certificates had incurred actual losses of approximately $78 million. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $300 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses.

 

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On September 23, 2013, plaintiffs in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the United States District Court for the Southern District of New York. The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to plaintiffs of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. and/or its affiliates to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. and its affiliates for violations of Section 11 and Section 12(a)(2) of the Securities Act of 1933, as amended, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissionary and compensatory damages. The defendants filed a motion to dismiss the complaint on November 13, 2013. On January 22, 2014, the court granted defendants’ motion to dismiss with respect to claims arising under the Securities Act of 1933, as amended, and denied defendants’ motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On April 28, 2014, the court granted in part and denied in part plaintiff’s motion to strike certain of the defendants’ affirmative defenses. On July 11, 2014, the defendants filed a motion for reconsideration of the court’s order on the motion to dismiss the complaint or, in the alternative, for certification of interlocutory appeal and a stay of all proceedings, which was denied on September 30, 2014. At September 25, 2014, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $211 million, and the certificates had incurred actual losses of approximately $27 million. Based on currently available information, MS&Co. believes it and/or its affiliates could incur a loss in this action up to the difference between the $211 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co. and/or its affiliates, or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. and/or its affiliates may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co., as a major futures commission merchant, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co. may establish reserves from time to time in connections with such actions.

 

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Item 1A.    Risk Factors.

There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 as updated by the Partnership’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014.

 

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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

For the three months ended September 30, 2014, there were subscriptions of 5,811.5330 Class A Redeemable Units totaling $15,857,067, and no subscriptions of Class Z Redeemable Units. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder. These Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

Proceeds of net offering were used in the trading of commodity interests including futures, options, forwards and exchange-cleared swap contracts.

The following chart sets forth the purchases of Redeemable Units for each Class by the Partnership.

 

Period		Class A (a) Total Number of Redeemable Units Purchased*				Class A (b) Average Price Paid per Redeemable Unit**				Class Z (a) Total Number of Redeemable Units Purchased*				Class Z (b) Average Price Paid Per Redeemable Unit*				(c) Total Number of Redeemable Units Purchased as Part of Publicly Announced Plans or Programs				(d) Maximum Number (or Approximate Dollar Value) of Redeemable Units that May Yet Be Purchased Under the Plans or Programs
July 1, 2014 – July 31, 2014			6,541.9130			$	2,672.56				—			$	991.28				N/A				N/A
August 1, 2014 – August 31, 2014			5,328.9640			$	2,765.29				—			$	1,026.99				N/A				N/A
September 1, 2014 – September 30, 2014			5,385.4420			$	2,801.90				103.8410			$	1,042.19				N/A				N/A
			17,256.3190			$	2,741.56				103.8410			$	1,042.19

* Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners.

** Redemptions of Redeemable Units are effected as of the end of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions.

 

Item	3.    Defaults Upon Senior Securities — None.

 

Item	4.    Mine Safety Disclosures — Not Applicable.

 

Item	5.    Other Information — None.

 

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Item 6.    Exhibits

 

3.1				Fourth Amended and Restated Limited Partnership Agreement, dated August 31, 2012 (filed as Exhibit 3.2 to the current report on Form 8-K filed on September 5, 2012 and incorporated herein by reference).
3.2		(a)		Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of the State of New York (filed as Exhibit 3.(I) to the general form for registration of securities on Form 10 filed on May 1, 2003 and incorporated herein by reference).
		(b)		1st Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated April 3, 2001 (filed as Exhibit 3.(I) to the general form for registration of securities on Form 10 filed on May 1, 2003 and incorporated herein by reference).
		(c)		2nd Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 3.2(b) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
		(d)		3rd Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.2(c) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
		(e)		4th Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated August 27, 2008 (filed as Exhibit 99.1 to the current report on Form 8-K filed on September 2, 2008 and incorporated herein by reference).
		(f)		5th Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.2(e) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
		(g)		6th Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 30, 2009 (filed as Exhibit 99.1(a) to the current report on Form 8-K filed on September 30, 2009 and incorporated herein by reference).
		(h)		1st Certificate of Change to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated January 31, 2000 (filed as Exhibit 3.2(g) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
		(i)		7th Certificate of Amendment of the Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York, dated June 29, 2010 (filed as Exhibit 3.1(h) to the current report on Form 8-K filed on July 2, 2010 and incorporated herein by reference).
		(j)		8th Certificate of Amendment to the Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the current report on Form 8-K filed on September 7, 2011 and incorporated herein by reference).
		(k)		9th Certificate of Amendment to the Certificate of Limited Partnership dated August 7, 2013 (filed as Exhibit 3.2 (j) to the quarterly report on Form 10-Q filed August 14, 2013 and incorporated herein by reference).
10.1		(a)		Management Agreement among the Partnership, Smith Barney Futures Management Inc., SFG Global Investments, Inc. and AAA Capital Management Inc. (filed as Exhibit 10 to the general form for registration of securities on Form 10 filed on May 1, 2003 and incorporated herein by reference).
		(b)		First Amendment to the Management Agreement among the Partnership, Smith Barney Futures Management LLC, SFG Global Investments, Inc. and AAA Capital Management Inc. (filed as Exhibit 10 to the general form for registration of securities on Form 10 filed on May 1, 2003 and incorporated herein by reference).

 

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		(c)		Second Amendment to the Management Agreement among the General Partner and AAA Capital Management Advisors, Ltd. (filed as Exhibit 33 to the quarterly report on Form 10-Q filed on August 14, 2006 and incorporated herein by reference).
		(d)		Letter amending the Management Agreement by and among the General Partner and AAA Capital Management Advisors, Ltd. (filed as Exhibit 10.1 to the current report on Form 8-K filed on January 7, 2013 and incorporated herein by reference).
		(e)		Letter extending the Management Agreements between the General Partner and AAA Capital Management Advisors, Ltd. from June 30, 2013 to June 30, 2014 (filed as Exhibit 10.1(d) to the annual report on Form 10-K filed on March 28, 2014 and incorporated herein by reference).
10.2				Amended and Restated Management Agreement among the Partnership, the General Partner and Winton Capital Management Limited (filed as Exhibit 10.2 to the current report on Form 8-K filed on July 9, 2014 and incorporated herein by reference).
10.3		(a)		Advisory Agreement among Transtrend Master, the General Partner and Transtrend B.V. (filed herewith).
		(b)		First Amendment to the Advisory Agreement among Transtrend Master, the General Partner and Transtrend B.V. (filed herewith).
		(c)		Second Amendment to the Advisory Agreement among Transtrend Master, the General Partner and Transtrend B.V. (filed herewith).
		(d)		Third Amendment to the Advisory Agreement among Transtrend Master, the General Partner and Transtrend B.V. (filed herewith).
10.4				Management Agreement among the Partnership, the General Partner and Willowbridge Advisors, Inc. (filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on August 13, 2014 and incorporated herein by reference).
10.5		(a)		Amended and Restated Customer Agreement between the Partnership and Salomon Smith Barney Inc. (filed as Exhibit 10 to the general form for registration of securities on Form 10 filed on May 1, 2003 and incorporated herein by reference).
		(b)		Commodity Futures Customer Agreement between the Partnership and MS&Co., effective March 1, 2014 (filed as Exhibit 10.7 to the annual report on Form 10-K filed on March 28, 2014 and incorporated herein by reference).
10.6		(a)		Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, effective March 1, 2014 (filed as Exhibit 10.4 to the annual report on Form 10-K filed on March 28, 2014 and incorporated herein by reference).
		(b)		Letter from the General Partner amending Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management dated as of August 8, 2014 and effective October 1, 2014 (filed as Exhibit 10.5(b) to the Quarterly Report on Form 10-Q filed on August 13, 2014 and incorporated herein by reference).
10.7				Form of Subscription Agreement (filed as Exhibit 10.6 to the quarterly report on Form 10-Q filed on November 14, 2012 and incorporated herein by reference).
10.8				Form of Third-Party Subscription Agreement (filed as Exhibit 10.5 to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.9		(a)		Escrow Agreement among Ceres Managed Futures LLC, Morgan Stanley Smith Barney LLC and The Bank of New York (filed as Exhibit 10.8(a) to the annual report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).
		(b)		Amendment No. 5 to Escrow Agreement among Ceres Managed Futures LLC, Morgan Stanley Smith Barney LLC and The Bank of New York (filed as Exhibit 10.8(b) to the annual report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

Exhibit 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Director) (filed herewith).

Exhibit 31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer) (filed herewith).

Exhibit 32.1 — Section 1350 Certification (Certification of Director) (filed herewith).

Exhibit 32.2 — Section 1350 Certification (Certification of Chief Financial Officer) (filed herewith).

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ORION FUTURES FUND L.P.
By:		Ceres Managed Futures LLC
		(General Partner)
By:		/s/ Patrick T. Egan
		Patrick T. Egan
		Director

Date: November 13, 2014

 

By:		/s/ Steven Ross
		Steven Ross
		Chief Financial Officer
		(Principal Accounting Officer)

Date: November 13, 2014

 

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