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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 March 31, 2015

OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-54284

MANAGED FUTURES PREMIER BHM L.P.

 

(Exact name of registrant as specified in its charter)

 

Delaware		27-3371689
(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 April 30, 2015, 211,859.310 Limited Partnership Redeemable Units Class A were outstanding, 5,819.883 Limited Partnership Redeemable Units Class D were outstanding and 1,383.189 Limited Partnership Redeemable Units Class Z were outstanding.

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MANAGED FUTURES PREMIER BHM L.P.

FORM 10-Q

INDEX

 

		Page Number
PART I — Financial Information:
Item 1. Financial Statements:
Statements of Financial Condition at March 31, 2015 (unaudited) and December 31, 2014			3
Statements of Income and Expenses for the three months ended March 31, 2015 and 2014 (unaudited)			4
Statement of Changes in Partners’ Capital for the three months ended March 31, 2015 and 2014 (unaudited)			5
Notes to Financial Statements, including the Financial Statements of BHM I, LLC (unaudited)			6-22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23-25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			26-28
Item 4. Controls and Procedures			29
PART II — Other Information
Item 1. Legal Proceedings			30-36
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 6. Exhibits			38

 

 

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PART I

Item1. Financial Statements

Managed Futures Premier BHM L.P.

Statements of Financial Condition

 

		(Unaudited) March 31, 2015				December 31, 2014
Assets:
Investment in Trading Company(1), at fair value		$	157,450,064			$	190,332,186
Total assets		$	157,450,064			$	190,332,186
Liabilities and Partners’ Capital:
Liabilities:
Redemptions payable to General Partner		$	285,155			$	—
Redemptions payable to Limited Partners			4,583,527				4,206,289
Total liabilities			4,868,682				4,206,289
Partners’ Capital:
General Partner, Class A (0.000 Redeemable Units outstanding at March 31, 2015 and December 31, 2014)			—				—
General Partner, Class D (0.000 Redeemable Units outstanding at March 31, 2015 and December 31, 2014)			—				—
General Partner, Class Z (2,120.612 and 2,870.787 Redeemable Units outstanding at March 31, 2015 and December 31, 2014, respectively)			1,463,586				2,203,947
Limited Partner, Class A (228,270.502 and 248,403.999 Redeemable Units outstanding at March 31, 2015 and December 31, 2014, respectively)			146,498,631				178,254,779
Limited Partner, Class D (5,819.883 Redeemable Units outstanding at March 31, 2015 and December 31, 2014, respectively)			3,664,527				4,084,197
Limited Partner, Class Z (1,383.189 and 2,061.929 Redeemable Units outstanding at March 31, 2015 and December 31, 2014, respectively)			954,638				1,582,974
Total Partners’ Capital			152,581,382				186,125,897
Total liabilities and Partners’ Capital		$	157,450,064			$	190,332,186
Net asset value per units:
Class A		$	641.78			$	717.60
Class D		$	629.66			$	701.77
Class Z		$	690.17			$	767.72

(1) Defined in Note 1.

The accompanying notes are integral part of these financial statements.

 

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Managed Futures Premier BHM L.P.

Statements of Income and Expenses

(Unaudited)

 

		Three Months Ended March 31,
		2015				2014
Investment income:
Interest income allocated from Trading Company		$	—			$	—
Expenses:
Expenses allocated from Trading Company			1,068,335				1,240,710
Ongoing selling agent fees			865,585				1,547,546
Administrative fees			447,190				534,830
Other			57,203				55,804
Total expenses			2,438,313				3,378,890
Net investment income (loss)			(2,438,313	)			(3,378,890	)
Trading Results:
Net realized gains (losses) on closed contracts allocated from Trading Company			(5,663,404	)			9,593,380
Change in net unrealized gains (losses) on open contracts allocated from Trading Company			(10,691,423	)			1,467,302
Total trading results allocated from Trading Company			(16,354,827	)			11,060,682
Net income (loss)		$	(18,793,140	)		$	7,681,792
Net income (loss) allocation from Trading Company
Class A		$	(18,043,885	)		$	7,319,091
Class D		$	(419,670	)		$	172,342
Class Z		$	(329,585	)		$	190,359
Net asset value per unit
Class A		$	641.78			$	763.44
Class D		$	629.66			$	739.57
Class Z		$	690.17			$	804.50
Net income (loss) per unit*
Class A		$	(75.82	)		$	26.49
Class D		$	(72.11	)		$	29.61
Class Z		$	(77.55	)		$	33.63
Weighted average units outstanding
Class A			242,337.796				274,072.163
Class D			5,819.883				5,819.883
Class Z			4,261.580				5,647.941

 

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

The accompanying notes are an integral part of these financial statements.

 

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Managed Futures Premier BHM L.P.

Statements of Changes in Partners’ Capital

For the Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

		Class A								Class D								Class Z								Total
		Amount				Units				Amount				Units				Amount				Units				Amount				Units
Partners’ Capital at December 31, 2014		$	178,254,779				248,403.999			$	4,084,197				5,819.883			$	3,786,921				4,932.716			$	186,125,897				259,156.598
Subscriptions - Limited Partners			1,622,929				2,295.740				—				—				36,818				49.190				1,659,747				2,344.930
Net income (loss)			(18,043,885	)			—				(419,670	)			—				(329,585	)			—				(18,793,140	)			—
Redemptions - Limited Partners			(15,335,192	)			(22,429.237	)			—				—				(540,775	)			(727.930	)			(15,875,967	)			(23,157.167	)
Redemptions - General Partner			—				—				—				—				(535,155	)			(750.175	)			(535,155	)			(750.175	)
Partners’ Capital at March 31, 2015		$	146,498,631				228,270.502			$	3,664,527				5,819.883			$	2,418,224				3,503.801			$	152,581,382				237,594.186
		Class A								Class D								Class Z								Total
		Amount				Units				Amount				Units				Amount				Units				Amount				Units
Partners’ Capital at December 31, 2013		$	203,521,796				276,167.845			$	4,131,876				5,819.883			$	4,418,504				5,731.879			$	212,072,176				287,719.607
Subscriptions - Limited Partners			4,866,641				6,502.399				—				—				—				—				4,866,641				6,502.399
Net income (loss)			7,319,091				—				172,342				—				190,359				—				7,681,792				—
Redemptions - Limited Partners			(15,123,906	)			(19,932.262	)			—				—				(127,720	)			(161.813	)			(15,251,626	)			(20,094.075	)
Partners’ Capital at March 31, 2014		$	200,583,622				262,737.982			$	4,304,218				5,819.883			$	4,481,143				5,570.066			$	209,368,983				274,127.931

The accompanying notes are an integral part of these financial statements.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

1. Organization:

Managed Futures Premier BHM L.P. (the “Partnership”) is a limited partnership organized on August 23, 2010 under the partnership laws of the State of Delaware 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 Partnership commenced trading on November 1, 2010. The commodity interests that are traded by the Partnership through its investment in the Trading Company (as defined below) are volatile and involve a high degree of market risk. The Partnership is authorized to sell an unlimited number of units of limited partnership interest (“Redeemable Units”) on a continuous basis.

Ceres Managed Futures LLC, a Delaware limited liability company, serves as the Partnership’s general partner (the “General Partner” or “Ceres”) and commodity pool operator. Demeter Management LLC (“Demeter”) previously served as the Partnership’s general partner. Demeter was merged into Ceres effective December 1, 2010. Ceres is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC (“MSSBH”). MSSBH is wholly-owned indirectly by Morgan Stanley. Prior to June 28, 2013, Citigroup was the indirect minority owner of MSSBH.

On November 1, 2010, the Partnership allocated substantially all of its capital to Morgan Stanley Smith Barney BHM I, LLC (the “Trading Company”), a limited liability company organized under the Delaware Limited Liability Company Law. The Trading Company was formed in order to permit accounts managed by Blenheim Capital Management LLC (“Blenheim” or the “Advisor”) using Blenheim’s Global Markets Strategy-Futures/FX program, a proprietary, discretionary trading program, to invest together in one trading vehicle. The General Partner is also the trading manager of the Trading Company. Individual and pooled accounts currently managed by the General Partner, including the Partnership, are permitted to be members of the Trading Company. The General Partner and the Advisor believe that trading through this Trading Company/feeder structure promotes efficiency and economy in the trading process.

On February 1, 2011, the Redeemable Units offered pursuant to the Partnership’s limited partnership agreement, as amended from time to time (the “Limited Partnership Agreement”), were deemed “Class A Units.” The rights, liabilities, risks, and fees associated with investment in the Class A Units were not changed. In addition, beginning on February 1, 2011, Class D Units were offered. Beginning August 1, 2011, Class Z Units were offered to certain employees of Morgan Stanley Smith Barney LLC and its affiliates (and their family members). Class A, Class D and Class Z will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Units that a limited partner of the Partnership (each a “Limited Partner” or collectively the “Limited Partners”) receives upon a subscription will generally depend upon the amount invested in the Partnership, although the General Partner may determine to offer Units to investors at its discretion.

Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley Wealth Management. This entity previously acted as a non-clearing broker for the Trading Company and currently serves as the selling agent to the Partnership (the “Selling Agent”). The clearing commodity broker for the Trading Company is Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant.

At March 31, 2015, the Partnership owned approximately 77.9% of the Trading Company. At December 31, 2014, the Partnership owned approximately 77.8% of the Trading Company. The Partnership intends to continue to invest substantially all of its assets in the Trading Company. The performance of the Partnership is directly affected by the performance of the Trading Company. The Trading Company’s trading of futures, forwards, and options contracts, as applicable, is done primarily on U.S. and foreign commodity exchanges. The Trading Company’s Statements of Financial Condition, including Condensed Schedules of Investments, and Statements of Income and Expenses and Changes in Members’ Capital are included herein.

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 shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions or losses, if any.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

2. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at March 31, 2015 and December 31, 2014, and the results of its operations for the three months ended March 31, 2015 and 2014. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on the Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2014. The December 31, 2014 information has been derived from the audited financial statements as of and for the year ended December 31, 2014.

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, revenues and expenses and related disclosure 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.

Partnership’s Investment. The Partnership values its investment in the Trading Company at its net asset value per unit as calculated by the Trading Company.

Trading Company’s Investments. Fair value of exchange-traded futures, options and forward contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period.

All commodity interests of the Trading Company (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 Trading Company’s 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.

Investment Company Status. The Partnership adopted Accounting Standards Update (“ASU”) 2013-08, “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and based on the General Partner’s assessment, the Partnership has been deemed to be an investment company since inception.

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. 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. In general, the statute of limitations of the Partnership’s U.S. federal tax returns remains open three years after a tax return is filed. The statutes of limitations on the Partnership’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management 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 for each Class is calculated in accordance with investment company guidance. See Note 3. “Financial Highlights.”

Recent Accounting Pronouncement: In May 2015, the Financial Accounting Standards Board issued ASU 2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” which relates to disclosures for investments that calculate net asset value per share (potentially funds of fund structures). The ASU requires investments for which the practical expedient is used to measure fair value at Net Asset Value (“NAV”) be removed from the fair value hierarchy. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. Further, the ASU requires entities to provide the disclosures in Accounting Standards Codification (“ASC”) 820-10-50-6A only for investments for which they elect to use the NAV practical expedient to determine fair value. The standard is effective for public business entities for fiscal years beginning after December 15, 2015, early adoption is permitted. The General Partner is currently evaluating the impact that the new pronouncement would have on the Partnership’s financial statements.

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

The Trading Company’s Statements of Financial Condition and Condensed Schedules of Investments as of March 31, 2015 and December 31, 2014, and Statements of Income and Expenses and Changes in Members’ Capital for the three months ended March 31, 2015 and 2014 are presented below:

BHM I, LLC

Statements of Financial Condition

 

		(Unaudited) March 31, 2015				December 31, 2014
Assets:
Equity in trading account:
Unrestricted cash		$	192,160,873			$	214,203,577
Restricted cash			31,390,733				35,822,289
Total cash			223,551,606				250,025,866
Net unrealized gain (loss) on open contracts			(14,990,661	)			(2,436,480	)
Options purchased, (premiums paid $3,445,130 and $5,652,679, respectively)			1,916,651				4,044,097
Total trading equity			210,477,596				251,633,483
Expense reimbursements			8,280				7,124
Total assets		$	210,485,876			$	251,640,607
Liabilities and Members’ Capital:
Liabilities:
Options written (premiums received $2,548,139 and $2,492,318, respectively)		$	7,995,984			$	6,712,022
Accrued management fees			374,023				409,715
Accrued administrative fees			1,522				1,759
Clearing fees due to MS&Co.			—				8,165
Total liabilities			8,371,529				7,131,661
Members’ Capital:
Non-Managing Members			202,114,347				244,508,946
Total members’ capital			202,114,347				244,508,946
Total liabilities and members’ capital		$	210,485,876			$	251,640,607

 

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

BHM I, LLC

Condensed Schedule of Investments

March 31, 2015

(Unaudited)

 

		Fair Value				% of Members’ Capital
Futures and Forward Contracts Purchased
Commodity		$	(21,488,617	)			(10.63	)
Equity			170,464				0.09
Foreign currency			(137,994	)			(0.07	)
Interest rate			8,406				—	(1)
Total Futures and Forward Contracts Purchased			(21,447,741	)			(10.61	)
Futures and Forward Contracts Sold
Commodity			6,926,717				3.43
Foreign currency			2,112,673				1.04
Interest rate			(31,630	)			(0.02	)
Total Futures and Forward Contracts Sold			9,007,760				4.45
Unrealized Currency Loss			(2,550,680	)			(1.26	)
Net fair value		$	(14,990,661	)			(7.42	)
Options Contracts
Options purchased on Futures Contracts		$	1,916,651				0.95
Options written on Futures Contracts		$	(7,995,984	)			(3.96	)

 

 

 

(1)	Amount less than 0.005%.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

BHM I, LLC

Condensed Schedule of Investments

December 31, 2014

 

		Fair Value				% of Members’ Capital
Futures and Forward Contracts Purchased
Commodity		$	(11,626,875	)			(4.76	)
Equity			25,442				0.01
Foreign currency			253,534				0.10
Interest rate			1,594				—	(1)
Total Futures and Forward Contracts Purchased			(11,346,305	)			(4.65	)
Futures and Forward Contracts Sold
Commodity			9,834,673				4.02
Foreign currency			953,598				0.39
Interest rate			(7,992	)			—	(1)
Total Futures and Forward Contracts Sold			10,780,279				4.41
Unrealized Currency Loss			(1,870,454	)			(0.76	)
Net fair value		$	(2,436,480	)			(1.00	)
Options Contracts
Options purchased on Futures Contracts		$	4,044,097				1.65
Options written on Futures Contracts		$	(6,712,022	)			(2.75	)

 

 

 

(1)	Amount less than 0.005%.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

BHM I, LLC

Statements of Income and Expenses

(Unaudited)

 

		For the Three Months Ended March 31, 2015
		2015				2014
Investment income:
Interest income		$	—			$	—
Expenses:
Management fees			1,143,453				1,348,439
Brokerage, clearing and transaction fees			225,940				245,116
Administrative fees			4,835				23,148
Incentive fees			—				6,381
Total expenses			1,374,228				1,623,084
Expense reimbursements			(25,864	)			(36,069	)
Net expenses			1,348,364				1,587,015
Net investment loss			(1,348,364	)			(1,587,015	)
Trading results:
Trading profit (loss):
Net realized			(7,255,896	)			13,514,387
Net change in unrealized			(13,702,219	)			2,101,149
Total trading results			(20,958,115	)			15,615,536
Net income (loss)		$	(22,306,479	)		$	14,028,521

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

BHM I, LLC

Changes in Members’ Capital

(Unaudited)

 

		Managing Member				Non-Managing Members				Total
Members’ Capital, December 31, 2014		$	—			$	244,508,946			$	244,508,946
Net income/(loss)			—				(22,306,479	)			(22,306,479	)
Capital withdrawals			—				(20,088,120	)			(20,088,120	)
Members’ Capital, March 31, 2015		$	—			$	202,114,347			$	202,114,347
Members’ Capital, December 31, 2013		$	—			$	313,607,842			$	313,607,842
Net income/(loss)			—				14,028,521				14,028,521
Capital withdrawals			—				(32,442,250	)			(32,442,250	)
Members’ Capital, March 31, 2014		$	—			$	295,194,113			$	295,194,113

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

3. Financial Highlights:

Financial highlights for each Class as a whole for the three months ended March 31, 2015 and 2014 were as follows:

 

Financial Highlights:		Three Months Ended March 31, 2015												Three Months Ended March 31, 2014
		Class A				Class D				Class Z				Class A				Class D				Class Z
Net realized and unrealized gains (losses)		$	(66.06	)		$	(64.72	)		$	(70.88	)		$	38.52			$	37.16			$	40.36
Net investment loss			(9.76	)			(7.39	)			(6.67	)			(12.03	)			(7.55	)			(6.73	)
Increase (decrease) for the period			(75.82	)			(72.11	)			(77.55	)			26.49				29.61				33.63
Net asset value per Unit, beginning of period			717.60				701.77				767.72				736.95				709.96				770.87
Net asset value per Unit, end of period		$	641.78			$	629.66			$	690.17			$	763.44			$	739.57			$	804.50

Certain prior period amounts have been reclassified to conform to current period presentation. In the financial highlights, the ongoing selling agent fees and clearing fees allocated from the Trading Company which were previously included in net realized and unrealized gains (losses) per unit and excluded from expenses per unit are now excluded from net realized and unrealized gains (losses) per unit and included in expenses per unit. This information was previously included as a footnote to the financial highlights table.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

 

		Three Months Ended March 31, 2015												Three Months Ended March 31, 2014
		Class A				Class D				Class Z				Class A				Class D				Class Z
Ratios to average net assets:(1)
Net investment income (loss)(2)			(5.8	)%			(4.4	)%			(4.0	)%			(6.6	)%			(4.2	)%			(3.4	)%
Operating expenses			5.8	%			4.4	%			4.0	%			6.6	%			4.2	%			3.4	%
Incentive fees			—	%			—	%			—	%			—	%			—	%			—	%
Total expenses			5.8	%			4.4	%			4.0	%			6.6	%			4.2	%			3.4	%
Total return:
Total return before incentive fees			(10.6	)%			(10.3	)%			(10.1	)%			3.6	%			4.2	%			4.4	%
Incentive fees			—	%			—	%			—	%			—	%			—	%			—	%
Total return after incentive fees			(10.6	)%			(10.3	)%			(10.1	)%			3.6	%			4.2	%			4.4	%

 

(1)	Annualized (other than incentive fees).

 

(2)	Interest income less operating expenses.

The above ratios and total return may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner class using the Limited Partners’ share of income, expenses and average net assets of the Partnership and includes the income and expenses allocated from the Trading Company.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

Financial Highlights of the Trading Company:

 

		For the Three Months Ended March 31, 2015
		2015				2014
Ratios to average Members’ Capital: (1)
Net investment loss(2)			(2.39	)%			(2.12	)%
Expenses before incentive fees(2)			2.39	%			2.12	%
Expenses after incentive fees(2)			2.39	%			2.12	%
Total return before incentive fees			(9.85	)%			4.72	%
Total return after incentive fees			(9.85	)%			4.71	%

 

 

 

(1)	The calculation is based on non-managing Members’ allocated income and expenses and average non-managing Members’ Capital.

 

(2)	Annualized except for incentive fees.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

4. Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The Partnership invests substantially all of its assets through a “master/feeder” structure.

The Partnership’s pro rata share of the results of the Trading Company’s trading activities is shown on the Statements of Income and Expenses.

The Partnership and Trading Company, in the normal course of business, enter into various contracts with MS&Co. acting as their commodity broker. The brokerage agreement with MS&Co. gives the Partnership and the Trading Company, respectively, the legal right to net unrealized gains and losses on open futures and forward contracts. The Trading Company nets, for financial reporting purposes, the unrealized gains and losses on open futures and forward contracts on its Statements of Financial Condition as the criteria under ASC 210-20, “Balance Sheet,” have been met.

The following tables summarize the gross and net amounts relating to assets and liabilities of the Trading Company’s derivatives and their offsetting subject to master netting agreements or similar agreements as of March 31, 2015 and December 31, 2014, respectively.

Offsetting of Derivative Assets and Liabilities as of March 31, 2015:

 

		Gross Amounts Recognized				Gross Amounts Offset in the Statements of Financial Condition				Net Amounts Presented in the Statements of Financial Condition				Gross amounts not offset in the Statements of Financial Condition
														Financial Instruments				Cash Collateral Pledged/Received(2)				Net Amount
Assets
Futures		$	4,564,698			$	(4,564,698	)		$	—			$	—			$	—			$	—
Forwards			7,734,796				(7,734,796	)			—				—				—				—
Options purchased			1,916,651				—				1,916,651				(1,916,651	)			—				—
Total Assets		$	14,216,145			$	(12,299,494	)		$	1,916,651			$	(1,916,651	)		$	—			$	—
Liabilities
Futures		$	(6,748,254	)		$	4,564,698			$	(2,183,556	)(1)		$	—			$	—			$	(2,183,556	)
Forwards			(17,991,221	)			7,734,796				(10,256,425	)(1)			—				—				(10,256,425	)
Options written			(7,995,984	)			—				(7,995,984	)			1,916,651				—				(6,079,333	)
Total Liabilities		$	(32,735,459	)		$	12,299,494			$	(20,435,965	)		$	1,916,651			$	—			$	(18,519,314	)
Unrealized currency loss																							(2,550,680	)(1)
Net fair value																						$	(21,069,994	)(2)

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

Offsetting of Derivative Assets and Liabilities as of December 31, 2014:

 

		Gross Amounts Recognized				Gross Amounts Offset in the Statements of Financial Condition				Net Amounts Presented in the Statements of Financial Condition				Gross amounts not offset in the Statements of Financial Condition
														Financial Instruments				Cash Collateral Pledged/Received(2)				Net Amount
Assets
Futures		$	10,297,509			$	(4,758,861	)		$	5,538,648	(1)		$	—			$	—			$	5,538,648
Forwards			8,141,243				(8,141,234	)			—				—				—				—
Options purchased			4,044,097				—				4,044,097				(4,044,097	)			—				—
Total Assets			22,482,849				(12,900,104	)			9,582,745				(4,044,097	)			—				5,538,648
Liabilities
Futures		$	(4,758,861	)		$	4,758,861			$	—			$	—			$	—			$	—
Forwards			(14,245,917	)			8,141,243				(6,104,674	)(1)			—				—				(6,104,674	)
Options written			(6,712,022	)			—				(6,712,022	)			4,044,097				—				(2,667,925	)
Total Liabilities		$	(25,716,800	)		$	12,900,104			$	(12,816,696	)		$	4,044,097			$	—			$	(8,772,599	)
Unrealized currency loss																							(1,870,454	)(1)
Net fair value																						$	(5,104,405	)(2)

 

(1)	Included as a component of “Net unrealized gain on open contracts” or “Net unrealized loss on open contracts” on the Statements of Financial Condition.

 

(2)

In the event of default by the Partnership, MS&Co., the sole counterparty to the Partnership’s derivative contracts, has the right to offset the Partnership’s obligation with the cash held by the Partnership, thereby minimizing the counterparty’s risk of loss. There is no collateral posted by MS&Co. and as such, in the event of default by MS&Co., the Partnership is exposed to the amount shown on the Statements of Financial Condition.

The effect of trading activities on the Statements of Financial Condition as of March 31, 2015 and December 31, 2014:

March 31, 2015

 

Futures and Forward Contracts		Long Unrealized Gain				Long Unrealized Loss				Short Unrealized Gain				Short Unrealized Loss				Net Unrealized Gain/(Loss)				Average number of contracts outstanding for three months (absolute quantity)
Commodity		$	1,653,712			$	(23,142,329	)		$	7,962,627			$	(1,035,910	)		$	(14,561,900	)			13,220
Equity			176,863				(6,399	)			—				—				170,464				252
Foreign currency			256,758				(394,752	)			2,240,753				(128,080	)			1,974,679				682
Interest rates			8,781				(375	)			—				(31,630	)			(23,224	)			401
Total		$	2,096,114			$	(23,543,855	)		$	10,203,380			$	(1,195,620	)			(12,439,981	)
Unrealized currency loss																			(2,550,680	)
Total net unrealized loss on open contracts																		$	(14,990,661	)

 

						Average number of contracts outstanding for the three months (absolute quantity)
Option Contracts at Fair Value
Options purchased		$	1,916,651				2,802
Options written		$	(7,995,984	)			1,009

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

December 31, 2014

 

Futures and Forward Contracts		Long Unrealized Gain				Long Unrealized Loss				Short Unrealized Gain				Short Unrealized Loss				Net Unrealized Gain/(Loss)				Average number of contracts outstanding for the year (absolute quantity)
Commodity		$	7,096,479			$	(18,723,354	)			10,015,651			$	(180,978	)		$	(1,792,202	)			20,439
Equity			27,202				(1,760	)			—				—				25,442				977
Foreign currency			253,534				—				1,040,697				(87,099	)			1,207,132				684
Interest rates			1,594				—				3,595				(11,587	)			(6,398	)			777
Total		$	7,378,809			$	(18,725,114	)			11,059,943			$	(279,664	)			(566,026	)
Unrealized currency loss																			(1,870,454	)
Total net unrealized gain/loss on open contracts																		$	(2,436,480	)

 

Option Contracts at Fair Value						Average number of contracts outstanding for the year (absolute quantity)
Options purchased		$	4,044,097				4,956
Options written		$	(6,712,022	)			1,740

The following tables indicate the trading gains and losses, by market sector, on derivative instruments for the three months ended March 31, 2015 and 2014.

 

Sector		For the Three Months Ended  March 31, 2015				For the  Three Months Ended  March 31, 2014
Commodity		$	(25,293,032	)		$	17,982,399
Equity			621,369				817,854
Foreign currency			4,088,816				(3,129,464	)
Interest rates			304,958				(124,052	)
Unrealized currency loss			(680,226	)			68,799
Total		$	20,958,115	****		$	15,615,536	****

 

 

****	This amount is in “Total trading results” on the Trading Company’s Statements of Income and Expenses.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

5. Fair Value Measurements:

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

The Trading Company considers prices for exchange-traded commodity futures, forwards 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 who derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended March 31, 2015 and December 31, 2014, the Trading Company did not hold any derivative instruments for which market quotations were not readily available and which were priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). Transfers between levels are recognized at the end of the reporting period. During the three months ended March 31, 2015 and twelve months ended December 31, 2014, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

		Level 1				Level 2				Level 3		March 31, 2015
Assets
Futures		$	4,564,698			$	—			n/a		$	4,564,698
Forwards			5,555,847				2,178,949			n/a			7,734,796
Options Purchased			1,916,651				—			n/a			1,916,651
Total Assets		$	12,037,196			$	2,178,949			n/a		$	14,216,145
Liabilities
Futures		$	6,748,254			$	—			n/a		$	6,748,254
Forwards			17,597,029				394,192			n/a			17,991,221
Options Written			7,995,984				—			n/a			7,995,984
Total Liabilities		$	32,341,267			$	394,192			n/a		$	32,735,459
Unrealized currency loss													(2,550,680	)
*Net fair value		$	(20,304,071	)		$	1,784,757			n/a		$	(21,069,994	)

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

		Level 1				Level 2				Level 3				December 31, 2014
Assets
Futures		$	10,297,509			$	—				n/a			$	10,297,509
Forwards			7,586,000				555,243				n/a				8,141,243
Options purchased			4,044,097				—				n/a				4,044,097
Total assets		$	21,927,606			$	555,243				n/a			$	22,482,849
Liabilities
Futures			4,758,861			$	—				n/a				4,758,861
Forwards			14,254,917				—				n/a				14,245,917
Options written			6,712,022				—				n/a				6,712,022
Total liabilities		$	25,716,800			$	—				n/a			$	25,716,800
Unrealized currency loss															(1,870,454	)
*Net fair value		$	(3,789,194	)		$	555,243				n/a			$	(5,104,405	)

 

 

*	This amount comprises of the “Net unrealized gain/loss on open contracts”, “Options purchased” and “Options written” on the Statements of Financial Condition.

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

6. Financial Instrument Risks:

In the normal course of business, the Partnership, through its investment in the Trading Company, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forwards and option contracts. OTC contracts are negotiated between contracting parties and include certain forwards and option contracts. Specific market movements of commodities or futures contracts underlying an 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 related to the underlying financial instruments including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 0.0% to 7.0% of the Trading Company’s contracts are traded OTC.

The Trading Company trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Trading Company 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 Trading Company. When the contract is closed, the Trading Company records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses.

Forward Foreign Currency Contracts. Forward foreign currency contracts are those contracts where the Trading Company agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward foreign currency contracts are valued daily, and the Trading Company’ 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 Trading Company does not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in total trading results in the Statements of Income and Expenses.

The risk to the Limited Partners that have purchased Units in the Partnership 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 Delaware law.

Market risk is the potential for changes in the value of the financial instruments traded by the Trading Company 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 Trading Company is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

        Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnership’s/Trading Company’s risk of loss in the event of a counterparty default is typically limited to the asset amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnership’s/Trading Company’s risk of loss is reduced through the use of legally enforceable Trading Company netting agreements with counterparties that permit the Partnership/Trading Company to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Trading Company has credit risk and concentration risk, as MS&Co., or a MS&Co. affiliate, is the sole counterparty or broker with respect to the Partnership’s/Trading Company’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through MS&Co., the Partnership’s/Trading Company’s counterparty is an exchange or clearing organization.

        The Trading Company may buy or write put and call options through listed exchanges and the over-the-counter market. The buyer of an option has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific futures interest, on the underlying asset at a specified price prior to or on a specified expiration date. The writer of an option is exposed to the risk of loss if the fair value of the futures interest, on the underlying asset declines (in the case of a put option) or increases (in the case of a call option). The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount. Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Statements of Financial Condition. The difference between the fair value of the option and the premiums received/premiums paid is treated as an unrealized gain or loss.

As both a buyer and seller of options, the Partnership/Trading Company pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership/Trading Company 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 General Partner/managing member monitors and attempts to control the Partnership’s/Trading Company’s risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Trading Company may be subject. These monitoring systems generally allow the General Partner/managing member to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.

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

 

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Managed Futures Premier BHM L.P.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

7. 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 has determined that there were no subsequent events requiring adjustments 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 investment in the Trading Company. The Trading Company does not engage in the sale of goods or services. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investment in the Trading Company. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the first quarter of 2015.

There are no known trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by income (loss) from its investment in the Trading Company and by expenses, interest income, subscriptions and redemptions of Units and distributions of profits, if any.

For the three months ended March 31, 2015, the Partnership’s capital decreased 18.0% from $186,125,897 to $152,581,382. This decrease was attributable to the redemptions of 750.175 General Partner Units totaling $535,155 and redemptions of 23,157.167 Limited Partners Units totaling $15,875,967, coupled with a net loss of $18,793,140, which was partially offset by the subscriptions of 2,344.930 Units totaling $1,659,747. Future redemptions could impact the amount of funds available for investment in the Trading Company in subsequent periods.

The Trading Company’s capital consists of the capital contributions of the members as increased or decreased by realized and/or unrealized gains or losses on commodity futures trading and by expenses, interest income, redemptions of Units and distributions of profits, if any.

For the three months ended March 31, 2015, the Trading Company’s capital decreased 17.3% from $244,508,946 to $202,114,347. This decrease was attributable to the withdrawals of $20,088,120, coupled with a net loss of $22,306,479. Future withdrawals could impact the amount of funds available for investment in commodity contracts positions in subsequent periods.

There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership’s capital resource arrangement at the present time.

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 2, “Basis of Presentation and Summary of Significant Accounting Policies”, of the Financial Statements.

The Trading Company records all investments at fair value in its 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 and Changes in Members’ Capital.

 

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Results of Operations

During the Partnership’s first quarter of 2015, the net asset value per Unit for Class A decreased 10.6% from $717.60 to $641.78, as compared to an increase of 3.6% in the first quarter of 2014. During the Partnership’s first quarter of 2015, the net asset value per Unit for Class D decreased 10.3% from $701.77 to $629.66, as compared an increase of 4.2% in the first quarter of 2014. During the Partnership’s first quarter of 2015, the net asset value per Unit for Class Z decreased 10.1% from $767.72 to $690.17, as compared to an increase of 4.4% in the first quarter of 2014. The Partnership, through its investment in the Trading Company, experienced a net trading loss in the first quarter of 2015 of $16,354,827. Losses were primarily attributable to the Trading Company’s trading in commodities and were partially offset by gains in currencies, equities and interest rates. The Partnership, through its investment in the Trading Company, experienced a net trading gain in the first quarter of 2014 of $11,060,682. Gains were primarily attributable to the Trading Company’s trading in commodities and equities and were partially offset by losses in currencies and interest rates.

The most significant losses were incurred during March from long positions in palladium futures as prices fell dramatically on weakening demand from China and a strengthening U.S. dollar eroding demand for precious metals. Additional losses during March were experienced from long positions in nickel and tin futures as prices declined amid concern of slowing industrial demand from China. During January, further losses were incurred within the metals sector from short positions in gold futures as prices advanced, capping the biggest monthly gain in three years, after U.S. government data showed the economy expanded at a slower pace than forecast in the fourth quarter. Additional losses were recorded during February from long positions in nickel futures as prices declined as data showed the metal’s global oversupply widened. The Partnership’s trading losses for the quarter were partially offset by trading gains within the currency sector during March from short positions in the Brazilian real versus the U.S. dollar as the relative value of the real dropped on concern a stalled Brazilian economy and fiscal weakness could lead to a sovereign debt downgrade. Additional gains were recorded from short positions in the euro during March. Within the energy markets, gains were experienced during March from short position in crude oil futures as prices declined amid a growing global supply glut. Within the agricultural sector, gains were recorded during February from long positions in cocoa futures as prices advanced amid speculation of reduced supply following periods of drought and disease in the Ivory Coast and Ghana, the world’s top cocoa growing regions. These gains were mitigated by losses in cocoa trading during January and March. Additional gains were achieved within the global stock index markets during March from long positions in European equity index futures as prices rose after the European Central Bank introduced added quantitative easing measures. Within the global interest rate sector, gains were recorded during February from short positions in U.S. fixed income futures as prices declined after a stronger-than-expected U.S. employment report boosted speculation the U.S. Federal Reserve may raise interest rates earlier than previously anticipated.

 

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Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership (and the Trading Company) depends on the Advisor’s ability to forecast price changes in energy and energy-related commodities. Such price changes are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that the Advisor correctly makes such forecasts, the Partnership (and the Trading Company) expects to increase capital through operations.

Effective July 1, 2012, MS&Co. credits the Trading Company on 100% of the average daily equity maintained in cash in the Trading Company’s account during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount less 0.15% during such month. There was no interest income earned allocated from the Trading Company for the three months ended March 31, 2015 and 2014. The amount of interest income earned by the Partnership depends on the average daily equity in the Trading Company over which neither the Partnership/Trading Company nor MS&Co. has control.

Ongoing selling agent fees are calculated on a monthly basis as a percentage of the net assets (as defined in the Limited Partnership Agreement) of the Partnership as of the beginning of each month. The ongoing selling agent fees rate for the three months ended March 31, 2015 decreased $681,961, as compared to the corresponding period in 2014. The decrease in ongoing selling agent fees is due to lower average net assets during the three months ended March 31, 2015, as compared to the corresponding period in 2014.

The Partnership pays the ongoing administrative, operating, offering and organizational expenses of the Partnership and the Trading Company as such expenses are incurred, not to exceed 0.25% annually of the net assets of the Partnership. Administrative fees for the three months ended March 31, 2015 decreased $87,640, as compared to the corresponding period in 2014.

Management and incentive fees are borne by the Trading Company.

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

Off-Balance Sheet Arrangements and Contractual Obligations

The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments, that would affect its liquidity or capital resources.

 

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Item 3.  Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership’s assets are subject to the risk of trading loss through its investment in the Trading Company. The Trading Company is a speculative commodity pool. The market sensitive instruments held by the Trading Company are acquired for speculative trading purposes, and all or substantially all of the Partnership’s capital is subject to the risk of trading loss, through its investment in the Trading Company. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Trading Company’s and the Partnership’s 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 Trading Company’s open positions and, consequently, in its earnings and cash balances. The Trading Company’s and the Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the value of financial instruments and contracts, the diversification results among the Trading Company’s open positions and the liquidity of the markets in which it trades.

The Trading Company rapidly acquires and liquidates both long and short positions in a range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Trading Company’s past performance is not necessarily indicative of its future results.

Quantifying the Trading Company Trading Value at Risk

The following quantitative disclosures regarding the Trading Company’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended). All quantitative disclosures in this section are deemed to be forward-looking statements for purpose of the safe harbor, except for the statements of historical fact.

The Trading Company accounts for open positions on the basis of mark to market accounting principles. Any loss in the market value of the Trading Company’s open positions is directly reflected in the Trading Company’s earnings and cash balance.

The Trading Company Value at Risk computation is based on the risk representation of the underlying benchmark for each instrument or contract and does not distinguish between exchange and non-exchange dealer-based instruments. It’s also not based on exchange and/or dealer-based maintenance margin requirements. Value at Risk models, including the models used by Morgan Stanley and Ceres, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve. Please note that the Value at Risk model is used to quantify market risk for historic reporting purposes only and is not utilized by either Ceres or the Advisor in its daily risk management activities. Please further note that Value at Risk as described above may not be comparable to similarly-titled measures used by other entities.

Limitations on Value at Risk as an Assessment of Market Risk

Value at Risk models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of Value at Risk market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets. However, Value at Risk risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:

 

•

past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;

 

•

changes in portfolio value caused by market movements may differ from those of the Value at Risk model;

 

•

Value at Risk results reflect past market fluctuations applied to current trading positions while future risk depends on future positions;

 

•

Value at Risk using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and

 

•

the historical market risk factor data used for Value at Risk estimation may provide only limited insight into losses that could be incurred under certain unusual market movements.

 

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In addition, the Value at Risk tables below, as well as the past performance of the Partnership and the Trading Company, give no indication of the Partnership’s potential “risk of ruin.”

The Value at Risk tables provided present the results of the Partnership’s Value at Risk for each of the Trading Company’s market risk exposures and on an aggregate basis at March 31, 2015 and December 31, 2014.

Value at Risk is not necessarily representative of the Trading Company’s historic risk, nor should it be used to predict the Partnership or the Trading Company’s future financial performance or their ability to manage or monitor risk. There can be no assurance that the Trading Company’s actual losses on a particular day will not exceed the Value at Risk amounts indicated above or that such losses will not occur more than once in 100 trading days.

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

Margin requirements have been used by the Trading Company as the measure of its 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 an 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. There has been no material change in the trading Value at Risk information previously disclosed in the Partnership’s Form 10-K filed with the SEC for the year ended December 31, 2014.

As of March 31, 2015, the Trading Company’s total capitalization was $202,114,347, and the Partnership owned approximately 77.9% of the Trading Company. The Partnership invests substantially all of its assets in the Trading Company. The Trading Company’s Value at Risk as of March 31, 2015 was as follows:

March 31, 2015

 

										Three months ended March 31, 2015
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Commodity		$	36,075,569				17.85	%		$	43,569,935			$	35,214,939			$	39,619,186
Equity			1,184,849				0.58	%			1,238,582				53,641				725,547
Currency			1,124,759				0.56	%			4,636,011				831,185				1,866,867
Interest Rate			34,238				0.02	%			1,399,215				8,470				301,798
Total		$	38,419,415				19.01	%

 

 

 

*	Average of month-end Values at Risk.

 

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As of December 31, 2014, the Trading Company’s total capitalization was $244,508,946 and the Partnership owned approximately 77.8% of the Trading Company. The Partnership invests substantially all of its assets in the Trading Company. The Trading Company’s Value at Risk as of December 31, 2014 was as follows:

 

		December 31, 2014								Twelve Months ended December 31, 2014
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at Risk*
Commodity		$	39,364,629				16.10	%		$	43,693,621			$	18,663,484			$	33,562,241
Currency			1,168,311				0.48	%			6,633,967				122,650				2,185,027
Equity			83,769				0.03	%			4,581,127				0				2,144,179
Interest Rate			35,888				0.02	%			4,170,826				10,139				850,656
TOTAL		$	40,652,597				16.63	%

 

 

 

*	Annual Average of month-end Values at Risk.

Non-Trading Risk

The Trading Company has non-trading market risk on its foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial.

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s market risk exposures — except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Ceres and the Advisor for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of these could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.

Investors must be prepared to lose all or substantially all of their investment in the Partnership.

Qualitative Disclosures Regarding Means of Managing Risk Exposure

The General Partner monitors and attempts to control the Partnership’s, through its investment in the Trading Company, 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 Trading Company may be subject.

The General Partner monitors the Trading Company’s performance and the concentration of open positions, and consults with the Advisor concerning the Trading Company’s overall risk profile. If the General Partner felt it necessary to do so, the General Partner could require the Advisor to close out positions as well as enter positions traded on behalf of the Trading Company. However, any such intervention would be a highly unusual event. The General Partner primarily relies on the Advisor’s own risk control policies while maintaining a general supervisory overview of the Trading Company’s market risk exposures.

The Advisor applies its own risk management policies to its trading. The Advisor often follows diversification guidelines, margin limits and stop loss points to exit a position. The Advisor’s research of risk management often suggests ongoing modifications to its trading programs.

As part of the General Partner’s risk management, the General Partner periodically meets with the Advisor to discuss its risk management and to look for any material changes to the Advisor’s portfolio balance and trading techniques. The Advisor is required to notify the General Partner of any material changes to its programs.

 

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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 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 (“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 March 31, 2015 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 financial reporting process during the fiscal quarter ended March 31, 2015 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Limitations on the Effectiveness of Controls

Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

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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, 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.”).

MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the SEC 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 2014, 2013, 2012, 2011 and 2010.

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 the National Futures Association.

Regulatory and Governmental Matters.

On April 21, 2015, the Chicago Board Options Exchange, Incorporated (“CBOE”) and the CBOE Futures Exchange, LLC (“CFE”) filed statements of charges against MS&Co. in connection with trading by one of MS&Co.’s former traders of EEM options contracts that allegedly disrupted the final settlement price of the November 2012 VXEM futures. CBOE alleged that MS&Co. violated CBOE Rules 4.1, 4.2 and 4.7, Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. CFE alleged that MS&Co. violated CFE Rules 608, 609 and 620. Both matters are ongoing.

 

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Other Litigation.

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 federal securities law 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. On January 26, 2015, as a result of a settlement with certain other defendants, the plaintiff requested and the court subsequently entered a dismissal with prejudice of certain of the plaintiff’s claims, including all remaining claims against MS&Co. in the Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al. action. On February 18, 2015, the court entered an order setting a number of claims for trial throughout 2016. Claims against MS&Co. have not yet been set for trial. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $66 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, MS&Co. believes it could incur a loss for 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., 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 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. A corrected amended complaint was filed on April 8, 2011. The corrected amended 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 and asserts claims under Illinois law. The total amount of certificates allegedly sold to plaintiff by MS&Co. at issue in the action was approximately $203 million. The complaint seeks, among other things, to rescind the plaintiff’s purchase of such certificates. The defendants filed a motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. After that dismissal, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $78 million. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $53 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $53 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., 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 July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against MS&Co. 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. 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. On May 21, 2012, the Morgan Stanley defendants filed a motion to dismiss the amended complaint, which was denied on August 3, 2012. MS&Co. filed its answer on August 17, 2012. MS&Co. filed a motion for summary judgment on January 20, 2015. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $108 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $108 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 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 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 June 7, 2012, the two cases were consolidated. MS&Co. filed a motion for summary judgment and special exceptions, which was denied in substantial part on April 26, 2013. The FDIC filed a second amended consolidated complaint on May 3, 2013. MS&Co. filed a motion for leave to file an interlocutory appeal as to the court’s order denying its motion for summary judgment and special exceptions, which was denied on August 1, 2013. 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 special exceptions and granted its motion for reconsideration of the court’s order denying leave to file an interlocutory appeal. On November 21, 2014, MS&Co. filed a motion for summary judgment, which was denied on February 10, 2015. The Texas Fourteenth Court of Appeals denied Morgan Stanley’s petition for interlocutory appeal on November 25, 2014. Trial is currently scheduled to begin in July 2015. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $41 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 $41 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. On October 16, 2012, plaintiffs filed an amended complaint. The amended 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 $1.073 billion. The amended complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants’ motion to dismiss the amended complaint. On January 2, 2015, the court denied defendants’ renewed motion to dismiss the amended complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $598 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $598 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 April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against MS&Co. 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 29, 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. or sold to plaintiff by MS&Co. 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 were 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 has voluntarily dismissed its claims against MS&Co. with respect to two of the securitizations at issue, such that the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. is approximately $358 million. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $64 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $64 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 February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of the State of New York, New York County (“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. to plaintiff was approximately $141 million. The complaint alleges causes of action against MS&Co. 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, MS&Co. filed its answer to the complaint, and on September 18, 2014, MS&Co. filed a notice of appeal from the ruling denying defendants’ motion to dismiss. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $71 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $71 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.

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. to plaintiff was approximately $694 million. The complaint alleges causes of action against MS&Co. 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 the defendants’ motion to dismiss. On August 4, 2014, claims regarding two certificates were dismissed by stipulation. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $644 million. On September 12, 2014, MS&Co. filed a notice of appeal from the denial of the motion to dismiss. On January 12, 2015, MS&Co. filed an amended answer to the complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $289 million, and the certificates had incurred actual losses of approximately $79 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $289 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.

On September 23, 2013, the plaintiff 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 (“SDNY”). The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to the plaintiff 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. to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. for violations of Section 11 and Section 12(a)(2) of the Securities Act, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissory and compensatory

 

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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 and denied defendants’ motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On November 17, 2014, the plaintiff filed an amended complaint. On December 15, 2014, defendants answered the amended complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $204 million, and the certificates had incurred actual losses of $28 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $204 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.

Settled Civil Litigation.

On August 25, 2008, MS&Co. and two ratings agencies were named as defendants in a purported class action related to securities issued by a structured investment vehicle called Cheyne Finance PLC and Cheyne Finance LLC (together, the “Cheyne structured investment vehicle”). The case was styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. The complaint alleged, among other things, that the ratings assigned to the securities issued by the Cheyne structured investment vehicle were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime residential mortgage backed securities held by the Cheyne structured investment vehicle. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne structured investment vehicle. On April 24, 2013, the parties reached an agreement to settle the case, and on April 26, 2013, the court dismissed the action with prejudice. The settlement does not cover certain claims that were previously dismissed.

On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against MS&Co. and/or its affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints asserted claims on behalf of certain clients of plaintiff’s affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of 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’s affiliates’ clients by MS&Co. and/or its affiliates in the two matters was approximately $263 million. On February 11, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.

On October 25, 2010, MS&Co., certain affiliates and Pinnacle Performance Limited, a special purpose vehicle, were named as defendants in a purported class action related to securities issued by the special purpose vehicle in Singapore, commonly referred to as “Pinnacle Notes.” The case is styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. and is pending in the SDNY. An amended complaint was filed on October 22, 2012. The court denied the defendants’ motion to dismiss the amended complaint on August 22, 2013, and granted class certification on October 17, 2013. On October 30, 2013, the defendants filed a petition for permission to appeal the court’s decision granting class certification. On January 31, 2014, the plaintiffs filed a second amended complaint. The second amended complaint alleges that the defendants engaged in a

 

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fraudulent scheme to defraud investors by structuring the Pinnacle Notes to fail and benefited subsequently from the securities’ failure. In addition, the second amended complaint alleges that the securities’ offering materials contained material misstatements or omissions regarding the securities’ underlying assets and the alleged conflicts of interest between the defendants and the investors. The second amended complaint asserts common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On July 17, 2014, the parties reached an agreement in principle to settle the litigation, which received preliminary court approval December 2, 2014. The final approval hearing is scheduled for July 2, 2015.

On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. 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 the defendants made untrue statements and material omissions in the sale to the plaintiffs 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 the plaintiffs by MS&Co. was approximately $104 million. The complaint raised 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 the 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. appealed on April 11, 2013. On May 3, 2013, MS&Co. filed its answer to the amended complaint. On January 16, 2015, the parties reached an agreement to settle the litigation.

On April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY styled, Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 2012, and alleges that the defendants made untrue statements and material omissions in the sale to the 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. was approximately $758 million. The amended complaint raised common law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory, and/or rescissionary damages, as well as punitive damages, associated with the plaintiffs’ purchases of such certificates. On April 11, 2014, the parties entered into a settlement agreement.

In re Morgan Stanley Mortgage Pass-Through Certificates Litigation, which had been pending in the SDNY, was a putative class action involving allegations that, among other things, the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 and 2007 contained false and misleading information concerning the pools of residential loans that backed these securitizations. On December 18, 2014, the parties’ agreement to settle the litigation received final court approval, and on December 19, 2014, the court entered an order dismissing the action.

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 the Form 10-K for the fiscal year ended December 31, 2014.

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

For the three months ended March 31, 2015, there were subscriptions of 2,295.740 Units of Class A totaling $1,622,929 and 49.190 Units of Class Z totaling $36,818. The Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act, and Section 506 of Regulation D promulgated thereunder. The Units were purchased by accredited investors as described in Regulation D.

Proceeds from the sale of Units are used in the trading of commodity interests including futures contracts, swaps, options and forward contracts.

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

 

Period		Class A (a) Total Number of Units Purchased*				Class A (b) Average Price Paid per Unit**				Class Z (a) Total Number of Units Purchased*				Class Z (b) Average Price Paid per Unit**				(c) Total Number of Units Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs
January 1, 2015 - January 31, 2015			7,664.153			$	692.20				696.800			$	741.82			N/A		N/A
February 1, 2015 - February 28, 2015			7,623.187			$	714.47				31.130			$	766.93			N/A		N/A
March 1, 2015 - March 31, 2015			7,141.897			$	641.78				—			$	690.17			N/A		N/A
			22,429.237			$	683.71				727.930			$	742.89			N/A		N/A

 

 

*

Generally, Limited Partners are permitted to redeem their Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner may compel redemption but to date the General Partner has not exercised this right. Purchases of 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 Units are effected as of the last day of each month at the net asset value per Unit as of that day.

Item 3. Defaults Upon Senior Securities — None.

Item 4. Mine Safety Disclosures. Not Applicable.

 

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Item 6.     Exhibits

Exhibits:

31.1 Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).

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

32.1 Section 1350 Certification (Certification of President and Director).

32.2 Section 1350 Certification (Certification of Chief Financial Officer).

 

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 Linkbase Document

Notes to Exhibits List

 

* Submitted electronically herewith.

 

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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.

 

Managed Futures Premier BHM L.P.
By:		Ceres Managed Futures LLC (General Partner)

 

By:		/s/ Patrick T. Egan
		Patrick T. Egan
		President and Director

Date: May 13, 2015

 

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

Date: May 13, 2015

 

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