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EX-99.3 - EX-99.3 - EMERGING CTA PORTFOLIO LPd518249dex993.htm
EX-99.2 - EX-99.2 - EMERGING CTA PORTFOLIO LPd518249dex992.htm
EX-99.1 - EX-99.1 - EMERGING CTA PORTFOLIO LPd518249dex991.htm
EX-32.2 - EX-32.2 - EMERGING CTA PORTFOLIO LPd518249dex322.htm
EX-32.1 - EX-32.1 - EMERGING CTA PORTFOLIO LPd518249dex321.htm
EX-31.2 - EX-31.2 - EMERGING CTA PORTFOLIO LPd518249dex312.htm
EX-31.1 - EX-31.1 - EMERGING CTA PORTFOLIO LPd518249dex311.htm
EX-10.21B - EX-10.21(B) - EMERGING CTA PORTFOLIO LPd518249dex1021b.htm
EX-10.12C - EX-10.12(C) - EMERGING CTA PORTFOLIO LPd518249dex1012c.htm
EX-10.11B - EX-10.11(B) - EMERGING CTA PORTFOLIO LPd518249dex1011b.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number 0-53211

EMERGING CTA PORTFOLIO L.P.

 

 

(Exact name of registrant as specified in its charter)

 

New York   04-3768983

(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 and Zip Code of principal executive offices)

(855) 672-4468

 

 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Redeemable Units of Limited Partnership Interest

                                             (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes    No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes    No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No   

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

Yes X No   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. X


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

 

Large accelerated filer         Accelerated filer           Non-accelerated filer X
Smaller reporting company         Emerging Growth Company          

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

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

Yes    No X

Limited Partnership Redeemable Units with an aggregate value of $52,797,411 were outstanding and held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of February 28, 2018, 34,221.7840 Limited Partnership Class A Redeemable Units were outstanding and 21.2650 Limited Partnership Class Z Redeemable Units were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

[None]


PART I

Item 1. Business.

(a) General Development of Business. Emerging CTA Portfolio L.P. (the “Partnership”) is a limited partnership that was organized on July 7, 2003 under the partnership laws of the State of New York. The objective of the Partnership is to achieve capital appreciation through the allocation of assets to early-stage commodity trading advisors or established advisors employing early-stage strategies, which engage, directly and indirectly through investment in the Funds (as defined below), in speculative trading of a diversified portfolio of commodity interests, including futures, options on futures, forward, options on forward, spot and swap contracts, cash commodities and any other rights or interests pertaining thereto. The Partnership may also enter into swap and other derivative transactions directly and through its investment in the Funds with the approval of the General Partner (as defined below). The sectors traded include currencies, livestock, energy, grains, metals, indices, softs and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Partnership directly or indirectly through its investment in the Funds are volatile and involve a high degree of market risk. The General Partner may also determine to invest up to all of the Partnership’s assets (directly or indirectly through its investment in the Funds) in United States (“U.S.”) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.

Between December 1, 2003 (commencement of the offering period) and August 5, 2004, 20,872 units of limited partnership interest (“Redeemable Units”) were sold at $1,000 per Redeemable Unit. The proceeds of the initial offering were held in an escrow account until August 6, 2004, at which time they were remitted to the Partnership for trading. The Partnership privately and continuously offers Redeemable Units to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership. Subscriptions of additional Redeemable Units and additional general partner contributions and redemptions of Redeemable Units for the years ended December 31, 2017, 2016 and 2015 are reported in the Statements of Changes in Partners’ Capital under “Item 8. Financial Statements and Supplementary Data.”

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. As of January 1, 2017, the General Partner became a wholly-owned subsidiary of Morgan Stanley Domestic Holdings, Inc. (“MSD Holdings”). MSD Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses. Prior to January 1, 2017, the General Partner was a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC. (“MSSB Holdings”). Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings.

During the years ended December 31, 2017, 2016 and 2015, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. JPMorgan Chase Bank N.A. (“JPMorgan”) was also a foreign exchange forward counterparty for certain Funds. During prior periods included in this report, Citigroup Global Markets Inc. (“CGM”) also served as a commodity broker. The Partnership/Funds also deposit a portion of their cash in non-trading accounts at JPMorgan.

As of September 1, 2011, the Partnership began offering three classes of limited partnership interests: Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units; each of which will be referred to as a “Class” and collectively referred to as the “Classes.” All Redeemable Units issued prior to September 1, 2011 were deemed “Class A Redeemable Units.” The rights, liabilities, risks, and fees associated with investment in the Class A Redeemable Units were not changed. Class A Redeemable Units and Class D Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions and non-U.S. investors. Class Z Redeemable Units are offered to certain employees of Morgan Stanley and its subsidiaries (and their family members). The Class of Redeemable Units that a limited partner of the Partnership receives upon subscription will generally depend upon the amount invested in the Partnership or the status of the limited partner, although the General Partner may determine to offer a particular Class of Redeemable Units to investors at its discretion. Class Z Redeemable Units were first issued on July 1, 2017. As of December 31, 2017, there were no Redeemable Units outstanding in Class D.

All trading decisions are made for the Partnership by its trading advisors (the “Advisors”) either directly, through individually managed accounts, or indirectly, through investments in other collective investment vehicles. As of December 31, 2017, AE Capital PTY Limited (“AE Capital”), The Cambridge Strategy (Asset Management) Limited (“Cambridge”), Harbour Square Capital Management LLC (“Harbour Square”), Independent View BV (“Independent View”), Launchpad Capital Management, LLC (“Launchpad”) and SECOR Capital Advisors, LP (“SECOR”) served as the Partnership’s major commodity trading advisors. Effective February 28, 2017, Willowbridge Associates Inc. (“Willowbridge”) ceased to act as a commodity trading advisor to the Partnership. Effective September 30, 2016, Centurion Investment Management, LLC (“Centurion”) ceased to act as a commodity trading advisor to the Partnership. Effective July 31, 2016, Perella Weinberg Partners Capital Management LP (“Perella”) ceased to act as a commodity trading advisor to the Partnership. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors either directly, through individually managed accounts, or indirectly, through its investment in the Funds. In addition, the General Partner may allocate the Partnership’s assets to additional non-major trading advisors (i.e. commodity trading advisors allocated less than 10% of the Partnership’s assets). Information about advisors allocated less than 10% of the Partnership’s assets may not be disclosed. The General Partner may also allocate less than 10% of the Partnership’s assets to a new trading advisor or another trading program of a current Advisor.

 

1


The Advisors are not affiliated with one another, are not affiliated with the General Partner, MS&Co., JPMorgan or CGM, and are not responsible for the organization or operation of the Partnership. References herein to the “Advisors” may also include, as relevant, references to Willowbridge, Perella, Centurion, Blackwater Capital Management, LLC (“Blackwater”), 300 North Capital LLC (“300 North Capital”), Cirrus Capital Management LLC (“Cirrus”), J E Moody & Company LLC (“JE Moody”), PGR Capital LLP (“PGR”), Principle Capital Management LLC (“Principle”), Waypoint Capital Management LLC (“Waypoint”) and Buttonwood (as defined below).

Cambridge Master Fund L.P. (“Cambridge Master”), SECOR Master Fund L.P. (“SECOR Master”), CMF AE Capital Master Fund LLC (“AE Capital Master”), the Partnership and prior to their full redemptions, CMF Willowbridge Master Fund L.P. (“Willowbridge Master”), Blackwater Master Fund L.P. (“Blackwater Master”) and PGM Master Fund L.P. (“PGM Master”), entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. CMF Harbour Square Master Fund LLC (“Harbour Square Master”) has entered into a futures brokerage account agreement with MS&Co. Cambridge Master, SECOR Master, AE Capital Master and Harbour Square Master are collectively referred to as the “Funds.” References herein to “Funds” may also include as relevant, reference to Willowbridge Master, Blackwater Master, PGM Master, JEM Master Fund L.P. (“JEM Master”), PGR Master Fund L.P. (“PGR Master”), Principle Master Fund L.P. (“Principle Master”), 300 North Capital Master Fund L.P. (“300 North Master”), CMF Cirrus Master Fund L.P. (“Cirrus Master”) and Waypoint Master Fund L.P. (“Waypoint Master”). The Partnership, directly and through its investment in the Funds, pays MS&Co. (or will reimburse MS&Co. if previously paid) its allocable share of all trading fees for the clearing and, where applicable, execution of transactions as well as exchange, user, give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”).

Effective July 12, 2017, Cambridge Master and SECOR Master each entered into certain agreements with JPMorgan in connection with trading in forward foreign currency contracts on behalf of the referenced Funds and indirectly, the Partnership. These agreements include a foreign exchange and bullion authorization agreement (“FX Agreement”), an International Swap Dealers Association, Inc. master agreement (“Master Agreement”), a schedule to the Master Agreement, a 2016 credit support annex for variation margin to the schedule and an institutional account agreement. In addition to Cambridge Master and SECOR Master, Cambridge and SECOR are both parties to the FX Agreements for the Funds to which each acts as advisor. Under each FX Agreement, JPMorgan charges a fee on the aggregate foreign currency transactions entered into on behalf of the respective Fund during a month.

The Partnership will be liquidated upon the first to occur of the following: December 31, 2023; the net asset value per Redeemable Unit of limited partnership interest of any Class decreases to less than $400 as of the close of any business day; or under certain other circumstances as set forth in the limited partnership agreement of the Partnership (the “Limited Partnership Agreement”). In addition, the General Partner may, in its sole discretion, cause the Partnership to be liquidated if the aggregate net assets of the Partnership decline to less than $1,000,000.

On September 1, 2012, the assets allocated to Cambridge for trading were invested in Cambridge Master, a limited partnership organized under the partnership laws of the State of Delaware. Cambridge Master permits accounts managed by Cambridge using the Asian Markets Alpha Programme and the Emerging Markets Alpha Programme, each a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Cambridge Master. Individual and pooled accounts currently managed by Cambridge, including the Partnership, are permitted to be limited partners of Cambridge Master. The General Partner and Cambridge believe that trading through this master/feeder structure promotes efficiency and economy in the trading process. The General Partner and Cambridge agreed that Cambridge will trade the Partnership’s assets allocated to Cambridge at a level that is up to 2.0 times the amount of assets allocated.

On August 1, 2013, the assets allocated to SECOR for trading were invested in SECOR Master, a limited partnership organized under the partnership laws of the State of Delaware. SECOR Master permits accounts managed by SECOR using a variation of the program traded by SECOR Alpha Master Fund L.P., a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of SECOR Master. Individual and pooled accounts currently managed by SECOR are permitted to be limited partners of SECOR Master. The General Partner and SECOR believe that trading through this master/feeder structure promotes efficiency and economy in the trading process.

On August 1, 2016, the Partnership allocated a portion of its assets to Harbour Square, which until December 31, 2017 were managed and traded directly by Harbour Square pursuant to Harbour Square’s Discretionary Energy Program through a trading account in the Partnership’s name. Effective on January 1, 2018, the assets allocated to Harbour Square were transferred into Harbour Square Master for which they are managed and traded by Harbour Square pursuant to the same strategy.

On February 1, 2017, the Partnership allocated a portion of its assets to AE Capital. AE Capital traded the assets directly pursuant to AE Capital’s AE Systematic FX Fund Program through a trading account in the Partnership’s name from March 1, 2017 until January 31, 2018. Effective on February 1, 2018, the assets allocated to AE Capital were transferred into AE Capital Master for which they are managed and traded by AE Capital pursuant to the same strategy.

Effective January 1, 2013, the assets traded directly by Willowbridge using its wPraxis Futures Trading Approach were invested in Willowbridge Master, a limited partnership organized under the partnership laws of the State of New York. Effective February 28, 2017, the Partnership fully redeemed its investment in Willowbridge Master.

 

2


On March 1, 2010, the assets allocated to Waypoint for trading were invested in the Waypoint Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership fully redeemed its investment in Waypoint Master on November 30, 2013.

On November 1, 2010, the assets allocated to Blackwater for trading were invested in the Blackwater Master, a limited partnership organized under the partnership laws of the State of Delaware. Effective September 30, 2015, the Partnership fully redeemed its investment in Blackwater Master.

On November 1, 2010, the assets allocated to PGR for trading were invested in the PGR Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership fully redeemed its investment in PGR Master on December 31, 2013.

On January 1, 2011, the assets allocated to Cirrus for trading were invested in Cirrus Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership fully redeemed its investment in Cirrus Master on August 31, 2013.

On January 1, 2011, the assets allocated to JE Moody for trading were invested in JEM Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership fully redeemed its investment in JEM Master on October 31, 2013.

On March 1, 2013, the assets allocated to Principle for trading were invested in Principle Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership fully redeemed its investment in Principle Master on July 31, 2014.

On March 1, 2013, the assets allocated to 300 North Capital for trading were invested in 300 North Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership fully redeemed its investment in 300 North Master on October 31, 2014.

From May 12, 2014 until its termination effective September 30, 2016, the assets allocated to Centurion for trading were traded directly pursuant to Centurion’s Short Term Systematic Strategy Program.

On September 1, 2014, the assets allocated to Perella for trading were invested in PGM Master, a limited partnership organized under the partnership laws of the State of Delaware. Effective June 30, 2015, the Partnership fully redeemed its investment in PGM Master. From July 1, 2015 until its termination effective July 31, 2016, the assets allocated to Perella were traded directly pursuant to a variation of the program traded by PWP Global Macro Master Fund L.P. in a managed account in the Partnership’s name.

On October 1, 2016, the Partnership allocated a portion of its assets to Independent View, which is managed and traded by Independent View pursuant to Independent View’s IV Quantitative Futures Fund Program.

On September 1, 2017, the Partnership allocated a portion of its assets to Launchpad. Launchpad began trading the assets directly pursuant to Launchpad’s MJP Commodity Strategy. Effective on March 1, 2018, Launchpad transferred its rights and obligations under its Management Agreement to Buttonwood Merchants, LLC (“Buttonwood”), and Buttonwood entered into a new Management Agreement with the Partnership pursuant to which Buttonwood assumed Launchpad’s rights and obligations. Buttonwood will trade and manage the Partnership’s assets allocated to Buttonwood pursuant to its Liquid Commodity Strategy.

The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal period ended December 31, 2017.

The Funds’ and the Partnership’s trading of futures, forward and option contracts, as applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. During the years ended 2017, 2016 and 2015, the Funds and the Partnership engaged in such trading through commodity brokerage accounts maintained with MS&Co. During prior periods covered by this report, the Funds and the Partnership also engaged in such trading through commodity brokerage accounts maintained with CGM.

Generally, a limited partner in the Funds withdraws all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any month (the “Redemption Date”) after a request has been made to the General Partner at least three days in advance of the Redemption Date. Such withdrawals are classified as a liability when the limited partner elects to redeem and informs the Funds. However, a limited partner may request a withdrawal as of the end of any day if such request is received by the General Partner at least three days in advance of the proposed withdrawal day.

Management fees, ongoing selling agent fees, the General Partner fees and incentive fees are charged at the Partnership level. Professional fees are borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level. Clearing fees are borne by the Funds and allocated to the Funds’ limited partners, including the Partnership. Clearing fees are also borne by the Partnership directly.

 

3


For the period January 1, 2017 through December 31, 2017, the approximate average market sector allocation for the Partnership was as follows:

 

LOGO

Prior to the close of business on December 31, 2017, the Partnership owned approximately 27.2% of SECOR Master and 4.9% of Cambridge Master. At December 31, 2016, the Partnership owned approximately, 49.1% of SECOR Master, 26.2% of Cambridge Master and 1.0% of Willowbridge Master. It is the Partnership’s intention to continue to invest in the Funds (except Willowbridge Master). The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of investment in the Funds are approximately the same as they would be if the Partnership traded directly and the redemption rights are not affected.

The General Partner administers the business and affairs of the Partnership, including, among other things, (i) selecting, appointing and terminating the Partnership’s commodity trading advisors, (ii) allocating and reallocating the Partnership’s assets among the commodity trading advisors and (iii) monitoring the activities of the commodity trading advisors. The Partnership pays the General Partner a monthly administrative fee (“General Partner fees”) equal to 1/12 of 1% (1.0% per year) of month-end net assets. Prior to October 1, 2014, the Partnership paid the General Partner a monthly administrative fee equal to 1/24 of 1% (0.5% per year) of month-end net assets. Month-end net assets, for the purpose of calculating General Partner fees, are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, management fees, incentive fee accruals, the General Partner fee and any redemptions or distributions as of the end of such month.

The Partnership will also pay the General Partner an incentive fee payable annually equal to 5% of the Partnership’s overall New Trading Profits, as defined in the Limited Partnership Agreement, earned in each calendar year. For the years ended December 31, 2017, 2016 and 2015, there were no incentive fees earned by the General Partner.

The General Partner, on behalf of the Partnership, entered into management agreements (each, a “Management Agreement”) with the Advisors, each of which is a registered commodity trading advisor. The Advisors are not affiliated with one another, are not affiliated with the General Partner, MS&Co., JPMorgan or CGM and are not responsible for the organization or operation of the Partnership. Effective on January 1, 2018, the Partnership pays to SECOR a monthly management fee equal to 1/12 of 1.15% (1.15% per year) of the adjusted month-end net assets allocated to SECOR. From January 1, 2016 until December 31, 2017, SECOR received a monthly management fee equal to 1.75% per year of month-end net assets allocated to SECOR. Prior to January 1, 2016, SECOR received a monthly management fee equal to 2.00% per year. Effective on January 1, 2018, the Partnership pays to Cambridge a monthly management fee equal to 1/12 of 1.00% (1.00% per year) of the adjusted month-end net assets allocated to Cambridge. Prior to January 1, 2018, Cambridge received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Cambridge. Effective January 1, 2018, the Partnership pays to Harbour Square a monthly management fee equal to 1/12 of 1.15% (1.15% per year) of the adjusted month-end net assets allocated to Harbour Square. Prior to January 1, 2018, Harbour Square received a monthly management fee equal to 1.25% per year of month-end net assets allocated to Harbour Square. Independent View receives a monthly management fee equal to 1.25% per year of month-end net assets allocated to Independent View. AE Capital receives a monthly management fee equal to 1.50% per year of the month-end net assets allocated to AE Capital. Effective on March 1, 2018, Buttonwood receives a monthly management fee equal to 1.00% per year of the month-end net assets allocated to Buttonwood. Prior to its termination on March 1, 2018, Launchpad received a monthly management fee equal to 1.00% per year of the month-end net assets allocated to Launchpad.

 

4


Prior to its termination on February 28, 2017, Willowbridge received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Willowbridge. Prior to its termination on July 31, 2016, Perella received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Perella. From January 1, 2016 until its termination on September 30, 2016, Centurion received a monthly management fee equal to 1.00% per year of month-end net assets allocated to Centurion. Prior to January 1, 2016, Centurion received a monthly management fee equal to 1.25% per year. Prior to its termination on September 30, 2015, Blackwater received a monthly management fee equal to 0.75% per year of month-end net assets allocated to Blackwater. Prior to its termination on July 31, 2014, Principle received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Principle. Prior to its termination on October 31, 2014, 300 North Capital received a monthly management fee equal to 1.50% per year of month-end net assets allocated to 300 North Capital. Prior to its termination on November 30, 2013, Waypoint received a monthly management fee equal to 2.00% per year of month-end net assets allocated to Waypoint. Prior to its termination on December 31, 2013, PGR received a monthly management fee equal to 1.00% per year of month-end net assets allocated to PGR. Prior to its termination on October 31, 2013, JE Moody received a monthly management fee equal to 2.00% per year of month-end net assets allocated to JE Moody. Prior to its termination on August 31, 2013, Cirrus received a monthly management fee equal to 2.00% per year of month-end net assets allocated to Cirrus. Month-end net assets, for the purpose of calculating management fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s management fees, incentive fee accruals, the General Partner fee, ongoing selling agent fee and any redemptions or distributions as of the end of such month. Each Management Agreement may be terminated upon notice by either party.

In addition, the Partnership is obligated to pay each Advisor an incentive fee. The Partnership pays Harbour Square, Independent View and AE Capital an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in each Management Agreement, earned by the relevant Advisor for the Partnership during each calendar quarter. Effective on January 1, 2018, the Partnership pays SECOR an annual incentive fee of 25% of New Trading Profits, as defined in the Management Agreement with SECOR, earned by SECOR for the Partnership during each calendar year. Prior to January 1, 2018, the Partnership paid SECOR an incentive fee, payable quarterly, equal to 20% of New Trading Profits, earned by SECOR for the Partnership during each calendar quarter. Effective on January 1, 2018, the Partnership pays Cambridge an annual incentive fee of 15% of New Trading Profits, as defined in the Management Agreement with Cambridge, earned by Cambridge for the Partnership during each calendar year. Prior to January 1, 2018, the Partnership paid Cambridge an incentive fee, payable quarterly, equal to 15% of New Trading Profits, earned by Cambridge for the Partnership during each calendar quarter. Prior to March 1, 2018, the Partnership was obligated to pay Launchpad an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement, earned by Launchpad for the Partnership during each calendar quarter. Effective on March 1, 2018, the Partnership is obligated to pay Buttonwood an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement, earned by Buttonwood for the Partnership during each calendar quarter.

Prior to its termination on February 28, 2017, Willowbridge was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Willowbridge for the Partnership during each calendar quarter. Prior to its termination on September 30, 2016, Centurion was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Centurion for the Partnership during each calendar quarter. Prior to its termination on July 31, 2016, Perella was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Perella for the Partnership during each calendar quarter. Prior to its termination on September 30, 2015, Blackwater was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Blackwater for the Partnership during each calendar quarter. Prior to its termination on July 31, 2014, Principle was eligible to receive an incentive fee, payable quarterly, equal to 17.5% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Principle for the Partnership during each calendar quarter. Prior to its termination on October 31, 2014, 300 North Capital was eligible to receive an incentive fee, payable quarterly, equal to 17.5% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by 300 North Capital for the Partnership during each calendar quarter. Prior to its termination on November 30, 2013, Waypoint was eligible to receive an incentive fee, payable quarterly, equal to 17% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Waypoint for the Partnership during each calendar quarter. Prior to its termination on December 31, 2013, PGR was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by PGR for the Partnership during each calendar quarter. Prior to its termination on October 31, 2013, JE Moody was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by JE Moody for the Partnership during each calendar quarter. Prior to its termination on August 31, 2013, Cirrus was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Cirrus for the Partnership during each calendar quarter. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not receive an incentive fee until the Advisor recovers the net loss incurred and earns additional trading profits for the Partnership.

Prior to and during part of the third quarter of 2013, the Partnership was party to a customer agreement with CGM (the “CGM Customer Agreement”). During the third quarter of 2013, the Partnership entered into a customer agreement with MS&Co. (the “MS&Co. Customer Agreement”) and during the fourth quarter of 2013, the Partnership entered into a selling agent agreement with Morgan Stanley Smith Barney LLC, doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) (the “Selling Agreement”). The Partnership has terminated the CGM Customer Agreement.

 

5


Under the CGM Customer Agreement, the Partnership paid CGM a monthly brokerage fee equal to 7/24 of 1% (3.5% per year) of month-end net assets, in lieu of brokerage fees on a per trade basis. Month-end net assets, for the purpose of calculating brokerage fees were net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s brokerage fees, incentive fee accruals, the monthly management fees, the General Partner fee and other expenses and any redemptions or distributions as of the end of such month. The Partnership paid for exchange, clearing, user, give-up, floor brokerage and National Futures Association (“NFA”) fees (collectively, the “CGM clearing fees”) directly and through its investment in the Funds. CGM clearing fees were allocated to the Partnership based on its proportionate share of each Fund.

During the term of the CGM Customer Agreement, all of the Partnership’s assets that were not held in the Funds’ accounts at CGM were deposited in the Partnership’s account at CGM. The Partnership’s cash was deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading Commission (“CFTC”) regulations. CGM paid the Partnership interest on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing 30 days from the date on which such weekly rate is determined.

Under the MS&Co. Customer Agreement and the foreign exchange brokerage account agreement, the Partnership pays trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage, clearing fees and National Futures Association fees (collectively, the “MS&Co. clearing fees” and together with the CGM clearing fees, the “clearing fees”) directly and indirectly through its investment in the Funds. Clearing fees are allocated to the Partnership based on its proportionate share of each Fund. MS&Co. clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. All of the Partnership’s assets available for trading in commodity interests not held in the Funds’ accounts at MS&Co. and JPMorgan are deposited in the Partnership’s accounts at MS&Co. The Partnership’s cash deposited with MS&Co. is held in segregated bank accounts to the extent required by CFTC regulations. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At December 31, 2017 and 2016, the amount of cash held for margin requirements was $2,501,707 and $3,093,030, respectively. MS&Co. has agreed to pay the Partnership interest on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at the rate equal to the monthly average of the 4-Week U.S. Treasury bill discount rate. The MS&Co Customer Agreement may generally be terminated upon notice by either party.

Under the Selling Agreement, the Partnership pays Morgan Stanley Wealth Management a monthly ongoing selling agent fee. Prior to April 1, 2014, this monthly ongoing selling agent fee was equal to (i) 7/24 of 1.00% (3.50% per year) of month-end net assets for Class A Redeemable Units, (ii) 5/48 of 1.00% (1.25% per year) of month-end net assets for Class D Redeemable Units and (iii) 1/24 of 1.00% (0.50% per year) of month-end net assets for Class Z Redeemable Units. Effective April 1, 2014, the monthly ongoing selling agent fee was reduced to 5/24 of 1% (2.50% per year) for Class A Redeemable Units. Effective October 1, 2014, the monthly ongoing selling agent fee was (i) reduced to 4/24 of 1% (2.00% per year) for Class A Redeemable Units, (ii) reduced to 3/48 of 1.00% (0.75% per year) for Class D Redeemable Units and (iii) eliminated for Class Z Redeemable Units. Morgan Stanley Wealth Management pays a portion of its ongoing selling agent fees to properly registered or exempted financial advisors who have sold Redeemable Units. Month-end net assets, for the purpose of calculating ongoing selling agent fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, incentive fee accruals, the monthly management fees, the General Partner fee and other expenses and any redemptions or distributions as of the end of such month.

The General Partner fees, management fees, incentive fees and all other expenses are allocated proportionally to each Class based on the net asset value of each Class.

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

(b) Financial Information about Segments. The Partnership’s business consists of only one segment, speculative trading of commodity interests. The Partnership does not engage in sales of goods or services. The Partnership’s net income (loss) from operations for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 is set forth under “Item 6. Selected Financial Data.” The Partnership’s capital as of December 31, 2017 was $41,742,612.

(c) Narrative Description of Business.

See Paragraphs (a) and (b) above.

(i) through (xii) — Not applicable.

(xiii) — The Partnership has no employees.

(d) Financial Information About Geographic Areas. The Partnership does not engage in the sale of goods or services or own any long-lived assets, and therefore this item is not applicable.

 

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(e) Available Information. The Partnership does not have an Internet address. The Partnership will provide paper copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports free of charge upon request.

(f) Reports to Security Holders. Not applicable.

(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable. (h) Smaller Reporting Companies. Not applicable.

  Item 1A. Risk Factors.

As a result of leverage, small changes in the price of the Partnership’s positions may result in major losses.

The trading of commodity interests is speculative, volatile and involves a high degree of leverage. A small change in the market price of a commodity interest contract can produce major losses for the Partnership. Market prices can be influenced by, among other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events, weather and climate conditions, insects and plant disease, purchases and sales by foreign countries and changing interest rates.

An investor may lose all of its investment.

Due to the speculative nature of trading commodity interests, an investor could lose all of its investment in the Partnership.

The Partnership will pay substantial fees and expenses regardless of profitability.

 

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Regardless of its trading performance, the Partnership will incur fees and expenses, including but not limited to trading and transaction fees, ongoing selling agent fees, management fees and General Partner fees. Substantial incentive fees may be paid to one or more of the Advisors even if the Partnership experiences a net loss for the full year.

An investor’s ability to redeem Redeemable Units is limited.

An investor’s ability to redeem Redeemable Units is limited, and no market exists for the Redeemable Units.

Conflicts of interest exist.

The Partnership is subject to numerous conflicts of interest including those that arise from the facts that:

1.     The General Partner and the Partnership’s /Funds’ commodity broker are affiliates;

2.     Each of the Advisors, the Partnership’s /Funds’ commodity broker, the General Partner and their principals and affiliates may trade in commodity interests for their own accounts;

3.     An investor’s financial advisor will receive ongoing compensation for providing services to the investor’s account with respect to Class A and Class D Redeemable Units; and

4.     The General Partner, on behalf of the Partnership, may purchase money market mutual fund shares from mutual funds affiliated and/or unaffiliated with the General Partner.

Investing in Redeemable Units might not provide the desired diversification of an investor’s overall portfolio.

The Partnership is intended as an aggressive alternative investment for a portion of a sophisticated investor’s portfolio. The primary objective of the Partnership is capital appreciation, as opposed to many other managed futures funds whose primary objectives are portfolio diversification and generating returns that are independent of stocks and bonds.

Past performance is no assurance of future results.

The Advisors’ trading strategies may not perform as they have performed in the past. The Advisors have from time to time incurred substantial losses in trading on behalf of clients.

An investor’s tax liability may exceed cash distributions.

Investors are taxed on their share of the Partnership’s income, even though the Partnership does not intend to make any distributions.

The General Partner may allocate the Partnership’s assets to undisclosed advisors.

The General Partner at any time may select and allocate the Partnership’s assets to undisclosed advisors. Investors may not be advised of such changes in advance. Investors must rely on the ability of the General Partner to select commodity trading advisors and allocate assets among them.

 

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Regulatory changes could restrict the Partnership’s operations and increase its operational costs.

Regulatory changes could adversely affect the Partnership by restricting its markets or activities, limiting its trading and/or increasing the costs or taxes to which investors are subject. Pursuant to the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, the CFTC and the Securities and Exchange Commission (the “SEC”) have promulgated rules to regulate swap dealers and to mandate additional reporting and disclosure requirements and continue to promulgate rules regarding capital and margin requirements to require that certain swaps be traded on an exchange or a swap execution facility and to require that derivatives (such as those traded by the Partnership) be moved into central clearinghouses. The CFTC and the prudential regulators that oversee swap dealers have adopted rules regarding margin requirements for certain derivatives. In addition, the CFTC and such prudential regulators have proposed or adopted, respectively, rules regarding capital requirements for swap dealers. These rules may negatively impact the manner in which swap contracts are traded and/or settled, increase the costs of such trades, and limit trading by speculators (such as the Partnership) in futures and over-the-counter (“OTC”) markets.

Speculative position and trading limits may reduce profitability.

The CFTC and U.S. exchanges have established speculative position limits on the maximum net long or net short positions which any person or a group of persons may hold or control in particular futures, options on futures and swaps that perform a significant price discovery function. Most exchanges also limit the amount of fluctuation in commodity futures contract prices on a single trading day. The Advisors believe that established speculative position and trading limits will not have a materially adverse effect on trading for the Partnership. The trading instructions of an Advisor, however, may have to be modified, and positions held indirectly by the Partnership through its investments in the Funds may have to be liquidated, in order to avoid exceeding these limits. Such modification or liquidation could adversely affect the operations and profitability of the Partnership by increasing transaction costs to liquidate positions and foregoing potential profits on the liquidated positions.

In December 2016, the CFTC re-proposed new rules regarding speculative position limits, replacing a prior proposal from November 2013. These rules, if adopted in substantially the same form, will impose position limits on certain futures and option contracts and physical commodity swaps that are “economically equivalent” to such contracts. If enacted these rules could have an adverse effect on an Advisor’s trading for the Partnership.

The General Partner, the Partnership and its Service Providers and their Respective Operations Are Potentially Vulnerable to Cyber-Security Attacks or Incidents.

Like other business enterprises, the use of the internet and other electronic media and technology exposes the General Partner, the Partnership and its service providers, and their respective operations, to potential risks from cyber-security attacks or incidents (collectively, “cyber events”). Cyber events may include, for example, unauthorized access to systems, networks or devices, infection from computer viruses or other malicious software code, mishandling or misuse of information and attacks which shut down, disable, slow or otherwise disrupt operations, business processes or website access or functionality. In addition to intentional cyber events, unintentional cyber events can occur. Unintentional cyber events may include, for example, the inadvertent release of confidential information, the mishandling or misuse of information and/or technological limitations or hardware failures (in the markets or otherwise) that constrain the Partnership’s and/or the Funds’ ability to gather, process and communicate information efficiently and securely, without interruption.

Any cyber event could adversely affect the Partnership’s business, financial condition or results of operations and cause the Partnership to incur financial loss and expense, as well as face exposure to regulatory penalties or legal claims, reputational damage and additional costs associated with corrective measures. A cyber-security breach could also jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the General Partner’s or a service provider’s computer systems. A cyber event may cause the Partnership or its service providers to lose proprietary information, suffer data corruption, lose operational capacity (such as, for example, the loss of the ability to process transactions, calculate the Partnership’s net asset value, or allow investors to transact business) and/or fail to comply with applicable privacy and other laws. Among other potentially harmful effects, cyber events also may result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems that support the Partnership or its service providers.

The nature of malicious cyber-attacks is becoming increasingly sophisticated and neither the General Partner nor the Partnership can control the cyber systems and cyber-security systems of the Advisors or other third-party service providers.

Tax Laws Are Subject To Change at Any Time.

Tax laws and court and IRS interpretations thereof are subject to change at any time, possibly with retroactive effect.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and is generally effective after December 31, 2017. The Tax Cuts and Jobs Act makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, including, in the case of individuals, reducing the top federal income rate to 37%, and eliminating or limiting various deductions, including capping the deduction for state and local taxes at $10,000 per year. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. For corporations, the Tax Cuts and Jobs Act reduces the top corporate income tax rate to 21%.

 

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The Partnership does not anticipate that a limited partner’s share of income from the Partnership will be eligible for the 20% deduction established by the Tax Cuts and Jobs Act for qualified business income. However, in certain limited circumstances unlikely to apply to the Partnership, a portion of a limited partner’s gain upon a taxable disposition of an interest in the Partnership or a complete withdrawal may be eligible for the deduction.

The Tax Cuts and Jobs Act makes numerous other large and small changes to the federal income tax rules that may affect the Partnership’s investors and may directly or indirectly affect the Partnership. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification, and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal Revenue Service will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.

Prospective investors are urged to consult with their tax advisors with respect to the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals, and their potential effects on them based on their unique circumstances.

 

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  Item 2. Properties.

The Partnership does not own or lease any properties. The General Partner operates out of facilities provided by Morgan Stanley and/or one of its subsidiaries.

  Item 3. Legal Proceedings.

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which MS&Co. or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.

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 2017, 2016, 2015, 2014, and 2013. In addition, MS&Co. annually prepares an Audited, Consolidated Statement of Financial Condition (“Audited Financial Statement”) that is publicly available on Morgan Stanley’s website at www.morganstanley.com. Please refer to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2017 Audited Financial.

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 February 25, 2015, MS&Co. reached an agreement in principle with the United States Department of Justice, Civil Division and the United States Attorney’s Office for the Northern District of California, Civil Division (collectively, the “Civil Division”) to pay $2.6 billion to resolve certain claims that the Civil Division indicated it intended to bring against MS&Co. That settlement was finalized on February 10, 2016.

In October 2014, the Illinois Attorney General’s Office (“ILAG”) sent a letter to MS&Co. alleging that MS&Co. knowingly made misrepresentations related to RMBS purchased by certain pension funds affiliated with the State of Illinois and demanding that MS&Co. pay ILAG approximately $88 million. MS&Co. and ILAG reached an agreement to resolve the matter on February 10, 2016.

On January 13, 2015, the New York Attorney General’s Office (“NYAG”), which is also a member of the RMBS Working Group, indicated that it intended to file a lawsuit related to approximately 30 subprime securitizations sponsored by MS&Co. NYAG indicated that the lawsuit would allege that MS&Co. misrepresented or omitted material information related to the due diligence, underwriting and valuation of the loans in the securitizations and the properties securing them and indicated that its lawsuit would be brought under the Martin Act. MS&Co. and NYAG reached an agreement to resolve the matter on February 10, 2016.

 

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On June 5, 2012, MS&Co. consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as amended, Making Findings and Imposing Remedial Sanctions by the Commodity Futures Trading Commission (“CFTC”) to resolve allegations related to the failure of a salesperson to comply with exchange rules that prohibit off-exchange futures transactions unless there is an Exchange for Related Position (“EFRP”). Specifically, the CFTC found that from April 2008 through October 2009, MS&Co. violated Section 4c(a) of the Commodity Exchange Act and CFTC Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (“CME”) and Chicago Board of Trade (“CBOT”) as EFRPs in violation of CME and CBOT rules because those trades lacked the corresponding and related cash, OTC swap, OTC option, or other OTC derivative position. In addition, the CFTC found that MS&Co. violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have adequate policies and procedures designed to detect and deter the violations of the Commodity Exchange Act and CFTC Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, MS&Co. accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. MS&Co. entered into corresponding and related settlements with the CME and CBOT in which the CME found that MS&Co. violated CME Rules 432.Q and 538 and fined MS&Co. $750,000 and CBOT found that MS&Co. violated CBOT Rules 432.Q and 538 and fined MS&Co. $1,000,000.

On July 23, 2014, the SEC approved a settlement by MS&Co. and certain affiliates to resolve an investigation related to certain subprime RMBS transactions sponsored and underwritten by those entities in 2007. Pursuant to the settlement, MS&Co. and certain affiliates were charged with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as amended, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SEC’s findings.

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. The matters were resolved on June 28, 2016 without any findings of fraud.

On June 18, 2015, MS&Co. entered into a settlement with the SEC and paid a fine of $500,000 as part of the Municipalities Continuing Disclosure Cooperation Initiative to resolve allegations that MS&Co. failed to form a reasonable basis through adequate due diligence for believing the truthfulness of the assertions by issuers and/or obligors regarding their compliance with previous continuing disclosure undertakings pursuant to Rule 15c2-12 under the Exchange Act in connection with offerings in which MS&Co. acted as senior or sole underwriter.

On August 6, 2015, MS&Co. consented to and became the subject of an order by the CFTC to resolve allegations that MS&Co. violated CFTC Regulation 22.9(a) by failing to hold sufficient U.S. dollars in cleared swap segregated accounts in the United States to meet all U.S. dollar obligations to cleared swaps customers. Specifically, the CFTC found that while MS&Co. at all times held sufficient funds in segregation to cover its obligations to its customers, on certain days during 2013 and 2014, it held currencies, such as euros, instead of U.S. dollars, to meet its U.S. dollar obligations. In addition, the CFTC found that MS&Co. violated CFTC Regulation 166.3 by failing to have in place adequate procedures to ensure that it complied with CFTC Regulation 22.9(a). Without admitting or denying the findings or conclusions and without adjudication of any issue of law or fact, MS&Co. accepted and consented to the entry of findings, the imposition of a cease and desist order, a civil monetary penalty of $300,000, and undertakings related to public statements, cooperation, and payment of the monetary penalty.

On December 20, 2016, MS&Co. consented to and became the subject of an order by the SEC in connection with allegations that MS&Co. willfully violated Sections 15(c)(3) and 17(a)(1) of the Exchange Act and Rules 15c3-3(e), 17a-5(a), and 17a-5(d) thereunder, by inaccurately calculating its Reserve Account requirement under Rule 15c3-3 by including margin loans to an affiliate in its calculations, which resulted in making inaccurate records and submitting inaccurate reports to the SEC. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, MS&Co. consented to a cease and desist order, a censure, and a civil monetary penalty of $7,500,000.

On September 28, 2017, the CFTC issued an order filing and simultaneously settling charges against MS&Co. regarding violations of CFTC Rule 166.3 by failing to diligently supervise the reconciliation of exchange and clearing fees with the amounts it ultimately charged customers for certain transactions on multiple exchanges. The order and settlement required MS&Co. to pay a $500,000 penalty and cease and desist from violating Rule 166.3.

 

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On November 2, 2017, the CFTC issued an order filing and simultaneously settling charges against MS&Co. for non-compliance with applicable rules governing Part 17 Large Trader reports to the CFTC. The order requires MS&Co. to pay a $350,000 penalty and cease and desist from further violations of the Commodity Exchange Act.

Civil Litigation

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co., styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that MS&Co. misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that MS&Co. knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court denied MS&Co.’s motion to dismiss the complaint. Based on currently available information, MS&Co. believes it could incur a loss of up to approximately $240 million plus pre- and post-judgment interest, fees and costs.

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, which 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. On January 18, 2017, the court entered an order dismissing all claims related to an additional securitization at issue. After those dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $65 million. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $38 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 $38 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.

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. The defendants’ motions to dismiss the amended complaint were granted in part and denied in part on September 30, 2013. On November 25, 2013, July 16, 2014, and May 19, 2015, respectively, the plaintiff voluntarily dismissed its claims against MS&Co. with respect to three of the securitizations at issue. After these voluntary dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $332 million. On February 6, 2017, the action was remanded to the Superior Court of the Commonwealth of Massachusetts. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue remaining in this action was approximately $46 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 $46 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 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 $634 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 granted in part and denied in part MS&Co.’s motion to dismiss the complaint. On June 20, 2017 the Appellate Division, First Department, affirmed the lower court’s June 10, 2014 order. On July 28, 2017, MS&Co. filed a motion for leave to appeal that decision to the New York Court of Appeals. On October 3, 2017, the Appellate Division, First Department denied MS&Co.’s motion for leave to appeal. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $215 million, and the certificates had incurred actual losses of approximately $88 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $215 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 May 17, 2013, plaintiff in IKB International S.A. in Liquidation, et al. v. Morgan Stanley, et al. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY. 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 $133 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 October 29, 2014, the court granted in part and denied in part MS&Co.’s motion to dismiss. All claims regarding four certificates were dismissed. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $116 million. On August 11, 2016, the Appellate Division, First Department affirmed the trial court’s decision denying in part MS&Co.’s motion to dismiss the complaint. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $24 million, and the certificates had incurred actual losses of $58 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $24 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 1, 2016, the California Attorney General’s Office filed an action against MS&Co. in California state court styled California v. Morgan Stanley, et al., on behalf of California investors, including the California Public Employees’ Retirement System and the California Teachers’ Retirement System. The complaint alleges that MS&Co. made misrepresentations and omissions regarding residential mortgage-backed securities and notes issued by the Cheyne SIV (defined below), and asserts violations of the California False Claims Act and other state laws and seeks treble damages, civil penalties, disgorgement, and injunctive relief. On September 30, 2016, the court granted MS&Co.’s demurrer, with leave to replead. On October 21, 2016, the California Attorney General filed an amended complaint. On January 25, 2017, the court denied MS&Co.’s demurrer with respect to the amended complaint.

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 SIV”). 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 SIV 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 SIV. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne SIV. 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.

 

14


On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, alleges that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On January 23, 2017, the parties reached an agreement to settle the litigation.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed a complaint against MS&Co. and other defendants in the Superior Court of the State of California styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al. An amended complaint filed on June 10, 2010 alleged 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. was approximately $704 million. The complaint raised claims under both the federal securities laws and California law and sought, among other things, to rescind the plaintiff’s purchase of such certificates. 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.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed a complaint against MS&Co. and other defendants in the Superior Court of the State of California styled Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al. An amended complaint, filed on June 10, 2010, alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $276 million. The complaint raises claims under both the federal securities laws and California law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On December 21, 2016, the parties reached an agreement to settle the litigation.

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 alleged 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 (“SPV”), were named as defendants in a purported class action in the United States District Court for the Southern District of New York (“SDNY”), styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. On January 31, 2014, the plaintiffs in the action, which related to securities issued by the SPV in Singapore, filed a second amended complaint, which asserted 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 to settle the litigation, which received final court approval on 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 alleged 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 January 16, 2015, the parties reached an agreement to settle the litigation.

 

15


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 alleged 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. On June 8, 2015, the parties reached an agreement to settle the litigation.

On September 2, 2011, the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including MS&Co. and certain affiliates. A complaint against MS&Co. and certain affiliates and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleged that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raised claims under federal and state securities laws and common law and sought, among other things, rescission and compensatory and punitive damages. On February 7, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.

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 alleged 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 sought, 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.

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 alleged 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. was approximately $1.073 billion. The amended complaint raised 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 Racketeer Influenced and Corrupt Organizations Act, and included a claim for treble damages. On January 8, 2016, the parties reached an agreement to settle the litigation.

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.

On November 4, 2011, the Federal Deposit Insurance Corporation, 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. On July 2, 2015, the parties reached an agreement to settle the litigation.

 

16


On February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleged 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. On July 28, 2015, the parties reached an agreement to settle the litigation, and on August 12, 2015, the plaintiff filed a stipulation of discontinuance with prejudice.

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 SDNY. The complaint alleged 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 in the matter was approximately $417 million. The complaint alleged violations of federal and various state securities laws and sought, among other things, rescissionary and compensatory damages. On November 23, 2015, the parties reached an agreement to settle the matter.

On September 16, 2014, the Virginia Attorney General’s Office filed a civil lawsuit, styled Commonwealth of Virginia ex rel. Integra REC LLC v. Barclays Capital Inc., et al., against MS&Co. and several other defendants in the Circuit Court of the City of Richmond related to RMBS. The lawsuit alleged that MS&Co. and the other defendants knowingly made misrepresentations and omissions related to the loans backing RMBS purchased by the Virginia Retirement System. The complaint asserted claims under the Virginia Fraud Against Taxpayers Act, as well as common law claims of actual and constructive fraud, and sought, among other things, treble damages and civil penalties. On January 6, 2016, the parties reached an agreement to settle the litigation. An order dismissing the action with prejudice was entered on January 28, 2016.

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.

Item 4. Mine Safety Disclosures. Not applicable.

 

17


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

  (a)

Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units.

 

  (b)

Holders. The number of holders of Class A Redeemable Units and Class Z Redeemable Units as of February 28, 2018 was 578 and 1, respectively. There are no Redeemable Units outstanding in Class D.

 

  (c)

Dividends. The Partnership did not declare any distributions in 2017 or 2016. The Partnership does not intend to declare distributions in the foreseeable future.

 

  (d)

Securities Authorized for Issuance Under Equity Compensation Plans. None.

 

  (e)

Performance Graph. Not applicable.

 

  (f)

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. For the year ended December 31, 2017, there were subscriptions of 334.4200 Class A Redeemable Units totaling $407,041 and subscriptions of 21.2650 Class Z Redeemable Units totaling $20,784. For the year ended December 31, 2016, there were subscriptions of 544.1480 Class A Redeemable Units totaling $697,000. For the year ended December 31, 2015, there were subscriptions of 2,514.3600 Class A Redeemable Units totaling $3,429,167.

The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Section 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors as described in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

Proceeds from the subscriptions of Redeemable Units are used in the trading of commodity interests, including futures, swap, option and forward contracts.

 

  (g)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following chart sets forth the purchases of Class A Redeemable Units by the Partnership.

 

Period  

Class A (a)

Total Number

of Redeemable
Units Purchased* 

 

Class A (b)
Average

Price Paid per
Redeemable

Unit**

 

(c) Total

Number of
Redeemable
Units Purchased
as Part of Publicly
Announced

Plans or Programs 

 

(d) Maximum
Number (or

Approximate

Dollar Value) of
Redeemable Units

that May Yet

Be Purchased

Under the Plans or

Programs

October 1, 2017 - October 31, 2017

  1,675.8260     $            1,192.49     N/A   N/A

November 1, 2017 - November 30, 2017

  1,326.0230     $            1,193.53     N/A   N/A

December 1, 2017 - December 31, 2017

  1,787.4140     $            1,162.18     N/A   N/A
    4,789.2630     $            1,181.47          

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

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

 

18


Item 6. Selected Financial Data.

Total investment income, total expenses, net income (loss), total trading results and increase (decrease) in net asset value per Redeemable Unit for Class A for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and net asset value per Redeemable Unit and total assets as of December 31, 2017, 2016, 2015, 2014 and 2013 were as follows:

 

     2017      2016      2015      2014      2013  

Total investment income

     $ 429,611         $ 177,756         $ 24,184         $ 25,253         $ 65,605   

Total expenses

     (3,384,945)        (5,048,596)        (7,728,655)        (10,858,959)        (13,573,285)  

Total trading results

     (820,027)        502,983         5,795,803         7,295,780         12,185,329   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     $ (3,775,361)        $ (4,367,857)        $ (1,908,668)        $ (3,537,926)        $ (1,322,351)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Increase (decrease) in net asset value per

Redeemable Unit:

              

Class A

     $ (92.11)        $ (73.87)        $ (26.14)        $ 3.90         $ (9.41)  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Class Z

     $ (46.69)        $ -            $ -            $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net asset value per Redeemable Unit:

              

Class A

     $ 1,162.18         $ 1,254.29         $ 1,328.16         $ 1,354.30         $ 1,350.40   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Class Z

     $ 953.31         $ -            $ -            $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $     44,270,612         $     67,541,872         $     97,470,590         $     119,213,383         $     170,252,847   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Partnership, directly and through its investment in the Funds, aims to achieve substantial capital appreciation and permit investors to diversify a traditionally structured stock and bond portfolio. The Partnership attempts to accomplish its objectives through speculative trading in U.S. and international markets for currencies, interest rates, stock indices, agricultural and energy products and precious and base metals directly, or through investment in the Funds. The Partnership/Funds may employ futures, option on futures, forward, option on forward, spot and swap contracts, cash commodities and any other rights or interest pertaining thereto, in those markets. The Partnership/Funds may also enter into swap and other derivative transactions with the approval of the General Partner.

The General Partner manages all business of the Partnership/Funds. The General Partner has delegated its responsibility for the investment of the Partnership’s assets to the Advisors. The General Partner engages a team of approximately 25 professionals whose primary emphasis is on attempting to maintain quality control among the Advisors to the funds operated or managed by the General Partner. A full-time staff of due diligence professionals use proprietary technology and on-site evaluations to monitor new and existing futures money managers. The accounting and operations staff provides processing of subscriptions and redemptions and reporting to limited partners and regulatory authorities. The General Partner also includes staff involved in marketing and sales support.

Responsibilities of the General Partner include:

 

   

due diligence examinations of the Advisors;

 

   

selection, appointment and termination of the Advisors;

 

   

negotiation of the management agreements; and

 

   

monitoring the activity of the Advisors.

In addition, the General Partner prepares, or assists the Administrator in preparing, the books and records and provides, or assists the Administrator in providing, the administrative and compliance services that are required by law or regulation, from time to time, in connection with the operation of the Partnership.

While the Partnership and the Funds have the right to seek lower commission rates from other commodity brokers at any time, the General Partner believes that the customer agreements and other arrangements with the commodity broker(s) are fair, reasonable, and competitive.

 

19


As of December 31, 2017, the programs traded by Cambridge, SECOR, Harbour Square, Independent View, AE Capital and Launchpad on behalf of the Partnership were: Cambridge — Asian Markets Alpha Programme and Emerging Markets Alpha Programme, SECOR — a variation of the program traded by SECOR Alpha Master Fund L.P., Harbour Square — Discretionary Energy Program, Independent View — IV Quantitative Futures Fund Program, AE Capital — AE Systematic FX Fund Program, Launchpad — MJP Commodity Strategy, and prior to its termination, Willowbridge —. wPraxis Futures Trading Approach. The General Partner may modify or terminate the allocation of assets among the Advisors at any time and may allocate assets to additional Advisors at any time.

As of December 31, 2017 and September 30, 2017, the Partnership’s assets were allocated among the Advisors in the following approximate percentages:

 

Advisor

  December 31, 2017     December 31, 2017
(percentage of
Partners’ Capital)
        September 30, 2017     September 30, 2017
(percentage of
Partners’ Capital)
     

AE Capital

  $ 9,484,061         23      %       $ 9,798,082         20      %

Cambridge

    361,255             %         2,803,390             %

Harbour Square

    9,815,150         23      %         11,407,240         23      %

Independent View

    7,906,085         19      %         7,508,092         15      %

Launchpad

    9,405,883         23      %         9,706,471         20      %

SECOR

    4,770,178         11      %         7,464,100         16      %

The Cambridge Strategy (Asset Management) Limited

Asian Markets Alpha Programme

The Asian Markets Alpha Programme aims to profit from short and medium term moves in the Asian markets’ currency pairs. To achieve this, Cambridge employs a largely systematic approach, designed to perform across diverse market environments. The process combines three decision making tools: a Systematic Technical Strategy, a Systematic Fundamental Strategy and a Market Information Strategy. During periods of higher volatility, the Systematic Technical Strategy uses a series of proprietary trading algorithms operating over multiple timeframes. The algorithms combine trend continuation and trend reversal signals. During periods of lower volatility, the Systematic Fundamental Strategy reflects a predetermined set of positions designed to reflect ‘market’ views on the relative attractiveness of currencies versus the U.S. dollar, thereby realizing the inherent benefits of the carry trade. The Market Information Strategy leverages the experience and global network of Cambridge’s portfolio managers to understand and exploit the behavior of other market participants and to participate in hedging and investment flows. It has characteristics often associated with discretionary managers. Cambridge’s proprietary Global Volatility Indicator serves as Cambridge’s regime shifting mechanism within the systematic strategies. Cambridge believes that long run success is achieved through successful mitigation of downside returns with risk controlled at the portfolio, strategy and individual trade levels.

Emerging Markets Alpha Programme

The Emerging Markets Alpha Programme aims to profit from short and medium term moves in the developing markets’ currency pairs. To achieve this, Cambridge employs a largely systematic approach, designed to perform across diverse market environments. The process combines three decision making tools: a Systematic Technical Strategy, a Systematic Fundamental Strategy and a Market Information Strategy. During periods of higher volatility, the Systematic Technical Strategy uses a series of proprietary trading algorithms operating over multiple timeframes. The algorithms combine trend continuation and trend reversal signals. During periods of lower volatility, the Systematic Fundamental Strategy reflects a predetermined set of positions designed to reflect ‘market’ views on the relative attractiveness of currencies versus the U.S. dollar, thereby realizing the inherent benefits of the carry trade. The Market Information Strategy leverages the experience and global network of Cambridge’s portfolio managers to understand and exploit the behavior of other market participants and to participate in hedging and investment flows. It has characteristics often associated with discretionary managers. Cambridge’s proprietary Global Volatility Indicator serves as Cambridge’s regime shifting mechanism within the systematic strategies. Cambridge believes that long run success is achieved through successful mitigation of downside returns with risk controlled at the portfolio, strategy and individual trade levels.

 

20


SECOR Capital Advisors, LP

SECOR’s investment objectives are to generate high risk-adjusted returns by: (i) investing across a diverse set of asset classes, geographies, factors, themes and time horizons, (ii) identifying and exploiting temporarily pronounced market inefficiencies or risk premia, (iii) employing dynamic risk-budgeting to minimize tail risk and potentially enable alpha to be generated through timing of exposures and (iv) utilizing sophisticated modeling techniques supported by straight-forward economic intuition and sound fundamentals. SECOR will seek to target long-term annualized volatility of 15% and low long-term correlation to other hedge fund strategies and broader markets.

SECOR has a healthy respect for the general information efficiency of markets but believes that certain inefficiencies (or outsized risk premia) may exist in certain markets, and these or other inefficiencies (or risk premia) may periodically become more pronounced in particular market conditions. SECOR believes that it is feasible to construct an investment strategy that seeks to capture such inefficiencies (premia) in pursuit of high risk-adjusted returns (or excess returns for benchmarked mandates) that are lowly correlated with broad stock and bond market returns (alpha).

SECOR employs statistical techniques and empirical analysis to help determine whether they believe that observed or conjectured alpha opportunities are real and, more importantly, likely to be sustained in the future. If properly employed, these techniques may have certain advantages versus a purely judgmental approach including the potential ability to: control for the impact of particular factors, evaluate phenomena over a longer history, systematically assess confidence levels based on availability of data, evaluate performance over certain sub-periods and market cycles, identify certain possible causation and lead/lag effects, reduce certain common behavioral biases in human judgment and evaluate a range of factors in a systematic way.

When determining whether a factor should be used in driving SECOR’s models and strategies, conclusions derived from the statistical techniques are generally not sufficient. SECOR also seeks to reconcile whether the findings are consistent with some economic, theoretical or behavioral intuition, including why a factor may lead to alpha and what conditions could cause a factor to cease to work at some point in the future. Although the statistical techniques that SECOR uses to conduct its empirical evaluations may be sophisticated, SECOR strives to keep the models that drive the investment process as simple as practicable.

SECOR uses its proprietary models to systematically allocate and manage risk across a wide breadth of quantitative investment strategies, geographies and asset classes – a process known as risk budgeting. SECOR employs these models to construct a portfolio and manage risk. These strategies may include currencies, commodities, equity indices, fixed income, cross-asset class trades and opportunistic strategies.

SECOR strongly believes in the benefits of diversification and that diversification should be sought across many aspects of the investment process. Under most circumstances, SECOR will attempt to take positions in a large number of positions across a wide range of asset classes to enhance diversification.

SECOR also seeks diversification across strategies, factors, themes and time horizons. Diversification of risk across strategies may help to produce a more consistent stream of returns by reducing the impact of poor performance in any one strategy. Recognizing that none of SECOR’s strategies will work at all times and, in fact, most strategies experience periods of significant negative performance, SECOR seeks to develop strategies in many asset classes and markets in which SECOR identifies potential value. Within each strategy, it is also important to ensure that there is appropriate diversification across factors and themes and that the weightings of these themes can be controlled and easily changed dynamically as market conditions warrant, while taking into account factors such as liquidity, volatility, correlations, market impact and transaction costs. In portfolio construction, SECOR’s initial task is to identify, among other things, tilts, premia, signals, relative value pairs, anomalies, liquidity events and temporary price pressure that SECOR believes may provide attractive risk/return contributions on a stand-alone basis and in the context of a broader portfolio. SECOR then combines data and general conviction levels (in the form of priors) regarding the potential contributions and correlations of these exposures to help determine their allocations within the portfolio, utilizing a thoughtful, systematic risk-budgeting approach that seeks to enable these exposures to be dynamic, rather than static. In doing so, part of SECOR’s alpha proposition could reside in timing exposures, or identifying the appropriate times to: increase or decrease exposures and/or include or exclude exposures from the portfolio altogether.

The foregoing is not a comprehensive list of the methods of analysis and/or investment strategies that may be employed by SECOR. SECOR intends to continually review and refine its strategies and to examine new ideas and opportunities. Additional strategies may be added from time to time.

The descriptions set forth herein about specific strategies that SECOR may deploy are not intended to be exhaustive and should not be understood to limit the Partnership’s or SECOR Master’s investment activities.

 

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Harbour Square Capital Management LLC

The Discretionary Energy Program focuses on a proprietary process that involves applying simulations to in-house models that emulate the fundamental elements of natural gas supply and demand to build distributions of possible fundamental outcomes. Harbour Square then continuously analyzes the changes to these distributions to determine underlying skew variations throughout time. This analysis of the change and rate of change in fundamental distributions while evaluating the concurrent natural gas price movements along the forward curve allows Harbour Square to identify optimal risk/reward investment opportunities. Harbour Square looks to capitalize on short-to-intermediate term price dislocations by trading exchange-cleared futures, options and swaps in the U.S. natural gas market.

Independent View BV

The IV Quantitative Futures Fund Program is entirely systematic and is made up of two sub-components. The first aims to capture trends as exhibited by price momentum effects in financial markets spanning all major asset classes. Market trends occur for fundamental economic reasons as well as a variety of behavioral reasons. Independent View’s program is designed to capture upward as well as downward price momentum effects on a variety of timescales, ranging from a couple of days to a few months. The second sub-component is comprised of Independent View’s volatility trading systems, which capture non-directional market phenomena and inefficiencies. Combining these two sub-components into one overall risk framework gives rise to a system that yields returns in multiple market environments that are relatively uncorrelated to traditional asset class returns.

AE Capital PTY Limited

AE Capital’s philosophy is that markets are driven by fundamental themes and that those fundamental themes inherently change over time. AE Capital has developed a proprietary systematic strategy that dynamically adapts to the fundamental themes quantified to be driving markets. New themes are identified by the Investment Manager primarily through fundamental research. Once a new theme is scientifically tested and deemed eligible it is incorporated into the theme adapting system framework. Capital is only allocated to a theme if the theme adapting system determines that the theme carries statistically significant information and improves the overall portfolio. Risk is minimized through a proprietary portfolio construction technique that diversifies the portfolio in terms of the underlying currency exposures, trade time horizons and fundamental views.

Launchpad Capital Management, LLC

Launchpad Capital is a discretionary commodity manager with a focus on systematic market research, which is reflected in the MJP Commodity Strategy and according to this strategy successful alpha generation in the commodity space requires a methodology for interpreting price signals as either moving a market towards or away from fundamental value. It is the accurate determination of the time to and price from which a reversion to fundamental value occurs that makes a successful trade.

No assurance can be given that the Advisors’ strategies will be successful or that they will generate profits for the Partnership.

Specific Fund level performance information is included in Note 6 to the Partnership’s financial statements included in “Item 8. Financial Statements and Supplementary Data.”

For the period January 1, 2017 through December 31, 2017 the average allocation by commodity market sector for each of the Funds was as follows:

 

     Cambridge Master Fund L.P.            

Currencies

           100 
   Secor Master Fund L.P.      

Currencies

           34.0 

Energy

           2.6 

Grains

           2.1 

Indices

           39.3 

Interest Rates U.S.

           1.1 

Interest Rates Non-U.S.

           5.1 

Livestock

           1.2 

Metals

           11.2 

Softs

           3.4 

(a) Liquidity.

The Partnership does not engage in sales of goods or services. Its assets are its (i) investment in the Funds, (ii) equity in trading account, consisting of unrestricted cash, restricted cash, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts, options purchased at fair value and investment in U.S. Treasury bills at fair value, if applicable, (iii) cash at bank and (iv) interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its direct investments and investment in the Funds.

 

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While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the year ended December 31, 2017.

To minimize the risk relating to low margin deposits, the Partnership/Funds follow certain trading policies, including:

 

  (i)

The Partnership/Funds invest their assets only in commodity interests that the Advisors believe are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that the Advisors believe will permit them to enter and exit trades without noticeably moving the market.

 

  (ii)

An Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Partnership’s net assets allocated to that Advisor.

 

  (iii)

The Partnership/Funds may occasionally accept delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position is fully hedged.

 

  (iv)

The Partnership/Funds do not employ the trading technique commonly known as “pyramiding,” in which the speculator uses unrealized profits on existing positions as margin for the purchase or sale of additional positions in the same or related commodities.

 

  (v)

The Partnership/Funds do not utilize borrowings other than short-term borrowings if the Partnership/Funds take delivery of any cash commodities.

 

  (vi)

The Advisors may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership/Funds. “Spreads” and “Straddles” describe commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets.

 

  (vii)

The Partnership/Funds will not permit the churning of their commodity trading accounts. The term “churning” refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, indicating the desire to generate commission income.

From January 1, 2017 through December 31, 2017, the Partnership’s average margin to equity ratio (i.e., the percentage of assets on deposit required for margin) was approximately 21.3%. The foregoing margin to equity ratio takes into account cash held in the Partnership’s name, as well as the allocable value of the positions and cash held on behalf of the Partnership in the name of the Funds.

In the normal course of business, the Partnership and the Funds are parties to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include futures, forwards, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or OTC. Exchange-traded instruments include futures and certain standardized forward, swap 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. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. 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 21.1% to 62.2% of the Partnership’s/Funds’ contracts are traded OTC.

As both a buyer and seller of options, the Partnership/Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership/Funds to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Partnership/Funds do not consider these contracts to be guarantees.

Market risk is the potential for changes in the value of the financial instruments traded by the Partnership/Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership and the Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

 

23


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

The General Partner monitors and attempts to mitigate the Partnership’s/Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions. (See also “Item 8. Financial Statements and Supplementary Data.” for further information on financial instrument risk included in the notes to financial statements.)

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

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

Other than the risks inherent in U.S. Treasury bills, money market mutual fund securities, commodity futures and other derivatives, the Partnership knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way. The Limited Partnership Agreement provides that the Partnership will cease trading operations and liquidate all open positions under certain circumstances including a decrease in net asset value per Redeemable Unit of any class to less than $400 as of the close of business on any trading day. In addition, the General Partner may, in its sole discretion, cause the Partnership to dissolve if the Partnership’s aggregate net assets decline to less than $1,000,000.

(b) Capital Resources.

(i) The Partnership does not have, nor does it expect to have, any capital assets.

(ii) The Partnership’s capital consists of the capital contributions of the partners, as increased or decreased by net realized and/or unrealized gains or losses on trading and by expenses, interest income, subscriptions, redemptions of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be predicted. Market movements in commodities are dependent upon fundamental and technical factors which the Advisors may or may not be able to identify, such as changing supply and demand relationships, weather, government, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. Partnership expenses consist of, among other things, ongoing selling agent, clearing, General Partner and management fees. The level of these expenses is dependent upon trading performance and the ability of the Advisors to identify and take advantage of price movements in the commodity markets, in addition to the level of net assets maintained. In addition, the amount of interest income earned by the Partnership is dependent upon (1) the average daily equity maintained in cash in the Partnership’s and/or applicable Fund’s accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds, MS&Co. or JPMorgan has control.

No forecast can be made as to the level of redemptions in any given period. A limited partner may require the Partnership to redeem its Redeemable Units at their net asset value as of the end of each month, on three business days’ notice to the General Partner. There is no fee charged to limited partners in connection with redemptions. Redemptions are generally funded out of the Partnership’s cash holdings and/or redemptions from the Funds. For the year ended December 31, 2017, 15,208.6060 Class A Redeemable Units were redeemed totaling $18,600,473, 572.7556 General Partner Class A Redeemable Units were redeemed totaling $706,349 and 157.3470 General Partner Class Z Redeemable Units were redeemed totaling $150,000. For the year ended December 31, 2016, 20,386.6212 Class A Redeemable Units were redeemed totaling $26,455,938 and 241.8090 General Partner Class A Redeemable Units were redeemed totaling $311,128. For the year ended December 31, 2015, 16,004.4080 Class A Redeemable Units were redeemed totaling $21,643,956 and 127.8240 General Partner Class A Redeemable Units were redeemed totaling $175,894.

The Partnership continues to offer Redeemable Units at the net asset value per Redeemable Unit per Class as of the end of each month. For the year ended December 31, 2017, there were subscriptions of 334.4200 Class A Redeemable Units totaling $407,041, 21.2650 Class Z Redeemable Units totaling $20,784 and 656.2520 General Partner Class Z Redeemable Units totaling $656,252. For the year ended December 31, 2016, there were subscriptions of 544.1480 Class A Redeemable Units totaling $697,000.

 

24


For the year ended December 31, 2015, there were subscriptions of 2,514.3600 Class A Redeemable Units totaling $3,429,167.

(c) Results of Operations.

For the year ended December 31, 2017, the net asset value per Class A Redeemable Unit decreased 7.3% from $1,254.29 to $1,162.18. For the period from July 1, 2017 (date of first issuance) to December 31, 2017, the net asset value per Class Z Redeemable Unit decreased 4.7% from $1,000.00 to $953.31. For the year ended December 31, 2016, the net asset value per Class A Redeemable Unit decreased 5.6% from $1,328.16 to $1,254.29. For the year ended December 31, 2015, the net asset value per Class A Redeemable Unit decreased 1.9% from $1,354.30 to $1,328.16.

The Partnership experienced a net trading loss (before fees and expenses) in the year ended December 31, 2017 of $820,027. Losses were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, U.S. and non-U.S. interest rates, livestock, metals and softs, and were partially offset by gains in currencies and indices. The net trading gains and losses realized from the Partnership and the Funds is disclosed under Item 8. “Financial Statements and Supplementary Data.”

During the first quarter, the Partnership recorded gains in the global stock index sector during January and March from long positions in U.S. and European equity index futures as prices rallied amid renewed bullishness relating to President Donald Trump’s policies and general positive economic sentiment across the globe. Gains were also achieved within the currency sector during the first half of the February from short positions in the Swedish krona versus the U.S. dollar as the relative value of the dollar strengthened following expectations of faster U.S. economic growth. Additional currency gains were recorded in the Taiwan dollar, Indian rupee, South African rand, and euro. A portion of the Partnership’s gains for the first quarter was offset by losses experienced primarily during the first half of the February from short positions in corn and wheat futures as prices rose following an improved outlook for U.S. exports. Additional losses were recorded during January from long positions in natural gas futures as prices decreased due to milder-than-normal temperatures in North America.

During the second quarter, the most notable losses were recorded during late June from short wheat and soybeans futures positions as prices rose sharply after the U.S. Department of Agriculture added to supply concerns by reporting soybean and spring wheat acres were below what analysts had expected. Further losses during the quarter were incurred within the metals complex from long and short industrial metals futures positions as prices whipsawed. Within the global interest rate sector, losses were recorded primarily during the last week of June from long European fixed income futures positions. The Partnership’s losses for the second quarter were partially offset by gains achieved within the energy complex during the middle of May from long positions in crude oil as prices increased amid speculation that OPEC would extend its agreement to curb oil production. Further gains were recorded in the global stock index markets during May from long positions in European equity index futures as prices were buoyed by increased consumer confidence.

During the third quarter, the most meaningful losses were recorded in the agricultural sector primarily during July from short positions in soybean futures as drought conditions in portions of the U.S. Midwest threatened crops, pushing prices higher. Within the energy complex, losses were recorded during the second half of September from long futures positions in natural gas as prices decreased amid mild weather and speculation of an increase in stockpiles. Within the currency sector, losses were recorded during the first half of August from long positions in the Canadian dollar versus the U.S. dollar. The Partnership’s losses for the third quarter were partially offset by gains achieved within the metals complex during August from long positions in industrials metals futures as prices climbed higher amid a recovery in Chinese demand and mining labor disputes. Additional gains were experienced from long positions in the global stock index markets.

During the fourth quarter, the most notable losses were incurred during December from short positions in the “commodity currencies” amid rising commodity prices. Additional losses were recorded in energies during October and December from long natural gas positions as prices decreased amid mild weather patterns in the U.S. Smaller losses during the quarter were recorded in the metals and agricultural markets. A portion of the Partnership’s trading losses for the fourth quarter was offset by gains recorded from long positions within the global stock index sector during October and November as equity prices were boosted throughout the quarter following hawkish comments from several of the world’s largest central banks, strong consumer data, and positive economic sentiment globally.

The Partnership experienced a net trading gain (before fees and expenses) in the year ended December 31, 2016 of $502,983. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, energy, grains, non-U.S. interest rates, livestock and softs, and were partially offset by losses in U.S. interest rates, metals and indices.

The most significant losses were recorded within the metals complex during February and March from short base metals futures positions as prices rose on optimism that demand would improve in China after the government signaled increased support for the economy through higher spending and measures to boost lending. During April, additional losses in this sector were experienced from short silver futures positions as prices rose as a decrease in the value of U.S. dollar spurred investor demand for precious metals. Losses were incurred during August and September from long and short futures positions in industrial metals as prices whipsawed on speculation of Chinese demand. Losses were experienced within the stock indices during January from long positions in U.S. and European equity index futures as prices declined sharply amid a slowdown in China, a drop in oil prices, and weak corporate earnings. Additional losses were incurred in this sector during February from long positions in Asian equity index futures as prices moved lower amid ongoing concerns over the Chinese economy. Losses in this sector were also incurred during the second quarter from long and short global equity index futures positions. During October, losses within this sector were recorded primarily from long positions in FTSE Index futures as British equity prices fluctuated throughout the month amid speculation regarding the country’s future relationship

 

25


with the European Union. During November, losses in the global stock indices were from short positions in Pacific Rim equity index futures as a growing positive economic sentiment pushed prices higher. Additional losses in this sector were recorded from short European equity index futures as prices rose after the European Central Bank (“ECB”) extended its quantitative easing program. A portion of the Partnership’s losses for the year was offset by gains achieved within the global interest rates sector during January and May from long Canadian bond futures positions as prices increased amid speculation that a decrease in oil revenue in Canada would delay future government interest rate increases. During June, additional gains were achieved within the this sector from long positions in European and U.S. fixed income futures as prices advanced as uncertainty surrounding the economic and political fallout following the U.K.’s vote to leave the European Union increased demand for the relative “safety” of government debt. Within the agricultural sector, gains were recorded during June from long sugar futures positions as poor growing conditions in Thailand, possible weather delays in the Brazilian harvest and an expected supply shortfall in 2017 helped lift prices higher. Gains were also experienced during August from short positions in wheat and corn futures as prices moved lower as positive weather conditions in the world’s grain growing regions added to a global supply glut. Additional gains were achieved in the agriculturals during September from long positions in sugar futures as prices moved higher. Within the energy complex, gains were recorded during July from short futures positions in crude oil as an increase in the U.S. rig count and growing inventories continued to pressure prices lower. Further gains achieved during December within the energy complex were from long natural gas futures positions as prices rose amid colder temperatures and below normal inventory stockpiles.

Interest income on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at MS&Co. during each month is earned at the monthly average of the 4-week U.S. Treasury bill discount rate. Any interest earned on the Partnership’s and/or each Fund’s account at MS&Co. in excess of the amounts described above, if any, will be retained by MS&Co. and/or shared with the General Partner. All interest earned on U.S. Treasury bills and money market mutual fund securities will be retained by the Partnership and/or the Funds, as applicable. Any interest income earned on collateral or excess cash deposited by certain of the Funds and held by JPMorgan in its capacity as such Funds’ forward foreign currency counterparty will be retained by such Funds, and the Partnership will receive its allocable portion of such interest from the applicable Fund. Interest income for the three and twelve months ended December 31, 2017 increased by $76,363 and $251,855, respectively, as compared to the corresponding periods in 2016. The increase in interest income is primarily due to higher 4-week U.S. Treasury bill discount rates during the three and twelve months ended December 31, 2017 as compared to the corresponding periods in 2016. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership is dependent upon (1) the average daily equity maintained in cash in the Partnership’s and/or the applicable Fund’s accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds, MS&Co. or JPMorgan has control.

Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees related to direct investments for the three and twelve months ended December 31, 2017 decreased by $518 and $31,942, respectively, as compared to the corresponding periods in 2016. The decrease in these clearing fees is primarily due to a decrease in the number of direct trades made by the Partnership during the three and twelve months ended December 31, 2017 as compared to the corresponding periods in 2016.

Ongoing selling agent fees are calculated as a percentage of the Partnership’s adjusted net asset value of Class A Redeemable Units as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in monthly net asset values. Ongoing selling agent fees for the three and twelve months ended December 31, 2017 decreased by $126,734 and $537,817, respectively, as compared to the corresponding periods in 2016. The decrease in ongoing selling agent fees is due to lower average net assets during the three and twelve months ended December 31, 2017 as compared to the corresponding periods in 2016.

Management fees are calculated as a percentage of the Partnership’s adjusted net assets per Class as of the last day of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in monthly net asset values. Management fees for the three and twelve months ended December 31, 2017 decreased by $105,038 and $443,260, respectively, as compared to the corresponding periods in 2016. The decrease in management fees is due to lower average net assets during the three and twelve months ended December 31, 2017 as compared to the corresponding periods in 2016.

General Partner fees are paid to the General Partner for administering the business and affairs of the Partnership including, among other things (i) selecting, appointing and terminating the Partnership’s commodity trading advisors, (ii) allocating and reallocating the Partnership’s assets among the commodity trading advisors and (iii) monitoring the activities of the commodity trading advisors. These fees are calculated as a percentage of the Partnership’s adjusted net assets per Class as of the last day of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in monthly net asset values. General Partner fees for the three and twelve months ended December 31, 2017 decreased by $61,735 and $266,045, respectively, as compared to the corresponding periods in 2016. The decrease in General Partner fees for the three and twelve months ended December 31, 2017 is primarily due to lower average net assets during the three and twelve months ended December 31, 2017 as compared to the corresponding periods in 2016.

Incentive fees paid by the Partnership to the Advisors are based on the new trading profits generated by each Advisor at the end of the quarter, as defined in the respective Management Agreements among the Partnership, the General Partner and each Advisor. Trading performance for the three and twelve months ended December 31, 2017 resulted in incentive fees in the amounts of $0 and $118,265, respectively. Trading performance for the three months and twelve months ended December 31, 2016 resulted in incentive fees of

 

26


$10,625 and $301,291, respectively. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.

The Partnership pays professional fees, which generally include legal and accounting expenses (including legal and accounting expenses related to the offering), as well as administrative and other expenses which include certain offering costs and filing, reporting and data processing fees. Professional fees for the years ended December 31, 2017 and 2016 were $420,665 and $422,957, respectively.

The Partnership experienced a net trading gain (before fees and expenses) in the year ended December 31, 2015 of $5,795,803. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, energy, U.S. interest rates, livestock, metals and indices, and were partially offset by losses in grains, non-U.S. interest rates and softs.

The most significant losses were recorded within the agricultural sector during January from long wheat futures positions as an expanding global grain surplus drove prices lower. Additional losses in the agricultural markets were recorded during March from long positions in cocoa futures as prices moved lower after industry reports indicated that cocoa production reached record highs in the Ivory Coast, the world’s top cocoa producing nation. Further losses in this sector were recorded during April and October from short lean hog and live cattle futures positions as prices rose due to an increase in demand. Within the global interest rate sector, losses were incurred during February, April, and May from long positions in European and U.S. fixed income futures as prices declined due to an increase in probability that the U.S. Federal Reserve (the “Fed”) would raise interest rates. Additional losses were recorded during October from long Canadian fixed income futures positions as prices whipsawed throughout the month as investors debated Canadian monetary policy and how it may change with the newly elected Canadian Liberal Party in control. During December, losses were experienced in this sector from long European bond futures positions as prices reversed sharply lower after the ECB announced new stimulus measures that fell short of market expectations. The Partnership’s losses for the year were offset by gains experienced within the currency sector during the first quarter from short euro positions versus the U.S. dollar as the value of the euro decreased due to an unprecedented economic stimulus program introduced by the ECB. Additional gains were recorded in this sector during July and August from short positions in various currencies, particularly the Korean won, Thai baht, Taiwan dollar, and Australian dollar against the U.S. dollar as the value of the U.S. dollar advanced amid signals from the Fed Chair Janet Yellen that the central bank may raise interest rates later in 2015. During November, further gains were achieved in currencies from long positions in the U.S. dollar versus emerging market currencies as the value of the U.S. dollar continued its rally in November amid speculation that the Fed would increase interest rates in December 2015. In the metals sector, gains were achieved during July from short precious and base metals futures positions as prices moved lower due to a strengthening U.S. dollar and concern that a slowdown in the Chinese economy would weaken demand. Additional gains in metals were achieved during November from short positions in copper futures as prices declined as weak economic data from China continued to dampen demand prospects within an already oversupplied market. Within the stock index sector, gains were experienced during February and March from long positions in European and U.S. index futures as prices were supported by the ECB’s asset purchasing program and positive economic data in the U.S. Further gains were recorded during the middle of July from long positions in European equity index positions as prices rebounded with positive investor sentiment after Greece and its creditors finally came to an agreement over economic reform. Additional gains in stock indices were recorded during August from short positions in U.S. and European equity index futures as prices declined amid signs of a slowdown in China, uncertainty surrounding the Fed’s interest rate policy, and lackluster U.S. corporate earnings. Within the energy complex, gains were experienced during January, July, November, and December from short positions in crude oil and oil related products as prices fell due to high production in the U.S. and Middle East, which added to a growing global supply glut.

In the General Partner’s opinion, the Advisors continue to employ trading methods and produce results consistent with their expected performance given market conditions and the objectives of the Partnership. The General Partner continues to monitor the Advisors’ performance on a daily, weekly, monthly and annual basis to ensure that these objectives are met.

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

In allocating the assets of the Partnership among the Advisors, the General Partner considers, among other factors, the background of the Advisors’ principals, as well as the Advisors’ trading styles, strategies and markets traded, expected volatility, trading results (to the extent available) and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time. Each Advisor’s percentage allocation and trading program is described in the “Overview” section of this Item 7.

(d) Off-balance Sheet Arrangements. None.

(e) Contractual Obligations. None.

(f) Operational Risk.

The Partnership/Funds are directly exposed to market risk and credit risk, which arise in the normal course of their business activities. Slightly less direct, but of critical importance, are risks pertaining to operational and back office support. This is particularly the case in a rapidly changing and increasingly global environment with increasing transaction volumes and an expansion in the number

 

27


and complexity of products in the marketplace.

Such risks include:

Operational/Settlement Risk — the risk of financial and opportunity loss and legal liability attributable to operational problems, such as inaccurate pricing of transactions, untimely trade execution, clearance and/or settlement, or the inability to process large volumes of transactions. The Partnership/Funds are subject to increased risks with respect to their trading activities in emerging market instruments, where clearance, settlement, and custodial risks are often greater than in more established markets.

Technological Risk — the risk of loss attributable to technological limitations or hardware failure that constrain the Partnership’s/Funds’ ability to gather, process, and communicate information efficiently and securely, without interruption, to customers, and in the markets where the Partnership/Funds participate. Additionally, the General Partner’s computer systems may be vulnerable to unauthorized access, mishandling or misuse, computer viruses or malware, cyber-attacks and other events that could have a security impact on such systems. If one or more of such events occur, this potentially could jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the General Partner’s computer systems, and adversely affect the Partnership’s business, financial condition or results of operations.

Legal/Documentation Risk — the risk of loss attributable to deficiencies in the documentation of transactions (such as trade confirmations) and customer relationships (such as master netting agreements) or errors that result in non-compliance with applicable legal and regulatory requirements.

Financial Control Risk — the risk of loss attributable to limitations in financial systems and controls. Strong financial systems and controls ensure that assets are safeguarded, that transactions are executed in accordance with the General Partner’s authorization, and that financial information utilized by management and communicated to external parties, including the Partnership’s Redeemable Unit holders, creditors, and regulators, is free of material errors.

(g) Critical Accounting Policies.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires the General Partner 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 expenses during the reporting period. As a result, actual results could differ from these estimates. A summary of the Partnership’s significant accounting policies is described in Note 2 to the Partnership’s financial statements included in “Item 8. Financial Statements and Supplementary Data.”

The Partnership’s most significant accounting policy is the valuation of its investments in the Funds and in futures, option and forward contracts and U.S. Treasury bills, as applicable. The fair value of the investment in the Funds is determined based on the respective Fund’s net asset value per unit as calculated by the Fund or the Partnership’s (1) net contribution to the Funds and (2) its allocated share of the undistributed profits and losses, including realized gains (losses) and net change in unrealized gains (losses) of the Funds. The fair value of exchange-traded futures, option and forward contracts is determined by the various 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. U.S. Treasury bills are valued at the last available bid price received from independent pricing services as of the close of the last business day of the reporting period.

 

28


Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Introduction

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

The limited partners will not be liable for losses exceeding the current net asset value of their investment. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

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

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

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

Materiality as used in this section is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Partnership’s/Funds’ market sensitive instruments.

Quantifying the Partnership’s Trading Value at Risk

The following quantitative disclosures regarding the Partnership’s and the Funds’ 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, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor except for statements of historical fact.

The Partnership and the Funds account for open positions on the basis of fair value accounting principles. Any loss in the market value of the Partnership’s and each Fund’s open positions is directly reflected in the Partnership’s and each Fund’s earnings and cash flow.

The Partnership’s and the Funds’ risk exposure in the market sectors traded by the Advisors is estimated below in terms of Value at Risk. Please note that the Value at Risk model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either the General Partner or the Advisors in their daily risk management activities.

Exchange margin requirements have been used by the Partnership/Funds as the measure of their Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as 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.

In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership/Funds), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

The fair value of the Partnership’s/Funds’ futures and forward contracts does not have any optionality component. However, the Advisors may trade commodity options. The Value at Risk associated with options is reflected in the following tables as the margin requirement attributable to the instrument underlying each option. Where this instrument is a futures contract, the futures margin has been used, and where this instrument is a physical commodity, the futures-equivalent margin has been used. This calculation is conservative in that it assumes that the fair value of an option will decline by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair values of the options traded by the Partnership/Funds in almost all cases fluctuate to a lesser extent than those of the underlying instruments.

 

29


In quantifying the Partnership’s/Funds’ Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been added to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Partnership’s/Funds’ positions are rarely, if ever, 100% positively correlated have not been reflected.

The Partnership’s and the Funds’ Trading Value at Risk in Different Market Sectors

Value at Risk tables represents a probabilistic assessment of the risk of loss in market risk sensitive instruments. As of December 31, 2017, Cambridge and SECOR trade the Partnership’s assets indirectly in master fund managed accounts established in the name of the master fund over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly and through its investments in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly (i.e., in the managed accounts in the Partnership’s name traded by certain Advisors) and indirectly by each Fund separately.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of December 31, 2017 and 2016, as applicable. As of December 31, 2017, the Partnership’s total capitalization was $41,742,612.

 

December 31, 2017

    

Market Sector

    Value at Risk        % of
  Total Capitalization  
 

Currencies

    $ 2,119,287        5.08   %  

Energy

    260,935        0.63    

Grains

    174,526        0.42    

Indices

    2,354,257        5.64    

Interest Rates U.S.

    47,980        0.11    

Interest Rates Non-U.S.

    229,596        0.55    

Livestock

    136,321        0.33    

Metals

    271,279        0.65    

Softs

    268,350        0.64    
 

 

 

    

 

 

 

Total

    $ 5,862,531        14.05   %  
 

 

 

    

 

 

 

As of December 31, 2016, the Partnership’s total capitalization was $63,890,718.

 

December 31, 2016

     

Market Sector

     Value at Risk        % of
  Total Capitalization 
 

Currencies

     $ 9,340,618        14.62   %  

Energy

     240,032        0.38    

Grains

     534,238        0.84    

Indices

     4,628,954        7.25    

Interest Rates U.S.

     259,578        0.41    

Interest Rates Non-U.S.

     696,930        1.09    

Livestock

     67,341        0.11    

Metals

     1,077,578        1.69    

Softs

     329,266        0.52    
  

 

 

    

 

 

 

Total

     $ 17,174,535        26.91   %  
  

 

 

    

 

 

 

 

30


The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investments in the Funds by market category as of December 31, 2017 and 2016, and the highest, lowest and average values during the years. All open contracts trading risk exposures have been included in calculating the figures set forth below.

As of December 31, 2017, the Partnership’s Value at Risk for the portion of its assets traded directly was as follows:

 

     December 31, 2017                             
                  Twelve Months Ended December 31, 2017  

Market Sector

     Value at Risk        % of Total
 Capitalization 
    High
 Value at Risk 
     Low
 Value at Risk 
     Average
 Value at Risk* 
 

Currencies

     $ 200,465          0.48     $ 2,571,044        $ 176,111        $ 1,213,066    

Energy

     198,414          0.48         947,430          33,059          287,765    

Grains

     132,883          0.32         429,239          38,763          209,674    

Indices

     1,510,938          3.62         2,549,011          581,471          1,349,044    

Interest Rates U.S.

     43,318          0.10         377,231          4,335          95,106    

Interest Rates Non-U.S.

     50,256          0.12         425,064          19,402          142,857    

Livestock

     82,335          0.20         140,580          1,925          63,213    

Metals

     103,235          0.25         269,324          37,862          128,232    

Softs

     151,238          0.36         280,390          24,420          106,070    
  

 

 

    

 

 

         

Total

     $ 2,473,082          5.93          
  

 

 

    

 

 

         

 

  * Annual average of month-end Values at Risk.

As of December 31, 2016, the Partnership’s Value at Risk for the portion of its assets traded directly was as follows:

 

     December 31, 2016                             
                  Twelve Months Ended December 31, 2016  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

     $ 354,277          0.55       $ 3,413,780            $                  -                $          774,131    

Energy

     38,688          0.06         766,833          -              252,181    

Grains

     349,906          0.55         465,671          -              112,407    

Indices

     1,717,640          2.69         4,143,445          -              1,529,817    

Interest Rates U.S.

     118,379          0.19         804,067          -              263,503    

Interest Rates Non-U.S.

     189,887          0.30         1,313,118          -              432,795    

Livestock

     56,100          0.09         124,740          -              14,905    

Metals

     96,993          0.15         293,755          -              80,380    

Softs

     171,160          0.27         206,393          -              28,995    
  

 

 

    

 

 

         

Total

     $ 3,093,030          4.85          
  

 

 

    

 

 

         

 

  * Annual average of month-end Values at Risk.

Prior to the close of business on December 31, 2017, Cambridge Master’s total capitalization was $30,318,252 and the Partnership owned 4.9% of Cambridge Master. As of December 31, 2017, Cambridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Cambridge for trading) was as follows:

 

     December 31, 2017                             
                  Twelve Months Ended December 31, 2017  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

   $ 8,074,088          26.63     $ 33,190,552       $ 6,699,509        $ 17,900,275    
  

 

 

    

 

 

         

Total

   $ 8,074,088          26.63          
  

 

 

    

 

 

         

 

  *

Annual average of month-end Values at Risk.

 

31


As of December 31, 2016, Cambridge Master’s total capitalization was $57,156,866. The Partnership owned approximately 26.2% of Cambridge Master. As of December 31, 2016, Cambridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Cambridge for trading) was as follows:

 

     December 31, 2016                             
                  Twelve Months Ended December 31, 2016  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

   $ 20,142,391          35.24     $ 44,182,579        $ 15,170,546        $ 28,591,831    
  

 

 

    

 

 

         

Total

   $ 20,142,391          35.24          
  

 

 

    

 

 

         

 

  *

Annual average of month-end Values at Risk.

Prior to the close of business on December 31, 2017, SECOR Master’s total capitalization was $21,737,000 and the Partnership owned approximately 27.2% of SECOR Master. As of December 31, 2017, SECOR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to SECOR for trading) was as follows:

 

     December 31, 2017                             
                  Twelve Months Ended December 31, 2017  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

   $ 5,598,604          25.76     $ 8,786,583        $ 1,261,594        $ 4,841,645    

Energy

     229,811          1.06         655,587          98,020          352,335    

Grains

     153,069          0.70         590,596          102,168          291,527    

Indices

     3,099,841          14.26         7,187,572          2,785,351          5,205,146    

Interest Rates U.S.

     17,135          0.08         623,265          2,513          77,801    

Interest Rates Non-U.S.

     659,212          3.03         1,119,029          399,879          629,410    

Livestock

     198,440          0.91         287,375          22,896          163,607    

Metals

     617,688          2.84         3,328,787          572,280          1,549,572    

Softs

     430,474          1.98         691,081          140,910          432,858    
  

 

 

    

 

 

         

Total

   $ 11,004,274          50.62          
  

 

 

    

 

 

         

 

  *

Annual average of month-end Values at Risk.

As of December 31, 2016, SECOR Master’s total capitalization was $38,552,438. The Partnership owned approximately 49.1% of SECOR Master. As of December 31, 2016, SECOR Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to SECOR for trading) was as follows:

 

     December 31, 2016                             
                  Twelve Months Ended December 31, 2016  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

     $ 7,412,490          19.23     $ 9,297,022          $ 3,479,321          $ 6,171,444    

Energy

     313,743          0.81         738,344          85,827          418,421    

Grains

     375,442          0.97         798,088          313,775          478,189    

Indices

     5,764,380          14.95         9,278,310          3,472,804          7,151,247    

Interest Rates U.S.

     263,619          0.68         1,126,807          55,598          502,372    

Interest Rates Non-U.S.

     987,769          2.56         2,015,495          604,335          1,225,344    

Livestock

     22,896          0.06         327,195          20,421          173,646    

Metals

     1,990,671          5.16         4,453,106          1,293,843          2,480,887    

Softs

     322,025          0.84         696,841          135,485          328,255    
  

 

 

    

 

 

         

Total

     $ 17,453,035          45.26          
  

 

 

    

 

 

         

 

  *

Annual average of month-end Values at Risk.

 

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As of February 28, 2017, the Partnership fully redeemed its investment in Willowbridge Master. As of December 31, 2016, Willowbridge Master’s total capitalization was $391,498,613. The Partnership owned approximately 1.0% of Willowbridge Master. As of December 31, 2016, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

 

     December 31, 2016                             
                  Twelve Months Ended December 31, 2016  
            % of Total     High      Low      Average  

Market Sector

   Value at Risk       Capitalization       Value at Risk        Value at Risk        Value at Risk*   

Currencies

     $ 7,479,249          1.91     $ 79,559,952        $ 147,470       $ 26,078,802    

Energy

     4,703,756          1.20         12,259,443          -            2,270,260    

Indices

     8,069,535          2.06         11,808,296          -            2,983,129    

Interest Rates U.S.

     1,170,235          0.30         22,748,409          -            4,116,353    

Interest Rates Non-U.S.

     2,194,981          0.56         4,206,401          -            1,168,020    

Metals

     319,854          0.08         4,745,455          -            841,842    
  

 

 

    

 

 

         

Total

     $ 23,937,610          6.11          
  

 

 

    

 

 

         

 

  *

Annual average of month-end Values at Risk.

Material Limitations on Value at Risk as an Assessment of Market Risk

The face value of the market sector instruments held by the Partnership/Funds is typically many times the applicable margin requirement (margin requirements generally range between 1% and 15% of contract face value, although an exchange may increase margin requirements on short notice) as well as many times the capitalization of the Partnership/Funds. The magnitude of the Partnership’s/Funds’ open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Partnership/Funds to incur severe losses over a short period of time. The foregoing Value at Risk tables — as well as the past performance of the Partnership/Funds — gives no indication of this “risk of ruin.”

Non-Trading Risk

The Partnership has non-trading market risk on its foreign cash balances not needed for margin. These balances and any market risk they may represent are immaterial.

A decline in short-term interest rates would result in a decline in the Partnership’s cash management income. This cash flow risk is not considered to be material.

Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality and multiplier features of the Partnership’s market-sensitive instruments, in relation to the Partnership’s net assets.

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s/Funds’ market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership/Funds manage their 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/Funds’ primary market risk exposures as well as the strategies used and to be used by the General Partner and the Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s/Funds’ 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 management strategies of the Partnership/Funds. There can be no assurance that the Partnership’s/Funds’ current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the Partnership as of December 31, 2017 by market sector. It may be anticipated, however, that these market exposures will vary materially over time.

Currencies. The Partnership’s/Funds’ currency exposure is to exchange rate fluctuations, primarily fluctuations that disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The General Partner does not anticipate that the risk profile of the Partnership’s/Funds’ currency sector will change significantly in the future.

 

33


Equities. The Partnership’s/Funds’ primary equity exposure is to equity price risk in the G8 countries. The stock index futures traded by the Partnership/Funds are limited to futures on broadly based indices. As of December 31, 2017, the Partnership’s/Funds’ primary exposures were in the CBOE VIX Market Volatility (U.S.), S&P 500 (U.S.), Dow Jones Euro Stoxx 50 (European Union), and Hang Seng Index (Hong Kong) stock indices. The Partnership/Funds are primarily exposed to the risk of adverse price trends or static markets in the major European, U.S., and Pacific Rim indices. (Static markets would not cause major market changes but would make it difficult for the Partnership/Funds to avoid being “whipsawed” into numerous small losses.)

Interest Rates. Interest rate movements directly affect the price of the futures positions held by the Partnership/Funds and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially affect the Partnership’s/Funds’ profitability. The Partnership’s/Funds’ primary interest rate exposure is to interest rate fluctuations in the United States and the other G8 countries. However, the Partnership/Funds may also take futures positions on the government debt of smaller nations — e.g., Australia.

Commodities:

Metals. The Partnership’s/Funds’ primary metal market exposure as of December 31, 2017 was to fluctuations in the price of copper, silver, palladium, aluminum, and platinum.

Softs. The Partnership’s/Funds’ trading risk exposure in the soft commodities is to agricultural-related price movements, which are often directly affected by severe or unexpected weather conditions. Cocoa, coffee, cotton, and sugar accounted for the majority of the Partnership’s/Funds’ soft commodities exposure as of December 31, 2017.

Energy. The Partnership’s/Funds’ primary energy market exposure is to oil and natural gas price movements, often resulting from political developments in the Middle East and weather conditions. Energy prices can be volatile and substantial profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets in the future.

Grains. The Partnership’s/Funds’ trading risk exposure in the grains is primarily to agricultural price movements, which are often directly affected by severe or unexpected weather conditions. Wheat, corn and the soybean complex accounted for the majority of the Partnership’s/Funds’ grain exposure as of December 31, 2017.

Livestock. The Partnership’s/Funds’ primary risk exposure in livestock is to fluctuations in cattle and hog prices.

Qualitative Disclosures Regarding Non-Trading Risk Exposure

The following was the only non-trading risk exposure of the Partnership/Funds as of December 31, 2017.

Foreign Currency Balances. The Partnerships/Funds may hold various foreign currency balances. The Advisors regularly convert foreign currency balances to U.S. dollars in attempt to control the Partnership’s/ Funds’ non-trading risk.

Qualitative Disclosures Regarding Means of Managing Risk Exposure

The General Manager monitors and attempts to mitigate the Partnership’s/Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.

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

The Advisors apply their own risk management policies to their trading. The Advisors often follow diversification guidelines, margin limits and stop loss points to exit a position. The Advisors’ research of risk management often suggests ongoing modifications to their trading programs.

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

 

34


Item 8. Financial Statements and Supplementary Data.

The following financial statements and related items of the Partnership are filed under this Item 8: Oath or Affirmation, Management’s Report on Internal Control over Financial Reporting, Report of Independent Registered Public Accounting Firm, for the years ended December 31, 2017, 2016 and 2015; Statements of Financial Condition at December 31, 2017 and 2016; Condensed Schedule of Investments as of December 31, 2017 and 2016; Statements of Income and Expenses for the years ended December 31, 2017, 2016, and 2015; Statements of Changes in Partners’ Capital for the years ended December 31, 2017, 2016 and 2015; and Notes to Financial Statements. Additional financial information has been filed as Exhibits to this Form 10-K.

 

35


To the Limited Partners of

Emerging CTA Portfolio L.P.

To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.

 

/s/ Patrick T. Egan

By:

 

Patrick T. Egan

President and Director

Ceres Managed Futures LLC

General Partner,

Emerging CTA Portfolio L.P.

Ceres Managed Futures LLC

522 Fifth Avenue

New York, NY 10036

(855) 672-4468

 

36


Management’s Report on Internal Control Over Financial Reporting

The management of Emerging CTA Portfolio L.P. (the “Partnership”), Ceres Managed Futures LLC, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Partnership’s internal control over financial reporting includes those policies and procedures that:

 

  (i)

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

 

  (ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and

 

  (iii)

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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management of Emerging CTA Portfolio L.P. has assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management concluded that the Partnership maintained effective internal control over financial reporting as of December 31, 2017 based on the criteria referred to above.

 

/s/ Patrick T. Egan

     

/s/ Steven Ross

Patrick T. Egan

     

Steven Ross

President and Director

     

Chief Financial Officer and Director

Ceres Managed Futures LLC

     

Ceres Managed Futures LLC

General Partner,

     

General Partner,

Emerging CTA Portfolio L.P.

     

Emerging CTA Portfolio L.P.

 

37


Report of Independent Registered Public Accounting Firm

To the Partners of Emerging CTA Portfolio L.P.,

Opinion on the Financial Statements

We have audited the accompanying statement of financial condition of Emerging CTA Portfolio L.P. (the “Partnership”) including the condensed schedule of investments as of December 31, 2017, and the related statements of income and expenses and changes in partners’ capital for the year ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2017, and the results of its operations and the changes in its partners’ capital for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

The statement of financial condition, including the condensed schedule of investments, as of December 31, 2016, and the related statements of income and expenses and changes in partners’ capital for the years ended December 31, 2016 and 2015 were audited by another independent registered public accounting firm whose report, dated March 24, 2017, expressed an unqualified opinion on those statements.

Basis for Opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of the Partnership’s internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the auditor of the Partnership since 2017.

Boston, MA

March 22, 2018

 

38


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Emerging CTA Portfolio L.P.:

We have audited the accompanying statements of financial condition of Emerging CTA Portfolio L.P. (the “Partnership”), including the condensed schedules of investments, as of December 31, 2016 and 2015, and the related statements of income and expenses and changes in partners’ capital for the years then ended. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Emerging CTA Portfolio L.P. as of December 31, 2016 and 2015, and the results of its operations and changes in its partners’ capital for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York

March 24, 2017

 

39


Emerging CTA Portfolio L.P.

Statements of Financial Condition

December 31, 2017 and 2016

 

     December 31,
2017
     December 31,
2016
 

Assets:

     

Investment in the Funds(1), at fair value (Note 6)

     $ 5,132,400          $ 37,830,104    

Redemptions receivable from the Funds

     2,272,620          -        
  

 

 

    

 

 

 

Equity in trading account:

     

Unrestricted cash (Note 3c)

     34,088,125          26,587,134    

Restricted cash (Note 3c)

     2,501,707          3,093,030    

Net unrealized appreciation on open futures contracts

     187,483          22,275    

Options purchased, at fair value (premiums paid $23,040 and $0 at December 31, 2017 and 2016, respectively)

     51,625          -        
  

 

 

    

 

 

 

Total equity in trading account

     36,828,940          29,702,439    
  

 

 

    

 

 

 

Cash at bank (Note 1)

     436          217    

Interest receivable (Note 3c)

     36,216          9,112    
  

 

 

    

 

 

 

Total assets

     $ 44,270,612          $ 67,541,872    
  

 

 

    

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Options written, at fair value (premiums received $4,540 and $0 at December 31, 2017 and 2016, respectively)

     $ 23,000          $ -        

Accrued expenses:

     

Ongoing selling agent fees (Note 3d)

     72,664          112,570    

Management fees (Note 3b)

     48,754          82,039    

General Partner fees (Note 3a)

     36,773          56,176    

Incentive fees (Notes 3a and 3b)

     -            120,842    

Professional fees

     119,512          130,926    

Redemptions payable to General Partner (Note 7)

     150,000          100,000    

Redemptions payable to Limited Partners (Note 7)

     2,077,297          3,048,601    
  

 

 

    

 

 

 

Total liabilities

     2,528,000          3,651,154    
  

 

 

    

 

 

 

Partners’ Capital (Notes 1 and 7):

     

General Partner, Class A, 0.0000 and 572.7556 Redeemable Units outstanding at December 31, 2017 and 2016, respectively

     -              718,402    

General Partner, Class Z, 498.9050 and 0.0000 Redeemable Units outstanding at December 31, 2017 and 2016, respectively

     475,611          -        

Limited Partners, Class A, 35,490.8260 and 50,365.0120 Redeemable Units outstanding at December 31, 2017 and 2016, respectively

     41,246,729          63,172,316    

Limited Partners, Class Z, 21.2650 and 0.0000 Redeemable Units outstanding at December 31, 2017 and 2016, respectively

     20,272          -        
  

 

 

    

 

 

 

Total partners’ capital (net asset value)

     41,742,612          63,890,718    
  

 

 

    

 

 

 

Total liabilities and partners’ capital

     $ 44,270,612          $ 67,541,872    
  

 

 

    

 

 

 

Net asset value per Redeemable Unit:

     

Class A

     $          1,162.18          $       1,254.29    
  

 

 

    

 

 

 

Class Z

     $             953.31          $             -        
  

 

 

    

 

 

 

 

(1) 

  Defined in Note 1.

See accompanying notes to financial statements.

 

40


Emerging CTA Portfolio L.P.

Condensed Schedule of Investments

December 31, 2017

 

     Number of
Contracts
     Fair Value      % of Partners’
Capital
 

Futures Contracts Purchased

        

Currencies

     90        $ 70,786          0.17  

Energy

     78          213,269          0.51    

Grains

     117          (14,200)         (0.03)   

Indices

     319          (22,330)         (0.05)   

Interest Rates Non-U.S.

     45          (19,505)         (0.05)   

Livestock

     138          (133,257)         (0.32)   

Metals

     32          50,653          0.12    

Softs

     82          (5,273)         (0.01)   
     

 

 

    

 

 

 

Total futures contracts purchased

        140,143          0.34    
     

 

 

    

 

 

 

Futures Contracts Sold

        

Currencies

     103          (36,611)         (0.09)   

Energy

     21          (38,270)         (0.09)   

Grains

     183          66,282          0.16    

Indices

     64          (62,771)         (0.15)   

Interest Rates U.S.

     35          9,031          0.02    

Interest Rates Non-U.S.

     121          13,667          0.03    

Livestock

     127          139,115          0.34    

Metals

     14          (40,050)         (0.10)   

Softs

     26          (3,053)         (0.01)   
     

 

 

    

 

 

 

Total futures contracts sold

        47,340          0.11    
     

 

 

    

 

 

 

Net unrealized appreciation on open futures contracts

      $ 187,483          0.45  
     

 

 

    

 

 

 

Options Purchased

        

Calls

        

Energy

     50        $ 43,000          0.10  

Softs

     100          8,625          0.02    
     

 

 

    

 

 

 

Total options purchased (premiums paid $23,040)

      $ 51,625          0.12  
     

 

 

    

 

 

 

Options Written

        

Calls

        

Energy

     50        $ (23,000)         (0.06)  
     

 

 

    

 

 

 

Total options written (premiums received $4,540)

      $ (23,000)         (0.06)  
     

 

 

    

 

 

 

Investment in the Funds

        

SECOR Master Fund L.P.

      $         4,770,275          11.43  

Cambridge Master Fund L.P.

        362,125          0.87    
     

 

 

    

 

 

 

Total Investment in the Funds

      $         5,132,400          12.30  
     

 

 

    

 

 

 

See accompanying notes to financial statements.

 

41


Emerging CTA Portfolio L.P.

Condensed Schedule of Investments

December 31, 2016

 

     Number of
Contracts
     Fair Value      % of Partners’
Capital
 

Futures Contracts Purchased

        

Energy

     16        $ 9,070          0.01  

Grains

     61          (43,507)         (0.07)   

Indices

     28          25,542          0.04    

Interest Rates Non-U.S.

     268          78,021          0.12    

Livestock

     39          26,780          0.04    

Metals

     24          (20,805)         (0.02)   

Softs

     118          18,921          0.03    
     

 

 

    

 

 

 

Total futures contracts purchased

        94,022          0.15    
     

 

 

    

 

 

 

Futures Contracts Sold

        

Currencies

     139          (29,973)         (0.05)   

Energy

     6          (7,210)         (0.01)   

Grains

     420          (11,395)         (0.02)   

Indices

     565          7,727          0.01    

Interest Rates U.S.

     86          (9,600)          (0.02)   

Interest Rates Non-U.S.

     62          (25,156)         (0.04)   

Metals

     9          3,860          0.01    
     

 

 

    

 

 

 

Total futures contracts sold

        (71,747)         (0.12)   
     

 

 

    

 

 

 

Net unrealized appreciation on open futures contracts

      $ 22,275          0.03  
     

 

 

    

 

 

 

Investment in the Funds

        

SECOR Master Fund L.P.

      $ 18,932,359          29.63  

Cambridge Master Fund L.P.

        14,960,410          23.42    

CMF Willowbridge Master Fund L.P.

        3,937,335          6.16    
     

 

 

    

 

 

 

Total investment in the Funds

      $         37,830,104          59.21  
     

 

 

    

 

 

 

See accompanying notes to financial statements.

 

42


Emerging CTA Portfolio L.P.

Statements of Income and Expenses

For the Years Ended December 31, 2017, 2016 and 2015

 

     2017      2016      2015  

Investment Income:

        

Interest income

   $ 295,600        $ 65,647        $ 6,310    

Interest income allocated from the Funds

     134,011          112,109          17,874    
  

 

 

    

 

 

    

 

 

 

Total investment income

     429,611          177,756          24,184    
  

 

 

    

 

 

    

 

 

 

Expenses:

        

Expenses allocated from the Funds

     215,927          415,196          687,310    

Clearing fees related to direct investments (Note 3c)

     212,968          244,910          267,311    

Ongoing selling agent fees (Note 3d)

     1,099,026          1,636,843          2,136,380    

Management fees (Note 3b)

     767,070          1,210,330          1,641,891    

General Partner fees (Note 3a)

     551,024          817,069          1,066,606    

Incentive fees (Notes 3a and 3b)

     118,265          301,291          1,434,431    

Professional fees

     420,665          422,957          494,726    
  

 

 

    

 

 

    

 

 

 

Total expenses

     3,384,945          5,048,596          7,728,655    
  

 

 

    

 

 

    

 

 

 

Net investment loss

     (2,955,334)         (4,870,840)         (7,704,471)   
  

 

 

    

 

 

    

 

 

 

Trading Results:

        

Net gains (losses) on trading of commodity interests and investment in the Funds:

        

Net realized gains (losses) on closed contracts

     (1,342,811)         (335,118)         (1,395,459)   

Net realized gains (losses) on closed contracts allocated from the Funds

     340,782          324,297          11,611,019    

Net change in unrealized gains (losses) on open contracts

     171,993          557,235          76,492    

Net change in unrealized gains (losses) on open contracts allocated from the Funds

     10,009          (43,431)         (4,496,249)   
  

 

 

    

 

 

    

 

 

 

Total trading results

     (820,027)         502,983          5,795,803    
  

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ (3,775,361)       $ (4,367,857)       $ (1,908,668)   
  

 

 

    

 

 

    

 

 

 

Net income (loss) allocation by Class:

        

Class A

   $ (3,744,208)       $ (4,367,857)       $ (1,908,668)   
  

 

 

    

 

 

    

 

 

 

Class Z

   $ (31,153)       $ -            $ -        
  

 

 

    

 

 

    

 

 

 

Net income (loss) per Redeemable Unit* (Note 8):

        

Class A

   $ (92.11)       $ (73.87)       $ (26.14)   
  

 

 

    

 

 

    

 

 

 

Class Z

   $ (46.69)       $ -            $ -        
  

 

 

    

 

 

    

 

 

 

Weighted average Redeemable Units outstanding:

        

Class A

     44,356.5264          62,419.4823          78,310.5220    
  

 

 

    

 

 

    

 

 

 

Class Z

             659.7962          -              -        
  

 

 

    

 

 

    

 

 

 

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

See accompanying notes to financial statements.

 

43


Emerging CTA Portfolio L.P.

Statements of Changes in Partners’ Capital

For the Years Ended December 31, 2017, 2016 and 2015

 

     Class A      Class Z      Total  
     Amount      Redeemable Units      Amount      Redeemable Units      Amount      Redeemable Units  

Partners’ Capital, December 31, 2014

   $ 114,627,992          84,639.9218        $ -              -            $ 114,627,992          84,639.9218    

Subscriptions - Limited Partners

     3,429,167          2,514.3600          -              -              3,429,167          2,514.3600    

Redemptions - General Partner

     (175,894)         (127.8240)         -              -              (175,894)         (127.8240)   

Redemptions - Limited Partners

     (21,643,956)         (16,004.4080)         -              -              (21,643,956)         (16,004.4080)   

Net income (loss)

     (1,908,668)         -              -              -              (1,908,668)         -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Partners’ Capital, December 31, 2015

     94,328,641          71,022.0498          -              -              94,328,641          71,022.0498    

Subscriptions - Limited Partners

     697,000          544.1480          -              -              697,000          544.1480    

Redemptions - General Partner

     (311,128)         (241.8090)         -              -              (311,128)         (241.8090)   

Redemptions - Limited Partners

     (26,455,938)         (20,386.6212)         -              -              (26,455,938)         (20,386.6212)   

Net income (loss)

     (4,367,857)         -              -              -              (4,367,857)         -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Partners’ Capital, December 31, 2016

     63,890,718          50,937.7676          -              -              63,890,718          50,937.7676    

Subscriptions - General Partner

     -              -              656,252          656.2520          656,252          656.2520    

Subscriptions - Limited Partners

     407,041          334.4200          20,784          21.2650          427,825          355.6850    

Redemptions - General Partner

     (706,349)         (572.7556)         (150,000)         (157.3470)         (856,349)         (730.1026)   

Redemptions - Limited Partners

     (18,600,473)         (15,208.6060)         -              -              (18,600,473)         (15,208.6060)   

Net income (loss)

     (3,744,208)         -              (31,153)         -              (3,775,361)         -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Partners’ Capital, December 31, 2017

   $ 41,246,729          35,490.8260        $ 495,883          520.1700        $ 41,742,612          36,010.9960    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Net asset value per Redeemable Unit:

2015:   Class A    $1,328.16   
    

 

  
2016:   Class A    $1,254.29   
    

 

  
2017:   Class A    $1,162.18   
    

 

  
 

Class Z

   $953.31   
    

 

  

See accompanying notes to financial statements.

 

44


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

1.

Organization:

Emerging CTA Portfolio L.P. (the “Partnership”) is a limited partnership that was organized on July 7, 2003 under the partnership laws of the State of New York. The objective of the Partnership is to achieve capital appreciation through the allocation of assets to early-stage commodity trading advisors or established advisors employing early-stage strategies, which engage, directly and indirectly through investment in the Funds (as defined below), in speculative trading of a diversified portfolio of commodity interests, including futures, options on futures, forward, options on forward, spot and swap contracts, cash commodities and any other rights or interests pertaining thereto. The Partnership may also enter into swap and other derivative transactions directly and through its investment in the Funds with the approval of the General Partner (as defined below). The sectors traded include currencies, livestock, energy, grains, metals, indices, softs and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Partnership directly or indirectly through its investment in the Funds are volatile and involve a high degree of market risk. The General Partner may also determine to invest up to all of the Partnership’s assets (directly or indirectly through its investment in the Funds) in United States (“U.S.”) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.

Between December 1, 2003 (commencement of the offering period) and August 5, 2004, 20,872 units of limited partnership interest (“Redeemable Units”) were sold at $1,000 per Redeemable Unit. The proceeds of the initial offering were held in an escrow account until August 6, 2004, at which time they were remitted to the Partnership for trading. The Partnership privately and continuously offers Redeemable Units to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. As of January 1, 2017, the General Partner became a wholly-owned subsidiary of Morgan Stanley Domestic Holdings, Inc. (“MSD Holdings”). MSD Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses. Prior to January 1, 2017, the General Partner was a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC. All trading decisions for the Partnership are made by the Advisors (as defined below).

During the reporting periods covered by this report, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. JPMorgan Chase Bank, N.A. (“JPMorgan”) was also a foreign exchange forward counterparty for certain Funds. The Partnership/Funds also deposit a portion of their cash in non-trading bank accounts at JPMorgan.

As of September 1, 2011, the Partnership began offering three classes of limited partnership interests: Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units; each of which will be referred to as a “Class” and collectively referred to as the “Classes.” All Redeemable Units issued prior to September 1, 2011 were deemed “Class A Redeemable Units.” The rights, liabilities, risks, and fees associated with investment in the Class A Redeemable Units were not changed. Class A Redeemable Units and Class D Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions and non-U.S. investors. Class Z Redeemable Units are offered to certain employees of Morgan Stanley and its subsidiaries (and their family members). The Class of Redeemable Units that a limited partner of the Partnership receives upon subscription will generally depend upon the amount invested in the Partnership or the status of the limited partner, although the General Partner may determine to offer a particular Class of Redeemable Units to investors at its discretion. Class Z Redeemable Units were first issued on July 1, 2017. As of December 31, 2017, there were no Redeemable Units outstanding in Class D.

All trading decisions are made for the Partnership by its trading advisors (the “Advisors”) either directly, through individually managed accounts, or indirectly, through investments in other collective investment vehicles. As of December 31, 2017, AE Capital PTY Limited (“AE Capital”), The Cambridge Strategy (Asset Management) Limited (“Cambridge”), Harbour Square Capital Management LLC (“Harbour Square”), Independent View BV (“Independent View”), Launchpad Capital Management, LLC (“Launchpad”) and SECOR Capital Advisors, LP (“SECOR”) served as the Partnership’s major commodity trading advisors. Effective February 28, 2017, Willowbridge Associates Inc. (“Willowbridge”) ceased to act as a commodity trading advisor to the Partnership. Effective September 30, 2016, Centurion Investment Management, LLC (“Centurion”) ceased to act as a commodity trading advisor to the Partnership. Effective July 31, 2016, Perella Weinberg Partners Capital Management LP (“Perella”) ceased to act as a commodity trading advisor to the Partnership. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors either directly, through individually managed accounts, or indirectly, through its investment in the Funds. In addition, the General Partner may allocate the Partnership’s assets to additional non-major trading advisors (i.e. commodity trading advisors allocated less than 10% of the Partnership’s assets).

 

45


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

Information about advisors allocated less than 10% of the Partnership’s assets may not be disclosed. The General Partner may also allocate less than 10% of the Partnership’s assets to a new trading advisor or another trading program of a current Advisor.

The Advisors are not affiliated with one another, are not affiliated with the General Partner, MS&Co. or JPMorgan, and are not responsible for the organization or operation of the Partnership. References herein to the “Advisors” may also include, as relevant, references to Willowbridge, Perella, Centurion and Blackwater Capital Management, LLC (“Blackwater”),

From May 12, 2014 until its termination effective September 30, 2016, the assets allocated to Centurion for trading had been traded directly pursuant to Centurion’s Short Term Systematic Strategy Program. Prior to its termination effective July 31, 2016, the assets allocated to Perella had been traded directly pursuant to a variation of the program traded by PWP Global Macro Master Fund L.P. On August 1, 2016, the Partnership allocated a portion of its assets to Harbour Square, which trades the assets directly pursuant to Harbour Square’s Discretionary Energy Program through a managed account in the Partnership’s name. On October 1, 2016, the Partnership allocated a portion of its assets to Independent View, which trades the assets directly pursuant to Independent View’s IV Quantitative Futures Fund Program through a managed account in the Partnership’s name. On February 1, 2017, the Partnership allocated a portion of its assets to AE Capital. AE Capital began trading the assets directly pursuant to AE Capital’s AE Systematic FX Fund Program through a managed account in the Partnership’s name on March 1, 2017. On September 1, 2017, the Partnership allocated a portion of its assets to Launchpad, which trades the assets directly pursuant to Launchpad Capital’s MJP Commodity Strategy through a managed account in the Partnership’s name.

Cambridge Master Fund L.P (“Cambridge Master”), SECOR Master Fund L.P (“SECOR Master”) the Partnership and, prior to the Partnership’s full redemption, CMF Willowbridge Master Fund L.P. (“Willowbridge Master”) have entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. Cambridge Master and SECOR Master are collectively referred to as the “Funds.” References herein to “Funds” may also include as relevant, references to Willowbridge Master, Blackwater Master Fund L.P. (“Blackwater Master”) and PGM Master Fund L.P. (“PGM Master”). The Partnership, directly and through its investment in the Funds, pays MS&Co. (or will reimburse MS&Co. if previously paid) its allocable share of all trading fees for the clearing and, where applicable, execution of transactions as well as exchange, user, give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”).

Effective July 12, 2017, Cambridge Master and SECOR Master each entered into certain agreements with JPMorgan in connection with trading in forward foreign currency contracts on behalf of the referenced Funds and indirectly, the Partnership. These agreements include a foreign exchange and bullion authorization agreement (“FX Agreement”), an International Swap Dealers Association, Inc. master agreement (“Master Agreement”), a schedule to the Master Agreement, a 2016 credit support annex for variation margin to the schedule and an institutional account agreement. In addition to Cambridge Master and SECOR Master, Cambridge and SECOR are both parties to the FX Agreements for the Funds to which each acts as advisor. Under each FX Agreement, JPMorgan charges a fee on the aggregate foreign currency transactions entered into on behalf of the respective Fund during a month.

The Partnership will be liquidated upon the first to occur of the following: December 31, 2023; the net asset value per Redeemable Unit of limited partnership interest of any Class decreases to less than $400 as of the close of any business day; or under certain other circumstances as set forth in the limited partnership agreement of the Partnership (the “Limited Partnership Agreement”). In addition, the General Partner may, in its sole discretion, cause the Partnership to be liquidated if the aggregate net assets of the Partnership decline to less than $1,000,000.

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

 

46


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

2.

Basis of Presentation and Summary of Significant Accounting Policies:

 

  a.

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates, and those differences could be material.

 

  b.

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

 

  c.

Statement of Cash Flows. The Partnership has not provided a Statement of Cash Flows, as permitted by Accounting Standards Codification (“ASC”) 230, “Statement of Cash Flows.” The Statements of Changes in Partners’ Capital is included herein, and as of and for the years ended December 31, 2017, 2016 and 2015, the Partnership carried no debt and all of the Partnership’s and the Funds’ investments were carried at fair value and classified as Level 1 or Level 2 measurements.

 

  d.

Partnership’s Investment in the Funds. The Partnership carries its investment in the Funds based on the Partnership’s (1) net contribution to the Funds and (2) its allocated share of the undistributed profits and losses, including realized gains (losses) and net change in unrealized gains (losses), of the Funds. The Partnership carried its investment in Willowbridge Master based on Willowbridge Master’s net asset value per Redeemable Unit as calculated by Willowbridge Master.

 

  e.

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

The Partnership and the Funds do not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in total trading results in the Partnership’s/Funds’ Statement of Income and Expenses.

 

  f.

Partnership’s Cash. The Partnership’s cash includes cash denominated in foreign currencies of $(72,504) (proceeds of $71,514) and $(265,409) (proceeds of $267,759) as of December 31, 2017 and 2016, respectively.

 

  g.

Income Taxes. Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The Partnership follows the guidance of ASC 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet the more-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnership’s Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Statements of Income and Expenses in the period in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2014 through 2017 tax years remain subject to examination by U.S. federal and most state tax authorities.

 

47


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

  h.

Investment Company Status. Effective January 1, 2014, the Partnership adopted Accounting Standards Update 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. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Topic 946 and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses.

 

  i.

Net Income (Loss) per Redeemable Unit. Net income (loss) per Redeemable Unit is calculated in accordance with ASC 946, “Financial Services – Investment Companies.” See Note 8, “Financial Highlights.”

 

3.

Agreements:

 

  a.

Limited Partnership Agreement:

The General Partner administers the business and affairs of the Partnership, including, among other things, (i) selecting, appointing and terminating the Partnership’s commodity trading advisors, (ii) allocating and reallocating the Partnership’s assets among the commodity trading advisors and (iii) monitoring the activities of the commodity trading advisors. The Partnership pays the General Partner a monthly administrative fee (“General Partner fees”) equal to 1/12 of 1% (1.0% per year) of month-end net assets. Month-end net assets, for the purpose of calculating General Partner fees, are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, management fees, incentive fee accruals, the General Partner fee and any redemptions or distributions as of the end of such month.

The Partnership will also pay the General Partner an incentive fee payable annually equal to 5% of the Partnership’s overall New Trading Profits, as defined in the Limited Partnership Agreement, earned in each calendar year. For the years ended December 31, 2017, 2016 and 2015, there were no incentive fees earned by the General Partner.

 

  b.

Management Agreement:

The General Partner, on behalf of the Partnership, entered into management agreements (each, a “Management Agreement”) with the Advisors, each of which is a registered commodity trading advisor. The Advisors are not affiliated with one another, are not affiliated with the General Partner, MS&Co. or JPMorgan and are not responsible for the organization or operation of the Partnership. As of December 31 2017, SECOR received a monthly management fee equal to 1.75% per year of month-end net assets allocated to SECOR. Prior to January 1, 2016, SECOR received a monthly management fee equal to 2.00% per year. As of December 31, 2017, Cambridge received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Cambridge. As of December 31, 2017, Harbour Square received a monthly management fee equal to 1.25% per year of month-end net assets allocated to Harbour Square. Independent View receives a monthly management fee equal to 1.25% per year of month-end net assets allocated to Independent View. AE Capital receives a monthly management fee equal to 1.50% per year of the month-end net assets allocated to AE Capital. Launchpad receives a monthly management fee equal to 1.00% per year of the month-end net assets allocated to Launchpad.

Prior to its termination on February 28, 2017, Willowbridge received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Willowbridge. Prior to its termination on July 31, 2016, Perella received a monthly management fee equal to 1.50% per year of month-end net assets allocated to Perella. From January 1, 2016 until its termination on September 30, 2016, Centurion received a monthly management fee equal to 1.00% per year of month-end net assets allocated to Centurion. Prior to January 1, 2016, Centurion received a monthly management fee equal to 1.25% per year. Prior to its termination on September 30, 2015, Blackwater received a monthly management fee equal to 0.75% per year of month-end net assets allocated to Blackwater. Month-end net assets, for the purpose of calculating management fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s management fees, incentive fee accruals, the General Partner fee, ongoing selling agent fee and any redemptions or distributions as of the end of such month. Each Management Agreement may be terminated upon notice by either party.

 

48


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

In addition, as of December 31, 2017, the Partnership was obligated to pay each Advisor an incentive fee, payable quarterly, equal to 20% for SECOR, Harbour Square, Independent View, AE Capital and Launchpad, and equal to 15% for Cambridge, of New Trading Profits, as defined in each Management Agreement, earned by each Advisor for the Partnership during each calendar quarter. Prior to its termination on February 28, 2017, Willowbridge was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Willowbridge for the Partnership during each calendar quarter. Prior to its termination on September 30, 2016, Centurion was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Centurion for the Partnership during each calendar quarter. Prior to its termination on July 31, 2016, Perella was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Perella for the Partnership during each calendar quarter. Prior to its termination on September 30, 2015, Blackwater was eligible to receive an incentive fee, payable quarterly, equal to 20% of New Trading Profits, as defined in its Management Agreement with the General Partner, earned by Blackwater for the Partnership during each calendar quarter. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not receive an incentive fee until the Advisor recovers the net loss incurred and earns additional trading profits for the Partnership.

In allocating the assets of the Partnership among the Advisors, the General Partner conducts proprietary research and considers, among other factors, the background of the Advisors’ principals, as well as the Advisors’ trading styles, strategies and markets traded, expected volatility, trading results (to the extent available) and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time.

 

  c.

Customer Agreement:

The Partnership has entered into a customer agreement with MS&Co. (the “Partnership Customer Agreement”). Under the Partnership Customer Agreement and the foreign exchange brokerage account agreement (described in Note 1, “Organization”), the Partnership pays trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, user, give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”) directly and indirectly through its investment in the Funds. Clearing fees are allocated to the Partnership based on its proportionate share of each Fund. Clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. All of the Partnership’s assets available for trading in commodity interests not held in the Funds’ accounts at MS&Co. and JPMorgan are deposited in the Partnership’s accounts at MS&Co. The Partnership’s cash deposited with MS&Co. is held in segregated bank accounts to the extent required by Commodity Futures Trading Commission regulations. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At December 31, 2017 and 2016, the amount of cash held for margin requirements was $2,501,707 and $3,093,030, respectively. MS&Co. has agreed to pay the Partnership interest on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at the rate equal to the monthly average of the 4-Week U.S. Treasury bill discount rate. The Partnership Customer Agreement may generally be terminated upon notice by either party.

 

  d.

Selling Agent Agreement:

The Partnership has entered into a selling agent agreement with Morgan Stanley Smith Barney LLC, doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) (the “Selling Agreement”). Under the Selling Agreement, the Partnership pays Morgan Stanley Wealth Management a monthly ongoing selling agent fee. The monthly ongoing selling agent fee is equal to (i) 4/24 of 1% (2.00% per year) for Class A Redeemable Units and (ii) 3/48 of 1% (0.75% per year) for Class D Redeemable Units. Morgan Stanley Wealth Management pays a portion of its ongoing selling agent fees to properly registered or exempted financial advisors who have sold Class A and Class D Redeemable Units. Class Z Redeemable Units are not subject to an ongoing selling agent fee. Month-end net assets, for the purpose of calculating ongoing selling agent fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, incentive fee accruals, the monthly management fees, the General Partner fee and other expenses and any redemptions or distributions as of the end of such month.

 

49


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

The General Partner fees, management fees, incentive fees and all other expenses are allocated proportionally to each Class based on the net asset value of each Class.

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 results of the Partnership’s trading activities are shown in the Statements of Income and Expenses. The Partnership also invests its assets through a “master/feeder” structure. The Partnership’s pro-rata share of the results of the Funds’ trading activities are shown in the Statements of Income and Expenses.

The Partnership Customer Agreement and the Funds’ futures brokerage account agreements with MS&Co. give the Partnership and the Funds, respectively, the legal right to net unrealized gains and losses on open futures and forward contracts in their respective Statements of Financial Condition. The Partnership and the Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and forward contracts in their respective Statements of Financial Condition, as the criteria under ASC 210-20,Balance Sheet,” have been met.

All of the commodity interests owned directly by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were 1,874 and 2,412, respectively. The monthly average number of option contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were 75 and 0, respectively. The monthly average notional value of currency forward contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were $63,983,108 and $15,051,843, respectively.

Trading and transaction fees are based on the number of trades executed by the Advisors and the Partnership’s percentage ownership of each respective Fund.

All clearing fees paid to MS&Co. are borne directly by the Partnership for its direct trading. In addition, clearing fees are borne by the Funds and are allocated to the Funds’ limited partners, including the Partnership.

 

50


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

The following tables summarize the gross and net amounts recognized relating to assets and liabilities of the Partnership’s derivatives and their offsetting subject to master netting agreements or similar arrangements as of December 31, 2017 and 2016, respectively.

 

December 31, 2017

   Gross
Amounts
Recognized
     Gross Amounts
Offset in the

Statements of
Financial
Condition
     Amounts
Presented in the

Statements of
Financial
Condition
     Gross Amounts Not Offset in the
Statements of Financial Condition
        
            Financial
Instruments
     Cash Collateral
Received/
Pledged*
     Net Amount  

Assets

                 

Futures

     $ 710,148          $ (522,665)         $ 187,483          $         -            $         -            $ 187,483    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 710,148          $ (522,665)         $ 187,483          $ -            $ -              $ 187,483    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Futures

     $ (522,665)         $ 522,665          $ -              $ -            $ -            $ -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $       (522,665)         $ 522,665          $ -              $ -            $ -            $ -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Fair Value

                    $       187,483  
              

 

 

 

December 31, 2016

   Gross
Amounts
Recognized
     Gross Amounts
Offset in the

Statements of
Financial
Condition
     Amounts
Presented in the

Statements of
Financial
Condition
     Gross Amounts Not Offset in the
Statements of Financial Condition
        
            Financial
Instruments
     Cash Collateral
Received/
Pledged*
     Net Amount  

Assets

                 

Futures

     $ 365,927          $ (343,652)         $ 22,275          $         -            $         -            $ 22,275    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 365,927          $ (343,652)         $ 22,275          $ -            $ -            $ 22,275    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Futures

     $ (343,652)         $ 343,652          $ -              $ -            $ -            $ -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ (343,652)         $ 343,652          $ -              $ -            $ -            $ -        
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Fair Value

                    $ 22,275  
                 

 

 

 

* In the event of default by the Partnership, MS&Co., the Partnership’s commodity futures broker and the sole counterparty to the Partnership’s non-exchange-traded contracts, as applicable, has the right to offset the Partnership’s obligation with the Partnership’s cash and/or U.S. Treasury bills held by MS&Co., thereby minimizing MS&Co.’s risk of loss. In certain instances, MS&Co. may not post collateral and as such, in the event of default by MS&Co., the Partnership is exposed to the amount shown in the Statements of Financial Condition. In the case of exchange-traded contracts, the Partnership’s exposure to counterparty risk may be reduced since the exchange’s clearinghouse interposes its credit between buyer and seller and the clearinghouse’s guarantee funds may be available in the event of a default.

 

51


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

The following tables indicate the gross fair values of derivative instruments of futures and option contracts, as applicable, held directly by the Partnership as separate assets and liabilities as of December 31, 2017 and 2016, respectively.

 

Assets    December 31, 2017  

Futures Contracts

  

Currencies

     $ 94,211    

Energy

     214,439    

Grains

     69,673    

Indices

     62,560    

Interest Rates U.S.

     14,844    

Interest Rates Non-U.S.

     16,572    

Livestock

     144,163    

Metals

     50,653    

Softs

     43,033    
  

 

 

 

Total unrealized appreciation on open futures contracts

     710,148    
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (60,036)   

Energy

     (39,440)   

Grains

     (17,591)   

Indices

     (147,661)   

Interest Rates U.S.

     (5,813)   

Interest Rates Non-U.S.

     (22,410)   

Livestock

     (138,305)   

Metals

     (40,050)   

Softs

     (51,359)   
  

 

 

 

Total unrealized depreciation on open futures contracts

     (522,665)   
  

 

 

 

Net unrealized appreciation on open futures contracts

     $     187,483 
  

 

 

 

Assets

  

Options Purchased

  

Energy

     $ 43,000    

Softs

     8,625    
  

 

 

 

Total options purchased

     $     51,625  ** 
  

 

 

 

Liabilities

  

Options Written

  

Energy

     $ (23,000)   
  

 

 

 

Total options written

     $ (23,000)  *** 
  

 

 

 

 

*

This amount is in “Net unrealized appreciation on open futures contracts” in the Statements of Financial Condition.

 

**

This amount is in “Options purchased, at fair value” in the Statements of Financial Condition.

 

***

This amount is in “Options written, at fair value” in the Statements of Financial Condition.

 

52


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

Assets    December 31, 2016  

Futures Contracts

  

Currencies

   $ 20,075    

Energy

     10,875    

Grains

     33,090    

Indices

     126,605    

Interest Rates U.S.

     19,212    

Interest Rates Non-U.S.

     78,347    

Livestock

     29,680    

Metals

     16,503    

Softs

     31,540    
  

 

 

 

Total unrealized appreciation on open futures contracts

     365,927    
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (50,048)   

Energy

     (9,015)   

Grains

     (87,992)   

Indices

     (93,336)   

Interest Rates U.S.

     (28,812)   

Interest Rates Non-U.S.

     (25,482)   

Livestock

     (2,900)   

Metals

     (33,448)   

Softs

     (12,619)   
  

 

 

 

Total unrealized depreciation on open futures contracts

     (343,652)   
  

 

 

 

Net unrealized appreciation on open futures contracts

     $ 22,275  
  

 

 

 

* This amount is in “Net unrealized appreciation on open futures contracts” in the Statements of Financial Condition.

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the years ended December 31, 2017, 2016 and 2015, respectively.

 

Sector

   2017     2016     2015  

Currencies

     $ 205,969         $ 219,420         $ (658,713)   

Energy

     (471,773)        1,020,372         (274,934)   

Grains

     (803,721)        (81,019)        (36,678)   

Indices

     497,548         (152,017)        (912,299)   

Interest Rates U.S.

     (254,500)        (1,253,337)        321,210    

Interest Rates Non-U.S.

     29,826         1,238,890         42,459    

Livestock

     (29,930)        (54,052)        2,079    

Metals

     (1,540)        (454,501)        222,360    

Softs

     (342,697)        (261,639)        (24,451)   
  

 

 

   

 

 

   

 

 

 

Total

     $ (1,170,818)  ****      $     222,117  ****      $ (1,318,967)  **** 
  

 

 

   

 

 

   

 

 

 

**** This amount is included in “Total trading results” in the Statements of Income and Expenses.

 

53


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

5.

Fair Value Measurements:

Partnership’s and the Funds’ Fair Value Measurements. Fair value is defined as the value 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 fair value of exchange-traded futures, option and forward contracts is determined by the various 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. U.S. Treasury bills are valued at the last available bid price received from independent pricing services as of the close of the last business day of the reporting period.

The Partnership and the Funds consider prices for commodity futures, swap and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of the U.S. Treasury bills, non-exchange-traded forward, swap and certain option contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the years ended December 31, 2017 and 2016, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partner’s assumptions and internal valuation pricing models (Level 3). Transfers between levels are recognized at the beginning of the reporting period.

 

December 31, 2017

   Total      Level 1      Level 2      Level 3  

Assets

           

Futures

     $     710,148          $ 710,148          $         -            $         -      

Options purchased

     51,625          51,625          -                    -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 761,773          $     761,773          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 522,665          $ 522,665          $         -            $         -      

Options written

     23,000          23,000          -                    -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 545,665          $     545,665          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2016

   Total      Level 1      Level 2      Level 3  

Assets

           

Futures

     $ 365,927          $     365,927          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 365,927          $     365,927          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 343,652          $     343,652          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 343,652          $     343,652          $         -            $         -      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

54


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

6.

Investment in the Funds:

On September 1, 2012, the assets allocated to Cambridge for trading were invested in Cambridge Master, a limited partnership organized under the partnership laws of the State of Delaware. Cambridge Master permits accounts managed by Cambridge using the Asian Markets Alpha Programme and the Emerging Markets Alpha Programme, each a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Cambridge Master. Individual and pooled accounts currently managed by Cambridge, including the Partnership, are permitted to be limited partners of Cambridge Master. The General Partner and Cambridge believe that trading through this master/feeder structure promotes efficiency and economy in the trading process. The General Partner and Cambridge agreed that Cambridge will trade the Partnership’s assets allocated to Cambridge at a level that is up to 2.0 times the amount of assets allocated.

On August 1, 2013, the assets allocated to SECOR for trading were invested in SECOR Master, a limited partnership organized under the partnership laws of the State of Delaware. SECOR Master permits accounts managed by SECOR using a variation of the program traded by SECOR Alpha Master Fund L.P., a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of SECOR Master. Individual and pooled accounts currently managed by SECOR are permitted to be limited partners of SECOR Master. The General Partner and SECOR believe that trading through this master/feeder structure promotes efficiency and economy in the trading process.

Effective January 1, 2013, the assets traded directly by Willowbridge using its wPraxis Futures Trading Approach were invested in Willowbridge Master, a limited partnership organized under the partnership laws of the State of New York. Effective February 28, 2017, the Partnership fully redeemed its investment in Willowbridge Master.

On November 1, 2010, the assets allocated to Blackwater for trading were invested in Blackwater Master, a limited partnership organized under the partnership laws of the State of Delaware. Effective September 30, 2015, the Partnership fully redeemed its investment in Blackwater Master.

On September 1, 2014, the assets allocated to Perella for trading were invested in PGM Master, a limited partnership organized under the partnership laws of the State of Delaware. Effective June 30, 2015, the Partnership fully redeemed its investment in PGM Master. From July 1, 2015 until its termination effective July 31, 2016, Perella traded the assets allocated to it directly in a managed account in the Partnership’s name.

The General Partner is not aware of any material changes to any of the trading programs discussed above during the year ended December 31, 2017.

The Funds’ and the Partnership’s trading of futures, forward and option contracts, as applicable, on commodities is done primarily on U.S. and foreign commodity exchanges. The Funds and the Partnership engage in such trading through commodity brokerage accounts maintained with MS&Co.

Generally, a limited partner in the Funds withdraws all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any month (the “Redemption Date”) after a request has been made to the General Partner at least three days in advance of the Redemption Date. Such withdrawals are classified as a liability when the limited partner elects to redeem and informs the Funds. However, a limited partner may request a withdrawal as of the end of any day if such request is received by the General Partner at least three days in advance of the proposed withdrawal day.

Management fees, ongoing selling agent fees, the General Partner fees and incentive fees are charged at the Partnership level. Professional fees are borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level. Clearing fees are borne by the Funds and allocated to the Funds’ limited partners, including the Partnership. Clearing fees are also borne by the Partnership directly.

 

55


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

Prior to the close of business on December 31, 2017, the Partnership owned approximately 27.2% of SECOR Master and 4.9% of Cambridge Master. At December 31, 2016, the Partnership owned approximately 49.1% of SECOR Master, 26.2% of Cambridge Master and 1.0% of Willowbridge Master. It is the Partnership’s intention to continue to invest in the Funds (except Willowbridge Master). The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of investment in the Funds are approximately the same as they would be if the Partnership traded directly and the redemption rights are not affected.

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

 

     December 31, 2017  
     Total Assets      Total Liabilities      Total Partners’
Capital
 

SECOR Master

   $         22,831,484        $         18,066,303        $         4,765,181    

Cambridge Master

     31,063,463          4,384,639          26,678,824    
     December 31, 2016  
     Total Assets      Total Liabilities      Total Partners’
Capital
 

SECOR Master

   $     39,231,542      $     679,104        $     38,552,438    

Cambridge Master

     58,282,466        1,125,600          57,156,866    

Willowbridge Master

     396,846,845        5,348,232          391,498,613    

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

 

     For the year ended December 31, 2017  
     Net Investment
Income (Loss)
    Total Trading
Results
    Net Income
(Loss)
 

SECOR Master

   $ 18,180       $ (2,107,396 )     $ (2,089,216 )  

Cambridge Master

     141,596         1,967,437       2,109,033  

Willowbridge Master (a)

     155,028         (5,302,674 )       (5,147,646 )  
     For the year ended December 31, 2016  
     Net Investment
Income (Loss)
    Total Trading
Results
    Net Income
(Loss)
 

SECOR Master

   $ (245,725 )     $ 2,459,009     $ 2,213,284  

Cambridge Master

     10,557       (3,918,575 )       (3,908,018 )  

Willowbridge Master

     (120,715 )       10,171,911       10,051,196  

(a) From January 1, 2017 through February 28, 2017, the date the Partnership fully redeemed its interest in Willowbridge Master.

 

56


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

Summarized information reflecting the Partnership’s investments in and the Partnership’s pro-rata share of the results of operations of the Funds is shown in the following tables:

 

    December 31, 2017     For the year ended December 31, 2017              

Funds

  % of
Partners’
Capital
    Fair Value     Income
(Loss)
    Expenses     Net
Income
(Loss)
    Investment
Objective
    Redemptions
Permitted
 
        Clearing
Fees
    Professional
Fees
       
               

SECOR Master

    11.43     $ 4,770,275       $ (374,306)       $ 165,557       $ 24,321       $ (564,184)        Commodity Portfolio       Monthly  

Cambridge Master

    0.87      362,125        870,647         16,622        8,753        845,272         Commodity Portfolio       Monthly  

Willowbridge Master (a)

    -        -          (11,539)        612        62        (12,213)        Commodity Portfolio       Monthly  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

     $ 5,132,400       $ 484,802        $ 182,791       $ 33,136      $ 268,875        
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     
    December 31, 2016     For the year ended December 31, 2016              

Funds

  % of
Partners’
Capital
    Fair Value     Income
(Loss)
    Expenses     Net
Income
(Loss)
    Investment
Objective
    Redemptions
Permitted
 
        Clearing
Fees
    Professional
Fees
       
               

SECOR Master

    29.63     $ 18,932,359      $ 1,214,193       $ 305,523      $ 32,240      $ 876,430         Commodity Portfolio       Monthly  

Cambridge Master

    23.42       14,960,410        (782,577)        30,253        21,883        (834,713)        Commodity Portfolio       Monthly  

Willowbridge Master

    6.16       3,937,335        (38,641)        23,494        1,803        (63,938)        Commodity Portfolio       Monthly  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

    $ 37,830,104      $ 392,975       $ 359,270      $ 55,926      $ (22,221)       
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

(a) From January 1, 2017 through February 28, 2017, the date the Partnership fully redeemed its interest in Willowbridge Master.

 

7.

Subscriptions, Distributions and Redemptions:

Subscriptions are accepted monthly from investors who become limited partners on the first day of the month after their subscriptions are processed. Distributions are made on a pro-rata basis at the sole discretion of the General Partner. No distributions have been made to date. The General Partner does not intend to make any distributions of the Partnership’s profits. A limited partner may require the Partnership to redeem its Redeemable Units at their net asset value as of the end of each month on three business days’ notice to the General Partner. There is no fee charged to limited partners in connection with redemptions.

 

57


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

8.

Financial Highlights:

Financial highlights for the limited partner class as a whole for the years ended December 31, 2017, 2016 and 2015 were as follows:

 

     2017     2016     2015  
Per Redeemable Unit Performance (for a unit outstanding throughout the year):*    Class A     Class Z**     Class A     Class Z     Class A     Class Z  

Net realized and unrealized gains (losses)

   $ (25.71)      $ (21.15)      $ 4.16       $ -         $ 71.66       $ -      

Net investment loss

     (66.40)        (2.92)        (78.03)        -           (97.80)        -      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) for the year

     (92.11)        (24.07)        (73.87)        -           (26.14)        -      

Net asset value per Redeemable Unit, beginning of year

     1,254.29         977.38         1,328.16         -           1,354.30         -      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per Redeemable Unit, end of year

     $     1,162.18       $ 953.31       $ 1,254.29       $ -         $ 1,328.16       $ -      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2017     2016     2015  
     Class A     Class Z***     Class A     Class Z     Class A     Class Z  

Ratios to Average Limited Partners’ Capital:

            

Net investment loss****

     (5.5)  %      (3.6)  %      (6.1)       -         (7.4)       -    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     6.1      4.7      5.9       -         6.0       -    

Incentive fees

      0.2       -         0.4       -         1.4       -    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     6.3       4.7       6.3       -         7.4       -    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

            

Total return before incentive fees

     (7.1)      (2.5)  %      (5.2)       -         (0.5)       -    

Incentive fees

     (0.2)      -    %      (0.4)       -         (1.4)       -    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fees

     (7.3)      (2.5)  %      (5.6)       -         (1.9)       -    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Net investment loss per Redeemable Unit is calculated by dividing the interest income less total expenses by the average number of Redeemable Units outstanding during the year. The net realized and unrealized gains (losses) per Redeemable Unit is a balancing amount necessary to reconcile the change in net asset value per Redeemable Unit with the other per unit information.

 

**

For the period from December 1, 2017 to December 31, 2017.

 

***

Annualized and for the period from December 1, 2017 to December 31, 2017.

 

****

Interest income less total expenses.

The above ratios and total return may vary for individual investors based on the timing of capital transactions during the year. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average partners’ capital of the Partnership and include the income and expenses allocated from the Funds.

 

9.

Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are parties to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include futures, forwards, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward, swap 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. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. 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.

 

58


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

The General Partner estimates that at any given time, approximately 21.1% to 62.2% of the Partnership’s/Funds’ contracts are traded OTC.

Futures Contracts. The Partnership and the Funds trade 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 Partnership and the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership and the Funds. When the contract is closed, the Partnership and the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. 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 net change in unrealized gains (losses) on futures contracts are included in the Partnership’s/Funds’ Statements of Income and Expenses.

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

London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Partnership and the Funds are cash settled based on prompt dates published by the LME. Variation margin may be made or received by the Partnership and the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership and the Funds. A contract is considered offset when all long positions have been matched with a like number of short positions settling on the same prompt date. When the contract is closed at the prompt date, the Partnership and the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME. Net realized gains (losses) and net change in unrealized gains (losses) on metal contracts are included in the Partnership’s/Funds’ Statements of Income and Expenses.

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

As both a buyer and seller of options, the Partnership/Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership/Funds to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Partnership/Funds do not consider these contracts to be guarantees.

Market risk is the potential for changes in the value of the financial instruments traded by the Partnership/Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership and the Funds are exposed to a market risk equal to the value of futures and forward contracts held and unlimited liability on such contracts sold short.

 

59


Emerging CTA Portfolio L.P.

Notes to Financial Statements

 

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

The General Partner monitors and attempts to mitigate the Partnership’s/Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.

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

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

In the ordinary course of business, the Partnership/Funds enter into contracts and agreements that contain various representations and warranties and which provide general indemnifications. The Partnership’s/ Funds’ maximum exposure under these arrangements cannot be determined, as this could include future claims that have not yet been made against the Partnership/Funds. The Partnership/Funds consider the risk of any future obligation relating to these indemnifications to be remote.

 

10.

Subsequent Events:

The General Partner evaluates events that occur after the balance sheet date but before and up until financial statements are available to be issued. The General Partner has assessed the subsequent events through the date the financial statements were issued and has determined that, other than disclosed below, there were no subsequent events requiring adjustment to or disclosure in the financial statements.

Effective on January 1, 2018, the assets allocated to Harbour Square, which were previously traded directly through a managed account in the Partnership’s name, were transferred into CMF Harbour Square Master Fund LLC through which they will be managed and traded by Harbour Square pursuant to the same strategy (the Discretionary Energy Program). In addition, effective January 1, 2018, the monthly management fee paid by the Partnership to Harbour Square was reduced to 1/12 of 1.15% (1.15% per year) of the adjusted month-end net assets allocated to Harbour Square.

Effective on January 1, 2018, the monthly management fee paid by the Partnership to Cambridge was reduced to 1/12 of 1.0% (1.0% per year) of the adjusted month-end net assets allocated to Cambridge. Also effective on January 1, 2018, the Partnership will pay Cambridge an incentive fee of 15% of New Trading Profits (as defined in the applicable Management Agreement) annually rather than quarterly.

Effective on January 1, 2018, the monthly management fee paid by the Partnership to SECOR was reduced to 1/12 of 1.15% (1.15% per year) of the adjusted month-end net assets allocated to SECOR. Also effective on January 1, 2018, the Partnership will pay SECOR an incentive fee of 25% of New Trading Profits (as defined in the applicable Management Agreement) annually rather than 20% of New Trading Profits quarterly.

Effective on February 1, 2018, the assets allocated to AE Capital, which were traded directly through a managed account in the Partnership’s name, were transferred into CMF AE Capital Master Fund LLC through which they will be managed and traded by AE Capital pursuant to the same strategy (the AE Systematic FX Fund Program).

Effective on March 1, 2018, Launchpad transferred its rights and obligations under its Management Agreement to Buttonwood Merchants, LLC (“Buttonwood”), and Buttonwood assumed Launchpad’s rights and obligations. Buttonwood will trade and manage the Partnership’s assets allocated to Buttonwood pursuant to its Liquid Commodity Strategy. The monthly management fee and quarterly incentive fee received by Buttonwood are the same as those received by Launchpad.

 

60


Selected unaudited quarterly financial data for the Partnership for the years ended December 31, 2017 and 2016 are summarized below:

 

     For the period from
October 1, 2017 to
December 31, 2017
     For the period from
July 1, 2017 to
September 30, 2017
     For the period from
April 1, 2017 to
June 30, 2017
     For the period from
January 1, 2017 to
March 31, 2017
 

Total investment income

     $ 122,974          $ 121,118          $ 105,925          $ 79,594    

Total expenses

     (733,330)         (783,421)         (918,272)         (949,922)   

Total trading results

     (796,841)         (704,952)         (451,738)         1,133,504    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     $ (1,407,197)         $ (1,367,255)         $ (1,264,085)         $ 263,176    
  

 

 

    

 

 

    

 

 

    

 

 

 

Increase (decrease) in Net Asset Value per Redeemable Unit of Class A

     $ (36.83)         $ (32.42)         $ (27.84)         $ 4.98    
  

 

 

    

 

 

    

 

 

    

 

 

 

Increase (decrease) in Net Asset Value per Redeemable Unit of Class Z

     $ (25.28)         $ (21.41)         $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 
     For the period from
October 1, 2016 to
December 31, 2016
     For the period from
July 1, 2016 to
September 30, 2016
     For the period from
April 1, 2016 to
June 30, 2016
     For the period from
January 1, 2016 to
March 31, 2016
 

Total investment income

     $ 46,611          $ 43,191          $ 37,350          $ 50,604    

Total expenses

     (1,040,188)         (1,216,772)         (1,231,490)         (1,560,146)   

Total trading results

     (589,047)         21,062          (1,231,024)         2,301,992    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     $ (1,582,624)         $ (1,152,519)         $ (2,425,164)         $ 792,450    
  

 

 

    

 

 

    

 

 

    

 

 

 

Increase (decrease) in Net Asset Value per Redeemable Unit of Class A

     $ (29.08)         $ (19.23)         $ (36.43)         $ 10.87    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Item 10. Not Applicable.

Item 10A. 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 December 31, 2017 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.

The report included in “Item 8. Financial Statements and Supplementary Data.” includes the General Partner’s report on internal control over financial reporting (“Management’s Report”).

There were no changes in the Partnership’s internal control over financial reporting during the fiscal quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Item 10B. Other Information. None.

 

62


PART III

Item 11. Directors, Executive Officers and Corporate Governance.

The Partnership has no directors or executive officers and its affairs are managed by its General Partner. Investment decisions are made by the Advisors.

The directors and executive officers of the General Partner are Patrick T. Egan (President and Chairman of the Board of Directors of the General Partner), Steven Ross (Chief Financial Officer and Director), Maureen O’Toole (Director), M. Paul Martin (Director), Feta Zabeli (Director) and Matthew R. Graver (Director). Each director holds office until the earlier of his or her death, resignation or removal. Vacancies on the board of directors may be filled by either (i) the majority vote of the remaining directors or (ii) MSD Holdings, as the sole member of the General Partner. The officers of the General Partner are designated by the General Partner’s board of directors. Each officer will hold office until his or her successor is designated and qualified or until his or her death, resignation or removal.

Directors of the General Partner are responsible for overall corporate governance of the General Partner and meet periodically to consider strategic decisions regarding the General Partner’s activities. Under CFTC rules, each Director of the General Partner is deemed to be a principal of the General Partner and, as a result, is listed as such with NFA. Patrick T. Egan, Steven Ross, Maureen O’Toole and Feta Zabeli serve on the General Partner’s Investment Committee and are the trading principals responsible for allocation decisions (or supervising those responsible).

Patrick T. Egan, age 49, has been a Director of the General Partner since December 2010. Since December 2010, Mr. Egan has been a principal and registered as an associated person of the General Partner, and is an associate member of NFA. Since October 2014, Mr. Egan has served as President and Chairman of the Board of Directors of the General Partner. Since August 2013, Mr. Egan has been registered as a swap associated person of the General Partner. From September 2013 to May 2014, Mr. Egan served as a Vice President of Morgan Stanley Strategies LLC, formerly known as Morgan Stanley GWM Feeder Strategies LLC, which acts as a general partner to multiple alternative investment entities, and Morgan Stanley AI GP LLC, formerly known as Morgan Stanley HedgePremier GP LLC, which acts as a general partner and administrative agent to numerous hedge fund feeder funds. From September 2013 to May 2014, Mr. Egan was registered as an associated person and listed as a principal of each such entity. Since January 2013, each such entity has been registered as a commodity pool operator with the CFTC. Mr. Egan was responsible for overseeing the implementation of certain CFTC and NFA regulatory requirements applicable to such entities. From June 2009 to December 2014, Mr. Egan was employed by Morgan Stanley Smith Barney LLC, a financial services firm, where his responsibilities included serving as Executive Director and as Co-Chief Investment Officer for Morgan Stanley Managed Futures from June 2009 through June 2011 and as Chief Risk Officer for Morgan Stanley Managed Futures from June 2011 through October 2014. Since October 2014, Mr. Egan has been responsible for the day-to-day operations and management of Morgan Stanley Managed Futures. Since January 2015, Mr. Egan has been employed by the General Partner. From November 2010 to October 2014, Mr. Egan was registered as an associated person of Morgan Stanley Smith Barney LLC. From April 2007 through June 2009, Mr. Egan was employed by MS & Co., a financial services firm, where his responsibilities included serving as Head of Due Diligence and Manager Research for Morgan Stanley’s Managed Futures Department. From April 2007 through June 2009, Mr. Egan was registered as an associated person of MS & Co. From March 1993 through April 2007, Mr. Egan was employed by Morgan Stanley DW Inc., a financial services firm, where his initial responsibilities included serving as an analyst and manager within the Managed Futures Department (with primary responsibilities for product development, due diligence, investment analysis and risk management of the firm’s commodity pools) and later included serving as Head of Due Diligence and Manager Research for Morgan Stanley’s Managed Futures Department. From February 1998 through April 2007, Mr. Egan was registered as an associated person of Morgan Stanley DW Inc. From August 1991 through March 1993, Mr. Egan was employed by Dean Witter Intercapital, the asset management arm of Dean Witter Reynolds, Inc., where his responsibilities included serving as a mutual fund administration associate. Mr. Egan also served as a Director from November 2004 through October 2006, and from November 2006 through October 2008 of the Managed Funds Association’s Board of Directors, a position he was elected to by industry peers for two consecutive two-year terms. Mr. Egan earned his Bachelor of Business Administration degree with a concentration in Finance in May 1991 from the University of Notre Dame.

Steven Ross, age 46, has been Chief Financial Officer and a principal of the General Partner since July 2014 and a Director of the General Partner since February 2016. Mr. Ross has been employed by Morgan Stanley Investment Management, a financial services firm, since September 2005, where his responsibilities include serving as an Assistant Treasurer of Morgan Stanley with respect to certain investment vehicles publicly offered by Morgan Stanley. Mr. Ross is also an Executive Director of the Morgan Stanley Fund Administration Group where he is responsible for finance and accounting matters for certain private funds offered by Morgan Stanley. Before joining Morgan Stanley Investment Management, Mr. Ross was employed by JPMorgan Investor Services Co., a financial services firm, from December 1997 through September 2005, where his responsibilities included serving as a Vice President responsible for the accounting of certain funds sponsored by JPMorgan Chase & Co. and other large fund families serviced by JPMorgan Investor Services Co. From April 1997 to December 1997, Mr. Ross was employed by Investors Bank & Trust, a financial services firm, where his responsibilities included performing mutual fund accounting for financial services firms. Mr. Ross began his career at Putnam Investments LLC, a financial services firm, where he was responsible for providing broker services for certain funds sponsored by Putnam Investments LLC from August 1996 to April 1997. Mr. Ross received a B.S. in Accounting from Rhode Island College in May 1995.

 

63


Maureen O’Toole, age 60, has been a Director, listed as a principal and registered as an associated person of the General Partner since May 2016. She has also been the Head of Managed Futures at Morgan Stanley Investment Management, a financial services firm, since May 2016 where she is responsible for developing and managing the managed futures business strategy. She joined Morgan Stanley Investment Management in June 2012 as Managing Director in charge of the intermediary alternative investment sales team. In this capacity she was responsible for the management of a team responsible for business development in managed futures, hedge funds and private investments. She has been registered as an associated person of Morgan Stanley Investment Management since June 2012. From April 2010 until June 2012, Ms. O’Toole was a managing director at K2 Advisors, L.L.C., a hedge fund investment advisory firm, where she was responsible for development of the firm’s investment funds. Between March 1993 and April 2010, Ms. O’Toole was employed by a variety of divisions within what became Citigroup Global Markets Inc., a financial services firm. Between August 2009 and April 2010, she worked in product development within Citi Private Bank, where she assisted in sourcing new investment platforms for its alternatives business. Between January 2002 and August 2009, Ms. O’Toole was Managing Director and Head of Sales and Client Service within Citigroup Alternative Investments. In this role she managed the high net worth sales team for Citigroup Alternative Investments through the Global Wealth Management channel, overseeing education and marketing. Prior to that, between November 1996 and January 2002, Ms. O’Toole was Director of Sales and Marketing within the managed futures department of Smith Barney. Prior to being named Director of Sales and Marketing, Ms. O’Toole was involved in the international development of the managed futures business within the managed futures department from March 1993 until November 1996. In this role, Ms. O’Toole oversaw due diligence and portfolio construction for the managed futures department. Ms. O’Toole served as a Director of Citigroup Managed Futures LLC (the predecessor entity to the General Partner) from August 2001 until October 2006, was listed as a principal of such entity from August 1998 until October 2006 and was registered as an associated person of such entity from January 2004 until October 2006. She was also registered as an associated person of Citigroup Global Markets Inc. from April 1993 until June 2010. Prior to Citigroup Global Markets Inc., Ms. O’Toole was employed at Rodman & Renshaw Inc., an investment bank, as head of managed futures manager research and portfolio construction between March 1989 and March 1993 and was registered as an associated person from June 1991 until March 1993. She was registered as an associated person of Rosenthal Collins Futures Management, Inc., a commodity pool operator and wholly owned subsidiary of Rodman & Renshaw, from January 1992 until March 1993. She began her investment career at Drexel Burnham Lambert Inc., an investment bank, in January 1982 where she worked as a research analyst, performing modeling on financial futures hedging and trading strategies until February 1989 and was registered as an associated person from December 1988 until February 1989. Ms. O’Toole obtained her Bachelor of Arts in Speech Pathology and Audiology from California State University Chico, in June 1979, and her Masters in Management from Kellogg Graduate School of Management at Northwestern University, in June 1989.

M. Paul Martin, age 59, has been a Director of the General Partner since October 2014. Mr. Martin has also served as Managing Director – Global Operations of Morgan Stanley Investment Management, a financial services firm, since June 2006, where his responsibilities include managing all elements of in-sourced and out-sourced global operations, and serving as a senior member of Morgan Stanley Investment Management’s Management, Risk Management, & New Products Committees. Mr. Martin has been listed as a principal of the General Partner since October 2014. Mr. Martin previously served as the Managing Director and Chief Operating Officer of Morgan Stanley Fund Services, a financial services firm, where his responsibilities included launching the Hedge Fund Administration business and being responsible for operations, fund accounting and administration, technology and compliance, from May 2004 through May 2006. Previously, Mr. Martin served as Managing Director – Institutional Investment Operations of Morgan Stanley Investment Management from January 1995 until April 2004, where his responsibilities included trading room support, portfolio administration, service provider management, and derivatives processing and control. From April 1994 through January 1995, Mr. Martin served as Senior Vice President and Head of Custody Operations for Fidelity Investments, a financial services firm. From October 1989 through April 1994, Mr. Martin served as Executive Director and Head of Global Operations for Morgan Stanley Trust Company, a financial services firm. Mr. Martin also served as Vice President – Information Technology for MS & Co., a financial services firm, from June 1984 through October 1989, where his responsibilities included acting as Senior Developer and Programming Manager – Prime Brokerage and Securities Clearance Systems, and as Part-time Manager – IT Training Program. From February 1984 through May 1984, Mr. Martin served as a Senior Analyst in the Financial Control Group of Shearson Lehman Brothers, Inc., a financial services firm. From October 1980 through January 1984, Mr. Martin served as a Senior Consultant – Management Information Consulting Division at Arthur Andersen & Co., an accounting firm, where his responsibilities included programming and programming supervisory roles at large governmental agencies. Mr. Martin received a B.S. in Business Administration - Finance from Georgetown University in May 1980 and an M.B.A. in Finance from New York University in June 1993.

Feta Zabeli, age 58, has been a Director of the General Partner since October 2014. Mr. Zabeli has also served as a director on the Board of Directors of Morgan Stanley Investment Management, a financial services firm, since January 2015 and has been listed as a principal since February 2015. Since May 2016, Mr. Zabeli is the Chief Risk Officer for Morgan Stanley Investment Management, responsible for all investment and operational risk management globally. From January 2012 to May 2016, Mr. Zabeli was Global Head of Risk for Morgan Stanley Investment Management’s Traditional Asset Management business where he was responsible for investment risk of all equity, fixed income, money market, multi-asset class and alternatives portfolios. He was also responsible for counterparty and quantitative model risk for the traditional asset management business. He joined Morgan Stanley in January 2012. Mr. Zabeli has been listed as a principal of the General Partner since October 2014. Mr. Zabeli was on garden leave in December 2011. From February 2006 to November 2011, Mr. Zabeli was Senior Vice President, and most recently Global Co-Head of Risk, for AllianceBernstein L.P., a global investment firm, with various risk management assignments in Hong Kong, Tokyo, London and New York. From August 2006 to April 2009, Mr. Zabeli was based in Hong Kong for AllianceBernstein as the Director of Risk Management for Asia Pacific. From April 2009 to July 2011, he was based in Tokyo for AllianceBernstein as both Director of Risk Management for Asia Pacific and Head of Risk Management for Japan.

 

64


From July 2011 to November 2011, he was based in London for AllianceBernstein as Global Head of Operational & Credit/Counterparty Risk. In these roles at AllianceBernstein he was responsible for the full range of risk management functions including investment, operational and credit/counterparty risk. Prior to his Risk Management roles at Morgan Stanley and AllianceBernstein, Mr. Zabeli held positions as a managing director at Citigroup Asset Management, the asset management division of Citigroup, an international financial services company, from April 1998 to January 2006, where he worked as a quantitative research analyst and portfolio manager, and director at BARRA Inc., a global provider of risk analytic tools to investment institutions, from September 1993 to March 1998, where he developed risk models and applications. Mr. Zabeli received a B.S. in Aerospace Engineering from Rensselaer Polytechnic Institute in May 1982, an M.S. in Electrical Engineering from the University of Southern California in May 1988 and an M.B.A. from the University of California at Los Angeles in August 1992.

Matthew R. Graver, age 50, has been a Director of the General Partner and listed as a principal since November 2016. Since January 2008, Mr. Graver has served as Managing Director of Morgan Stanley Investment Management, a financial services firm, and Chief Operating Officer for Morgan Stanley AIP Fund of Hedge Funds, a business unit offering managed portfolios of hedge funds. Since November 2015, Mr. Graver has been listed as a principal and director of Morgan Stanley AIP Cayman GP Ltd., a commodity pool operator. From January 2005 to January 2008, Mr. Graver served as Executive Director of Morgan Stanley Investment Management and from August 2003 to January 2005, Mr. Graver served as Vice President of Morgan Stanley Investment Management. From August 2003 to January 2008, Mr. Graver’s primary responsibilities included serving as Head of Operational Due Diligence for Morgan Stanley AIP Fund of Hedge Funds in which role he oversaw due diligence into operational factors of alternative investment entities. From July 1997 to July 2003, Mr. Graver was employed by PricewaterhouseCoopers LLP, an international auditing and professional services firm, where he served as a senior audit manager and was responsible for managing independent audits of financial services firms. From June 1993 to June 1997, Mr. Graver was employed by PNC Bank, a bank offering consumer and corporate services, where he served as a mutual fund accounting manager and was responsible for managing an accounting team that performed daily accounting functions and valuation calculations for a group of mutual funds. From July 1989 through June 1993, Mr. Graver was employed by Coopers & Lybrand LLP, a predecessor accounting firm to PricewaterhouseCoopers LLP, where he was a senior audit associate and was responsible for performing audits of financial services firms. Mr. Graver earned his Bachelor of Science degree in Accounting in May 1989 from Pennsylvania State University and Masters of Business Administration from Villanova University in May 2002.

The Partnership has not adopted a code of ethics that applies to officers because it has no officers. In addition, the Partnership has not adopted any procedures by which investors may recommend nominees to the Partnership’s board of directors and has not established an audit committee because it has no board of directors.

Item 12. Executive Compensation.

The Partnership has no directors or executive officers. As a limited partnership, the business of the Partnership is managed by the General Partner, which is responsible for the administration of the business affairs of the Partnership. The Partnership pays the General Partner a General Partner fee equal to an annual rate of 1.0% (paid monthly) of the Partnership’s net assets.

Item 13. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(a) Security ownership of certain beneficial owners. As of February 28, 2018, the Partnership knows of no person who beneficially owns more than 5% of the Redeemable Units outstanding.

(b) Security ownership of management. Under the terms of the Limited Partnership Agreement, the Partnership’s affairs are managed by the General Partner. The following table indicates securities owned by the General Partner as of December 31, 2017:

 

(1) Title of Class

   (2) Name of
Beneficial Owner
     (3) Amount and
Nature of
Beneficial
Ownership
     (4) Percent of
Classes
 

Class Z Redeemable Units

     General Partner        498.9050        95.9

(c) Changes in control. None.

 

65


Item 14. Certain Relationships and Related Transactions, and Director Independence.

(a) Transactions with related persons. None.

(b) Review, approval or ratification of transactions with related persons. Not applicable.

(c) Promoters and certain control persons. MS&Co., CGM, Morgan Stanley Wealth Management and the General Partner could be considered promoters for purposes of item 404(c) of Regulation S-K. The nature and the amounts of compensation each promoter received or will receive, if any, from the Partnership are set forth under “Item 1. Business,” “Item 8. Financial Statements and Supplementary Data,” and “Item 11. Executive Compensation.”

Item 15. Principal Accountant Fees and Services.

(1) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by Ernst & Young LLP (“EY”) for the year ended December 31, 2017 and Deloitte & Touche LLP (“Deloitte”) for the year ended December 31, 2016 for the audit of the Partnership’s annual financial statements, reviews of financial statements included in the Partnership’s Forms 10-Q and 10-K and other services normally provided in connection with regulatory filings or engagements were:

 

2017

   $ 98,794  

2016

   $ 129,400  

(2) Audit-Related Fees. None.

(3) Tax Fees. The Partnership did not pay EY or Deloitte any amounts in 2017 and 2016 for professional services in connection with tax compliance, tax advice, and tax planning.

(4) All Other Fees. None.

(5) Not Applicable.

(6) Not Applicable.

 

66


PART IV

Item 16. Exhibits and Financial Statement Schedules.

 

1   Financial Statements:
  Statements of Financial Condition at December 31, 2017 and 2016.
  Condensed Schedule of Investments at December 31, 2017 and 2016.
  Statements of Income and Expenses for the years ended December 31, 2017, 2016 and 2015.
  Statements of Changes in Partners’ Capital for the years ended December 31, 2017, 2016 and 2015.
  Notes to Financial Statements.
2   Exhibits:
3.1(a)   Certificate of Limited Partnership dated June 30, 2003 (filed as Exhibit 3.1 to the General Form for Registration of Securities on Form 10 filed on April 30, 2008 and incorporated herein by reference).
    (b)   Certificate of Amendment of the Certificate of Limited Partnership dated September  21, 2005 (filed as Exhibit 3.1(a) to the General Form for Registration of Securities on Form 10 filed on April 30, 2008 and incorporated herein by reference).
    (c)   Certificate of Amendment of the Certificate of Limited Partnership dated September  19, 2008 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
    (d)   Certificate of Amendment of the Certificate of Limited Partnership dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference).
    (e)   Certificate of Amendment of the Certificate of Limited Partnership dated June 29, 2010 (filed as Exhibit 3.1(e) to the Current Report on Form 8-K filed on July 2, 2010 and incorporated herein by reference).
    (f)   Certificate of Amendment of the Certificate of Limited Partnership dated September 2, 2011 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 7, 2011 and incorporated herein by reference).
    (g)   Certificate of Amendment of the Certificate of Limited Partnership dated August 7, 2013 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q filed on August 14, 2013 and incorporated herein by reference).
3.2(a)   Fourth Amended and Restated Limited Partnership Agreement effective May 1, 2012 (filed as Exhibit 3.2 to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).
    (b)   Amendment No. 1 to the Fourth Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on January 5, 2016 and incorporated herein by reference).
    (c)   Amendment No. 2 to the Fourth Amended and Restated Limited Partnership Agreement (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on December 13, 2017 and incorporated herein by reference).
10.1   Management Agreement among the Partnership, the General Partner and Waypoint Capital Management LLC (filed as Exhibit 10.4 to the General Form for Registration of Securities on Form 10 filed on April 30, 2008 and incorporated herein by reference).
10.2   Customer Agreement among the Partnership, the General Partner and CGM (filed as Exhibit 10.9 to the General Form for Registration of Securities on Form 10 filed on April 30, 2008 and incorporated herein by reference).
10.3   Amended and Restated Master Services Agreement by and among the Partnership, the General Partner and SS&C Technologies, Inc. (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 6, 2015 and incorporated herein by reference).
10.4   Form of Subscription Agreement (filed as Exhibit 10.5 to the Quarterly Report on Form 10-Q filed on November 14, 2012 and incorporated herein by reference).
10.5   Amended and Restated Alternative Investment Selling Agent Agreement among the Partnership, the General Partner and Morgan Stanley Wealth Management effective October 1, 2013 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on March 8, 2016 and incorporated herein by reference).
10.6   Second Amended and Restated Management Agreement among the Partnership, the General Partner and PGR Capital LLP (filed as Exhibit 10.12 to the Quarterly Report on Form 10-Q filed on August 15, 2011 and incorporated herein by reference).

 

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10.7(a)   Amended and Restated Management Agreement among the Partnership, the General Partner and Blackwater Capital Management, LLC (filed as Exhibit 10.13 to the Current Report on Form 8-K filed on November 4, 2010 and incorporated herein by reference).
      (b)   Amendment No.  1 to the Amended and Restated Management Agreement among the Partnership, the General Partner and Blackwater Capital Management, LLC (filed as Exhibit 10.6(b) to the Quarterly Report on Form 10-Q filed on May 14, 2014 and incorporated herein by reference).
10.8   Amended and Restated Management Agreement among the Partnership, the General Partner and J E Moody  & Company LLC (filed as Exhibit 10.14 to the Current Report on Form 8-K filed on January 3, 2011 and incorporated herein by reference).
10.9   Amended and Restated Management Agreement among the Partnership, the General Partner and Cirrus Capital Management LLC (filed as Exhibit 10.15 to the Current Report on Form 8-K filed on January 3, 2011 and incorporated herein by reference).
10.10(a)   Amended and Restated Management Agreement among the Partnership, the General Partner and Willowbridge Associates Inc. (filed as Exhibit 10.9(a) to the Quarterly Report on Form 10-Q filed on November 13, 2014 and incorporated herein by reference).
        (b)   Amendment to the Amended and Restated Management Agreement among the Partnership, the General Partner and Willowbridge Associates Inc. (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 7, 2013 and incorporated herein by reference).
10.11(a)   Amended and Restated Management Agreement among the Partnership, the General Partner and The Cambridge Strategy (Asset Management) Limited (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on October 7, 2013 and incorporated herein by reference).
        (b)   Letter from the General Partner to The Cambridge Strategy (Asset Management) Limited extending the Management Agreement from June 30, 2017 to June 30, 2018 (filed herewith).
10.12(a)   Management Agreement among the Partnership, the General Partner and SECOR Capital Advisors, LP (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 7, 2013 and incorporated herein by reference).
        (b)   Amendment to the Management Agreement among the Partnership, the General Partner and SECOR Capital Advisors, LP (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on January 5, 2016 and incorporated herein by reference).
        (c)   Letter from the General Partner to SECOR Capital Advisors, LP extending the Management Agreement from June 30, 2017 to June 30, 2018 (filed herewith).
10.13 (a)   Amended and Restated Commodity Futures Customer Agreement between the Partnership and MS&Co., effective August  21, 2013 (filed as Exhibit 10.17 to the Quarterly Report on Form 10-Q filed on November 14, 2013 and incorporated herein by reference).
        (b)   U.S. Treasury Securities Purchase Authorization Agreement between the Partnership and MS&Co., effective June 1, 2015 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on November 4, 2015 and incorporated herein by reference).
10.14   Management Agreement among the Partnership, the General Partner and Principle Capital Management LLC (filed as Exhibit 10.18 to the Quarterly Report on Form 10-Q filed on November 14, 2013 and incorporated herein by reference).
10.15   Management Agreement among the Partnership, the General Partner and 300 North Capital LLC (filed as Exhibit 10.19 to the Quarterly Report on Form 10-Q filed on November 14, 2013 and incorporated herein by reference).
10.16 (a)   Management Agreement among the Partnership, the General Partner and Centurion Investment Management, LLC (filed as Exhibit 10.18 to the Quarterly Report on Form 10-Q filed on November 13, 2014 and incorporated herein by reference).
        (b)   Amendment to the Management Agreement among the Partnership, the General Partner and Centurion Investment Management, LLC (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 5, 2016 and incorporated herein by reference).
10.17   Amended and Restated Management Agreement among the Partnership, the General Partner and Perella Weinberg Partners Capital Management LP (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on July 6, 2015 and incorporated herein by reference).

 

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10.18(a)   Escrow Agreement among the General Partner, Morgan Stanley Smith Barney LLC and The Bank of New York (filed as Exhibit 10.14(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).
        (b)   Amendment No.  5 to Escrow Agreement among the General Partner, Morgan Stanley Smith Barney LLC and the Bank of New York, (filed as Exhibit 10.14(b) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).
10.19   Management Agreement among the Partnership, the General Partner and Harbour Square Capital Management LLC (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 15, 2016 and incorporated herein by reference).
10.20   Management Agreement among the Partnership, the General Partner and Independent View BV (filed as Exhibit 10.13 to the Current Report on Form 8-K filed on October 3, 2016, and incorporated herein by reference).
10.21(a)   Management Agreement among the Partnership, the General Partner and AE Capital PTY Limited (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 6, 2017, and incorporated herein by reference).
        (b)   Amendment to the Management Agreement among the Partnership, the General Partner and AE Capital PTY Limited (filed herewith).
10.22   Management Agreement among the Partnership, the General Partner and Launchpad Capital Management LLC (filed as Exhibit 10.14 to the Current Report on Form 8-K filed on September 7, 2017, and incorporated herein by reference).
10.23   Management Agreement among the Partnership, the General Partner and Buttonwood Merchants, LLC (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on March 5, 2018, and incorporated herein by reference).
11.1   Foreign Exchange and Bullion Authorization Agreement among Cambridge, Cambridge Master and JPMorgan (filed as Exhibit 11.1 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.2   International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.2 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.3   Schedule to International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.3 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.4   2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.4 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.5   Institutional Account Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.5 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.6   Foreign Exchange and Bullion Authorization Agreement among SECOR, SECOR Master and JPMorgan (filed as Exhibit 11.6 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.7   International Swap Dealers Association, Inc. Master Agreement between SECOR Master and JPMorgan (filed as Exhibit 11.7 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.8   Schedule to International Swap Dealers Association, Inc. Master Agreement between SECOR Master and JPMorgan (filed as Exhibit 11.8 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.9   2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between SECOR Master and JPMorgan (filed as Exhibit 11.9 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
11.10   Institutional Account Agreement between SECOR Master and JPMorgan (filed as Exhibit 11.10 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
  99.1 — Financial Statements of CMF Willowbridge Master Fund L.P.
  99.2 — Financial Statements of SECOR Master Fund L.P.
  99.3 — Financial Statements of Cambridge Master Fund L.P

 

 

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The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference.

 

31.1    Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) (filed herewith).
31.2    Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director) (filed herewith).
32.1    Section 1350 Certification (Certification of President and Director) (filed herewith).
32.2    Section 1350 Certification (Certification of Chief Financial Officer and Director) (filed herewith).
101.INS            XBRL Instance Document.
101.SCH            XBRL Taxonomy Extension Schema Document.
101.CAL            XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB            XBRL Taxonomy Extension Label Linkbase Document.
101.PRE            XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF            XBRL Taxonomy Extension Definition Document.

 

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SIGNATURES

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

 

EMERGING CTA PORTFOLIO L.P.

By:

 

Ceres Managed Futures LLC

 

(General Partner)

By:

 

/s/ Patrick T. Egan

 

Patrick T. Egan

 

President and Director

 

Date: March 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

/s/ Patrick T. Egan

    

/s/ Feta Zabeli

     

/s/ Maureen O’Toole

Patrick T. Egan

    

Feta Zabeli

     

Maureen O’Toole

President and Director

    

Director

     

Director

Ceres Managed Futures LLC

    

Ceres Managed Futures LLC

     

Ceres Managed Futures LLC

Date: March 28, 2018

    

Date: March 28, 2018

     

Date: March 28, 2018

/s/ Steven Ross

    

/s/ M. Paul Martin

     

/s/ Matthew R. Graver

Steven Ross

    

M. Paul Martin

     

Matthew R. Graver

Chief Financial Officer and Director

    

Director

     

Director

(Principal Accounting Officer)

    

Ceres Managed Futures LLC

     

Ceres Managed Futures LLC

Ceres Managed Futures LLC

    

Date: March 28, 2018

     

Date: March 28, 2018

Date: March 28, 2018

          

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.

Annual Report to limited partners.

No proxy material has been sent to limited partners.

 

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