Attached files
file | filename |
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EX-99.1 - EX-99.1 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex991.htm |
EX-32.2 - EX-32.2 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex322.htm |
EX-32.1 - EX-32.1 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex321.htm |
EX-31.2 - EX-31.2 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex312.htm |
EX-31.1 - EX-31.1 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex311.htm |
EX-13.01 - EX-13.01 - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984dex1301.htm |
10-K - 10-K - MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC LP | d510984d10k.htm |
Exhibit 99.2
To the Limited Partners of
MB Master Fund L.P.
To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.
By: Patrick T. Egan | ||||
President and Director | ||||
Ceres Managed Futures LLC General Partner, |
||||
MB Master Fund L.P. | ||||
Ceres Managed Futures LLC | ||||
522 Fifth Avenue | ||||
New York, NY 10036 | ||||
855-672-4468 |
Report of Independent Registered Public Accounting Firm
To the General Partner of MB Master Fund L.P.,
Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of MB Master Fund 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 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 Partnerships management. Our responsibility is to express an opinion on the Partnerships 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 and in accordance with auditing standards generally accepted in the United States of America. 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 Partnerships 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 Partnerships 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of MB Master Fund L.P.:
We have audited the accompanying statements of financial condition of MB Master Fund 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 Partnerships 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 Partnerships 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 MB Master Fund 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
MB Master Fund L.P.
Statements of Financial Condition
December 31, 2017 and 2016
December 31, 2017 |
December 31, 2016 | |||||||
Assets: |
||||||||
Equity in trading account: |
||||||||
Investment in U.S. Treasury bills, at fair value (amortized cost $0 and $24,980,354 at December 31, 2017 and 2016, respectively) |
$ | - | $ | 24,989,906 | ||||
Unrestricted cash (Note 3c) |
85,624,998 | 96,314,966 | ||||||
Restricted cash (Note 3c) |
757,076 | 3,225,180 | ||||||
Net unrealized appreciation on open futures contracts |
112,276 | 540,016 | ||||||
Options purchased, at fair value (premiums paid $871,324 and $4,100,580 at December 31, 2017 and 2016, respectively) |
849,052 | 4,278,469 | ||||||
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|
|
|
|
| |||
Total equity in trading account |
87,343,402 | 129,348,537 | ||||||
Cash at bank (Note 1) |
436 | 217 | ||||||
Expense reimbursement (Note 3c) |
4,370 | 11,682 | ||||||
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|
| |||
Total assets |
$ | 87,348,208 | $ | 129,360,436 | ||||
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Liabilities and Partners Capital: |
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Liabilities: |
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Options written, at fair value (premiums received $585,448 and $1,111,935 at December 31, 2017 and 2016, respectively) |
$ | 533,767 | $ | 736,137 | ||||
Accrued expenses: |
||||||||
Professional fees |
39,239 | 31,494 | ||||||
Redemptions payable (Note 6) |
9,405,675 | 8,747,265 | ||||||
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|
|
| |||
Total liabilities |
9,978,681 | 9,514,896 | ||||||
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Partners Capital: |
||||||||
General Partner |
- | - | ||||||
Limited Partners |
77,369,527 | 119,845,540 | ||||||
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|
| |||
Total partners capital (net asset value) |
77,369,527 | 119,845,540 | ||||||
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| |||
Total liabilities and partnerscapital |
$ | 87,348,208 | $ | 129,360,436 | ||||
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See accompanying notes to financial statements.
MB Master Fund L.P.
Condensed Schedule of Investments
December 31, 2017
Number of Contracts |
Fair Value | % of Partners Capital |
||||||||||||||
Futures Contracts Purchased |
||||||||||||||||
Energy |
95 | $ | 178,768 | 0.23 | % | |||||||||||
Grains |
971 | (708,234 | ) | (0.92) | ||||||||||||
Softs |
307 | (57,953 | ) | (0.07) | ||||||||||||
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|
||||||||||||
Total futures contracts purchased |
(587,419 | ) | (0.76) | |||||||||||||
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Futures Contracts Sold |
||||||||||||||||
Energy |
80 | (165,605 | ) | (0.21) | ||||||||||||
Grains |
821 | 860,106 | 1.11 | |||||||||||||
Livestock |
78 | 39,284 | 0.05 | |||||||||||||
Softs |
210 | (34,090 | ) | (0.04) | ||||||||||||
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|
||||||||||||
Total futures contracts sold |
699,695 | 0.91 | ||||||||||||||
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|
||||||||||||
Net unrealized appreciation on open futures contracts |
$ | 112,276 | 0.15 | % | ||||||||||||
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Options Purchased |
||||||||||||||||
Calls |
||||||||||||||||
Grains |
51 | $ | 19,125 | 0.02 | % | |||||||||||
Livestock |
212 | 237,070 | 0.31 | |||||||||||||
Softs |
180 | 138,307 | 0.18 | |||||||||||||
Puts |
||||||||||||||||
Livestock |
434 | 436,490 | 0.57 | |||||||||||||
Softs |
110 | 18,060 | 0.02 | |||||||||||||
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Total options purchased (premiums paid $871,324) |
$ | 849,052 | 1.10 | % | ||||||||||||
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Options Written |
||||||||||||||||
Calls |
||||||||||||||||
Livestock |
139 | $ | (311,340 | ) | (0.41) | % | ||||||||||
Softs |
132 | (33,917 | ) | (0.04) | ||||||||||||
Puts |
||||||||||||||||
Livestock |
176 | (188,510 | ) | (0.24) | ||||||||||||
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Total options written (premiums received $585,448) |
$ | (533,767 | ) | (0.69) | % | |||||||||||
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See accompanying notes to financial statements.
MB Master Fund L.P.
Condensed Schedule of Investments
December 31, 2016
Number of Contracts |
Fair Value | % of Partners Capital |
||||||||||
Futures Contracts Purchased |
||||||||||||
Energy |
1,050 | $ | 913,118 | 0.77 | % | |||||||
Grains |
2,584 | (603,782) | (0.50) | |||||||||
Livestock |
64 | (9,035) | (0.01) | |||||||||
Softs |
1,027 | 101,453 | 0.08 | |||||||||
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Total futures contracts purchased |
401,754 | 0.34 | ||||||||||
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Futures Contracts Sold |
||||||||||||
Energy |
754 | (1,034,957) | (0.87) | |||||||||
Grains |
2,022 | 1,104,320 | 0.92 | |||||||||
Softs |
483 | 68,899 | 0.06 | |||||||||
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Total futures contracts sold |
138,262 | 0.11 | ||||||||||
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Net unrealized appreciation on open futures contracts |
$ | 540,016 | 0.45 | % | ||||||||
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Options Purchased |
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Calls |
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Energy |
1,938 | $ | 472,920 | 0.39 | % | |||||||
Grains |
1,565 | 679,313 | 0.57 | |||||||||
Livestock |
824 | 879,120 | 0.73 | |||||||||
Softs |
1,888 | 1,688,119 | 1.41 | |||||||||
Puts |
||||||||||||
Grains |
468 | 228,150 | 0.19 | |||||||||
Livestock |
475 | 115,880 | 0.10 | |||||||||
Softs |
210 | 214,967 | 0.18 | |||||||||
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Total options purchased (premiums paid $4,100,580) |
$ | 4,278,469 | 3.57 | % | ||||||||
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Options Written |
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Calls |
||||||||||||
Grains |
197 | $ | (41,863) | (0.03) | % | |||||||
Softs |
1,274 | (314,686) | (0.26) | |||||||||
Puts |
||||||||||||
Grains |
468 | (359,775) | (0.30) | |||||||||
Softs |
164 | (19,813) | (0.02) | |||||||||
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Total options written (premiums received $1,111,935) |
$ | (736,137) | (0.61) | % | ||||||||
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U.S. Government Securities
Face Amount |
Maturity Date |
Description |
Fair Value |
% of Partners Capital |
||||||||
$ 25,000,000 |
2/2/2017 | U.S. Treasury bills, 0.41%* (Amortized cost of $24,980,354) |
$ 24,989,906 | 20.85 | % | |||||||
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* Liquid non-cash held as collateral.
See accompanying notes to financial statements.
MB Master Fund L.P.
Statements of Income and Expenses
For the Years Ended December 31, 2017, 2016 and 2015
2017 | 2016 | 2015 | ||||||||||
Investment Income: |
||||||||||||
Interest income |
$ | 813,095 | $ | 277,605 | $ | 5,090 | ||||||
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Expenses: |
||||||||||||
Clearing fees (Note 3c) |
1,382,290 | 2,721,005 | 3,610,487 | |||||||||
Professional fees |
63,879 | 73,742 | 80,927 | |||||||||
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Total expenses |
1,446,169 | 2,794,747 | 3,691,414 | |||||||||
Expense reimbursements (Note 3c) |
(109,988 | ) | (203,079 | ) | (141,378 | ) | ||||||
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Net expenses |
1,336,181 | 2,591,668 | 3,550,036 | |||||||||
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Net investment loss |
(523,086 | ) | (2,314,063 | ) | (3,544,946 | ) | ||||||
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Trading Results: |
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Net gains (losses) on trading of commodity interests: |
||||||||||||
Net realized gains (losses) on closed contracts |
846,478 | 16,573,503 | (3,595,305 | ) | ||||||||
Net change in unrealized gains (losses) on open contracts |
(952,781 | ) | (240,661 | ) | (1,527,908 | ) | ||||||
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Total trading results |
(106,303 | ) | 16,332,842 | (5,123,213 | ) | |||||||
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Net income (loss) |
$ | (629,389 | ) | $ | 14,018,779 | $ | (8,668,159 | ) | ||||
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See accompanying notes to financial statements.
MB Master Fund L.P.
Statements of Changes in Partners Capital
For the Years Ended December 31, 2017, 2016 and 2015
Partners Capital | ||||
Partners Capital, December 31, 2014 |
$ | 228,148,871 | ||
Subscriptions |
24,894,677 | |||
Redemptions |
(84,987,618 | ) | ||
Distribution of interest income to feeder funds |
(15,125 | ) | ||
Net income (loss) |
(8,668,159 | ) | ||
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| ||
Partners Capital, December 31, 2015 |
159,372,646 | |||
Subscriptions |
9,852,158 | |||
Redemptions |
(63,341,883 | ) | ||
Distribution of interest income to feeder funds |
(56,160 | ) | ||
Net income (loss) |
14,018,779 | |||
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| ||
Partners Capital, December 31, 2016 |
119,845,540 | |||
Subscriptions |
9,753,900 | |||
Redemptions |
(50,797,523 | ) | ||
Distribution of interest income to feeder funds |
(803,001 | ) | ||
Net income (loss) |
(629,389 | ) | ||
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Partners Capital, December 31, 2017 |
$ | 77,369,527 | ||
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See accompanying notes to financial statements.
MB Master Fund L.P.
Notes to Financial Statements
1. | Organization: |
MB Master Fund L.P. (the Master) is a limited partnership organized under the partnership laws of the State of Delaware on April 21, 2011, to engage in the speculative trading of a diversified portfolio of commodity interests, including futures, option, swap and forward contracts. The sectors traded include currencies, energy, grains, livestock, metals and softs. The commodity interests that are traded by the Master are volatile and involve a high degree of market risk. The General Partner (as defined below) may also determine to invest up to all of the Masters assets in United States (U.S.) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.
Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the General Partner) and commodity pool operator of the Master. 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 Master are made by the Advisor (as defined below).
On May 1, 2011 (commencement of trading operations), Commodity Advisors Fund L.P. (Commodity Advisors) allocated a portion of its capital to the Master. On December 1, 2011, Institutional Futures Portfolio L.P. (Institutional) and Morgan Stanley Spectrum Strategic L.P. (Spectrum Strategic) each allocated a portion of their capital to the Master. On February 1, 2013, Ceres Tactical Commodity L.P. (formerly, Managed Futures Premier Aventis II L.P.) (Tactical Commodity) allocated substantially all of its capital to the Master. On June 1, 2013, Managed Futures Custom Solutions Fund LP Series A (formerly, Morgan Stanley Managed Futures Custom Solutions Fund LP Series A) (Custom Solutions) allocated a portion of its capital to the Master. On December 31, 2016, Commodity Advisors redeemed its entire investment in the Master. Effective July 31, 2017, Custom Solutions terminated operations and fully redeemed its investment in the Master. Effective December 31, 2017, Institutional terminated operations and fully redeemed its investment in the Master. The Master permits commodity pools managed now and in the future by Aventis Asset Management, LLC (the Advisor) using the Aventis Diversified Commodity Strategy, a proprietary, discretionary trading system, to invest together in one trading vehicle.
During the periods covered by this report, the Masters commodity broker was Morgan Stanley & Co. LLC (MS&Co.), a registered futures commission merchant. The Master also deposits a portion of its cash in a non-trading bank account at JPMorgan Chase Bank, N.A.
As of the close of business on December 31, 2017, the Master operated under a structure where its investors consist of Spectrum Strategic and Tactical Commodity (each a Feeder, and collectively, the Funds). References herein to a Feeder or the Funds may also include as relevant, reference to Commodity Advisors, Custom Solutions and Institutional. Institutional, Spectrum Strategic and Tactical Commodity each owned approximately 1.7%, 9.0% and 89.3% of the Master prior to the close of business on December 31, 2017, respectively. Institutional, Spectrum Strategic, Tactical Commodity and Custom Solutions each owned approximately 2.3%, 7.5%, 88.1% and 2.1% of the Master at December 31, 2016, respectively.
The Master will be liquidated under certain circumstances as set forth in the limited partnership agreement of the Master (the Limited Partnership Agreement).
MB Master Fund L.P.
Notes to Financial Statements
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 Master.
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. | Statement of Cash Flows. The Master 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 Master carried no debt and all of the Masters investments were carried at fair value and classified as Level 1 or Level 2 measurements. |
c. | Masters Investments. All commodity interests held by the Master, 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 Statements of Financial Condition. Net realized gains or losses and net change in unrealized gains or losses are included in the Statements of Income and Expenses. The Master does not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in total trading results in the Statements of Income and Expenses. |
Masters Cash. The Masters cash includes cash denominated in foreign currencies of $183,012 (cost of $179,449) and $(215,708) (proceeds of $220,034) at December 31, 2017 and 2016, respectively.
d. | Income and Expenses Recognition. All of the income and expenses and realized and unrealized gains and losses on trading of commodity interests are determined on each valuation day and allocated pro-rata among the Funds at the time of such determination. |
e. | Income Taxes. Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Masters income and expenses. The Master 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 Masters 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 Masters 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 years 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 Master 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. |
MB Master Fund L.P.
Notes to Financial Statements
f. | Investment Company Status. Effective January 1, 2014, the Master adopted Accounting Standards Update 2013-08, Financial ServicesInvestment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements and based on the General Partners assessment, the Master has been deemed to be an investment company since inception. Accordingly, the Master 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. |
3. | Agreements: |
a. | Limited Partnership Agreement: |
The General Partner administers the business and affairs of the Master, including selecting one or more advisors to make trading decisions for the Master.
b. | Management Agreement: |
The General Partner, on behalf of the Master, has entered into a management agreement (the Management Agreement) with the Advisor, a registered commodity trading advisor. The Advisor is not affiliated with the General Partner or MS&Co. and is not responsible for the organization or operation of the Master. The Management Agreement provides that the Advisor has sole discretion in determining the investment of the assets of the Master. All management fees in connection with the Management Agreement are borne by the Funds. The Management Agreement may be terminated upon notice by either party.
c. | Customer Agreement: |
The Master has entered into a customer agreement with MS&Co. (the Customer Agreement). Under the Customer Agreement, the Master pays MS&Co. trading fees for the clearing and, where applicable, the execution of transactions. Further, all trading, exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the clearing fees) are borne by the Master and allocated to the Funds. All other fees are borne by the Funds. All of the Masters assets available for trading in commodity interests are deposited in the Masters brokerage account at MS&Co. The Masters cash deposited with MS&Co. is held in segregated bank accounts to the extent required by the Commodity Futures Trading Commission regulations. The Masters 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 by the Master for margin requirements was $757,076 and $3,225,180, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. The Customer Agreement may generally be terminated upon notice by either party.
Spectrum Strategics General Partner administrative fees include clearing fees that are charged to the Master, and therefore, the Master receives monthly expense reimbursements that the General Partner is contractually obligated to pay on clearing fees incurred during such month, as shown in the Statements of Income and Expenses as expense reimbursements, based on the beginning of the month Partners capital allocation percentage for Spectrum Strategics investment in the Master.
MB Master Fund L.P.
Notes to Financial Statements
4. | Trading Activities: |
The Master was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity interests. The results of the Masters trading activities are shown in the Statements of Income and Expenses.
The Customer Agreement gives the Master the legal right to net unrealized gains and losses on open futures and forward contracts. The Master nets, for financial reporting purposes, the unrealized gains and losses on open futures and forward contracts in the Statements of Financial Condition, as the criteria under ASC 210-20, Balance Sheet, have been met.
All of the commodity interests owned by the Master are held for trading purposes. The monthly average number of futures contracts traded during the years ended December 31, 2017 and 2016 were 6,469 and 9,621, respectively. The monthly average number of option contracts traded during the years ended December 31, 2017 and 2016 were 5,058 and 16,381, respectively. The monthly average number of metals forward contracts traded during the years ended December 31, 2017 and 2016 were 52 and 0, respectively.
The following tables summarize the gross and net amounts recognized relating to assets and liabilities of the Masters 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 | Net Amount | |||||||||||||||||||
Statements of Financial Condition | ||||||||||||||||||||||||
Financial Instruments |
Cash Collateral Received/Pledged* |
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Assets |
||||||||||||||||||||||||
Futures |
$ | 1,308,111 | $ | (1,195,835) | $ | 112,276 | $ | - | $ | - | $ | 112,276 | ||||||||||||
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|
|
|
|
|
|
|
|
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|
|||||||||||||
Total assets |
$ | 1,308,111 | $ | (1,195,835) | $ | 112,276 | $ | - | $ | - | $ | 112,276 | ||||||||||||
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|
|
|
|
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|
|
|||||||||||||
Liabilities |
||||||||||||||||||||||||
Futures |
$ | (1,195,835) | $ | 1,195,835 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
$ | (1,195,835) | $ | 1,195,835 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
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|
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|
|||||||||||||
Net fair value |
$ | 112,276 | * | |||||||||||||||||||||
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|
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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 | Net Amount | |||||||||||||||||||
Statements of Financial Condition | ||||||||||||||||||||||||
Financial Instruments |
Cash Collateral Received/Pledged* |
|||||||||||||||||||||||
Assets |
||||||||||||||||||||||||
Futures |
$ | 3,722,941 | $ | (3,182,925) | $ | 540,016 | $ | - | $ | - | $ | 540,016 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 3,722,941 | $ | (3,182,925) | $ | 540,016 | $ | - | $ | - | $ | 540,016 | ||||||||||||
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|
|
|
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|
|
|||||||||||||
Liabilities |
||||||||||||||||||||||||
Futures |
$ | (3,182,925) | $ | 3,182,925 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
$ | (3,182,925) | $ | 3,182,925 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
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|
|
|
|
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Net fair value |
$ | 540,016 | * | |||||||||||||||||||||
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* | In the event of default by the Master, MS&Co., the Masters commodity futures broker and the sole counterparty to the Masters non-exchange-traded contracts, as applicable, has the right to offset the Masters obligation with the Masters 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 Master is exposed to the amount shown in the Masters Statements of Financial Condition. In the case of exchange-traded contracts, the Masters exposure to counterparty risk may be reduced since the exchanges clearinghouse interposes its credit between buyer and seller and the clearinghouses guarantee funds may be available in the event of a default. |
MB Master Fund L.P.
Notes to Financial Statements
The following tables indicate the gross fair values of derivative instruments of futures and option contracts as separate assets and liabilities as of December 31, 2017 and 2016, respectively.
December 31, 2017 | ||||
Assets |
||||
Futures Contracts |
||||
Energy |
$ | 180,618 | ||
Grains |
986,005 | |||
Livestock |
57,201 | |||
Softs |
84,287 | |||
|
|
|||
Total unrealized appreciation on open futures contracts |
1,308,111 | |||
|
|
|||
Liabilities |
||||
Futures Contracts |
||||
Energy |
(167,455) | |||
Grains |
(834,133) | |||
Livestock |
(17,917) | |||
Softs |
(176,330) | |||
|
|
|||
Total unrealized depreciation on open futures contracts |
(1,195,835) | |||
|
|
|||
Net unrealized appreciation on open futures contracts |
$ | 112,276 | * | |
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|
|||
Assets |
||||
Options Purchased |
||||
Grains |
$ | 19,125 | ||
Livestock |
673,560 | |||
Softs |
156,367 | |||
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|
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Total options purchased |
$ | 849,052 | ** | |
|
|
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Liabilities |
||||
Options Written |
||||
Livestock |
$ | (499,850) | ||
Softs |
(33,917) | |||
|
|
|||
Total options written |
$ | (533,767) | *** | |
|
|
* | 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. |
MB Master Fund L.P.
Notes to Financial Statements
December 31, 2016 | ||||
Assets |
||||
Futures Contracts |
||||
Energy |
$ | 1,097,955 | ||
Grains |
1,630,894 | |||
Softs |
994,092 | |||
|
|
|||
Total unrealized appreciation on open futures contracts |
3,722,941 | |||
|
|
|||
Liabilities |
||||
Futures Contracts |
||||
Energy |
(1,219,794) | |||
Grains |
(1,130,356) | |||
Livestock |
(9,035) | |||
Softs |
(823,740) | |||
|
|
|||
Total unrealized depreciation on open futures contracts |
(3,182,925) | |||
|
|
|||
Net unrealized appreciation on open futures contracts |
$ | 540,016 | * | |
|
|
|||
Assets |
||||
Options Purchased |
||||
Energy |
$ | 472,920 | ||
Grains |
907,463 | |||
Livestock |
995,000 | |||
Softs |
1,903,086 | |||
|
|
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Total options purchased |
$ | 4,278,469 | ** | |
|
|
|||
Liabilities |
||||
Options Written |
||||
Grains |
$ | (401,638) | ||
Softs |
(334,499) | |||
|
|
|||
Total options written |
$ | (736,137) | *** | |
|
|
* | 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. |
MB Master Fund L.P.
Notes to Financial Statements
The following table indicates the trading gains and losses, by market sector, on derivative instruments for the years ended December 31, 2017, 2016 and 2015.
Sector |
2017 | 2016 | 2015 | |||||||||
Currencies |
$ | (8,804) | $ | 7,546 | $ | (34,668) | ||||||
Energy |
(6,256,780) | 13,788,446 | (1,963,043) | |||||||||
Grains |
1,619,966 | 66,845 | 2,060,501 | |||||||||
Livestock |
2,048,168 | (580,885) | 1,370,997 | |||||||||
Metals |
488,773 | 24,529 | (7,374,189) | |||||||||
Softs |
2,002,374 | 3,026,361 | 817,189 | |||||||||
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|
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Total |
$ |
(106,303) |
* |
$ | 16,332,842 | * | $ | (5,123,213) | * | |||
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|
* | This amount is in Total trading results in the Statements of Income and Expenses. |
5. | Fair Value Measurements: |
Masters 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 input 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 Master considers 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 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 Master did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partners assumptions and internal valuation pricing models (Level 3). Transfers between levels are recognized at the beginning of the reporting period. For the years ended December 31, 2017 and 2016, there were no transfers of assets or liabilities between Level 1 and Level 2.
MB Master Fund L.P.
Notes to Financial Statements
December 31, 2017 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
Futures |
$ | 1,308,111 | $ | 1,308,111 | $ | - | $ | - | ||||||||
Options purchased |
849,052 | 849,052 | - | - | ||||||||||||
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|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
$ | 2,157,163 | $ | 2,157,163 | $ | - | $ | - | ||||||||
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|
|
|
|
|
|
|
|
|
| ||||||
Liabilities |
||||||||||||||||
Futures |
$ | 1,195,835 | $ | 1,195,835 | $ | - | $ | - | ||||||||
Options written |
533,767 | 533,767 | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
$ | 1,729,602 | $ | 1,729,602 | $ | - | $ | - | ||||||||
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|
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|
|
|
|
|
|
| ||||||
December 31, 2016 |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets |
||||||||||||||||
U.S. Treasury bills |
$ | 24,989,906 | $ | - | $ | 24,989,906 | $ | - | ||||||||
Futures |
3,722,941 | 3,722,941 | - | - | ||||||||||||
Options purchased |
4,278,469 | 4,278,469 | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total assets |
$ | 32,991,316 | $ | 8,001,410 | $ | 24,989,906 | $ | - | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities |
||||||||||||||||
Futures |
$ | 3,182,925 | $ | 3,182,925 | $ | - | $ | - | ||||||||
Options written |
736,137 | 736,137 | - | - | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total liabilities |
$ | 3,919,062 | $ | 3,919,062 | $ | - | $ | - | ||||||||
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6. | 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 Masters profits, except for distribution of interest income to feeder funds, as applicable. Generally, a limited partner withdraws all or part of its capital contribution and undistributed profits, if any, from the Master as of the end of any month (the Redemption Date) after a request for redemption 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 Master. 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.
MB Master Fund L.P.
Notes to Financial Statements
7. | 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 | ||||||||||
Ratios to Average Limited Partners Capital: |
||||||||||||
Net investment loss* |
(0.5)% | (1.6)% | (1.7)% | |||||||||
|
|
|
|
|
|
|||||||
Operating expenses before expense reimbursements |
1.3 % | 2.0 % | 1.8 % | |||||||||
Expense reimbursements |
(0.1)% | (0.1)% | (0.1)% | |||||||||
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|
|
|
|
|
|||||||
Operating expenses after expense reimbursements |
1.2 % | 1.9 % | 1.7 % | |||||||||
|
|
|
|
|
|
|||||||
Total return |
(0.6)% | 10.4 % | (4.8)% | |||||||||
|
|
|
|
|
|
* | Interest income less total expenses, net of expense reimbursements. |
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.
8. | Financial Instrument Risks: |
In the normal course of business, the Master is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments include futures, forward, option and swap contracts, 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. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer (or seller) of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. None of the Masters current contracts are traded OTC, although contracts may be traded OTC in the future.
MB Master Fund L.P.
Notes to Financial Statements
Futures Contracts. The Master trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or 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 Master 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 Master. When the contract is closed, the Master records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and net change in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses.
Options. The Master 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 Master writes an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Master purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and net change in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses.
As both a buyer and seller of options, the Master pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Master 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 Master does not consider these contracts to be guarantees.
Futures-style Options. The Master may trade futures-style option contracts. Unlike traditional option contracts, the premiums for futures-style option contracts are not received or paid upon the onset of the trade. The premiums are recognized and received or paid as part of the sales price when the contract is closed. Similar to a futures contract, variation margin for the futures-style option contract may be made or received by the Master 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 Master. Transactions in futures-style option 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. Futures-style option contracts are presented as part of Net unrealized appreciation on open futures contracts or Net unrealized depreciation on open futures contracts, as applicable, in the Statements of Financial Condition. Net realized gains (losses) and net change in unrealized gains (losses) on futures-style option contracts are included in the Statements of Income and Expenses and Changes in Partners Capital.
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 Master are cash settled based on prompt dates published by the LME. Variation margin may be made or received by the Master 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 Master. 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 Master records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in 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 Statements of Income and Expenses.
MB Master Fund L.P.
Notes to Financial Statements
Market risk is the potential for changes in the value of the financial instruments traded by the Master 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 Master is exposed to market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.
Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Masters risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Masters risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Master to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Master has credit risk and concentration risk, as MS&Co. or an MS&Co. affiliate is the sole counterparty or broker with respect to the Masters assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through MS&Co. or an MS&Co. affiliate, the Masters counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to mitigate the Masters 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 Master 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 Masters business, these instruments may not be held to maturity.
In the ordinary course of business, the Master enters into contracts and agreements that contain various representations and warranties and which provide general indemnifications. The Masters maximum exposure under these arrangements cannot be determined, as this could include future claims that have not yet been made against the Master. The Master considers the risk of any future obligation relating to these indemnifications to be remote.
9. | Subsequent Events: |
The General Partner evaluates events that occur after the balance sheet date but before and up until financial statements are issued. The General Partner has assessed the subsequent events through March 22, 2018, the date the financial statements were available to be issued and has determined that there were no subsequent events requiring adjustment to or disclosure in the financial statements.