Company Quick10K Filing
Quick10K
Emerging Cta Portfolio
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-23 Officers
8-K 2019-06-30 Leave Agreement
8-K 2019-03-31 Leave Agreement
8-K 2019-03-06 Officers
8-K 2018-10-31 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-10-15 Enter Agreement, Exhibits
8-K 2018-09-28 Enter Agreement, Exhibits
8-K 2018-09-15 Officers
8-K 2018-04-30 Leave Agreement
8-K 2018-03-01 Enter Agreement, Exhibits
8-K 2018-01-01 Enter Agreement, Exhibits
EQGP Eqgp Holdings 7,468
AERG Applied Energetics 53
IDTY Ipsidy 48
VSAR Versartis 24
PEYE Precision Opticsoration 17
APRI Apricus Biosciences 8
ZGSI Zero Gravity Solutions 0
MPMI MPM Holdings 0
PVA Penn Virginia 0
SNDL Sundial Growers 0
CTA 2019-06-30
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities. - None.
Item 4. Mine Safety Disclosures. - Not Applicable.
Item 5. Other Information. - None.
Item 6. Exhibits.
EX-31.1 d769268dex311.htm
EX-31.2 d769268dex312.htm
EX-32.1 d769268dex321.htm
EX-32.2 d769268dex322.htm

Emerging Cta Portfolio Earnings 2019-06-30

CTA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d769268d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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 of principal executive offices) (Zip Code)

(855) 672-4468

 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

N/A   N/A   N/A

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 every Interactive Data File required to be submitted 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 such files).

Yes X  No  

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

As of July 31, 2019, 21,047.7580 Limited Partnership Class A Redeemable Units were outstanding and 21.2650 Limited Partnership Class Z Redeemable Units were outstanding.

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Emerging CTA Portfolio L.P.

Statements of Financial Condition

 

     June 30,    December 31,
     2019    2018
     (Unaudited)   

 

Assets:

     

Investment in the Funds(1), at fair value

     $ -            $  10,478,871  

Redemptions receivable from the Fund(s)

     5,807,972        2,523,092  
  

 

 

 

  

 

 

 

Equity in trading account:

     

Unrestricted cash

     16,381,174        16,750,928  

Restricted cash

     2,928,006        2,756,546  

Net unrealized appreciation on open futures contracts

     499,131        93,633  
  

 

 

 

  

 

 

 

Total equity in trading account

     19,808,311        19,601,107  
  

 

 

 

  

 

 

 

Interest receivable

     36,942        32,495  
  

 

 

 

  

 

 

 

Total assets

     $  25,653,225        $ 32,635,565  
  

 

 

 

  

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Accrued expenses:

     

Ongoing selling agent fees

     $ 42,241        $ 53,716  

Management fees

     23,785        31,371  

General Partner fees

     21,245        27,083  

Incentive fees

     13,602        62,039  

Professional fees

     158,742        135,521  

Redemptions payable to General Partner

     22,000        -      

Redemptions payable to Limited Partners

     352,643        2,467,162  
  

 

 

 

  

 

 

 

Total liabilities

     634,258        2,776,892  
  

 

 

 

  

 

 

 

Partners’ Capital:

     

General Partner, Class Z, 269.6640 and 396.6850 Redeemable Units outstanding at June 30, 2019 and December 31, 2018, respectively

     263,095        382,416  

Limited Partners, Class A, 21,434.5300 and 25,573.0000 Redeemable Units outstanding at June 30, 2019 and December 31, 2018, respectively

     24,735,125        29,455,757  

Limited Partners, Class Z, 21.2650 Redeemable Units outstanding at June 30, 2019 and December 31, 2018

     20,747        20,500  
  

 

 

 

  

 

 

 

Total partners’ capital (net asset value)

     25,018,967        29,858,673  
  

 

 

 

  

 

 

 

Total liabilities and partners’ capital

     $       25,653,225        $        32,635,565  
  

 

 

 

  

 

 

 

Net asset value per Redeemable Unit:

     

Class A

     $ 1,153.98        $ 1,151.83  
  

 

 

 

  

 

 

 

Class Z

     $ 975.64        $ 964.03  
  

 

 

 

  

 

 

 

(1) Defined in Note 1.

See accompanying notes to financial statements.

 

1


Emerging CTA Portfolio L.P.

Condensed Schedule of Investments

June 30, 2019

(Unaudited)

 

     Number of           % of Partners’  
     Contracts    Fair Value      Capital  

Futures Contracts Purchased

        

Currencies

     361        $ 279,218          1.12  

Energy

     60        34,367          0.14    

Grains

     134        (46,085)         (0.18)   

Indices

     292        58,820          0.23    

Interest Rates U.S.

     103        138,617          0.55    

Interest Rates Non-U.S.

     148        48,692          0.19    

Metals

     80        64,562          0.26    

Softs

     115        (6,603)         (0.03)   
     

 

 

    

 

 

 

Total futures contracts purchased

        571,588          2.28    
     

 

 

    

 

 

 

Futures Contracts Sold

        

Currencies

     16        (11,890)         (0.05)   

Energy

     64        15,838          0.06    

Grains

     128        28,696          0.12    

Indices

     114        (38,018)         (0.15)   

Interest Rates Non-U.S.

     221        (62,032)         (0.25)   

Livestock

     13        10,680          0.04    

Metals

     5        (6,083)         (0.02)   

Softs

     105        (9,648)         (0.04)   
     

 

 

    

 

 

 

Total futures contracts sold

        (72,457)         (0.29)   
     

 

 

    

 

 

 

Net unrealized appreciation on open futures contracts

        $         499,131                  1.99  
     

 

 

    

 

 

 

See accompanying notes to financial statements.

 

2


Emerging CTA Portfolio L.P.

Condensed Schedule of Investments

December 31, 2018

 

     Number of           % of Partners’  
     Contracts    Fair Value      Capital  

Futures Contracts Purchased

        

Currencies

     212        $ (26,777)         (0.09) 

Energy

     33        (96,130)         (0.32)   

Grains

     225        (84,112)         (0.28)   

Indices

     209        78,137          0.26    

Interest Rates U.S.

     103        106,822          0.36    

Interest Rates Non-U.S.

     441        224,279          0.75    

Livestock

     13        5,100          0.02    

Metals

     15        18,336          0.06    

Softs

     37        (23,859)         (0.08)   
     

 

 

    

 

 

 

Total futures contracts purchased

        201,796          0.68    
     

 

 

    

 

 

 

Futures Contracts Sold

        

Currencies

     104        (4,015)         (0.01)   

Energy

     32        77,785          0.26    

Grains

     190        27,075          0.09    

Indices

     68        8,843          0.03    

Interest Rates U.S.

     57        (96,641)         (0.33)   

Interest Rates Non-U.S.

     215        (112,302)         (0.38)   

Livestock

     11        (1,550)         (0.01)   

Metals

     4        (483)         (0.00) 

Softs

     111        (6,875)         (0.02)   
     

 

 

    

 

 

 

Total futures contracts sold

        (108,163)         (0.37)   
     

 

 

    

 

 

 

Net unrealized appreciation on open futures contracts

        $ 93,633          0.31  
     

 

 

    

 

 

 

Investment in the Funds

        

SECOR Master Fund L.P.

        $ 5,373,355          18.00  

CMF Harbour Square Master Fund LLC

        2,505,301          8.39    

CMF AE Capital Master Fund LLC

        2,600,215          8.71    
     

 

 

    

 

 

 

Total investment in the Funds

        $       10,478,871                  35.10  
     

 

 

    

 

 

 

* Due to rounding.

See accompanying notes to financial statements.

 

3


Emerging CTA Portfolio L.P.

Statements of Income and Expenses

(Unaudited)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2019      2018      2019      2018  

Investment Income:

           

Interest income

     $ 91,669          $ 50,963          $ 188,515          $ 126,293    

Interest income allocated from the Funds

     29,564          97,384          78,975          159,424    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment income

     121,233          148,347          267,490          285,717    
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           

Expenses allocated from the Funds

     36,492          60,207          85,308          98,020    

Clearing fees related to direct investments

     46,588          40,488          84,279          95,336    

Ongoing selling agent fees

     128,345          194,788          272,435          400,622    

Management fees

     70,982          117,935          155,137          240,300    

General Partner fees

     64,630          98,162          137,375          201,991    

Incentive fees

     (40,866)         -          (48,436)         -    

Professional fees

     75,227          79,815          169,286          160,444    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     381,398          591,395          855,384          1,196,713    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net investment loss

     (260,165)         (443,048)         (587,894)         (910,996)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Trading Results:

           

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

           

Net realized gains (losses) on closed contracts

     537,032          (615,870)         (75,653)         (62,647)   

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

     (105,664)         257,786          197,738          593,527    

Net change in unrealized gains (losses) on open contracts

     500,150          74,536          404,996          2,184    

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

     (8,152)         131,203          47,655          648,727    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total trading results

     923,366          (152,345)         574,736          1,181,791    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     $ 663,201          $ (595,393)         $ (13,158)         $ 270,795    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) per Redeemable Unit*:

           

Class A

     $ 30.07          $ (17.34)         $ 2.15          $ 7.45    
  

 

 

    

 

 

    

 

 

    

 

 

 

Class Z

     $ 30.22          $ (9.43)         $ 11.61          $ 15.81    
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average Redeemable Units outstanding:

           

Class A

           22,398.2390                33,213.4093                23,631.8460                34,025.9480    
  

 

 

    

 

 

    

 

 

    

 

 

 

Class Z

     348.3020          469.0740          383.1260          494.6220    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

*

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

See accompanying notes to financial statements.

 

4


Emerging CTA Portfolio L.P.

Statements of Changes in Partners’ Capital

For the Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

 

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

Partners’ Capital, December 31, 2017

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

Subscriptions - Limited Partners

    50,000         43.3540         -           -           50,000         43.3540    

Redemptions - General Partner

    -           -           (50,000)        (51.0960)        (50,000)        (51.0960)   

Redemptions - Limited Partners

    (3,780,024)        (3,234.2900)        -           -           (3,780,024)        (3,234.2900)   

Net income (loss)

    262,090         -           8,705         -           270,795         -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, June 30, 2018

    $  37,778,795         32,299.8900         $ 454,588         469.0740         $ 38,233,383         32,768.9640    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, March 31, 2018

    $ 39,846,933         33,570.3870         $ 459,012         469.0740         $ 40,305,945         34,039.4610    

Subscriptions - Limited Partners

    50,000         43.3540         -           -           50,000         43.3540    

Redemptions - Limited Partners

    (1,527,169)        (1,313.8510)        -           -           (1,527,169)        (1,313.8510)   

Net income (loss)

    (590,969)        -           (4,424)        -           (595,393)        -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, June 30, 2018

    $ 37,778,795         32,299.8900         $ 454,588         469.0740         $  38,233,383         32,768.9640    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Partners’ Capital, December 31, 2018

    $ 29,455,757         25,573.0000         $ 402,916         417.9500         $ 29,858,673         25,990.9500    

Redemptions - General Partner

    -           -           (121,996)        (127.0210)        (121,996)        (127.0210)   

Redemptions - Limited Partners

    (4,704,552)        (4,138.4700)        -           -           (4,704,552)        (4,138.4700)   

Net income (loss)

    (16,080)        -           2,922         -           (13,158)        -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, June 30, 2019

    $ 24,735,125         21,434.5300         $ 283,842         290.9290         $ 25,018,967         21,725.4590    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, March 31, 2019

    $ 25,849,743         22,999.9160         $ 395,139         417.9500         $ 26,244,882         23,417.8660    

Redemptions - General Partner

    -           -               (121,996)            (127.0210)        (121,996)        (127.0210)   

Redemptions - Limited Partners

    (1,767,120)        (1,565.3860)        -           -           (1,767,120)        (1,565.3860)   

Net income (loss)

    652,502         -           10,699         -           663,201         -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ Capital, June 30, 2019

    $      24,735,125             21,434.5300         $ 283,842         290.9290         $     25,018,967             21,725.4590    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to financial statements.

 

5


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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 and was the trading manager (the “Trading Manager”) of AE Capital Master (as defined below) and Harbour Square Master (as defined below), respectively. The General Partner is 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.

During the reporting periods ended June 30, 2019 and 2018, 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 contract counterparty for certain Funds. During prior periods included in this report, the Partnership/Funds deposited 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 June 30, 2019, there were no Redeemable Units outstanding in Class D.

As of June 30, 2019, all trading decisions were made for the Partnership by Independent View BV (“Independent View”) and Katonah Capital Partners Management, LLC (“Katonah”) (each an “Advisor” and, collectively, the “Advisors”). Effective June 30, 2019, SECOR Capital Advisors, LP (“SECOR”) ceased to act as a commodity trading advisor to the Partnership. Effective April 3, 2019, AE Capital PTY Limited (“AE Capital”) ceased to act as a commodity trading advisor to the Partnership. Effective March 31, 2019, Harbour Square Capital Management LLC (“Harbour Square”) ceased to act as a commodity trading advisor to the Partnership. Effective October 1, 2018, the Partnership, the General Partner, The Cambridge Strategy (Asset Management) Limited (“Cambridge”) and Mesirow Financial International UK Limited (“Mesirow”) entered into a novation, assignment and assumption agreement, dated September 28, 2018, pursuant to which Cambridge transferred all of its future rights, obligations, and liabilities under that certain amended and restated management agreement, by and among the General Partner, the Partnership and Cambridge, dated as of October 1, 2013, as amended January 1, 2018 (collectively, the “Initial Advisory Agreement”), to Mesirow. From October 1, 2018 until its termination effective October 31, 2018, Mesirow had undertaken to perform the Initial Advisory Agreement and be bound by its terms in every way as if it were the original party to it in place of Cambridge. Effective March 1, 2018, Launchpad Capital Management, LLC (“Launchpad”) ceased to act as a commodity trading advisor to the Partnership. Effective April 30, 2018, Buttonwood Merchants, LLC (“Buttonwood”) ceased to act as a commodity trading advisor to the Partnership.

 

6


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

References herein to the “Advisors” may also include, as relevant, references to SECOR, AE Capital, Harbour Square, Cambridge, Mesirow, Launchpad and Buttonwood. 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. 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.

On November 1, 2018, the Partnership allocated a portion of its assets to Katonah, which trades the assets directly pursuant to Katonah’s Laplace 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. The General Partner and Independent View have agreed that Independent View will trade the Partnership’s assets allocated to Independent View at a level that is up to 1.5 times the amount of the assets allocated.

On September 1, 2017, the Partnership allocated a portion of its assets to Launchpad, which traded the assets directly pursuant to Launchpad’s MJP Commodity Strategy through a managed account in the Partnership’s name. Effective March 1, 2018, Launchpad transferred its rights and obligations under its management agreement with the Partnership and the General Partner to Buttonwood, and Buttonwood entered into a new management agreement with the Partnership and the General Partner pursuant to which Buttonwood assumed Launchpad’s rights and obligations. Prior to Buttonwood’s termination effective April 30, 2018, the assets allocated to it had been traded directly pursuant to its Liquid Commodity Strategy.

The Partnership has, and (prior to their respective terminations) SECOR Master Fund L.P. (“SECOR Master”), CMF AE Capital Master Fund LLC (“AE Capital Master”) and Cambridge Master Fund L.P. (“Cambridge Master”) had, entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. Prior to its termination, CMF Harbour Square Master Fund LLC (“Harbour Square Master”) had entered into a futures brokerage account agreement with MS&Co. References herein to “Funds” may also include, as relevant, reference to SECOR Master, AE Capital Master, Cambridge Master and Harbour Square 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 and prior to their respective terminations, SECOR Master and Cambridge 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 SECOR Master and Cambridge Master, SECOR and Mesirow/Cambridge were parties to the FX Agreements for the Funds to which each acted as advisor. Under each FX Agreement, JPMorgan charged a fee on the aggregate foreign currency transactions entered into on behalf of the respective Fund during a month.

On October 10, 2018, Cambridge, Mesirow, Cambridge Master and JPMorgan entered into an amendment and assignment agreement (the “Assignment Agreement”), effective as of October 1, 2018, to the FX Agreement pursuant to which Cambridge assigned to Mesirow all of its rights, liabilities, duties and obligations under and in respect of the FX Agreement, Mesirow accepted such assignment and assumed all rights, liabilities, duties and obligations under and in respect of the FX Agreement and JPMorgan consented to such assignment and assumption. Pursuant to the Assignment Agreement, all references to Cambridge were replaced by references to Mesirow, and all references to “Investment Manager” were deemed to refer to Mesirow.

On October 10, 2018, Cambridge Master and JPMorgan entered into an amendment (the “ISDA Amendment”), effective as of October 1, 2018, to the schedule to the Master Agreement, dated as of July 12, 2017, between Cambridge Master and JPMorgan. Pursuant to the ISDA Amendment, all references to Cambridge were replaced by references to Mesirow.

 

7


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

The Partnership has entered into a selling 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 equal to (i) 2.00% per year of adjusted month-end net assets for Class A Redeemable Units and (ii) 0.75% per year of adjusted month-end net assets 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 Redeemable Units and Class D Redeemable Units. Class Z Redeemable Units are not subject to an ongoing selling agent fee.

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.

 

2.

Basis of Presentation and Summary of Significant Accounting Policies:

The financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at June 30, 2019 and the results of its operations and changes in partners’ capital for the three and six months ended June 30, 2019 and 2018. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2018. The December 31, 2018 information has been derived from the audited financial statements as of and for the year ended December 31, 2018.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

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.

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.

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 periods ended June 30, 2019 and 2018, 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.

Partnership’s Investment in the Funds. The Partnership carried 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.

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.

 

8


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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’ Statements of Income and Expenses.

Partnership’s Cash. 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 June 30, 2019 and December 31, 2018, the amount of cash held for margin requirements was $2,928,006 and $2,756,546, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. The Partnership’s restricted and unrestricted cash includes cash denominated in foreign currencies of $185,787 (cost of $185,443) and $(53,834) (proceeds of $54,680) as of June 30, 2019 and December 31, 2018, respectively.

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 2015 through 2018 tax years remain subject to examination by U.S. federal and most state tax authorities.

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.

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 3, “Financial Highlights.”

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

9


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

3.

Financial Highlights:

Financial highlights for the limited partner Classes as a whole for the three and six months ended June 30, 2019 and 2018 were as follows:

 

                                                                                                                                                       
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2019     2018     2019     2018  
    Class A     Class Z     Class A     Class Z     Class A     Class Z     Class A     Class Z  

Per Redeemable Unit Performance (for a unit outstanding throughout the period):*

               

Net realized and unrealized gains (losses)

   $ 41.60        $ 35.47        $ (4.09)       $ (3.32)       $ 26.84        $ 22.86        $ 34.04        $ 28.04    

Net investment loss

    (11.53)        (5.25)        (13.25)        (6.11)        (24.69)        (11.25)        (26.59)        (12.23)   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) for the period

    30.07         30.22         (17.34)        (9.43)        2.15         11.61         7.45         15.81    

Net asset value per Redeemable Unit, beginning of period

    1,123.91         945.42         1,186.97         978.55         1,151.83         964.03         1,162.18         953.31    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per Redeemable Unit, end of period

   $   1,153.98        $   975.64        $   1,169.63        $   969.12        $   1,153.98        $   975.64        $   1,169.63        $   969.12    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2019     2018     2019     2018  
    Class A     Class Z     Class A     Class Z     Class A     Class Z     Class A     Class Z  

Ratios to Average Limited Partners’ Capital:**

               

Net investment loss***

    (4.6)      (2.5)      (4.6)      (2.5)      (4.6)      (2.5)      (4.6)      (2.6) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

    6.7       4.6       6.1       4.0       6.8       4.6       6.1       4.0  

Incentive fees

    (0.2)      (0.2)  %      -         -         (0.2)      (0.2)      -         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    6.5       4.4       6.1       4.0       6.6       4.4       6.1       4.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

               

Total return before incentive fees

    2.5       3.0       (1.5)      (1.0)      0.0   %****      1.0       0.6       1.7  

Incentive fees

    0.2       0.2       -         -         0.2       0.2       -         -    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fees

    2.7       3.2       (1.5)      (1.0)      0.2       1.2       0.6       1.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

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 period. 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.

 

**

Annualized (except for incentive fees).

 

***

Interest income less total expenses.

 

****

Due to rounding.

The above ratios and total return may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the limited partner class for the Classes 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.

 

10


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

4.

Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The 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 futures brokerage account agreements with MS&Co. give the Partnership and gave 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 nets and the Funds netted, 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 by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds were held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the three months ended June 30, 2019 and 2018 were 2,213 and 1,479, respectively. The monthly average number of futures contracts traded directly by the Partnership during the six months ended June 30, 2019 and 2018 were 2,108 and 1,608, respectively. The monthly average number of option contracts traded directly by the Partnership during the three months ended June 30, 2019 and 2018 were 0 and 157, respectively. The monthly average number of option contracts traded directly by the Partnership during the six months ended June 30, 2019 and 2018 were 0 and 362, respectively. The monthly average notional value of currency forward contracts traded directly by the Partnership during the three months ended June 30, 2019 and 2018 was $0. The monthly average notional value of currency forward contracts traded directly by the Partnership during the six months ended June 30, 2019 and 2018 were $0 and $7,020,761, 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 were borne by the Funds and were allocated to the Funds’ limited partners/members, including the Partnership.

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 June 30, 2019 and December 31, 2018, respectively.

 

          Gross Amounts
Offset in the
    Amounts
Presented in the
    Gross Amounts Not Offset in the
    Statements of Financial Condition    
       

June 30, 2019

  Gross
Amounts
  Recognized  
    Statements of
Financial
Condition
    Statements of
Financial
Condition
    Financial
Instruments
    Cash Collateral
Received/
Pledged*
      Net Amount    

Assets

           

Futures

    $ 848,894         $ (349,763)        $ 499,131         $ -           $ -           $ 499,131    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $ 848,894         $ (349,763)        $ 499,131         $ -           $ -           $ 499,131    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Futures

    $ (349,763)        $ 349,763         $ -           $ -           $ -           $ -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    $ (349,763)        $ 349,763         $ -           $ -           $ -           $ -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

              $ 499,131  
           

 

 

 

 

11


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

          Gross Amounts
Offset in the
    Amounts
Presented in the
    Gross Amounts Not Offset in the
    Statements of Financial Condition    
       

December 31, 2018

  Gross
Amounts
  Recognized  
    Statements of
Financial
Condition
    Statements of
Financial
Condition
    Financial
Instruments
    Cash Collateral
Received/
Pledged*
    Net Amount  

Assets

           

Futures

    $ 851,529         $ (757,896)        $ 93,633         $ -           $ -           $ 93,633    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    $  851,529         $ (757,896)        $ 93,633         $ -           $ -           $ 93,633    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

           

Futures

    $ (757,896)        $ 757,896         $ -           $ -           $ -           $ -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    $ (757,896)        $ 757,896         $ -           $ -           $ -           $ -      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net fair value

              $ 93,633  
           

 

 

 

 

  *

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.

The following tables indicate the gross fair values of derivative instruments of futures contracts held directly by the Partnership as separate assets and liabilities as of June 30, 2019 and December 31, 2018, respectively.

 

           June 30, 2019        

Assets

  

Futures Contracts

  

Currencies

     $ 301,101    

Energy

     78,059    

Grains

     38,636    

Indices

     82,301    

Interest Rates U.S.

     138,992    

Interest Rates Non-U.S.

     62,992    

Livestock

     10,680    

Metals

     74,831    

Softs

     61,302    
  

 

 

 

Total unrealized appreciation on open futures contracts

     848,894    
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (33,773)   

Energy

     (27,854)   

Grains

     (56,025)   

Indices

     (61,499)   

Interest Rates U.S.

     (375)   

Interest Rates Non-U.S.

     (76,332)   

Metals

     (16,352)   

Softs

     (77,553)   
  

 

 

 

Total unrealized depreciation on open futures contracts

     (349,763)   
  

 

 

 

Net unrealized appreciation on open futures contracts

     $ 499,131  
  

 

 

 

 

  *

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

 

12


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

       December 31, 2018    

Assets

  

Futures Contracts

  

Currencies

     $ 117,929    

Energy

     84,783    

Grains

     59,786    

Indices

     188,979    

Interest Rates U.S.

     110,603    

Interest Rates Non-U.S.

     239,824    

Livestock

     6,430    

Metals

     23,688    

Softs

     19,507    
  

 

 

 

Total unrealized appreciation on open futures contracts

     851,529    
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (148,721)   

Energy

     (103,128)   

Grains

     (116,823)   

Indices

     (101,999)   

Interest Rates U.S.

     (100,422)   

Interest Rates Non-U.S.

     (127,847)   

Livestock

     (2,880)   

Metals

     (5,835)   

Softs

     (50,241)   
  

 

 

 

Total unrealized depreciation on open futures contracts

     (757,896)   
  

 

 

 

Net unrealized appreciation on open futures contracts

     $ 93,633  
  

 

 

 

 

  *

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 three and six months ended June 30, 2019 and 2018, respectively.

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

Sector

   2019     2018     2019     2018  

Currencies

     $ 451,982        $ (223,200)        $ 142,884         $ (658,126)   

Energy

     (75,495)        312,726         (254,745)        268,294    

Grains

     (339,517)        (195,610)        (479,898)        (115,042)   

Indices

     (83,348)        (84,470)        (383,332)        576,187    

Interest Rates U.S.

     676,046         24,399         959,180         (21,976)   

Interest Rates Non-U.S.

     314,482         (260,719)        400,364         36,419    

Livestock

     (25,370)        (61,830)        (77,380)        (53,910)   

Metals

     258,591         (61,510)        230,998         (93,815)   

Softs

     (140,189)        8,880         (208,728)        1,506    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $  1,037,182  **      $ (541,334)  **      $  329,343  **      $ (60,463)  ** 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  **

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

 

13


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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 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 June 30, 2019 and December 31, 2018 and for the periods ended June 30, 2019 and 2018, 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).

 

June 30, 2019

       Total              Level 1              Level 2              Level 3      

Assets

           

Futures

     $         848,894        $         848,894        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 848,894        $ 848,894        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 349,763        $ 349,763        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 349,763        $ 349,763        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2018

       Total              Level 1              Level 2              Level 3      

Assets

           

Futures

     $ 851,529        $ 851,529        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 851,529        $ 851,529        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 757,896        $ 757,896        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 757,896        $ 757,896        $ -            $ -      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

6.

Investment in the Funds:

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 permitted 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. Effective June 30, 2019, the Partnership fully redeemed its investment in SECOR Master.

 

14


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

On February 1, 2017, the Partnership allocated a portion of its assets to AE Capital, which were managed and traded directly by AE Capital 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 February 1, 2018, the assets allocated to AE Capital were transferred into AE Capital Master, a limited liability company organized under the limited liability company laws of the State of Delaware, through which they were managed and traded by AE Capital pursuant to the same strategy until AE Capital’s termination effective April 3, 2019. For the interim period from April 4, 2019 through April 30, 2019, the Partnership’s assets previously allocated to AE Capital were not charged a management fee and was credited with interest income at a rate equal to the monthly average of the 4-Week U.S. Treasury bill discount rate. On April 30, 2019, the Partnership fully redeemed its investment in AE Capital Master.

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 January 1, 2018, the assets allocated to Harbour Square were transferred into Harbour Square Master, a limited liability company organized under the limited liability company laws of the State of Delaware, through which they were managed and traded by Harbour Square pursuant to the same strategy until Harbour Square’s termination effective March 31, 2019. Effective March 31, 2019, the Partnership fully redeemed its investment in Harbour Square Master.

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. From October 1, 2018 until its termination effective October 31, 2018, Mesirow had undertaken to perform the Initial Advisory Agreement and be bound by its terms in every way as if it were the original party to it in place of Cambridge. Effective October 31, 2018, the Partnership fully redeemed its investment in Cambridge Master.

The General Partner is not aware of any other material changes to any of the trading programs discussed above or in Note 1, “Organization” during the fiscal quarter ended June 30, 2019.

The Funds’ and the Partnership’s trading of futures, forward, swap 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/member in the Funds withdrew 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 had been made to the General Partner/Trading Manager at least three days in advance of the Redemption Date. Such withdrawals were classified as a liability when the limited partner/member elected to redeem and informed the Funds. However, a limited partner/member could have requested a withdrawal as of the end of any day if such request was received by the General Partner/Trading Manager 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 were borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level. Clearing fees were borne by the Funds and allocated to the Funds’ limited partners/members, including the Partnership. Clearing fees are also borne by the Partnership directly.

As of December 31, 2018, the Partnership owned approximately 15.3% of SECOR Master, 31.3% of Harbour Square Master and 13.2% of AE Capital Master. The performance of the Partnership was directly affected by the performance of the Funds. Expenses to investors as a result of investment in the Funds were approximately the same as they would be had the Partnership traded directly and the redemption rights were not affected.

 

15


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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

 

     June 30, 2019  
     Total Assets            Total Liabilities          Total Capital      

SECOR Master

     $ 41,824,942          $             41,824,942        $ -      
     December 31, 2018  
     Total Assets            Total Liabilities          Total Capital      

SECOR Master

     $             37,347,676          $ 2,170,539          $             35,177,137    

Harbour Square Master

     10,504,910          2,532,233          7,972,677    

AE Capital Master

     19,758,302          99,954          19,658,348    

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 three months ended June 30, 2019  
     Net Investment
Income (Loss)
     Total Trading
Results
     Net Income
(Loss)
 

SECOR Master

     $                 (37,085)        $                 (606,850)        $                 (643,935)  

AE Capital Master (a)

     (14,754)        4,772         (9,982)  
     For the six months ended June 30, 2019  
     Net Investment
Income (Loss)
     Total Trading
Results
     Net Income
(Loss)
 

SECOR Master

     $ (84,266)        $ 2,719,987         $ 2,635,721   

Harbour Square Master (b)

     (14,678)        160,848         146,170   

AE Capital Master (c)

     71,739         (890,810)        (819,071)  
     For the three months ended June 30, 2018  
     Net Investment
Income (Loss)
     Total Trading
Results
     Net Income
(Loss)
 

SECOR Master

     $ (47,605)        $ 1,685,965         $ 1,638,360   

Cambridge Master

     99,367         (517,681)        (418,314)  

Harbour Square Master

     76,151         9,930         86,081   

AE Capital Master

     50,825         (658,284)        (607,459)  
     For the six months ended June 30, 2018  
     Net Investment
Income (Loss)
     Total Trading
Results
     Net Income
(Loss)
 

SECOR Master

     $ (97,706)        $ 5,252,493         $ 5,154,787   

Cambridge Master

     184,655         1,492,646         1,677,301   

Harbour Square Master

     141,423         876,061         1,017,484   

AE Capital Master (d)

     89,539         (813,757)        (724,218)  

(a) From April 1, 2019 through April 30, 2019, the date the Partnership fully redeemed its investment in AE Capital Master.

(b) From January 1, 2019 through March 31, 2019, the date the Partnership fully redeemed its investment in Harbour Square Master.

(c) From January 1, 2019 through April 30, 2019, the date the Partnership fully redeemed its investment in AE Capital Master.

(d) From February 1, 2018, commencement of operations for AE Capital Master, through June 30, 2018.

 

16


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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:

 

     June 30, 2019      For the three months ended June 30, 2019            
     % of                        Expenses      Net            

Funds

       Partners’    
Capital
          Fair Value             Income      
(Loss)
         Clearing    
Fees
       Professional  
Fees
         Income    
(Loss)
    

        Investment        

Objective

     Redemptions  
Permitted

SECOR Master

     -         %         $                  -             $    (89,050)        $    28,365          $        2,199          $    (119,614)      Commodity Portfolio    Monthly

AE Capital Master (a)

     -         %      -            4,798         3,260         2,668         (1,130)      Commodity Portfolio    Monthly
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

          $                  -             $    (84,252)        $    31,625          $        4,867         $    (120,744)        
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
     June 30, 2019      For the six months ended June 30, 2019            
     % of                        Expenses      Net            

Funds

       Partners’    
Capital
         Fair Value      Income
(Loss)
     Clearing
Fees
     Professional
Fees
     Income
(Loss)
    

Investment

Objective

   Redemptions
Permitted

SECOR Master

     -         %         $                   -             $    352,502         $    56,216          $        4,201          $    292,085       Commodity Portfolio    Monthly

Harbour Square Master (b)

     -         %      -            56,578         3,271         11,879         41,428       Commodity Portfolio    Monthly

AE Capital Master (c)

     -         %      -            (84,712)        5,155         4,586         (94,453)      Commodity Portfolio    Monthly
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

           $                   -             $    324,368          $    64,642          $        20,666          $    239,060         
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
     December 31, 2018      For the three months ended June 30, 2018            
     % of                        Expenses      Net            

Funds

       Partners’    
Capital
         Fair Value      Income
(Loss)
     Clearing
Fees
     Professional
Fees
     Income
(Loss)
    

Investment

Objective

   Redemptions
Permitted

SECOR Master

     18.00      %       $          5,373,355          $    437,947          $    31,355          $        3,540          $    403,052       Commodity Portfolio    Monthly

Harbour Square Master

     8.39      %      2,505,301         71,464         8,115         6,930         56,419       Commodity Portfolio    Monthly

AE Capital Master

     8.71      %      2,600,215         (115,930)        5,147         3,340         (124,417)      Commodity Portfolio    Monthly

Cambridge Master

     -         %      -            92,892         1,043         737         91,112       Commodity Portfolio    Monthly
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

           $        10,478,871          $    486,373          $    45,660          $        14,547          $    426,166         
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
     December 31, 2018      For the six months ended June 30, 2018            
     % of                        Expenses      Net            

Funds

       Partners’    
Capital
         Fair Value      Income
(Loss)
     Clearing
Fees
     Professional
Fees
     Income
(Loss)
    

Investment

Objective

   Redemptions
Permitted

SECOR Master

     18.00      %       $        5,373,355          $    984,948          $    52,376          $      6,081          $    926,491       Commodity Portfolio    Monthly

Harbour Square Master

     8.39      %      2,505,301         437,910         13,151         13,234         411,525       Commodity Portfolio    Monthly

AE Capital Master (d)

     8.71      %      2,600,215         (131,307)        5,658         5,160         (142,125)      Commodity Portfolio    Monthly

Cambridge Master

     -         %      -            110,127         1,401         959         107,767       Commodity Portfolio    Monthly
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

           $      10,478,871          $ 1,401,678          $    72,586          $    25,434          $  1,303,658         
       

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

(a) From April 1, 2019 through April 30, 2019, the date the Partnership fully redeemed its investment in AE Capital Master.

(b) From January 1, 2019 through March 31, 2019, the date the Partnership fully redeemed its investment in Harbour Square Master.

(c) From January 1, 2019 through April 30, 2019, the date the Partnership fully redeemed its investment in AE Capital Master.

(d) From February 1, 2018, commencement of operations for AE Capital Master, through June 30, 2018.

 

17


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

7.

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. The General Partner estimates that at any given time approximately 0.0% to 9.0% 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.

 

18


Emerging CTA Portfolio L.P.

Notes to Financial Statements

(Unaudited)

 

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.

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. or an MS&Co. affiliate are counterparties or brokers with respect to the Partnership’s/Funds’ assets. For certain OTC contracts traded by Cambridge Master and SECOR Master prior to their respective full redemptions, JPMorgan was the counterparty with respect to those 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/Trading 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/Trading Manager 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.

 

8.

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 the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment to or disclosure in the financial statements.

 

19


Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not have, nor does it expect to have, any capital assets. The Partnership does not engage in sales of goods or services. Its assets are its (i) investment in the Funds, (ii) redemptions receivable from the Fund(s), (iii) 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 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. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the second quarter of 2019.

The Partnership’s/Funds’ investment in futures, forwards and options may, from time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuation limits” or “daily limits.” Trades may not be executed at prices beyond the daily limit. If the price for a particular futures or option contract has increased or decreased by an amount equal to the daily limit, positions in that futures or option contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. These market conditions could prevent the Partnership and/or the Funds from promptly liquidating their futures or option contracts and result in restrictions on redemptions.

There is no limitation on daily price movements in trading forward contracts on foreign currencies. The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership and/or the Funds from trading in potentially profitable markets or prevent the Partnership and/or the Funds from promptly liquidating unfavorable positions in such markets, subjecting them to substantial losses. Either of these market conditions could result in restrictions on redemptions. For the periods covered by this report, illiquidity has not materially affected the Partnership’s or the Funds’ assets.

Other than the risks inherent in U.S. Treasury bills, money market mutual fund securities, commodity futures, forwards and other derivatives, the Partnership/Funds know of no trends, demands, commitments, events or uncertainties at the present time that are reasonably likely to result in the Partnership’s or the Funds’ liquidity increasing or decreasing in any material way.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by 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.

For the six months ended June 30, 2019, Partnership capital decreased 16.2% from $29,858,673 to $25,018,967. This decrease was attributable to redemptions of 4,138.4700 Class A limited partner Redeemable Units totaling $4,704,552, redemptions of 127.0210 Class Z General Partner Redeemable Units totaling $121,996 and a net loss of $13,158. Future redemptions can impact the amount of funds available for investment in subsequent periods.

Other than as discussed above, there are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership’s or the Funds’ capital resource arrangements at the present time.

Off-Balance Sheet Arrangements and Contractual Obligations

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

Critical Accounting Policies

The preparation of financial statements in conformity with 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 expense during the reporting periods. The General Partner believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Financial Statements.

 

20


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

Results of Operations

During the Partnership’s second quarter of 2019, the net asset value per Class A Redeemable Unit increased 2.7% from $1,123.91 to $1,153.98, as compared to a decrease of 1.5% in the second quarter of 2018. During the Partnership’s second quarter of 2019 the net asset value per Class Z Redeemable Unit increased 3.2% from $945.42 to $975.64, as compared to a decrease of 1.0% in the second quarter of 2018. The Partnership experienced a net trading gain before fees and expenses in the second quarter of 2019 of $923,366. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, indices, U.S. and non-U.S. interest rates and metals and were partially offset by losses in energy, grains, livestock and softs. The Partnership experienced a net trading loss before fees and expenses in the second quarter of 2018 of $152,345. Losses were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, grains, indices, U.S. and non-U.S. interest rates, livestock and metals and were partially offset by gains in energy and softs.

The most notable gains were recorded during May and June from long positions in non-U.S. and U.S. fixed income futures as prices rose amid safe-haven demand and increased speculation that the U.S. Federal Reserve will cut interest rates. Within the currency markets, gains were achieved throughout much of the quarter from short positions in European currencies versus the U.S. dollar as the relative value of European currencies generally moved lower on weaker-than-expected economic reports and the expectation of looser monetary policy. Further gains in the currencies were experienced during June from positions in the Canadian dollar. Within the metals sector, gains were experienced during June from long positions in precious metals futures as prices rose amid U.S. dollar weakness and as new U.S. sanctions on Iran added to uncertainty in the global markets. Within the global stock indices, gains were recorded during April and June from long European, U.S., and Asian equity index futures positions as prices increased on signs that major central banks are prepared to provide new stimulus to slowing economies. The Partnership’s overall trading gains for the quarter were partially offset by trading losses in the agricultural complex during May and June from short futures positions in the grain markets as prices rose after excessive rains in the U.S. Midwest reduced yield projections. Losses in the energy complex were recorded during May from long positions in Brent crude oil and refined oil products as prices reversed lower on an outlook for weakening fuel demand.

During the Partnership’s six months ended June 30, 2019, the net asset value per Class A Redeemable Unit increased 0.2% from $1,151.83 to $1,153.98 as compared to an increase of 0.6% in the six months ended June 30, 2018. During the Partnership’s six months ended June 30, 2019, the net asset value per Class Z Redeemable Unit increased 1.2% from $964.03 to $975.64, as compared to an increase of 1.7% in the six months ended June 30, 2018. The Partnership experienced a net trading gain before fees and expenses in the six months ended June 30, 2019 of $574,736. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, U.S. and non-U.S. interest rates and metals and were partially offset by losses in energy, grains, indices, livestock and softs. The Partnership experienced a net trading gain before fees and expenses in the six months ended June 30, 2018 of $1,181,791. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, indices, U.S. interest rates and softs and were partially offset by losses in currencies, grains, non-U.S. interest rates, livestock and metals.

The most significant gains were achieved within the global interest rates during January, March, May, and June from long positions in non-U.S. and U.S. fixed income futures as prices rose as economic concerns pushed central banks to looser monetary policy globally. Within the currency markets, gains were achieved throughout much of the second quarter from short positions in European currencies versus the U.S. dollar as the relative value of European currencies generally moved lower on weaker-than-expected economic reports and the expectation of looser monetary policy. Gains were also recorded within the currency markets during January from long positions in the New Zealand and Australian dollar versus the U.S. dollar as the prolonged partial shutdown of the U.S. Federal government pulled the U.S. dollar lower. Further gains in the currencies were experienced during June from positions in the Canadian dollar. Within the metals sector, gains were primarily experienced during June from long precious metals futures positions as prices rose amid U.S. dollar weakness and as new U.S. sanctions on Iran added to uncertainty in the global markets. A portion of the Partnership’s gains for the first six months of the year was offset by trading losses with the agriculturals complex during the first quarter from long and short lean hog futures positons as prices gyrated amid news surrounding U.S.-Chinese trade negotiations and the African swine flu. Additional losses were incurred in the agriculturals during May and June from short futures positions in the grain markets as prices rose after excessive rains in the U.S. Midwest reduced yield projections. Losses in the energy complex were recorded during January from short crude oil futures positions as sanctions on Venezuelan oil exports and OPEC’s announcement of new production cuts pushed prices higher. Additionally, losses were experienced within the energies during March and May from futures positioning in crude oil and oil distillates. Losses within the global stock indices sector were incurred during March from short futures positions in European and U.S. equity indices as prices benefited from dovish central bank actions and optimism surrounding U.S.-China trade negotiations. Within this same sector, losses were experienced during May from long positions in European, U.S., and Asian equity index futures as prices fell due to escalating global trade tensions and economic growth concerns.

 

21


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.

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. For the avoidance of doubt, the Partnership/Funds will not receive interest on amounts in the futures brokerage account that are committed to margin. Any interest earned on the Partnership’s and/or each Fund’s account 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 was retained by such Funds, and the Partnership received its allocable portion of such interest from the applicable Fund. Interest income for the three and six months ended June 30, 2019 decreased by $27,114 and $18,227, respectively, as compared to the corresponding periods in 2018. The decrease in interest income was primarily due to lower average daily equity during the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership was 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 had control.

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 six months ended June 30, 2019 increased by $6,100 and decreased by $11,057, respectively, as compared to the corresponding periods in 2018. The change in these clearing fees was primarily due to an increase in the number of direct trades made by the Partnership during the three months ended June 30, 2019 and a decrease in the number of direct trades made by the Partnership during the six months ended June 30, 2019 as compared to the corresponding periods in 2018.

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 six months ended June 30, 2019 decreased by $66,443 and $128,187, respectively, as compared to the corresponding periods in 2018. The decrease in ongoing selling agent fees was due to lower average net assets attributable to Class A Redeemable Units during the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018.

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 six months ended June 30, 2019 decreased by $46,953 and $85,163, respectively, as compared to the corresponding periods in 2018. The decrease in management fees was due to lower average net assets per Class during the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018.

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 six months ended June 30, 2019 decreased by $33,532 and $64,616, respectively, as compared to the corresponding periods in 2018. The decrease in General Partner fees was due to lower average net assets per Class during the three and six months ended June 30, 2019 as compared to the corresponding periods in 2018.

 

22


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, half year or year, as applicable, as defined in the respective management agreements among the Partnership, the General Partner and each Advisor. Trading performance for the three and six months ended June 30, 2019 resulted in reversals of incentive fees of $40,866 and $48,436, respectively. Trading performance for the three and six months ended June 30, 2018 did not result in any incentive fees. 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 General Partner is also paid an incentive fee payable annually equal to 5% of the Partnership’s overall New Trading Profits, as defined in the Partnership’s limited partnership agreement, earned in each calendar year. Trading performance for the three and six months ended June 30, 2019 and 2018 did not result in any General Partner incentive fees.

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.

As of June 30, 2019 and March 31, 2019, the Partnership’s assets were allocated among the Advisors in the following approximate percentages:

 

Advisor

       June 30, 2019          June 30, 2019
(percentage of

   Partners’ Capital)   
        March 31, 2019        March 31, 2019
(percentage of
    Partners’ Capital)   
 

SECOR

     $ -          -         $ 5,587,765        21  

AE Capital

     -          -         2,120,788        8  

Independent View

     11,377,517        45       8,728,094        33  

Katonah

     13,641,450        55       9,808,235        38  

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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.

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.

Quantifying the Partnership’s and the Funds’ 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 of 1933, as amended (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.

 

23


“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.

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.

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. Prior to their respective terminations, Harbour Square, SECOR and AE Capital traded the Partnership’s assets indirectly in master fund managed accounts established in the name of the master fund over which they had been granted limited authority to make trading decisions. As a result, the first trading Value at Risk table reflects the market sensitive instruments held by the Partnership directly and through its investments in the Fund as at December 31, 2018. 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) as of June 30, 2019 and December 31, 2018 and indirectly by each Fund separately as of December 31, 2018. There has been no material change in the trading Value at Risk, non-trading risk and risk management information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018.

The following table indicates the trading Value at Risk associated with the Partnership’s open positions by market category as of December 31, 2018.

As of December 31, 2018, the Partnership’s total capitalization was $29,858,673.

 

December 31, 2018    

Market Sector

   Value at Risk  

% of

Total Capitalization

   

Currencies

     $             972,484     3.26      %

Energy

     415,992     1.39     

Grains

     343,936     1.15     

Indices

     1,687,976     5.65     

Interest Rates U.S.

     105,961     0.35     

Interest Rates Non-U.S.

     713,308     2.39     

Livestock

     89,704     0.30     

Metals

     233,022     0.78     

Softs

     250,693     0.84     
  

 

 

 

 

 

 

Total

     $ 4,813,076     16.11      %
  

 

 

 

 

 

 

 

24


The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments as of June 30, 2019 and December 31, 2018 and indirect investments in the Funds by market category as of December 31, 2018, and the highest, lowest and average values during the three months ended June 30, 2019 and the twelve months ended December 31, 2018, as applicable. All open contracts trading risk exposures have been included in calculating the figures set forth below.

At June 30, 2019 and December 31, 2018, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:

 

June 30, 2019  
                    Three Months Ended June 30, 2019

Market Sector            

         Value at Risk        

% of Total
  Capitalization  

         High
  Value at Risk  
   Low
  Value at Risk  
   Average
  Value at Risk*  

Currencies

     $ 557,780     2.23     %        $ 557,780        $ 289,100        $ 421,099  

Energy

     188,855     0.75        435,390        120,880        197,487  

Grains

     146,171     0.58        243,434        139,643        184,115  

Indices

     1,150,018     4.60        2,310,233        644,049        1,238,512  

Interest Rates U.S.

     180,323     0.72        303,070        108,318        187,818  

Interest Rates Non-U.S.

     297,980     1.19        575,416        130,041        367,381  

Livestock

     24,530     0.10        35,464        9,460        22,182  

Metals

     192,954     0.77        222,556        87,074        134,121  

Softs

     189,409     0.76        418,304        180,495        300,372  
  

 

 

 

 

 

          

Total

     $           2,928,020     11.70     %           
  

 

 

 

 

 

          

* Average of daily Values at Risk.

 

December 31, 2018  
                             Twelve Months Ended December 31, 2018         

Market Sector            

         Value at Risk       

% of Total
  Capitalization  

         High
  Value at Risk  
   Low
  Value at Risk  
   Average
  Value at Risk*  

Currencies

     $ 469,560      1.57       %        $  1,950,085        $ 139,052        $ 337,838  

Energy

     224,241      0.75          349,143        86,732        175,174  

Grains

     219,014      0.73          384,790        78,955        170,219  

Indices

     933,706      3.13          2,339,758        307,112        837,912  

Interest Rates U.S.

     94,256      0.32          306,801        17,074        102,268  

Interest Rates Non-U.S.

     498,308      1.67          653,632        20,362        302,418  

Livestock

     13,717      0.05          152,075        5,445        32,891  

Metals

     39,578      0.13          220,374        5,627        53,059  

Softs

     204,108      0.68          243,531        19,527        108,019  
  

 

 

 

  

 

          

Total

     $           2,696,488      9.03       %           
  

 

 

 

  

 

          

* Annual average of month-end Values at Risk.

 

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As of June 30, 2019, the Partnership fully redeemed its investment in SECOR Master.

At December 31, 2018, SECOR Master’s total capitalization was $35,177,137 and the Partnership owned approximately 15.3% of SECOR Master. As of December 31, 2018, 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, 2018  
                           Twelve Months Ended December 31, 2018        

Market Sector            

         Value at Risk         

% of Total
  Capitalization  

       High
  Value at Risk  
   Low
  Value at Risk  
   Average
  Value at Risk*  

Currencies

     $ 3,287,086      9.34     %      $  6,257,227        $  1,094,272        $ 3,205,784  

Energy

     1,253,275      3.56          1,253,275        105,559        412,027  

Grains

     816,485      2.32          816,485        153,069        451,748  

Indices

     4,929,872      14.01          6,674,279        2,219,184        4,478,112  

Interest Rates U.S.

     76,500      0.22          661,243        17,135        162,483  

Interest Rates Non-U.S.

     1,405,230      3.99          1,466,923        484,834        953,496  

Livestock

     496,650      1.41          522,040        38,310        313,104  

Metals

     1,264,343      3.59          1,372,159        617,688        955,032  

Softs

     304,474      0.87          720,287        204,580        501,666  
  

 

 

 

  

 

          

Total

     $          13,833,915      39.31     %         
  

 

 

 

  

 

          

* Annual average of month-end Values at Risk.

As of April 30, 2019, the Partnership fully redeemed its investment in AE Capital Master.

As of December 31, 2018, AE Capital Master’s total capitalization was $19,658,348 and the Partnership owned approximately 13.2% of AE Capital Master. As of December 31, 2018, AE Capital Master had no Value at Risk for its assets (including the portion of the Partnership’s assets allocated to AE Capital for trading).

As of March 31, 2019, the Partnership fully redeemed its investment in Harbour Square Master. As of December 31, 2018, Harbour Square Master’s total capitalization was $7,972,677, and the Partnership owned approximately 31.3% of Harbour Square Master. As of December 31, 2018, Harbour Square Master had no Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Harbour Square for trading).

 

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Item 4.       Controls and Procedures.

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President (the General Partner’s principal executive officer) and Chief Financial Officer (“CFO”) (the General Partner’s principal financial officer) 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 June 30, 2019 and, based on that evaluation, the General Partner’s President and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.

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

 

   

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

 

   

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

 

   

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

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1.       Legal Proceedings.

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 of 1934, 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, we refer you to the “Legal Proceedings” section of Morgan Stanley’s SEC 10-K filings for 2018, 2017, 2016, 2015 and 2014. 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. We refer you to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2018 Audited Financial Statement.

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

 

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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.

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, 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 July 12, 2016 and June 28, 2016, respectively, without any findings of fraud. Pursuant to the settlements, MS&Co. was required to pay a $750,000 penalty to the CBOE (for which MS&Co. and an individual were jointly and severally liable) and a $400,000 penalty to the CFE (for which MS&Co. and an individual were jointly and severally liable) and $152,664 in disgorgement.

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 Corporation 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 US Dollars in cleared swap segregated accounts in the United States to meet all US 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 US dollars, to meet its US dollar obligations. In addition, the CFTC found that MS&Co. violated Regulation 166.3 by failing to have in place adequate procedures to ensure that it complied with 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.

 

29


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.

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. On June 27, 2018, MS&Co. filed a motion for summary judgment and spoliation sanctions against CDIB. On December 21, 2018, the court denied MS&Co.’s motion for summary judgment and granted in part MS&Co,’s motion for sanctions relating to the spoliation of evidence. On January 18, 2019, CDIB filed a motion to clarify and resettle the portion of the court’s December 21, 2018 order granting spoliation sanctions. On January 24, 2019, CDIB filed a notice of appeal from the court’s December 21, 2018 order, and on January 25, 2019, MS&Co. filed a notice of appeal from the same order. On March 7, 2019, the court denied the relief that CDIB sought in a motion to clarify and resettle the portion of the court’s December 21, 2018 order granting spoliation sanctions. Based on currently available information, MS&Co. believes it could incur a loss in this action of up to approximately $240 million plus pre- and post-judgment interest, fees and costs.

 

30


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 March 25, 2019, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $36 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 $36 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 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 March 25, 2019, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $23 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 $23 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.

In August of 2017, MS&Co. was named as a defendant in a purported antitrust class action in the United States District Court for the United States District Court for the Southern District of New York styled Iowa Public Employees’ Retirement System et al. v. Bank of America Corporation et al. Plaintiffs allege, inter alia, that MS&Co., together with a number of other financial institution defendants, violated U.S. antitrust laws and New York state law in connection with their alleged efforts to prevent the development of electronic exchange-based platforms for securities lending. The class action complaint was filed on behalf of a purported

 

31


class of borrowers and lenders who entered into stock loan transactions with the defendants. The class action complaint seeks, among other relief, certification of the class of plaintiffs and treble damages. On September 27, 2018, the court denied the defendants’ motion to dismiss the class action complaint.

Beginning on March 25, 2019, MS&Co. was named as a defendant in a series of putative class action complaints filed in the Southern District of New York, the first of which was styled Alaska Electrical Pension Fund v. BofA Secs., Inc., et al. Each complaint alleges a conspiracy to fix prices and restrain competition in the market for unsecured bonds issued by the following Government-Sponsored Enterprises: the Federal National Mortgage Association; the Federal Home Loan Mortgage Corporation; the Federal Farm Credit Banks Funding Corporation; and the Federal Home Loan Banks. Each complaint raises a claim under Section 1 of the Sherman Act and seeks, among other things, injunctive relief and treble compensatory damages. On May 23, 2019, plaintiffs filed a consolidated amended class action complaint, now styled In re GSE Bonds Antitrust Litigation. The purported class period in the consolidated amended complaint is now from January 1, 2009 to January 1, 2016. On June 13, 2019, the defendants filed a joint motion to dismiss the consolidated amended complaint.

Settled Civil Litigation

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, alleged 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 raised claims under the Washington State Securities Act and sought, 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, alleged 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 raised

 

32


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 December 21, 2016, the parties reached an agreement to settle the litigation.

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 sought, 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.

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 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 RICO statute, 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,

 

33


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 (“FDIC”), as receiver for Franklin Bank S.S.B, filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation as Receiver for Franklin Bank, S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. On July 2, 2015, the parties reached an agreement to settle the litigation.

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.

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 alleged that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through

 

34


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 raised claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and sought, among other things, to rescind the plaintiff’s purchase of such certificates. 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 July 13, 2018, the parties reached an agreement in principle to settle the litigation.

On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint against the Firm, certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleged 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 the Firm to plaintiff was approximately $634 million. The complaint alleged causes of action against the Firm 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 26, 2018, the parties entered into an agreement to settle the litigation.

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 alleged that MS&Co. made misrepresentations and omissions regarding residential mortgage-backed securities and notes issued by the Cheyne SIV, and asserts violations of the California False Claims Act and other state laws and sought treble damages, civil penalties, disgorgement, and injunctive relief. On April 24, 2019, the parties reached an agreement to settle the litigation.

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

 

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Item lA.       Risk Factors.

There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors.” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as updated by Part II, Item 1A. “Risk Factors.” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

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

For the three months ended June 30, 2019, there were no additional subscriptions of Redeemable Units. Redeemable Units are issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and Section 506 of Regulation D promulgated thereunder. Redeemable Units are purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relies on the fact that Redeemable Units are purchased by accredited investors in a private offering.

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

The following chart sets forth the purchases of limited partner 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

 

April 1, 2019 - April 30, 2019

     545.2340      $ 1,135.94        N/A        N/A  

May 1, 2019 - May 31, 2019

     714.5630      $ 1,112.74        N/A        N/A  

June 1, 2019 - June 30, 2019

     305.5890      $ 1,153.98        N/A        N/A  
       1,565.3860      $ 1,128.87                    

*         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.

 

Item 3.

Defaults Upon Senior Securities. — None.

 

Item 4.

Mine Safety Disclosures. — Not Applicable.

 

Item 5.

Other Information. — None.

 

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Item 6.       Exhibits.

 

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 Linkbase 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: August 8, 2019

By:

 

/s/ Steven Ross

 

Steven Ross

 

Chief Financial Officer and Director

 

(Principal Accounting Officer)

Date: August 8, 2019

The General Partner which signed the above is the only party authorized to act for the registrant. The registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors.

 

 

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