Company Quick10K Filing
Quick10K
Managed Futures Premier Graham
10-Q 2019-09-30 Quarter: 2019-09-30
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 2019-03-06 Officers
8-K 2019-02-01 Enter Agreement, Exhibits
8-K 2018-09-15 Officers
8-K 2018-01-19 Enter Agreement, Exhibits
8-K 2018-01-01 Sale of Shares
TMDX Transmedics 505
SINC Sincerity Applied Materials Holdings 258
MDIT Medite Cancer Diagnostics 19
IMII Inception Mining 3
CCT C&C Tours 0
GAIF Graham Alternative Investment Fund I 0
JACC JACC Studios 0
PWON Powin Energy 0
ANDES Andes 7 0
DBRM Daybreak Oil & Gas 0
MSCG 2019-09-30
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 1A. Risk Factors.
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 d785720dex311.htm
EX-31.2 d785720dex312.htm
EX-32.1 d785720dex321.htm
EX-32.2 d785720dex322.htm

Managed Futures Premier Graham Earnings 2019-09-30

MSCG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 d785720d10q.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 September 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: 000-25603

MANAGED FUTURES PREMIER GRAHAM L.P.

 

(Exact name of registrant as specified in its charter)

 

Delaware    13-4018068

(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 October 31, 2019, 3,826,161.163 Limited Partnership Units of Class A were outstanding and 0.000 Limited Partnership Units of Class Z were outstanding.


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Managed Futures Premier Graham L.P.

Statements of Financial Condition

 

           September 30,           
     2019          December 31,      
     (Unaudited)    2018

Assets:

     

Equity in trading account:

     

Unrestricted cash

     $ 67,374,224        $ 68,726,517  

Restricted cash

     23,599,022        16,164,926  

Net unrealized appreciation on open forward contracts

     828,989        -      
  

 

 

 

  

 

 

 

Total equity in trading account

     91,802,235        84,891,443  
  

 

 

 

  

 

 

 

Interest receivable

     89,645        109,350  
  

 

 

 

  

 

 

 

Total assets

     $ 91,891,880        $ 85,000,793  
  

 

 

 

  

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Net unrealized depreciation on open futures contracts

     $ 1,504,841        $ 1,052,957  

Net unrealized depreciation on open forward contracts

     -            283,816  

Accrued expenses:

     

Administrative and General Partner’s fees

     156,394        148,184  

Management fees

     105,566        129,660  

Redemptions payable to Limited Partners

     344,002        2,106,488  
  

 

 

 

  

 

 

 

Total liabilities

     2,110,803        3,721,105  
  

 

 

 

  

 

 

 

Partners’ Capital:

     

General Partner, Class Z, 101,536.878 and 138,644.001 Units outstanding at September 30, 2019 and December 31, 2018, respectively

     968,772        1,044,502  

Limited Partners, Class A, 3,854,835.870 and 4,346,874.449 Units outstanding at September 30, 2019 and December 31, 2018, respectively

     88,812,305        80,235,186  
  

 

 

 

  

 

 

 

Total partners’ capital (net asset value)

     89,781,077        81,279,688  
  

 

 

 

  

 

 

 

Total liabilities and partners’ capital

     $ 91,891,880        $ 85,000,793  
  

 

 

 

  

 

 

 

Net asset value per Unit:

     

Class A

     $ 23.04        $ 18.46  
  

 

 

 

  

 

 

 

Class Z

     $ 9.54        $ 7.53  
  

 

 

 

  

 

 

 

See accompanying notes to financial statements.

 

1


Managed Futures Premier Graham L.P.

Condensed Schedule of Investments

September 30, 2019

(Unaudited)

 

       Notional ($)/Number            % of Partners’    
     of Contracts          Fair Value         Capital  

Futures Contracts Purchased

       

Commodity

     339        $ (699,025     (0.78)  

Equity

     1,677        (50,782     (0.05)    

Currencies

     78        70,768       0.08     

Interest Rates

     2,825        (1,236,371     (1.38)    
     

 

 

 

 

 

 

 

Total futures contracts purchased

        (1,915,410     (2.13)    
     

 

 

 

 

 

 

 

Futures Contracts Sold

       

Commodity

     852        396,288       0.43     

Equity

     7        (2,285     (0.00)  

Currencies

     42        26,965       0.03     

Interest Rates

     567        (10,399     (0.01)    
     

 

 

 

 

 

 

 

Total futures contracts sold

        410,569       0.45     
     

 

 

 

 

 

 

 

Net unrealized depreciation on open futures contracts

        $ (1,504,841     (1.68)  
     

 

 

 

 

 

 

 

Unrealized Appreciation on Open Forward Contracts

       

Commodity

     227        $ 364,511       0.40   

Currencies

     $ 223,648,425        1,587,826       1.77     
     

 

 

 

 

 

 

 

Total unrealized appreciation on open forward contracts

        1,952,337       2.17     
     

 

 

 

 

 

 

 

Unrealized Depreciation on Open Forward Contracts

       

Commodity

     171        (442,929     (0.49)    

Currencies

     $ 103,605,140        (680,419     (0.76)    
     

 

 

 

 

 

 

 

Total unrealized depreciation on open forward contracts

        (1,123,348     (1.25)    
     

 

 

 

 

 

 

 

Net unrealized appreciation on open forward contracts

        $ 828,989       0.92   
     

 

 

 

 

 

 

 

* Due to rounding.

See accompanying notes to financial statements.

 

2


Managed Futures Premier Graham L.P.

Condensed Schedule of Investments

December 31, 2018

 

      Notional ($)/Number           % of Partners’    
     of Contracts          Fair Value         Capital  

Futures Contracts Purchased

       

Commodity

     127        $ (1,086,825     (1.34)  

Equity

     178        (922,603     (1.13)    

Currencies

     59        (54,022     (0.07)    

Interest Rates

     1,988        1,260,612       1.55     
     

 

 

 

 

 

 

 

Total futures contracts purchased

        (802,838     (0.99)    
     

 

 

 

 

 

 

 

Futures Contracts Sold

       

Commodity

     713        960,858       1.18     

Equity

     392        521,908       0.64     

Currencies

     10        4,305       0.01     

Interest Rates

     1,550        (1,737,190     (2.14)    
     

 

 

 

 

 

 

 

Total futures contracts sold

        (250,119     (0.31)    
     

 

 

 

 

 

 

 

Net unrealized depreciation on open futures contracts

        $ (1,052,957     (1.30)  
     

 

 

 

 

 

 

 

Unrealized Appreciation on Open Forward Contracts

       

Commodity

     264        $ 751,884       0.92   

Currencies

     $ 70,440,817        1,128,584       1.39     
     

 

 

 

 

 

 

 

Total unrealized appreciation on open forward contracts

        1,880,468       2.31     
     

 

 

 

 

 

 

 

Unrealized Depreciation on Open Forward Contracts

       

Commodity

     89        (341,019     (0.42)    

Currencies

     $ 118,463,408        (1,823,265     (2.24)    
     

 

 

 

 

 

 

 

Total unrealized depreciation on open forward contracts

        (2,164,284     (2.66)    
     

 

 

 

 

 

 

 

Net unrealized depreciation on open forward contracts

        $ (283,816     (0.35)  
     

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

3


Managed Futures Premier Graham L.P.

Statements of Income and Expenses

(Unaudited)

 

     Three Months Ended   Nine Months Ended
     September 30,   September 30,
             2019                   2018                   2019               2018        

Investment Income:

        

Interest income

     $ 317,882       $ 346,287       $ 994,180       $ 1,017,004  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

        

Administrative and General Partner’s fees

     437,357       510,128       1,237,294       1,656,090  

Ongoing placement agent fees

     432,700       504,237       1,222,746       1,637,604  

Management fees

     295,216       446,361       862,273       1,449,076  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

     1,165,273       1,460,726       3,322,313       4,742,770  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment loss

     (847,391     (1,114,439     (2,328,133     (3,725,766
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading Results:

        

Net gains (losses) on trading of commodity interests:

        

Net realized gains (losses) on closed contracts

     14,392,615       555,034       20,194,019       (3,289,606

Net change in unrealized gains (losses) on open contracts

     (4,236,061     6,263,824       657,885       1,124,946  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total trading results

     10,156,554       6,818,858       20,851,904       (2,164,660
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

     $ 9,309,163       $ 5,704,419       $ 18,523,771       $ (5,890,426
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per Unit*:

        

Class A

     $ 2.35       $ 1.19       $ 4.58       $ (1.06
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class Z

     $ 1.01       $ 0.52       $ 2.01       $ (0.29
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Units outstanding:

        

Class A

       3,895,741.096         4,802,766.582         4,058,512.746         5,002,663.768  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class Z

     101,536.878       138,644.001       118,549.970       140,358.679  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

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

See accompanying notes to financial statements.

 

4


Managed Futures Premier Graham L.P.

Statements of Changes in Partners’ Capital

For the Three and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

 

    Class A   Class Z   Total
            Amount                       Units                       Amount                       Units                       Amount                       Units            

Partners’ Capital, December 31, 2017

    $ 111,594,219       4,822,944.482       $ 1,309,582       141,515.298       $ 112,903,801       4,964,459.780  

Subscriptions - General Partner

    -           -           116,187       12,560.802       116,187       12,560.802  

Subscriptions - Limited Partners

    9,530,783       412,132.993       -           -           9,530,783       412,132.993  

Redemptions - General Partner

    -           -           (150,000     (15,432.099     (150,000     (15,432.099

Redemptions - Limited Partners

    (13,669,111     (633,401.640     -           -           (13,669,111     (633,401.640

Net income (loss)

    (5,857,423     -           (33,003     -           (5,890,426     -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, September 30, 2018

    $ 101,598,468       4,601,675.835       $ 1,242,766       138,644.001       $ 102,841,234       4,740,319.836  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, June 30, 2018

    $ 101,988,750       4,881,789.977       $ 1,170,199       138,644.001       $ 103,158,949       5,020,433.978  

Subscriptions - Limited Partners

    50,000       2,418.965       -           -           50,000       2,418.965  

Redemptions - Limited Partners

    (6,072,134     (282,533.107     -           -           (6,072,134     (282,533.107

Net income (loss)

    5,631,852       -           72,567       -           5,704,419       -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, September 30, 2018

    $ 101,598,468       4,601,675.835       $ 1,242,766       138,644.001       $ 102,841,234       4,740,319.836  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Class A   Class Z   Total
    Amount   Units   Amount   Units   Amount   Units

Partners’ Capital, December 31, 2018

    $ 80,235,186       4,346,874.449       $ 1,044,502       138,644.001       $ 81,279,688       4,485,518.450  

Subscriptions - Limited Partners

    75,624       3,584.803       -           -           75,624       3,584.803  

Redemptions - General Partner

    -           -           (320,000     (37,107.123     (320,000     (37,107.123

Redemptions - Limited Partners

    (9,778,006     (495,623.382     -           -           (9,778,006     (495,623.382

Net income (loss)

    18,279,501       -           244,270       -           18,523,771       -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, September 30, 2019

    $ 88,812,305       3,854,835.870       $ 968,772       101,536.878       $ 89,781,077       3,956,372.748  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, June 30, 2019

    $ 81,440,226       3,936,509.882       $ 865,737       101,536.878       $ 82,305,963       4,038,046.760  

Subscriptions - Limited Partners

    20,000       833.681       -           -           20,000       833.681  

Redemptions - Limited Partners

    (1,854,049     (82,507.693     -           -           (1,854,049     (82,507.693

Net income (loss)

    9,206,128       -           103,035       -           9,309,163       -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, September 30, 2019

    $ 88,812,305       3,854,835.870       $ 968,772       101,536.878       $ 89,781,077       3,956,372.748  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

5


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

1.

Organization:

Managed Futures Premier Graham L.P. (“Premier Graham” or the “Partnership”) is a Delaware limited partnership organized in 1998 to engage primarily in the speculative trading of futures contracts, options on futures and forward contracts, forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy and agricultural products (collectively, “Futures Interests”) (refer to Note 4, “Financial Instruments”). The General Partner (as defined below) may also determine to invest up to all of the Partnership’s assets in United States (“U.S.”) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (“Ceres” or the “General Partner”) and commodity pool operator of the Partnership. Ceres 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. Morgan Stanley Smith Barney LLC is doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”). This entity currently acts as the placement agent for the Partnership. Morgan Stanley Wealth Management is a principal subsidiary of MSD Holdings.

Graham Capital Management, L.P. (“Graham” or the “Trading Advisor”) is the trading advisor to the Partnership and manages the assets of the Partnership pursuant to its K4D-15V Program, the Trading Advisor’s proprietary, trend-following trading program.

The General Partner is not aware of any material changes to the trading program discussed above during the fiscal quarter ended September 30, 2019.

During the reporting periods ended September 30, 2019 and 2018, the Partnership’s commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts. MS&Co. is a wholly-owned subsidiary of Morgan Stanley. The Partnership deposited a portion of its cash in a non-trading bank account at JPMorgan Chase Bank, N.A.

As of September 30, 2019, units of limited partnership interest (“Unit(s)”) of the Partnership are being offered in three share classes (each, a “Class” or collectively, the “Classes”). The Class of Units that a limited partner receives generally depends on the aggregate subscription amount made by such limited partner in the Partnership, although the General Partner may determine to offer Units to investors at its discretion.

 

    Class of Units           Aggregate Investment    
A   Up to $4,999,999
D   $5,000,000 and above
Z   All

All Units issued prior to June 30, 2016 were deemed Class A Units. The rights, liabilities, risks, and fees associated with investment in the Class A Units did not change. Class Z Units were first issued on July 1, 2016 at $10 per Unit. Class Z Units are offered to limited partners who receive advisory services from Morgan Stanley Wealth Management and certain employees of Morgan Stanley and/or its subsidiaries (and their family members). Each of Class A, D and Z Units of the Partnership have the same investment exposure and rights except for the amount of the ongoing placement agent fee charged to each Class of Units; Class Z Units are not subject to an ongoing placement agent fee.

 

6


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

Effective February 1, 2019, (i) the monthly management fee paid by the Partnership to the Trading Advisor was reduced to 1/12th of 1.35% (1.35% annual rate) of the Partnership’s net assets as of the first day of each month and (ii) the Partnership pays the Trading Advisor an incentive fee of 18% of new trading profits annually.

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 General Partner pays or reimburses the Partnership, from the administrative and General Partner’s fee it receives, the ordinary administrative expenses of the Partnership, including the expenses related to the engagement of the Administrator.

 

2.

Basis of Presentation and Summary of Significant Accounting Policies:

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at September 30, 2019 and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 2019 and 2018. These financial statements present the results of interim periods and do not include all of the 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 of the Partnership share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner is liable for obligations of the Partnership in excess of its capital contributions 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 September 30, 2019 and 2018, the Partnership carried no debt and all of the Partnership’s investments were carried at fair value and classified as Level 1 or Level 2 measurements.

 

7


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

Partnership’s Investments. All Futures Interests held by the Partnership, including derivative financial instruments and derivative commodity instruments, are held for trading purposes. The Futures Interests are recorded on trade date and open contracts are recorded at fair value (as described in Note 6, “Fair Value Measurements”) at the measurement date. Investments in Futures 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. Net unrealized gains or losses on open contracts are included as a component of equity in trading account in the Statements of Financial Condition. Net realized gains or losses and net change in unrealized gains or losses are included in the Statements of Income and Expenses. The Partnership does not isolate the portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in total trading results in the Statements of Income and Expenses.

Restricted and Unrestricted Cash. The cash held by the Partnership that is available for Futures Interests trading is on deposit in a commodity brokerage account with MS&Co. 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. All of these amounts are maintained separately. At September 30, 2019 and December 31, 2018, the amount of cash held for margin requirements was $23,599,022 and $16,164,926, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. Restricted and unrestricted cash includes cash denominated in foreign currencies of $1,501 (cost of $1,369) and $(361,312) (proceeds of $364,480) as of September 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 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 periods 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 Unit. Net income (loss) per 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.

 

8


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

3.

Financial Highlights:

Financial highlights for the limited partner class as a whole for the three and nine months ended September 30, 2019 and 2018 were as follows:

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2019     2018     2019     2018  
         Class A             Class A             Class A             Class A      

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

        

Net realized and unrealized gains (losses)

     $ 2.57          $ 1.42          $ 5.15          $ (0.32)    

Net investment loss

     (0.22)         (0.23)         (0.57)         (0.74)    
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) for the period

     2.35          1.19          4.58          (1.06)    

Net asset value per Unit, beginning of period

     20.69          20.89          18.46          23.14     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per Unit, end of period

     $ 23.04          $ 22.08          $ 23.04          $ 22.08     
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2019     2018     2019     2018  
     Class A     Class A     Class A     Class A  

Ratios to Average Limited Partners’ Capital: **

        

Net investment loss ***

     (3.8)       (4.3)       (3.8)       (4.5)  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     5.3        5.7        5.4        5.9   

Incentive fees

     -             -             -             -        
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5.3        5.7        5.4        5.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

        

Total return before incentive fees

     11.4        5.7        24.8        (4.6)  

Incentive fees

     -             -             -             -        
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fees

     11.4        5.7        24.8        (4.6)  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

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

 

**

Annualized (except for incentive fees).

 

***

Interest income less total expenses.

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

 

9


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

4.

Financial Instruments:

The Partnership trades Futures Interests. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price.

The fair value of an exchange-traded contract is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined. If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price will be equal to the settlement price on the first subsequent day on which the contract could be liquidated.

The General Partner estimates that, at any given time, approximately 27.8% to 40.3% of the Partnership’s contracts are traded over-the-counter.

In general, the risks associated with non-exchange-traded contracts are greater than those associated with exchange-traded contracts because of the greater risk of default by the counterparty to a non-exchange-traded contract. The Partnership has credit risk associated with counterparty nonperformance. As of the date of the financial statements, the credit risk associated with the instruments in which the Partnership trades is limited to the unrealized gain amounts reflected in the Statements of Financial Condition.

The Partnership also has credit risk because MS&Co. acts as the commodity futures broker, or the counterparty, with respect to most of the Partnership’s assets. Exchange-traded futures and exchange-traded forward contracts are fair valued on a daily basis, with variations in value settled on a daily basis. With respect to the Partnership’s non-exchange-traded forward currency contracts, there are no daily settlements of variation in value, nor is there any requirement that an amount equal to the net unrealized gains (losses) on such contracts be segregated. However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership’s accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co., for the benefit of MS&Co. With respect to those non-exchange-traded forward currency contracts, the Partnership is at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. The Partnership has a netting agreement with MS&Co. The primary terms are based on industry standard master netting agreements. This agreement, which seeks to reduce both the Partnership’s and MS&Co.’s exposure on non-exchange-traded forward currency contracts, should materially decrease the Partnership’s credit risk in the event of MS&Co.’s bankruptcy or insolvency.

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

The Futures Interests traded, and the U.S. Treasury bills held, by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently, in its earnings, whether realized or unrealized, and cash flow. Gains and losses on open positions of exchange-traded futures and exchange-traded forward contracts are settled daily through variation margin. Gains and losses on non-exchange-traded forward currency contracts are settled upon termination of the contract.

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

 

10


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

5.

Trading Activities:

The Partnership’s objective is to profit from speculative trading in Futures Interests. Therefore, the Trading Advisor will take speculative positions in Futures Interests where it feels the best profit opportunities exist for its trading strategy. As such, the average number of contracts outstanding in absolute quantities (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures.

All of the Futures Interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded during the three months ended September 30, 2019 and 2018 were 6,614 and 7,890, respectively. The monthly average number of futures contracts traded during the nine months ended September 30, 2019 and 2018 were 6,309 and 7,745, respectively. The monthly average number of metals forward contracts traded during the three months ended September 30, 2019 and 2018 were 610 and 795, respectively. The monthly average number of metals forward contracts traded during the nine months ended September 30, 2019 and 2018 were 648 and 889, respectively. The monthly average notional values of currency forward contracts traded during the three months ended September 30, 2019 and 2018 were $382,155,182 and $345,939,162, respectively. The monthly average notional values of currency forward contracts traded during the nine months ended September 30, 2019 and 2018 were $375,616,493 and $427,279,697, respectively.

The following tables summarize the gross and net amounts recognized relating to the assets and liabilities of the Partnership’s derivative instruments and transactions eligible for offset subject to master netting agreements or similar arrangements as of September 30, 2019 and December 31, 2018, respectively.

 

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

September 30, 2019

       Recognized       Condition   Condition    Instruments       Received/Pledged*        Net Amount    

Assets

              

Futures

     $ 2,859,091       $ (2,859,091     $ -           $ -            $ -            $ -          

Forwards

     1,952,337       (1,123,348     828,989       -            -            828,989      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Total assets

     $ 4,811,428       $ (3,982,439     $ 828,989       $ -            $ -            $ 828,989      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Liabilities

              

Futures

     $ (4,363,932     $ 2,859,091       $ (1,504,841     $ -            $ 1,504,841        $ -          

Forwards

     (1,123,348     1,123,348       -           -            -            -          
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Total liabilities

     $ (5,487,280     $ 3,982,439       $ (1,504,841     $ -            $ 1,504,841        $ -          
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Net fair value

                 $ 828,989    
              

 

 

 

 

11


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

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

December 31, 2018

       Recognized       Condition   Condition    Instruments       Received/Pledged*        Net Amount    

Assets

              

Futures

     $ 3,370,017       $ (3,370,017     $ -           $ -            $ -            $ -      

Forwards

     1,880,468       (1,880,468     -           -            -            -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Total assets

     $ 5,250,485       $ (5,250,485     $ -           $ -            $ -            $ -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Liabilities

              

Futures

     $ (4,422,974     $ 3,370,017       $ (1,052,957     $ -            $ 1,052,957        $ -      

Forwards

     (2,164,284     1,880,468       (283,816     -            283,816        -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Total liabilities

     $ (6,587,258     $ 5,250,485       $ (1,336,773     $ -            $ 1,336,773        $ -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

Net fair value

                 $ -    
              

 

 

 

 

*

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.

 

12


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

The following tables indicate the gross fair values of derivative instruments of futures and forward contracts as separate assets and liabilities as of September 30, 2019 and December 31, 2018, respectively.

 

     September 30, 2019  

Assets

  
Futures Contracts   

Commodity

     $ 1,184,307     

Equity

     1,015,124     

Currencies

     100,667     

Interest Rates

     558,993     
  

 

 

 

Total unrealized appreciation on open futures contracts

     2,859,091     
  

 

 

 

Liabilities

  
Futures Contracts   

Commodity

     (1,487,044)    

Equity

     (1,068,191)    

Currencies

     (2,934)    

Interest Rates

     (1,805,763)    
  

 

 

 

Total unrealized depreciation on open futures contracts

     (4,363,932)    
  

 

 

 

Net unrealized depreciation on open futures contracts

     $ (1,504,841)  
  

 

 

 

Assets

  
Forward Contracts   

Commodity

     $ 364,511     

Currencies

     1,587,826     
  

 

 

 

Total unrealized appreciation on open forward contracts

     1,952,337     
  

 

 

 

Liabilities

  
Forward Contracts   

Commodity

     (442,929)    

Currencies

     (680,419)    
  

 

 

 

Total unrealized depreciation on open forward contracts

     (1,123,348)    
  

 

 

 

Net unrealized appreciation on open forward contracts

     $ 828,989    ** 
  

 

 

 

 

*

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

 

**

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

 

13


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

     December 31, 2018  

Assets

  
Futures Contracts   

Commodity

     $ 1,479,301     

Equity

     603,645     

Currencies

     12,269     

Interest Rates

     1,274,802     
  

 

 

 

Total unrealized appreciation on open futures contracts

     3,370,017     
  

 

 

 

Liabilities

  
Futures Contracts   

Commodity

     (1,605,268)    

Equity

     (1,004,340)    

Currencies

     (61,986)    

Interest Rates

     (1,751,380)    
  

 

 

 

Total unrealized depreciation on open futures contracts

     (4,422,974)    
  

 

 

 

Net unrealized depreciation on open futures contracts

     $ (1,052,957)  
  

 

 

 

Assets

  
Forward Contracts   

Commodity

     $ 751,884     

Currencies

     1,128,584     
  

 

 

 

Total unrealized appreciation on open forward contracts

     1,880,468     
  

 

 

 

Liabilities

  
Forward Contracts   

Commodity

     (341,019)    

Currencies

     (1,823,265)    
  

 

 

 

Total unrealized depreciation on open forward contracts

     (2,164,284)    
  

 

 

 

Net unrealized depreciation on open forward contracts

     $ (283,816)   ** 
  

 

 

 

 

*

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

 

**

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

 

14


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2019 and 2018, respectively.

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  

Sector

             2019                         2018                         2019                         2018            

Commodity

     $ (1,404,000)         $ 2,373,965          $ (8,220,621)         $ (460,958)    

Equity

     3,264,907          4,620,180          9,079,949          2,621,174     

Currencies

     4,237,371          310,834          3,058,550          (4,771,619)    

Interest Rates

     4,058,276          (486,121)         16,934,026          446,743     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $ 10,156,554    ***      $ 6,818,858    ***      $ 20,851,904    ***      $ (2,164,660)   *** 
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6.

Fair Value Measurements:

 

Partnership’s 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, forward and option contracts is determined by the various exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as input the spot prices, interest rates and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. U.S. Treasury bills are valued at the last available bid price received from independent pricing services as of the close of the last business day of the reporting period.

The Partnership considers prices for commodity futures, swap and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain option contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of September 30, 2019 and December 31, 2018 and for the periods ended September 30, 2019 and 2018, the Partnership 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).

 

15


Managed Futures Premier Graham L.P.

Notes to Financial Statements

(Unaudited)

 

September 30, 2019

             Total                        Level 1                        Level 2                        Level 3          

Assets

           

Futures

     $ 2,859,091        $ 2,859,091        $ -            $ -      

Forwards

     1,952,337        -            1,952,337        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total assets

     $ 4,811,428        $ 2,859,091        $ 1,952,337        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Liabilities

                    

Futures

     $ 4,363,932        $ 4,363,932        $ -            $ -      

Forwards

     1,123,348        -            1,123,348        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total liabilities

     $ 5,487,280        $ 4,363,932        $ 1,123,348        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

December 31, 2018

   Total    Level 1    Level 2    Level 3

Assets

                    

Futures

     $ 3,370,017        $ 3,370,017        $ -            $ -      

Forwards

     1,880,468        -            1,880,468        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total assets

     $ 5,250,485        $ 3,370,017        $ 1,880,468        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Liabilities

           

Futures

     $ 4,422,974        $ 4,422,974        $ -            $ -      

Forwards

     2,164,284        -            2,164,284        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total liabilities

     $ 6,587,258        $ 4,422,974        $ 2,164,284        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

7.

Subsequent Events:

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

 

16


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) equity in trading account, consisting of restricted and unrestricted cash, net unrealized appreciation on open futures contracts and net unrealized appreciation on open forward contracts, as applicable and (ii) 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. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the third quarter of 2019.

The Partnership’s investment in Futures Interests 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 from promptly liquidating its 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 from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it 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 assets.

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

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

For the nine months ended September 30, 2019, the Partnership’s capital increased 10.5% from $81,279,688 to $89,781,077. This increase was attributable to subscriptions of 3,584.803 Class A limited partner Units totaling $75,624 and a net gain of $18,523,771, which was partially offset by redemptions of 495,623.382 Class A limited partner Units totaling $9,778,006 and redemptions of 37,107.123 Class Z General Partner Units totaling $320,000. Future redemptions could impact the amount of funds available for investments in commodity contract positions 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 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.

 

17


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.

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

Results of Operations

The Partnership’s results depend on the Trading Advisor and the ability of the Trading Advisor’s trading program to take advantage of price movements in the futures, forwards and options markets.

The K4D quantitative investment program has its origin in Graham’s legacy trend-following trading systems, dating as far back as 1995. Graham’s trend systems are designed to participate selectively in potential profit opportunities that can occur during periods of price trends in a diverse number of U.S. and international markets. The trend systems establish positions in markets where the price action of a particular market signals the computerized systems used by Graham that a potential trend in prices is occurring. The trend systems also employ proprietary risk management and trade filter strategies that seek to benefit from sustained price trends while reducing risk and volatility exposure. Each K4D program trades the same quantitative models in the same proportion, and differs only with respect to the annual volatility range targeted (with the K4D-10V Program targeting an annual volatility range of 8% to 12%; the K4D-15V Program targeting an annual volatility range of 12% to 18%; and the K4D-20V Program targeting an annual volatility range of 16% to 24%).

The following presents a summary of the Partnership’s operations for the three and nine months ended September 30, 2019 and 2018, and a general discussion of its trading activities during such periods. It is important to note, however, that the Trading Advisor trades in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisor or will be profitable in the future. Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisor’s trading activities on behalf of the Partnership during the periods in question. Past performance is no guarantee of future results.

The Partnership’s results of operations set forth in the financial statements are prepared in accordance with GAAP, which require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following: the contracts the Partnership trades are accounted for on a trade-date basis and marked to market on a daily basis. The difference between their original contract value and market value is recorded in the Statements of Income and Expenses as “Net change in unrealized gains (losses) on open contracts” and recorded as “Net realized gains (losses) on closed contracts” when open positions are closed out. The sum of these amounts constitutes the Partnership’s trading results. The market value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day. The value of a foreign currency forward contract is based on the spot rate as of approximately 3:00 P.M. (E.T.), the close of the business day. Interest income, as well as management fees, administrative and General Partner’s fees and ongoing placement agent fees of the Partnership are recorded on an accrual basis.

The General Partner believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts.

 

18


During the Partnership’s third quarter of 2019, the net asset value per Unit for Class A increased 11.4% from $20.69 to $23.04 as compared to an increase of 5.7% during the third quarter of 2018. During the Partnership’s third quarter of 2019, the net asset value per Unit for Class Z increased 11.8% from $8.53 to $9.54 as compared to an increase of 6.2% during the third quarter of 2018. The Partnership experienced a net trading gain before fees and expenses in the third quarter of 2019 of $10,156,554. Gains were primarily attributable to the Partnership’s trading of Futures Interests in the equity, currencies and interest rates sectors and were partially offset by losses in the commodity sector. The Partnership experienced a net trading gain before fees and expenses in the third quarter of 2018 of $6,818,858. Gains were primarily attributable to the Partnership’s trading of Futures Interests in the commodity, equity and currencies sectors and were partially offset by losses in the interest rates sector.

The most notable gains were recorded within the currency sector during July from short positions in the British pound and euro versus the U.S. dollar as the relative value of the dollar appreciated as the U.S. economy outperformed the economies of other regions. Within the global interest rate markets, gains were experienced primarily during August from long positions in U.S., European, and Asian fixed income futures as prices benefited from mounting global growth concerns, escalating fears over a “hard” United Kingdom departure from the European Union, and ongoing uncertainty over the US-Chinese trade war. Additional gains were recorded within the global stock index sector during July and September from long positions in U.S., European, and Asian equity index futures as speculation central banks across the globe would issue stimulus measures to spur the sputtering global economy. Smaller gains were achieved within the metals markets during August from positions in gold, copper and aluminum futures and within the agricultural complex during July and August from positions in coffee, cotton, and sugar futures. A portion of the Partnership’s gains for the quarter was offset by losses incurred within the energy sector primarily during August from long positions in crude oil and its refined products as prices moved lower due to fears for a global economic slowdown fueled by ongoing trade battles between the U.S. and China.

During the Partnership’s nine months ended September 30, 2019, the net asset value per Unit for Class A increased 24.8% from $18.46 to $23.04 as compared to a decrease of 4.6% during the nine months ended September 30, 2018. During the Partnership’s nine months ended September 30, 2019, the net asset value per Unit for Class Z increased 26.7% from $7.53 to $9.54 as compared to a decrease of 3.1% during the nine months ended September 30, 2018. The Partnership experienced a net trading gain before fees and expenses in the nine months ended September 30, 2019 of $20,851,904. Gains were primarily attributable to the Partnership’s trading of Futures Interests in the equity, currencies and interest rates sectors and were partially offset by losses in the commodity sector. The Partnership experienced a net trading loss before fees and expenses in the nine months ended September 30, 2018 of $2,164,660. Losses were primarily attributable to the Partnership’s trading of Futures Interests in the commodity and currencies sectors and were partially offset by gains in the equity and interest rates sectors.

The most significant gains were achieved within the global interest rates during January, March, May, June, July, and August from long positions in non-U.S. and U.S. fixed income futures as prices rose as global economic concerns pushed central banks to looser monetary policy global. Within the global stock index markets, gains were primarily recorded throughout a majority of the first nine months of the year, with the exception of May and August, from long positions in European, U.S., and Asian equity index futures as positive consumer sentiment and the promise of dovish monetary policy pushed stock prices higher. In the currencies, gains were recorded during July from short positions in the British pound and euro versus the U.S. dollar as the relative value of the dollar appreciated as the U.S. economy outperformed the economies of other regions. Further gains in the currency sector were achieved during February, March, April, and August. A portion of the Partnership’s gains for the first nine months of the year was offset by trading losses within the energy sector during January and February from short positions in crude oil futures as global oil prices moved higher. Additional losses in the energy sector were incurred during May and August from futures positions in gas oil and gasoline. Within the metals sector, losses were incurred during January from short positions in copper futures as industrial metals prices rebounded on signs of a potential resolution to the U.S. versus China trade battles. Additional losses were incurred in the metals during September from futures positions in both precious and industrial metals. Losses in the agriculturals were primarily experienced during May from short positions in corn, wheat, and soybean futures as flooding in the Midwest threatened U.S. grain crops.

 

19


Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase not only the risk involved in commodity trading, but also the possibility of profit. The profitability of the Partnership depends on the existence of major price trends and the ability of the Trading Advisor 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 Trading Advisor is able to identify them, the Partnership expect to increase capital through operations.

The Partnership receives monthly interest on 100% of its average daily equity maintained in cash in the Partnership’s account during each month at a rate equal to 80% of the monthly average of the 4-week U.S. Treasury bill discount rate. For the avoidance of doubt, the Partnership will not receive interest on amounts in the futures brokerage account that are committed to margin. Any interest earned on the Partnership’s cash 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 fund securities will be retained by the Partnership, as applicable. Interest income for the three and nine months ended September 30, 2019 decreased by $28,405 and $22,824, respectively, as compared to the corresponding periods in 2018. The decrease in interest income was primarily due to lower average net assets during the three and nine months ended September 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 depends on (1) the average daily equity maintained in cash in the Partnership’s accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and (3) interest rates over which none of the Partnership or MS&Co. has control.

Ongoing placement agent fees are calculated as a percentage of the Partnership’s Class A adjusted net assets on the first day of each month and are affected by trading performance, subscriptions, and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Ongoing placement agent fees for the three and nine months ended September 30, 2019 decreased by $71,537 and $414,858, respectively, as compared to the corresponding periods in 2018. The decrease was primarily due to a decrease in average net assets of Class A during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018.

Administrative and General Partner’s fees are paid to the Administrative and General Partner for administering the business and affairs of the Partnership. Administrative and General Partner’s fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the beginning of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Administrative and General Partner’s fees for the three and nine months ended September 30, 2019 decreased by $72,771 and $418,796, respectively, as compared to the corresponding periods in 2018. The decrease was primarily due to a decrease in average net assets during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the beginning of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three and nine months ended September 30, 2019 decreased by $151,145 and $586,803, respectively, as compared to the corresponding periods in 2018. The decrease was primarily due to a decrease in average net assets during the three and nine months ended September 30, 2019 as compared to the corresponding periods in 2018.

Incentive fees are based on the new trading profits generated by the Trading Advisor at the end of the year as defined in the management agreement among the Partnership, the General Partner and Trading Advisor. Trading performance for the three and nine months ended September 30, 2019 and 2018 did not result in the accrual incentive fees. To the extent that the Trading Advisor incurs a loss for the Partnership, the Trading Advisor will not be paid incentive fees until the Trading Advisor recovers any net loss incurred by the Trading Advisor and earns additional new trading profits for the Partnership.

 

20


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Introduction

The Partnership is a commodity pool engaged primarily in the speculative trading of Futures Interests. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership’s assets are at risk of trading loss. Unlike an operating company, the risk of market-sensitive instruments is inherent to the primary business activity of the Partnership.

The Futures Interests on such contracts traded by the Partnership involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of held interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow. Gains and losses on open positions of exchange-traded futures, exchange-traded forward and exchange-traded futures-styled option contracts are settled daily through variation margin. Gains and losses on non-exchange-traded forward currency contracts and forward currency option contracts are settled upon termination of the contract. Gains and losses on non-exchange-traded forward currency option contracts are settled on an agreed-upon settlement date.

The Partnership’s total market risk may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership’s open positions, the volatility present within the markets, and the liquidity of the markets.

The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements. Margin requirements generally range between 2% and 15% of contract face value. Additionally, the use of leverage causes the face value of the market sector instruments held by the Partnership typically to be many times the total capitalization of the Partnership.

The Partnership’s past performance is no guarantee of its future results. Any attempt to numerically quantify the Partnership’s market risk is limited by the uncertainty of its speculative trading. The Partnership’s speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Partnership’s experience to date as discussed under the “Partnership’s Value at Risk in Different Market Sectors” section and significantly exceed the Value at Risk tables disclosed.

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

 

21


Quantifying the Partnership’s Trading Value at Risk

The following quantitative disclosures regarding the Partnership’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act 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 accounts for open positions on the basis of fair value accounting principles. Any loss in the market value of the Partnership’s open positions is directly reflected in the Partnership’s earnings and cash flow.

The Partnership’s risk exposure in the market sectors traded by the Trading Advisor 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 Ceres or the Trading Advisor in their daily risk management activities.

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

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

 

22


Value at Risk tables represent a probabilistic assessment of the risk of loss in market sensitive instruments. The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of September 30, 2019 and December 31, 2018, and the highest, lowest and average values during the three months ended September 30, 2019 and for the twelve months ended December 31, 2018. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. There has been no material change in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018.

As of September 30, 2019, the Partnership’s total capitalization was $89,781,077.

 

                                                                                                                                      
     September 30, 2019          
                Three Months Ended September 30, 2019

Market Sector

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

Commodity

       $       4,480,930        4.99         $      4,680,821          $      2,888,769          $        4,074,316  

Equity

     8,038,309        8.96         8,078,437        3,600,377        5,512,162   

Currencies

     8,349,630        9.30         8,759,642        5,559,436        7,138,561  

Interest Rates

     2,650,185        2.95         4,512,372        2,513,663        3,566,320  
  

 

 

 

  

 

 

         

Total

       $     23,519,054        26.20          
  

 

 

 

  

 

 

         

*Average of daily Values at Risk.

 

As of December 31, 2018, the Partnership’s total capitalization was $81,279,688.

 

 

 

     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*

Commodity

       $      3,485,672        4.29         $      7,391,829          $      3,254,927            $        4,584,783  

Equity

     2,053,974        2.53         7,546,949        2,043,894        5,228,800   

Currencies

     8,033,078        9.88         13,054,095        4,757,346        8,506,060  

Interest Rates

     2,183,497        2.69         4,558,102        2,151,503        3,448,698  
  

 

 

 

  

 

 

         

Total

       $    15,756,221        19.39          
  

 

 

 

  

 

 

         

*Annual average of daily Values at Risk.

 

23


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 September 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 during the fiscal quarter ended September 30, 2019 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

24


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 Securities Exchange Act of 1934, as amended (the “Exchange Act”) which include current descriptions of material litigation and material proceedings and investigations, if any, by governmental and/or regulatory agencies or self-regulatory organizations concerning Morgan Stanley and its subsidiaries, including MS&Co. As a consolidated subsidiary of Morgan Stanley, MS&Co. does not file its own periodic reports with the SEC that contain descriptions of material litigation, proceedings and investigations. As a result, 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.

During the preceding five years, the following administrative, civil, or criminal actions pending, on appeal or concluded against MS&Co. or any of its principals are material within the meaning of CFTC Rule 4.24(l)(2) or 4.34(k)(2):

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.

 

25


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

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

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, 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 MCDC 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 in connection with offerings in which MS&Co. acted as senior or sole underwriter.

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

 

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the imposition of a cease and desist order, a civil monetary penalty of $300,000, and undertakings related to public statements, cooperation, and payment of the monetary penalty.

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

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

 

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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 September 25, 2019, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $35 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 $35 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 September 25, 2019, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $22 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 $22 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

 

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platforms for securities lending. The class action complaint was filed on behalf of a purported 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. On August 29, 2019, the court in In re GSE Bonds Antitrust Litigation denied MS&Co.’s motion to dismiss. The case is set for trial in May 2020.

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, alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates

 

29


allegedly sold to plaintiff by MS&Co. was approximately $276 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 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 includes a claim for treble damages. On January 8, 2016, the parties reached an agreement to settle the litigation.

 

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

On November 4, 2011, the Federal Deposit Insurance Corporation (“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 asserts 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

 

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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 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 MS&Co., 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 MS&Co. to plaintiff was approximately $634 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and sought, 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 asserted violations of the California False Claims Act and other state laws and seeks 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 1A. Risk Factors.

There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors.” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and under Part II, Item 1A. “Risk Factors.” in the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019.

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

For the three months ended September 30, 2019, there were subscriptions of 833.681 Class A Units totaling $20,000. 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. 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 the Units are purchased by accredited investors in a private offering.

Proceeds of net offering are used for the trading of Futures Interests.

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

 

Period  

Class A

(a) Total Number
of Units Purchased*

    Class A
(b) Average
Price Paid per 
Unit**
   

(c) Total Number
of Units
Purchased as Part
of Publicly
Announced

Plans or Programs 

 

(d) Maximum Number
(or Approximate
Dollar Value) of

Units that May

Yet Be Purchased
Under the

Plans or Programs

July 1, 2019 - July 31, 2019

    55,562.988      $ 21.99      N/A   N/A

August 1, 2019 - August 31, 2019

    12,014.064      $ 23.99      N/A   N/A

September 1, 2019 - September 30, 2019    

    14,930.641      $ 23.04      N/A   N/A
      82,507.693      $ 22.47           

 

*

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

 

**

Redemptions of Units are effected as of the last day of each month at the net asset value per Unit as of that day.

Item 3. Defaults Upon Senior Securities. None.

Item 4. Mine Safety Disclosures. Not applicable.

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 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.

MANAGED FUTURES PREMIER GRAHAM L.P.

 

By:

 

Ceres Managed Futures LLC

 

(General Partner)

By:

 

/s/ Patrick T. Egan

 

Patrick T. Egan

 

President and Director

Date: November 7, 2019

By:

 

/s/ Steven Ross

 

Steven Ross

 

Chief Financial Officer and Director

 

(Principal Accounting Officer)

Date: November 7, 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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