Company Quick10K Filing
Ceres Orion
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-26
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-28
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-10
10-Q 2017-03-31 Filed 2017-05-11
10-K 2016-12-31 Filed 2017-03-28
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-28
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-13
10-K 2014-12-31 Filed 2015-03-30
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-20
10-K 2012-12-31 Filed 2013-03-27
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-31
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-03-31
8-K 2020-02-01
8-K 2019-12-13
8-K 2019-09-01
8-K 2019-08-23
8-K 2019-08-01
8-K 2019-04-01
8-K 2019-03-06
8-K 2019-01-31
8-K 2018-10-31
8-K 2018-09-15
8-K 2018-04-01
8-K 2018-02-28
8-K 2018-01-26
8-K 2018-01-19

OFFLP 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities. - None.
Item 4. Mine Safety Disclosures. - Not Applicable.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 d918694dex311.htm
EX-31.2 d918694dex312.htm
EX-32.1 d918694dex321.htm
EX-32.2 d918694dex322.htm

Ceres Orion Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 d918694d10q.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 March 31, 2020

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-50271

CERES ORION L.P.

 

(Exact name of registrant as specified in its charter)

 

New York   22-3644546

(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: None.

 

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 April 30, 2020, 157,205.2068 Limited Partnership Class A Redeemable Units were outstanding and 4,590.3112 Limited Partnership Class Z Redeemable Units were outstanding.


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Ceres Orion L.P.

Statements of Financial Condition

 

     March 31,        December 31,  
     2020    2019
         (Unaudited)     

 

 

Assets:

     

Investment in the Funds(1) , at fair value

     $ 261,747,085          $ 330,936,811    

Redemptions receivable from the Funds

     17,901,188          11,850,318    
  

 

 

 

  

 

 

 

Equity in trading account:

     

Unrestricted cash

     180,169,225          117,008,427    

Restricted cash

     10,746,691          44,439,575    

Options purchased, at fair value (premiums paid $85,360 and $0 at March 31, 2020 and December 31, 2019, respectively)

     143,560          -        
  

 

 

 

  

 

 

 

Total equity in trading account

     191,059,476          161,448,002    
  

 

 

 

  

 

 

 

Interest receivable

     62,938          155,105    
  

 

 

 

  

 

 

 

Total assets

     $ 470,770,687          $ 504,390,236    
  

 

 

 

  

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Net unrealized depreciation on open futures contracts

     $ 1,180,212          $ 1,758,548    

Options written, at fair value (premiums received $258,320 and $0 at March 31, 2020 and December 31, 2019, respectively)

     216,876          -        

Accrued expenses:

     

Ongoing selling agent fees

     1,606,525          2,814,316    

Management fees

     415,311          411,567    

General Partner fees

     292,093          312,127    

Incentive fees

     3,310,643          2,013,630    

Professional fees

     418,524          414,915    

Redemptions payable to Limited Partners

     17,036,146          13,393,882    
  

 

 

 

  

 

 

 

Total liabilities

     24,476,330          21,118,985    
  

 

 

 

  

 

 

 

Partners’ Capital:

     

General Partner, Class Z, 5,058.6813 Redeemable Units outstanding at March 31, 2020 and December 31, 2019

     5,525,165          5,594,958    

Limited Partners, Class A, 162,111.9798 and 173,135.1328 Redeemable Units outstanding at March 31, 2020 and December 31, 2019, respectively

     435,780,585          472,470,787    

Limited Partners, Class Z, 4,567.4222 and 4,706.5572 Redeemable Units outstanding at March 31, 2020 and December 31, 2019, respectively

     4,988,607          5,205,506    
  

 

 

 

  

 

 

 

Total partners’ capital (net asset value)

     446,294,357          483,271,251    
  

 

 

 

  

 

 

 

Total liabilities and partners’ capital

     $     470,770,687          $     504,390,236    
  

 

 

 

  

 

 

 

Net asset value per Redeemable Unit:

     

Class A

     $ 2,688.15          $ 2,728.91    
  

 

 

 

  

 

 

 

Class Z

     $ 1,092.21          $ 1,106.01    
  

 

 

 

  

 

 

 

(1) Defined in Note 1.

See accompanying notes to financial statements.

 

1


Ceres Orion L.P.

Condensed Schedule of Investments

March 31, 2020

(Unaudited)

 

     Number of               % of Partners’      
           Contracts            Fair Value    Capital  

Futures Contracts Purchased

        

Currencies

     7        $ (4,700)          (0.00)   *% 

Energy

     8,382        (3,279,250)          (0.72)  

Grains

     4,798        (1,307,917)          (0.29)  

Indices

     1,918        (693,729)          (0.16)  

Interest Rates U.S.

     190        19,265           0.00    * 

Interest Rates Non-U.S.

     3,185        858,984           0.19   

Livestock

     506        (95,407)          (0.02)  

Metals

     510        (1,530,582)          (0.34)  

Softs

     2,772        (952,806)          (0.22)  
     

 

 

 

  

 

 

 

Total futures contracts purchased

                    (6,986,142)                      (1.56)  
     

 

 

 

  

 

 

 

Futures Contracts Sold

        

Currencies

     361        29,304           0.01   

Energy

     5,472        4,094,416           0.92   

Grains

     4,774        (660,312)          (0.15)  

Indices

     1,160        (252,739)          (0.06)  

Interest Rates U.S.

     1        109           0.00    * 

Interest Rates Non-U.S.

     117        (26,921)          (0.01)  

Livestock

     522        (476,575)          (0.11)  

Metals

     674        2,715,683           0.61   

Softs

     2,850        382,965           0.09   
     

 

 

 

  

 

 

 

Total futures contracts sold

        5,805,930           1.30   
     

 

 

 

  

 

 

 

Net unrealized depreciation on open futures contracts

        $ (1,180,212)          (0.26)   % 
     

 

 

 

  

 

 

 

Options Purchased

        

Calls

        

Energy

     388        $ 143,560           0.03    % 
     

 

 

 

  

 

 

 

Total options purchased (premiums paid $85,360)

        $ 143,560           0.03    % 
     

 

 

 

  

 

 

 

Options Written

        

Calls

        

Energy

     93        $ (80,538)          (0.02)   % 

Puts

        

Energy

     93        (136,338)          (0.03)  
     

 

 

 

  

 

 

 

Total options written (premiums received $258,320)

        $ (216,876)          (0.05)   % 
     

 

 

 

  

 

 

 

Investment in the Funds

        

CMF Winton Master L.P.

        $ 41,856,909           9.38    % 

CMF TT II, LLC

        84,242,729           18.88   

CMF FORT Contrarian Master Fund LLC

        117,835,250           26.40   

CMF NL Master Fund LLC

        17,812,197           3.99   
     

 

 

 

  

 

 

 

Total investment in the Funds

        $ 261,747,085           58.65   % 
     

 

 

 

  

 

 

 

 

*

Due to rounding.

See accompanying notes to financial statements.

 

2


Ceres Orion L.P.

Condensed Schedule of Investments

December 31, 2019

 

     Number of              % of Partners’      
           Contracts            Fair Value   Capital  

Futures Contracts Purchased

       

Currencies

     3,451        $ 995,485       0.21  

Energy

     7,974        15,241,977       3.15    

Grains

     14,839        8,666,809       1.79    

Indices

     2,675        58,400       0.01    

Interest Rates U.S.

     16        (27,500     (0.01)   

Interest Rates Non-U.S.

     8,237        (3,009,347     (0.62)   

Livestock

     2,783        1,536,513       0.32    

Metals

     2,283        2,466,858       0.51    

Softs

     10,384        9,976,106       2.07    
     

 

 

 

 

 

 

 

Total futures contracts purchased

                      35,905,301       7.43    
     

 

 

 

 

 

 

 

Futures Contracts Sold

       

Currencies

     435        (165,465     (0.03)   

Energy

     8,739        (7,074,868     (1.46)   

Grains

     13,303        (13,462,345     (2.79)   

Indices

     951        414,377       0.09    

Interest Rates U.S.

     845        37,969       0.01    

Interest Rates Non-U.S.

     1,758        497,250       0.10    

Livestock

     2,329        (879,773     (0.18)   

Metals

     2,065        (3,077,203     (0.64)   

Softs

     9,846        (13,953,791     (2.89)   
     

 

 

 

 

 

 

 

Total futures contracts sold

        (37,663,849     (7.79)   
     

 

 

 

 

 

 

 

Net unrealized depreciation on open futures contracts

        $ (1,758,548     (0.36)  
     

 

 

 

 

 

 

 

Investment in the Funds

       

CMF Winton Master L.P.

        $ 77,128,248       15.96  

CMF TT II, LLC

        119,608,248       24.75    

CMF FORT Contrarian Master Fund LLC

        116,899,563       24.19    

CMF NL Master Fund LLC

        17,300,752       3.58    
     

 

 

 

 

 

 

 

Total investment in the Funds

        $ 330,936,811       68.48  
     

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

3


Ceres Orion L.P.

Statements of Income and Expenses

(Unaudited)

 

     Three Months Ended
March 31,
     2020   2019

Investment Income:

    

Interest income

     $ 392,973       $ 431,674  

Interest income allocated from the Funds

     797,467       2,510,000  
  

 

 

 

 

 

 

 

Total investment income

     1,190,440       2,941,674  
  

 

 

 

 

 

 

 

Expenses:

    

Expenses allocated from the Funds

     747,109       765,931  

Clearing fees related to direct investments

     1,630,457       1,072,804  

Ongoing selling agent fees

     1,209,972       4,077,320  

Management fees

     1,240,559       1,455,662  

General Partner fees

     901,242       1,097,656  

Incentive fees

     3,310,643       311,667  

Professional fees

     262,730       321,020  
  

 

 

 

 

 

 

 

Total expenses

     9,302,712       9,102,060  
  

 

 

 

 

 

 

 

Net investment loss

     (8,112,272     (6,160,386
  

 

 

 

 

 

 

 

Trading Results:

    

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

    

Net realized gains (losses) on closed contracts

     17,484,357       16,358,172  

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

     (26,990,408     3,505,721  

Net change in unrealized gains (losses) on open contracts

     309,911       (12,351,593

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

     10,447,865       21,006,456  
  

 

 

 

 

 

 

 

Total trading results

     1,251,725       28,518,756  
  

 

 

 

 

 

 

 

Net income (loss)

     $ (6,860,547     $ 22,358,370  
  

 

 

 

 

 

 

 

Net income (loss) per Redeemable Unit*:

    

Class A

     $ (40.76     $ 106.66  
  

 

 

 

 

 

 

 

Class Z

     $ (13.80     $ 50.04  
  

 

 

 

 

 

 

 

Weighted average Redeemable Units outstanding:

    

Class A

     170,668.7368       219,198.7898  
  

 

 

 

 

 

 

 

Class Z

     9,765.2385       10,614.1822  
  

 

 

 

 

 

 

 

 

*

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

See accompanying notes to financial statements.

 

4


Ceres Orion L.P.

Statements of Changes in Partners’ Capital

For the Three Months Ended March 31, 2020 and 2019

(Unaudited)

 

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

Partners’ Capital, December 31, 2018

     $ 595,031,425       228,146.2478       $ 11,027,050       10,663.8345       $ 606,058,475       238,810.0823  

Subscriptions - Limited Partners

     2,398,208       928.5660       20,000       19.5530       2,418,208       948.1190  

Redemptions - Limited Partners

     (64,207,160     (24,617.5730     (196,289     (189.1360     (64,403,449     (24,806.7090

Net income (loss)

     21,832,304       -           526,066       -           22,358,370       -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, March 31, 2019

     $    555,054,777       204,457.2408       $    11,376,827       10,494.2515       $    566,431,604       214,951.4923  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Partners’ Capital, December 31, 2019

     $ 472,470,787       173,135.1328       $ 10,800,464       9,765.2385       $ 483,271,251       182,900.3713  

Subscriptions - Limited Partners

     1,164,297       425.2450       -           -           1,164,297       425.2450  

Redemptions - Limited Partners

     (31,128,679     (11,448.3980     (151,965     (139.1350     (31,280,644     (11,587.5330

Net income (loss)

     (6,725,820     -           (134,727     -           (6,860,547     -      
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, March 31, 2020

     $ 435,780,585       162,111.9798       $ 10,513,772       9,626.1035       $ 446,294,357       171,738.0833  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

5


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

1.

Organization:

Ceres Orion L.P. (the “Partnership”) is a limited partnership organized on March 22, 1999, under the partnership laws of the State of New York, to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including futures, option, swap and forward contracts. The sectors traded include currencies, energy, grains, livestock, indices, United States (“U.S.”) and non-U.S. interest rates, softs and metals. The commodity interests that are traded by the Partnership, directly and indirectly through its investment in the Funds (as defined below), are volatile and involve a high degree of market risk. The Partnership commenced trading on June 10, 1999. The Partnership privately and continuously offers redeemable units of limited partnership interest (“Redeemable Units”) to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership. The General Partner (as defined below) may also determine to invest up to all of the Partnership’s assets (directly or indirectly through its investment in the Funds) in U.S. Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership, the general partner of Winton Master (as defined below) and is the trading manager (the “Trading Manager”) of Transtrend Master (as defined below), FORT Contrarian Master (as defined below) and NL Master (as defined below). The General Partner is a wholly-owned subsidiary of Morgan Stanley Domestic Holdings, Inc. (“MSD Holdings”). MSD Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses.

As of March 31, 2020, all trading decisions were made for the Partnership by Winton Capital Management Limited (“Winton”), Transtrend B.V. (“Transtrend”), FORT L.P. (“FORT”), John Street Capital Limited (“JSCL”), Northlander Commodity Advisors LLP (“Northlander”) and Pan Capital Management L.P. (“Pan”) (each an “Advisor” and, collectively, the “Advisors”), each of which is a registered commodity trading advisor. On January 31, 2019, the Partnership fully redeemed its investment in CMF Willowbridge Master Fund L.P. (“Willowbridge Master”). Also effective January 31, 2019, Willowbridge Associates Inc. (“Willowbridge”) ceased to act as a commodity trading advisor to the Partnership. References herein to the “Advisors” may include, as relevant, John Street (as defined below) and Willowbridge. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors either directly, through a managed account in the Partnership’s name, or indirectly, through its investment in the Funds. In addition, the General Partner may allocate the Partnership’s assets to additional non-major trading advisors (i.e., commodity trading advisors intended to be allocated less than 10% of the Partnership’s assets). Information about advisors allocated less than 10% of the Partnership’s assets may not be disclosed.

Effective on February 1, 2020, Pan directly trades the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to Pan’s Energy Trading Program.

From February 1, 2019 until December 12, 2019, John Street Capital LLP (“John Street”) directly traded the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to John Street’s Systematic Strategy Program. On December 13, 2019, the Partnership, the General Partner, John Street, and JSCL entered into a deed of novation (the “JSCL Novation Agreement”) transferring all rights and obligations of John Street to JSCL. JSCL directly trades the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to the Systematic Strategy Program.

On June 1, 2011, the Partnership began offering “Class A” Redeemable Units and “Class Z” Redeemable Units pursuant to the offering memorandum. All Redeemable Units issued prior to June 1, 2011 were deemed Class A Redeemable Units. The rights, powers, duties and obligations associated with investment in Class A Redeemable Units were not changed. Class A Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions and non-U.S. investors. Class Z Redeemable Units were first issued on August 1, 2011. Class Z Redeemable Units are offered to limited partners who receive advisory services from Morgan Stanley Smith Barney LLC (doing business as Morgan Stanley Wealth Management) (“Morgan Stanley Wealth Management”) and certain employees of Morgan Stanley and/or its subsidiaries (and their family members). Class A Redeemable Units and Class Z Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Redeemable Units that a limited partner receives upon a subscription will generally depend upon the status of the limited partner, although the General Partner may determine to offer a particular Class of Redeemable Units to investors at its discretion.

During the reporting periods ended March 31, 2020 and 2019, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. JPMorgan Chase Bank, N.A. (“JPMorgan”) was also a foreign exchange forward contract counterparty for certain Funds.

 

6


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

The Partnership, CMF Winton Master L.P. (“Winton Master”) and CMF TT II, LLC (“Transtrend Master”) have, and prior to its termination, Willowbridge Master had, entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. CMF FORT Contrarian Master Fund LLC (“FORT Contrarian Master”) and CMF NL Master Fund LLC (“NL Master”) have entered into futures brokerage account agreements with MS&Co. Winton Master, Transtrend Master, FORT Contrarian Master and NL Master are collectively referred to as the “Funds.” References herein to “Funds” may also include, as relevant, Willowbridge Master.

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

The Partnership has entered into a selling agent agreement with Morgan Stanley Wealth Management (as amended, the “Selling Agreement”). Pursuant to the Selling Agreement, the Partnership pays Morgan Stanley Wealth Management a monthly ongoing selling agent fee. The ongoing selling agent fee is $15.00 each for futures transactions and up to an equivalent amount for swaps and $7.50 each per side for options transactions, with respect to Class A Redeemable Units. The ongoing selling agent fee for Class A Redeemable Units will not exceed 2.00% of adjusted month-end net assets per year, calculated monthly. Class Z Redeemable Units are not subject to an ongoing selling agent fee. The ongoing selling agent fee amount is reduced by applicable floor brokerage fees. The Partnership may pay an ongoing selling agent fee to other properly licensed and/or registered selling agents who sell Class A Redeemable Units, and such additional selling agents may share all or a substantial portion of such fees with their properly registered or exempted financial advisors who have sold Class A Redeemable Units.

As of November 1, 2018, the Partnership entered into an alternative investment placement agent agreement (the “Harbor Selling Agreement”), by and among the Partnership, the General Partner, Morgan Stanley Distribution Inc. (“MSDI”), and Harbor Investment Advisory, LLC, a Maryland limited liability company (“Harbor”), which supersedes and replaces the alternative investment selling agent agreement, dated January 19, 2018, between the Partnership, the General Partner and Harbor. Pursuant to the Harbor Selling Agreement, MSDI and Harbor have been appointed as a non-exclusive selling agent and sub-selling agent, respectively, of the Partnership for the purpose of finding eligible investors for Redeemable Units through offerings that are exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) thereof and Rule 506 of Regulation D promulgated thereunder and for Harbor to serve as an investment advisor to its customers investing in one or more of the partnerships party to the Harbor Selling Agreement; provided, that, included within such appointment, Harbor will provide certain services to certain holders of Redeemable Units of the Partnership, who had acquired such Redeemable Units prior to such holders becoming clients of Harbor. The Harbor Selling Agreement continues in effect until September 30, 2020 unless terminated in certain circumstances as set forth in the Harbor Selling Agreement, including by any party on thirty days’ prior written notice, after which the General Partner or the Partnership may, in its sole discretion, renew the Harbor Selling Agreement for additional one-year periods. Pursuant to the Harbor Selling Agreement, the Partnership pays Harbor an ongoing selling agent fee equal to $15.00 per round turn, swaps by up to an equivalent amount and options transactions by $7.50 each per side, with respect to Class A Redeemable Units held by Harbor clients. In each case, the amount will be reduced by applicable floor brokerage fees. The ongoing selling agent fee for Class A Redeemable Units will not exceed 2.00% of adjusted month-end net assets per year, calculated monthly.

The General Partner fee, management fees, incentive fees and professional fees of the Partnership are allocated proportionally to each Class based on the net asset value of the Class.

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

 

7


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

2.

Basis of Presentation and Summary of Significant Accounting Policies:

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at March 31, 2020 and the results of its operations and changes in partners’ capital for the three months ended March 31, 2020 and 2019. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2019. The December 31, 2019 information has been derived from the audited financial statements as of and for the year ended December 31, 2019.

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 contribution and profits, if any, net of distributions, 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 March 31, 2020 and 2019, the Partnership carried no debt and all of the Partnership’s and the Funds’ investments were carried at fair value and classified as Level 1 and Level 2 measurements.

Partnership’s Investment in the Funds. The Partnership carries its investment in Winton Master based on Winton Master’s net asset value per redeemable unit as calculated by Winton Master. The Partnership carries its investment in Transtrend Master, FORT Contrarian Master and NL Master based on the Partnership’s (1) net contributions to Transtrend Master, FORT Contrarian Master and NL Master and (2) its allocated share of the undistributed profits and losses, including realized gains (losses) and net change in unrealized gains (losses), of Transtrend Master, FORT Contrarian Master and NL Master. The Partnership carried its investment in Willowbridge Master based on Willowbridge Master’s net asset value per redeemable unit as calculated by Willowbridge Master.

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

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

Partnership’s Cash. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At March 31, 2020 and December 31, 2019, the amount of cash held for margin requirements was $10,746,691 and $44,439,575, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. The Partnership’s restricted and unrestricted cash includes cash denominated in foreign currencies of $29,666,001 (cost of $29,916,270) and $10,541,351 (cost of $10,423,551) at March 31, 2020 and December 31, 2019, respectively.

 

8


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

Income Taxes. Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The Partnership follows the guidance of ASC 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet the more-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnership’s Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Partnership’s Statements of Income and Expenses in the years in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2016 through 2019 tax years remain subject to examination by U.S. federal and most state tax authorities.

Investment Company Status. The Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Accounting Standards Update 2013-08 “Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses.

Net Income (Loss) Per Redeemable Unit. Net income (loss) per Redeemable Unit is calculated in accordance with ASC 946, “Financial Services - Investment Companies.” See Note 3, “Financial Highlights.”

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.

 

9


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

3.

Financial Highlights:

Financial highlights for the limited partner Classes as a whole for the three months ended March 31, 2020 and 2019 were as follows:

 

     Three Months Ended
March 31, 2020
    Three Months Ended
March 31, 2019
 
     Class A     Class Z     Class A     Class Z  

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

        

Net realized and unrealized gains (losses)

     $ 5.85        $ 2.19        $ 134.58        $ 53.80   

Net investment loss

     (46.61)       (15.99)       (27.92)       (3.76)  
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) for the period

     (40.76)       (13.80)       106.66        50.04   

Net asset value per Redeemable Unit, beginning of period

     2,728.91        1,106.01        2,608.11        1,034.06   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value per Redeemable Unit, end of period

     $ 2,688.15        $ 1,092.21        $ 2,714.77        $ 1,084.10   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended
March 31, 2020
    Three Months Ended
March 31, 2019
 
     Class A     Class Z     Class A     Class Z  

Ratios to Average Limited Partners’ Capital:**

        

Net investment loss***

     (4.8)      (3.8)      (4.2)      (1.3) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     5.1       4.1       6.3       3.3  

Incentive fees

     0.7       0.7       0.1       0.1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     5.8       4.8       6.4       3.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return:

        

Total return before incentive fees

     (0.8)      (0.6)      4.1       4.9  

Incentive fees

     (0.7)      (0.6)      (0.0)  %****      (0.1) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total return after incentive fees

     (1.5)      (1.2)      4.1       4.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

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

 

**

Annualized (except for incentive fees).

 

***

Interest income less total expenses.

 

****

Due to rounding.

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

 

10


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

4.

Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership’s trading activities are shown in the Partnership’s Statements of Income and Expenses. The Partnership also invests certain of its assets through a “master/feeder” structure. The Partnership’s pro-rata share of the results of the Funds’ trading activities are shown in the Partnership’s Statements of Income and Expenses.

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

All of the commodity interests owned directly by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the three months ended March 31, 2020 and 2019 were 81,120 and 64,163, respectively. The monthly average number of option contracts traded directly by the Partnership during the period February 1, 2020 through March 31, 2020 and the three months ended March 31, 2019 were 381 and 0, respectively.

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

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

 

11


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

The following tables summarize the gross and net amounts recognized relating to assets and liabilities of the Partnership’s derivatives and their offsetting subject to master netting arrangements or similar agreements as of March 31 2020 and December 31, 2019, respectively.

 

March 31, 2020

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

Assets

                 

Futures

     $ 23,375,191          $ (23,375,191)         $ -             $           -            $ -             $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 23,375,191          $ (23,375,191)         $ -             $           -            $ -             $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Futures

     $ (24,555,403)         $ 23,375,191          $ (1,180,212)         $           -            $ 1,180,212         $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ (24,555,403)         $ 23,375,191          $ (1,180,212)         $           -            $ 1,180,212         $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net fair value

                    $           -      * 
                 

 

 

 

December 31, 2019

   Gross
Amounts
Recognized
     Gross Amounts
Offset in the
Statements of
Financial

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

Assets

                 

Futures

     $ 55,074,542          $ (55,074,542)         $           -             $           -            $ -             $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 55,074,542          $ (55,074,542)         $           -             $           -            $ -             $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

                 

Futures

     $ (56,833,090)         $ 55,074,542          $ (1,758,548)         $           -            $ 1,758,548         $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ (56,833,090)         $ 55,074,542          $ (1,758,548)         $           -            $ 1,758,548         $           -      
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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. In some instances, the actual collateral received and/or pledged may be more than the amount shown due to overcollateralization.

 

12


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

The following tables indicate the gross fair values of derivative instruments of futures and option contracts, as applicable, held directly by the Partnership as separate assets and liabilities as of March 31, 2020 and December 31, 2019, respectively.

 

         March 31, 2020      

Assets

  

Futures Contracts

  

Currencies

     $ 250,209   

Energy

     13,471,631   

Grains

     1,231,247   

Indices

     964,012   

Interest Rates U.S.

     30,476   

Interest Rates Non-U.S.

     916,826   

Livestock

     714,573   

Metals

     2,910,040   

Softs

     2,886,177   
  

 

 

 

Total unrealized appreciation on open futures contracts

     23,375,191   
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (225,605)  

Energy

     (12,656,465)  

Grains

     (3,199,476)  

Indices

     (1,910,480)  

Interest Rates U.S.

     (11,102)  

Interest Rates Non-U.S.

     (84,763)  

Livestock

     (1,286,555)  

Metals

     (1,724,939)  

Softs

     (3,456,018)  
  

 

 

 

Total unrealized depreciation on open futures contracts

     (24,555,403)  
  

 

 

 

Net unrealized depreciation on open futures contracts

     $ (1,180,212)  * 
  

 

 

 

Assets

  

Options Purchased

  

Energy

     $ 143,560   
  

 

 

 

Total options purchased

     $ 143,560  ** 
  

 

 

 

Liabilities

  

Options Written

  

Energy

     $ (216,876)  
  

 

 

 

Total options written

     $                 (216,876)  *** 
  

 

 

 

 

*

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

**

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

***

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

 

13


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

         December 31, 2019      

Assets

  

Futures Contracts

  

Currencies

     $ 1,024,103    

Energy

                     24,040,293    

Grains

     10,257,434    

Indices

     1,185,547    

Interest Rates U.S.

     74,820    

Interest Rates Non-U.S.

     598,379    

Livestock

     1,800,915    

Metals

     2,685,053    

Softs

     13,407,998    
  

 

 

 

Total unrealized appreciation on open futures contracts

     55,074,542    
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (194,083)   

Energy

     (15,873,184)   

Grains

     (15,052,970)   

Indices

     (712,770)   

Interest Rates U.S.

     (64,351)   

Interest Rates Non-U.S.

     (3,110,476)   

Livestock

     (1,144,175)   

Metals

     (3,295,398)   

Softs

     (17,385,683)   
  

 

 

 

Total unrealized depreciation on open futures contracts

     (56,833,090)   
  

 

 

 

Net unrealized depreciation on open futures contracts

     $ (1,758,548) 
  

 

 

 

 

*

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

 

14


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the three months ended March 31, 2020 and 2019, respectively.

 

     Three Months Ended March 31,  

Sector

                 2020                                  2019                 

Currencies

      $ (2,485,209)         $ 801,575    

Energy

     14,418,791         3,518,985    

Grains

     180,970         (2,430,152)   

Indices

     (3,970,177)        (515,130)   

Interest Rates U.S.

     (1,382,899)        (422,094)   

Interest Rates Non-U.S.

     10,532,332         4,091,827    

Livestock

     (4,877,916)        186,593    

Metals

     6,440,818         (1,473,060)   

Softs

     (1,062,442)        248,035    
  

 

 

   

 

 

 

Total

      $             17,794,268   ****       $              4,006,579   **** 
  

 

 

   

 

 

 

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

 

5.

Fair Value Measurements:

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

The fair value of exchange-traded futures, option and forward contracts is determined by the various exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. U.S. Treasury bills are valued at the last available bid price received from independent pricing services as of the close of the last business day of the reporting period.

The Partnership and the Funds consider prices for commodity futures, swap and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain option contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of March 31, 2020 and December 31, 2019 and for the periods ended March 31, 2020 and 2019, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partner’s assumptions and internal valuation pricing models (Level 3).

 

15


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

March 31, 2020            

               Total                              Level 1                              Level 2                              Level 3              
Assets                            

Futures

     $ 23,375,191          $ 23,375,191          $                 -              $                 -        

Options purchased

     143,560          143,560          -              -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 23,518,751          $ 23,518,751          $ -              $ -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 24,555,403          $ 24,555,403          $ -              $ -        

Options written

     216,876          216,876          -              -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 24,772,279          $ 24,772,279          $                 -              $                 -        
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2019    

   Total      Level 1      Level 2      Level 3  

Assets

           

Futures

     $ 55,074,542          $ 55,074,542          $                 -              $                 -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     $ 55,074,542          $ 55,074,542          $ -              $ -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Futures

     $ 56,833,090          $ 56,833,090          $ -              $ -        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     $ 56,833,090          $ 56,833,090          $                 -              $                 -        
  

 

 

    

 

 

    

 

 

    

 

 

 

 

6.

Investment in the Funds:

On November 1, 2004, the assets allocated to Winton for trading were invested in Winton Master, a limited partnership organized under the partnership laws of the State of New York. Winton Master permits accounts managed by Winton using the Diversified Macro Strategies (formerly, the “Winton Futures Program”), a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Winton Master. Individual and pooled accounts currently managed by Winton, including the Partnership, are permitted to be limited partners of Winton Master. The General Partner and Winton believe that trading through this structure promotes efficiency and economy in the trading process. The General Partner and Winton have agreed that Winton will trade the Partnership’s assets allocated to Winton at a level that is up to 1.5 times the amount of assets allocated. The amount of leverage may be increased or decreased in the future.

On June 1, 2011, the Partnership allocated a portion of its assets to Transtrend Master, a limited liability company organized under the limited liability company laws of the State of Delaware. Transtrend Master permits accounts managed by Transtrend using the Diversified Trend Program-Enhanced Risk Profile (US Dollar), a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the Trading Manager of Transtrend Master. Individual and pooled accounts managed by Transtrend, including the Partnership, are permitted to be members of Transtrend Master. The Trading Manager and Transtrend believe that trading through this structure promotes efficiency and economy in the trading process.

On February 1, 2018, the assets allocated to FORT for trading were invested in FORT Contrarian Master, a limited liability company organized under the limited liability company laws of the State of Delaware. FORT Contrarian Master permits accounts managed by FORT using its Global Contrarian Trading Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the Trading Manager of FORT Contrarian Master. Individual and pooled accounts currently managed by FORT, including the Partnership, are permitted to be members of FORT Contrarian Master. The Trading Manager and FORT believe that trading through this structure promotes efficiency and economy in the trading process. The Trading Manager and FORT have agreed that FORT will trade the Partnership’s assets allocated to FORT at a level that is up to 1.25 times the amount of the assets allocated. The amount of leverage may be increased or decreased in the future.

On April 1, 2019, the assets allocated to Northlander for trading were invested in NL Master, a limited liability company organized under the limited liability company laws of the State of Delaware. NL Master permits accounts managed by Northlander using the Northlander Commodity Program, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the Trading Manager of NL Master. Individual and pooled accounts currently managed by Northlander, including the Partnership, are permitted to be members of NL Master. The Trading Manager and Northlander believe that trading through this structure promotes efficiency and economy in the trading process.

 

16


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

On August 1, 2014, the assets allocated to Willowbridge for trading were invested in Willowbridge Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership fully redeemed its investment in Willowbridge Master on January 31, 2019.

The General Partner is not aware of any material changes to any of the trading programs discussed above or in Note 1, “Organization” during the fiscal quarter ended March 31, 2020.

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

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

Management fees, ongoing selling agent fees, the General Partner fee and incentive fees are charged at the Partnership level, except for management and incentive fees payable to Transtrend, which are charged at the Transtrend Master level. Clearing fees are borne by the Funds and allocated to the Funds’ limited partners/members, including the Partnership. Clearing fees are also borne by the Partnership directly. Professional fees are borne by the Funds and allocated to the Partnership and are also charged directly at the Partnership level.

As of March 31, 2020, the Partnership owned approximately 29.6% of Winton Master, 100.0% of Transtrend Master, 94.6% of FORT Contrarian Master and 81.6% of NL Master. At December 31, 2019, the Partnership owned approximately 37.5% of Winton Master, 100.0% of Transtrend Master, 89.1% of FORT Contrarian Master and 79.6% of NL Master. It is the Partnership’s intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to limited partners as a result of investment in the Funds are approximately the same as they would be if the Partnership traded directly and redemption rights are not affected.

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

 

     March 31, 2020  
         Total Assets              Total Liabilities              Total Capital      

Winton Master

     $   169,049,467          $ 27,813,807          $   141,235,660    

Transtrend Master

     84,540,700          297,971          84,242,729    

FORT Contrarian Master

     124,920,459          469,327          124,451,132    

NL Master

     22,692,778          858,566          21,834,212    
     December 31, 2019  
         Total Assets              Total Liabilities              Total Capital      

Winton Master

     $   214,355,792          $ 8,953,183          $   205,402,609    

Transtrend Master

     127,400,612          7,792,364          119,608,248    

FORT Contrarian Master

     135,604,970          4,607,083          130,997,887    

NL Master

     22,919,671          1,217,801          21,701,870    

 

17


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

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

 

     For the three months ended March 31, 2020  
         Net Investment    
Income (Loss)
         Total Trading    
Results
         Net Income    
(Loss)
 

Winton Master

     $             387,606          $ (23,953,788)         $ (23,566,182)   

Transtrend Master

     (261,094)         (3,266,814)         (3,527,908)   

FORT Contrarian Master

     168,677          (5,653,909)         (5,485,232)   

NL Master

     12,428                          752,782                          765,210    
     For the three months ended March 31, 2019  
         Net Investment    
Income (Loss)
         Total Trading    
Results
         Net Income    
(Loss)
 

Winton Master

     $ 1,665,854          $ 3,237,333          $ 4,903,187    

Transtrend Master

     104,673          6,864,507          6,969,180    

Willowbridge Master (a)

     220,431          (759,939)         (539,508)   

FORT Contrarian Master

     803,870          19,700,082          20,503,952    

 

  (a)

From January 1, 2019 through January 31, 2019, the date Willowbridge Master terminated operations.

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

 

     March 31, 2020      For the three months ended March 31, 2020                

            Funds             

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

Winton Master

     9.38  %        $ 41,856,909          $ (8,370,730)         $ 42,551          $ 7,687          $ -             $ -              $ (8,420,968)         Commodity Portfolio        Monthly  

Transtrend Master

     18.88  %        84,242,729          (3,033,914)         259,821          17,000          217,175          -              (3,527,910)         Commodity Portfolio        Monthly  

FORT Contrarian Master

     26.40  %        117,835,250          (5,002,992)        152,428          16,040          -             -              (5,171,460)         Commodity Portfolio        Monthly  

NL Master

     3.99  %        17,812,197          662,560          21,564          12,843          -             -              628,153          Commodity Portfolio        Monthly  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

        $   261,747,085          $   (15,745,076)        $   476,364          $ 53,570          $ 217,175          $             -              $   (16,492,185)        
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       
     December 31, 2019      For the three months ended March 31, 2019                

            Funds             

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

Winton Master

     15.96  %        $ 77,128,248          $ 2,095,051          $ 39,611          $ 6,999          $ -             $ -              $ 2,048,441          Commodity Portfolio        Monthly  

Transtrend Master

     24.75  %        119,608,248          7,408,689          210,102          -             303,052          -              6,895,535          Commodity Portfolio        Monthly  

Willowbridge Master (a)

     -      %        -             (394,257)         84,076          5,077          -             -              (483,410)         Commodity Portfolio        Monthly  

FORT Contrarian Master

     24.19  %        116,899,563          17,912,694          102,244          14,770          -             -              17,795,680          Commodity Portfolio        Monthly  

NL Master (b)

     3.58  %        17,300,752          -             -             -             -             -              -              Commodity Portfolio        Monthly  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

Total

        $ 330,936,811          $   27,022,177          $   436,033          $ 26,846          $ 303,052          $ -              $   26,256,246          
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

       

 

  (a)

From January 1, 2019 through January 31, 2019, the date the Partnership fully redeemed its investment in Willowbridge Master.

  (b)

The Partnership invested into NL Master on April 1, 2019.

 

18


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

7.

Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are parties to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options, and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 2.1% to 6.5% of the Partnership’s/Funds’ contracts are traded OTC.

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

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

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

 

19


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

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

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

Futures-Style Options. The Funds may trade futures-style option contracts. Unlike traditional option contracts, the premiums for futures-style option contracts are not received or paid upon the onset of the trade. The premiums are recognized and received or paid as part of the sales price when the contract is closed. Similar to a futures contract, variation margin for the futures-style option contract may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. Transactions in futures-style option contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Futures-style option contracts are presented as part of “Net unrealized appreciation on open futures contracts” or “Net unrealized depreciation on open futures contracts,” as applicable, in the Funds’ Statements of Financial Condition. Net realized gains (losses) and net change in unrealized gains (losses) on futures-style option contracts are included in the Funds’ Statements of Income and Expenses.

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

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

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

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

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

 

20


Ceres Orion L.P.

Notes to Financial Statements

(Unaudited)

 

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

 

8.

Subsequent Events:

The General Partner evaluates events that occur after the balance sheet date but before and up until financial statements are 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.

 

21


Item 2.

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

Liquidity and Capital Resources

The Partnership does not have, nor does it expect to have, any capital assets. The Partnership does not engage in sales of goods or services. Its assets are its (i) investment in the Funds, (ii) redemptions receivable from the Funds, (iii) its equity in trading account, consisting of unrestricted cash, restricted cash, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts, options purchased at fair value and investment in U.S. Treasury bills at fair value, if applicable and (iv) interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investment in the Funds and direct investments. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the first quarter of 2020.

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

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

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

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

For the three months ended March 31, 2020, the Partnership’s capital decreased 7.7% from $483,271,251 to $446,294,357. This decrease was attributable to redemptions of 11,448.3980 Class A limited partner Redeemable Units totaling $31,128,679, redemptions of 139.1350 Class Z limited partner Redeemable Units totaling $151,965 and a net loss of $6,860,547, which was partially offset by subscriptions of 425.2450 Class A limited partner Redeemable Units totaling $1,164,297. Future redemptions can impact the amount of funds available for investment in subsequent periods.

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

Off-Balance Sheet Arrangements and Contractual Obligations

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

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting periods. The General Partner believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Financial Statements.

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

 

22


Results of Operations

During the Partnership’s first quarter of 2020, the net asset value per Redeemable Unit for Class A decreased 1.5% from $2,728.91 to $2,688.15, as compared to an increase of 4.1% in the first quarter of 2019. During the Partnership’s first quarter of 2020, the net asset value per Redeemable Unit for Class Z decreased 1.2% from $1,106.01 to $1,092.21, as compared to an increase of 4.8% in the first quarter of 2019. The Partnership experienced a net trading gain before fees and expenses in the first quarter of 2020 of $1,251,725. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, U.S. and non-U.S. interest rates and metals and were partially offset by losses in currencies, grains, livestock, softs and indices. The Partnership experienced a net trading gain before fees and expenses in the first quarter of 2019 of $28,518,756. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, grains, non-U.S. interest rates, softs and indices and were partially offset by losses in energy, U.S. interest rates, livestock and metals.

During the first quarter, the most notable losses were incurred within the global stock index sector during February from long positions in U.S., European, and Asian equity index futures as stock prices reversed dramatically lower late in the month as the COVID-19 coronavirus threatened global economic stability. Losses in the currency sector were primarily incurred from long positions in the Mexican peso during February and March as the value of the Mexican currency slumped against the U.S. dollar. Additional currency losses were recorded during March from short positions in the euro and Japanese yen versus the U.S. dollar as the dollar weakened as the coronavirus spread throughout U.S. and quarantine measures shut down economic activity. In the agricultural sector, losses were incurred from positions in livestock futures during January and from grains and soft commodities during March. The Partnership’s overall trading losses for the quarter were partially offset by trading gains achieved during January and February from long positions in global fixed income futures as bond prices rallied on safe-haven demand as COVID-19 grew into a global pandemic. Additional gains were recorded within the energy sector during each month of the quarter from short positions in natural gas and European electricity futures as the growing economic slowdown limited demand for power and electricity production. Further gains in the energies were experienced during March from short positions in crude oil futures as prices plummeted as demand for oil cratered. The most significant gains in the metals sector were achieved during January and February from long positions in palladium futures as tightening supplies and increased demand for precious metals boosted prices.

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

Interest income is earned on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of FORT Contrarian Master’s, Winton Master’s, NL Master’s or, prior to its termination, Willowbridge Master’s) brokerage account during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. will pay monthly interest to Transtrend Master on 100% of the average daily equity maintained in cash in Transtrend Master’s brokerage account during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month but in no event less than zero. When the effective rate is less than zero, no interest is earned. For the avoidance of doubt, the Partnership/Funds will not receive interest on amounts in the futures brokerage account that are committed to margin. Any interest earned on the Partnership’s and/or each Fund’s 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 mutual fund securities will be retained by the Partnership and/or the Funds, as applicable. Any interest income earned on collateral or excess cash deposited by certain of the Funds and held by JPMorgan in its capacity as such Funds’ forward foreign currency counterparty will be retained by such Funds, and the Partnership will receive its allocable portion of such interest from the applicable Fund. Interest income earned by the Partnership for the three months ended March 31, 2020 decreased by $1,751,234 as compared to the corresponding period in 2019. The decrease in interest income was primarily due to lower 4-week U.S. Treasury bill discount rates along with lower average daily equity during the three months ended March 31, 2020 as compared to the corresponding period in 2019. 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 and/or the Funds’ accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds, MS&Co. or JPMorgan has control.

Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees related to direct investments for the three months ended March 31, 2020 increased by $557,653 as compared to the corresponding period in 2019. The increase in these clearing fees was primarily due to an increase in the number of direct trades made by the Partnership during the three months ended March 31, 2020 as compared to the corresponding period in 2019.

 

23


Ongoing selling agent fees are based on the number of trades executed by the Advisors and the adjusted month-end net assets calculated monthly. Accordingly, they must be compared in relation to the number of trades executed during the period as well as the fluctuations in the monthly net asset values. Ongoing selling agent fees for the three months ended March 31, 2020 decreased by $2,867,348 as compared to the corresponding period in 2019. The decrease in ongoing selling agent fees was primarily due to lower average adjusted net assets during the three months ended March 31, 2020 as compared to the corresponding period in 2019.

Management fees, except fees payable to Transtrend, are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees payable to Transtrend are charged at the Transtrend Master level and are affected by trading performance, subscriptions and redemptions of Transtrend Master. Management fees for the three months ended March 31, 2020 decreased by $300,980 as compared to the corresponding period in 2019. The decrease in management fees was due to lower average adjusted net assets during the three months ended March 31, 2020 as compared to the corresponding period in 2019.

Fees are paid to the General Partner for administering the business and affairs of the Partnership including, among other things, (i) selecting, appointing and terminating the Partnership’s commodity trading advisors, (ii) allocating and reallocating the Partnership’s assets among the commodity trading advisors and (iii) monitoring the activities of the commodity trading advisors. These fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. The General Partner fees for the three months ended March 31, 2020 decreased by $196,414 as compared to the corresponding period in 2019. The decrease in the General Partner fees was due to lower average adjusted net assets during the three months ended March 31, 2020 as compared to the corresponding period in 2019.

Incentive fees paid by the Partnership are based on the new trading profits, as defined in the respective management agreements among the Partnership, the General Partner/Trading Manager and each Advisor, generated by each Advisor at the end of the quarter, calendar half year or annually, as applicable. Trading performance for the three months ended March 31, 2020 resulted in incentive fees of $3,310,643. Trading performance for the three months ended March 31, 2019 resulted in incentive fees of $311,667. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid an incentive fee until such Advisor recovers any net loss incurred by the Advisor and earns additional new trading profits for the Partnership.

 

24


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

As of March 31, 2020 and December 31, 2019, the Partnership’s assets were allocated among the Advisors in the following approximate percentages:

 

          March 31, 2020           December 31, 2019  

Advisor

  March 31, 2020     (percentage of Partners’ Capital)     December 31, 2019     (percentage of Partners’ Capital)  

Winton

    $ 42,051,107       9       $ 77,281,764       16  

Transtrend

    $ 84,075,361       19       $       119,235,436       25  

FORT

    $       117,804,070       26       $ 116,747,127       24  

Northlander

    $ 17,776,648       4       $ 17,267,827       3  

JSCL

    $ 160,008,420       36       $ 152,739,097       32  

Pan

    $ 24,578,751       6       $ -           0  

For additional disclosures about operational and financial risk related to the COVID-19 outbreak, refer to Part II, Item 5. “Other Information.” in this Form 10-Q.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

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

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

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

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

Quantifying the Partnership’s and the Funds’ Trading Value at Risk

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

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

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

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

 

25


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

Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors, with the exceptions of Pan and JSCL, currently trade the Partnership’s assets indirectly in master fund managed accounts established in the name of the master funds over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly and through its investment in the Funds, as applicable. The remaining trading Value at Risk tables reflect the market sensitive instruments held by the Partnership (i.e. in the managed accounts in the Partnership’s name traded by Pan and JSCL) and indirectly by each Fund separately. 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, 2019.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of March 31, 2020 and December 31, 2019. As of March 31, 2020, the Partnership’s total capitalization was $446,294,357.

March 31, 2020

Market Sector

       Value at Risk        % of Total
    Capitalization    
 

Currencies

     $ 5,361,496        1.20  

Energy

     5,357,190        1.20    

Grains

     3,422,751        0.77    

Indices

     2,137,677        0.48    

Interest Rates U.S.

     2,355,950        0.53    

Interest Rates Non-U.S.

     3,400,538        0.76    

Livestock

     824,332        0.18    

Metals

     3,150,627        0.71    

Softs

     2,071,007        0.46    
  

 

 

 

  

 

 

 

Total

     $ 28,081,568        6.29  
  

 

 

 

  

 

 

 

As of December 31, 2019, the Partnership’s total capitalization was $483,271,251.

December 31, 2019

Market Sector

       Value at Risk        % of Total
    Capitalization    
 

Currencies

     $ 28,217,447        5.84  

Energy

     18,863,752        3.90    

Grains

     6,262,164        1.30    

Indices

     19,374,433        4.01    

Interest Rates U.S.

     2,253,655        0.47    

Interest Rates Non-U.S.

     9,441,736        1.95    

Livestock

     5,616,993        1.16    

Metals

     8,472,705        1.75    

Softs

     5,768,321        1.19    
  

 

 

 

  

 

 

 

Total

     $ 104,271,206        21.57  
  

 

 

 

  

 

 

 

 

26


The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investments in the Funds by market category as of March 31, 2020 and December 31, 2019, and the highest, lowest and average values during the three months ended March 31, 2020 and the twelve months ended December 31, 2019, as applicable. All open position trading risk exposures have been included in calculating the figures set forth below.

At March 31, 2020, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:

March 31, 2020

 

                Three Months Ended March 31, 2020

Market Sector

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

Currencies

     $ 822,970        0.18       $ 5,269,055        $ 629,154        $ 2,866,351  

Energy

         2,376,350        0.53             13,521,727            1,816,854            7,972,561  

Grains

     1,329,628        0.30         5,718,941        720,538        4,019,778  

Indices

     92,887        0.02         5,337,893        92,887        2,369,727  

Interest Rates U.S.

     400,479        0.09         1,847,494        214,773        629,647  

Interest Rates Non-U.S.

     1,105,528        0.25         5,445,035        771,101        3,553,182  

Livestock

     415,152        0.09         5,084,118        240,768        3,262,072  

Metals

     598,164        0.13         3,826,774        376,349        2,672,738  

Softs

     1,033,614        0.23         7,007,411        782,412        4,154,193  
  

 

 

 

  

 

 

         

Total

     $ 8,174,772        1.82          
  

 

 

 

  

 

 

         

 

*

Average of daily Values at Risk.

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

December 31, 2019

                Twelve Months Ended December 31, 2019

Market Sector

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

Currencies

     $ 4,680,743        0.97       $ 5,947,865        $     -            $ 2,171,804  

Energy

         12,815,021        2.65             13,404,797        -                5,181,347  

Grains

     4,597,504        0.95         5,590,035        -            3,418,974  

Indices

     5,337,893        1.10         5,849,125        -            2,414,024  

Interest Rates U.S.

     247,619        0.05         1,757,302        -            496,515  

Interest Rates Non-U.S.

     3,231,477        0.67         4,230,099        -            2,777,700  

Livestock

     4,643,018        0.96         5,427,760        -            2,761,491  

Metals

     3,080,627        0.64         4,198,623        -            2,531,668  

Softs

     4,741,702        0.98         7,901,433        -            4,022,608  
  

 

 

 

  

 

 

         

Total

     $ 43,375,604        8.97          
  

 

 

 

  

 

 

         

 

*

Annual average of daily Values at Risk.

 

27


At March 31, 2020, Winton Master’s total capitalization was $141,235,660 and the Partnership owned approximately 29.6% of Winton Master. As of March 31, 2020, Winton Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Winton for trading) was as follows:

March 31, 2020

                Three Months Ended March 31, 2020

Market Sector

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

Currencies

     $ 4,919,490        3.48       $     10,239,542        $     4,919,490        $     9,173,749  

Energy

     1,437,369        1.02         3,921,525        915,394        2,282,381  

Grains

     821,255        0.58         2,185,506        821,255        1,429,738  

Indices

     1,456,247        1.03         6,100,469        1,184,188        4,876,376  

Interest Rates U.S.

     654,124        0.46         1,369,793        458,802        655,083  

Interest Rates Non-U.S.

     1,290,556        0.91         1,636,767        732,829        997,094  

Livestock

     556,435        0.39         622,655        83,525        242,701  

Metals

     3,258,689        2.31         7,122,912        3,251,083        4,885,337  

Softs

     937,584        0.66         1,859,318        937,584        1,394,842  
  

 

 

 

  

 

 

         

Total

     $     15,331,749        10.84          
  

 

 

 

  

 

 

         

 

*

Average of daily Values at Risk.

At December 31, 2019, Winton Master’s total capitalization was $205,402,609 and the Partnership owned approximately 37.5% of Winton Master. As of December 31, 2019, Winton Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Winton for trading) was as follows:

December 31, 2019

 

                Twelve Months Ended December 31, 2019

Market Sector

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

Currencies

     $ 9,324,535        4.54       $     17,755,291        $     6,924,526        $     11,639,472  

Energy

     3,872,631        1.89         8,028,684        844,457        2,885,712  

Grains

     1,026,719        0.50         2,784,536        806,781        1,922,603  

Indices

     5,491,437        2.67         5,495,849        1,577,678        3,665,077  

Interest Rates U.S.

     704,863        0.34         2,802,566        206,946        1,265,762  

Interest Rates Non-U.S.

     1,182,887        0.58         4,488,052        1,182,887        2,923,742  

Livestock

     133,485        0.06         772,200        133,485        370,259  

Metals

     7,122,912        3.47         7,898,365        2,150,346        5,662,617  

Softs

     1,148,240        0.56         3,145,874        1,148,240        2,323,227  
  

 

 

 

  

 

 

         

Total

     $     30,007,709        14.61          
  

 

 

 

  

 

 

         

 

*

Annual average of daily Values at Risk.

 

28


At March 31, 2020, Transtrend Master’s total capitalization was $84,242,729 and the Partnership owned 100.0% of Transtrend Master. As of March 31, 2020, Transtrend Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Transtrend for trading) was as follows:

March 31, 2020

 

                  Three Months Ended March 31, 2020  

Market Sector                                        

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

Currencies

     $ 2,634,803          3.13       $     19,590,628        $     2,199,776        $     12,284,988  

Energy

     2,082,072          2.47         4,454,924        1,594,816        2,752,871  

Grains

     1,850,032          2.20         2,151,454        1,045,499        1,529,159  

Indices

     977,538          1.16         8,833,776        651,665        5,051,483  

Interest Rates U.S.

     1,343,929          1.60         1,527,282        362,411        949,018  

Interest Rates Non-U.S.

     1,413,601          1.68         3,016,608        1,201,711        2,075,838  

Livestock

     244,475          0.29         1,129,893        181,803        497,079  

Metals

     1,560,180          1.85         4,082,966        1,242,232        2,660,666  

Softs

     759,868          0.90         2,551,738        596,029        1,412,473  
  

 

 

    

 

 

         

Total

     $     12,866,498          15.28          
  

 

 

    

 

 

         

 

*

Average of daily Values at Risk.

At December 31, 2019, Transtrend Master’s total capitalization was $119,608,248 and the Partnership owned 100.0% of Transtrend Master. As of December 31, 2019, Transtrend Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Transtrend for trading) was as follows:

December 31, 2019

 

                  Twelve Months Ended December 31, 2019  

Market Sector                                        

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

Currencies

     $ 18,897,226          15.80       $     21,619,324        $     9,959,685        $     15,164,924  

Energy

     3,684,400          3.08         4,334,582        334,412        2,178,127  

Grains

     1,279,640          1.07         3,098,543        472,056        2,097,606  

Indices

     7,727,693          6.46         9,096,028        922,308        5,676,852  

Interest Rates U.S.

     1,173,414          0.98         2,795,260        141,476        1,119,389  

Interest Rates Non-U.S.

     2,083,191          1.74         8,018,127        1,497,382        5,375,818  

Livestock

     923,918          0.77         1,218,635        93,913        640,024  

Metals

     2,664,620          2.23         5,493,816        1,602,890        3,104,503  

Softs

     596,029          0.50         4,099,840        411,629        2,433,000  
  

 

 

    

 

 

         

Total

     $     39,030,131          32.63          
  

 

 

    

 

 

         

 

*

Annual average of daily Values at Risk.

 

29


At March 31, 2020, FORT Contrarian Master’s total capitalization was $124,451,132 and the Partnership owned approximately 94.6% of FORT Contrarian Master. As of March 31, 2020, FORT Contrarian Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to FORT for trading) was as follows:

March 31, 2020

 

                  Three Months Ended March 31, 2020  

Market Sector                                        

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

Currencies

     $ 473,101          0.38       $     1,988,707        $     202,069        $     1,130,891  

Energy

     289,676          0.23         1,165,186        176,252        663,564  

Indices

     672,519          0.54         5,798,597        672,519        3,856,535  

Interest Rates U.S.

     441,777          0.35         1,702,197        145,815        601,868  

Interest Rates Non-U.S.

     527,912          0.42         4,211,112        495,790        2,662,226  

Metals

     29,293          0.02         257,510        22,902        97,293  
  

 

 

    

 

 

         

Total

     $     2,434,278          1.94          
  

 

 

    

 

 

         

 

*

Average of daily Values at Risk.

At December 31, 2019, FORT Contrarian Master’s total capitalization was $130,997,887 and the Partnership owned approximately 89.1% of FORT Contrarian Master. As of December 31, 2019, FORT Contrarian Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to FORT for trading) was as follows:

December 31, 2019

 

                  Twelve Months Ended December 31, 2019  

Market Sector                                        

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

Currencies

     $ 1,282,578          0.98       $     2,722,342        $     1,167,105        $     2,059,679  

Energy

     664,515          0.51         720,189        126,587        398,717  

Indices

     4,769,426          3.64         7,273,188        1,484,652        5,206,475  

Interest Rates U.S.

     637,821          0.49         1,460,401        135,327        740,400  

Interest Rates Non-U.S.

     4,134,103          3.16         5,684,725        2,270,618        4,110,318  

Metals

     63,261          0.05         301,202        8,118        118,888  
  

 

 

    

 

 

         

Total

     $     11,551,704          8.83          
  

 

 

    

 

 

         

 

*

Annual average of daily Values at Risk.

 

30


At March 31, 2020, NL Master’s total capitalization was $21,834,212 and the Partnership owned approximately 81.6% of NL Master. As of March 31, 2020, NL Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Northlander for trading) was as follows:

March 31, 2020

 

Market Sector                                        

   Value at Risk      % of Total
Capitalization
    Three Months Ended March 31, 2020  
  High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk*
 

Energy

     $     244,207                      1.12       $         777,669          $         74,383          $         371,772    
  

 

 

    

 

 

         

Total

     $ 244,207          1.12          
  

 

 

    

 

 

         

 

*

Average of daily Values at Risk.

At December 31, 2019, NL Master’s total capitalization was $21,701,870 and the Partnership owned approximately 79.6% of NL Master. As of December 31, 2019, NL Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Northlander for trading) was as follows:

December 31, 2019

 

Market Sector                                        

   Value at Risk      % of Total
Capitalization
    Twelve Months Ended December 31, 2019*  
  High
Value at Risk
     Low
Value at Risk
     Average
Value at Risk**
 

Energy

     $     402,025                      1.85       $         1,612,667          $               -            $         556,623    
  

 

 

    

 

 

         

Total

     $ 402,025          1.85          
  

 

 

    

 

 

         

 

*

From April 1, 2019, commencement of operations for NL Master, through December 31, 2019.

**

Annual average of daily Values at Risk.

 

31


Item 4.    Controls

and Procedures.

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2020 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 the financial reporting process during the fiscal quarter ended March 31, 2020, that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

32


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 2019, 2018, 2017, 2016, 2015, 2014 and 2013. In addition, MS&Co. annually prepares an Audited, Consolidated Statement of Financial Condition (“Audited Financial Statement”) that is publicly available on Morgan Stanley’s website at www.morganstanley.com. We refer you to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2019 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.

 

33


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 of 1933, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SEC’s findings.

On April 21, 2015, the Chicago Board Options Exchange, Incorporated (CBOE) and the CBOE Futures Exchange, LLC (CFE) filed statements of charges against MS&Co. in connection with trading by one of MS&Co.’s former traders of EEM options contracts that allegedly disrupted the final settlement price of the November 2012 VXEM futures. CBOE alleged that MS&Co. violated CBOE Rules 4.1, 4.2 and 4.7, Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. CFE alleged that MS&Co. violated CFE Rules 608, 609 and 620. The matters were resolved on July 12, 2016 and June 28, 2016, respectively, without any findings of fraud.

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

On August 6, 2015, MS&Co. consented to and became the subject of an order by the CFTC to resolve allegations that MS&Co. violated CFTC Regulation 22.9(a) by failing to hold sufficient 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, 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.

 

34


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 (“CDS”) 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 CDS 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 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 spoliation of evidence. 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. 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. On December 5, 2019, the Appellate Division, First Department (“First Department”) heard the parties’ cross-appeals. 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.

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

 

35


Loan Bank of Chicago v. Bank of America Funding Corporation et al. A corrected amended complaint was filed on April 8, 2011, which alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans and asserts claims under Illinois law. The total amount of certificates allegedly sold to plaintiff by MS&Co. at issue in the action was approximately $203 million. The complaint seeks, among other things, to rescind the plaintiff’s purchase of such certificates. The defendants filed a motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. On January 18, 2017, the court entered an order dismissing all claims related to an additional securitization at issue. After those dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $65 million. At December 25, 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 First Department affirmed the trial court’s decision denying in part MS&Co.’s motion to dismiss the complaint. At December 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 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

 

36


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 raises 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. Deutsche Bank Securities Inc. et al. An amended complaint, filed on June 10, 2010, alleged that defendants made untrue statements and material omissions in connection with the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $276 million. The complaint raises 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

 

37


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 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 raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On January 8, 2016, the parties reached an agreement to settle the litigation.

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

 

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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 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 alleged 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 sought treble damages, civil penalties, disgorgement, and injunctive relief. On April 24, 2019, the parties reached an agreement to settle the litigation.

 

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

 

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Item lA.

Risk Factors.

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

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

For the three months ended March 31, 2020, there were subscriptions of 425.2450 Class A Redeemable Units totaling $1,164,297. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and Section 506 of Regulation D promulgated thereunder. These Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

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

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

 

Period Class A
(a) Total Number of
Redeemable
Units  Purchased*
Class A
(b) Average
Price Paid per
Redeemable
Unit**
Class Z
(a) Total Number of
Redeemable Units
Purchased*
Class Z
(b) Average
Price Paid per
Redeemable
Unit**

(c) Total Number of
Redeemable
Units Purchased
as Part of

Publicly

Announced

Plans or Programs

(d) Maximum Number
(or Approximate
Dollar Value)  of
Redeemable Units
that May Yet Be
Purchased Under the
Plans or Programs

January 1, 2020 - January 31, 2020

  2,989.4420 $         2,774.29   N/A   N/A   N/A   N/A

February 1, 2020 - February 29, 2020

  2,177.9890 $     2,732.30   N/A   N/A   N/A   N/A

March 1, 2020 - March 31, 2020

  6,280.9670 $     2,688.15   139.1350 $         1,092.21   N/A   N/A
  11,448.3980 $         2,719.04   139.1350 $         1,092.21

 

  *

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

 

  **

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

 

Item 3.

Defaults Upon Senior Securities. — None.

 

Item 4.

Mine Safety Disclosures. — Not Applicable.

 

Item 5.

Other Information.

Certain impacts to public health conditions particular to the coronavirus (COVID-19) outbreak that occurred subsequent to March 31, 2020 could impact the operations and financial performance of the Partnership investments. The extent of the impact to the financial performance of the Partnership investments will depend on future developments, including (i) the duration and spread of the outbreak, (ii) the restrictions and advisories, (iii) the effects on the financial markets, and (iv) the effects on the economy overall, all of which are highly uncertain and cannot be predicted. If the financial performance of the Partnership investments is impacted because of these factors for an extended period, the Partnership performance may be adversely affected.

 

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Item 6.

Exhibits.

 

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.

CERES ORION L.P.

 

By:

 

Ceres Managed Futures LLC

(General Partner)

By:

   /s/ Patrick T. Egan
 

Patrick T. Egan

President and Director

Date: May 11, 2020

By:

   /s/ Steven Ross
  Steven Ross
  Chief Financial Officer and Director
  (Principal Accounting Officer)

Date: May 11, 2020

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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