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, 2022
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
NoIndicate 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
NoIndicate 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 Rule12b-2
of the Exchange Act.Large accelerated filer | Accelerated filer | Non-accelerated filerX | ||
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, 2022, 108,988.3938 Limited Partnership Class A Redeemable Units were outstanding and 3,158.6812 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, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Investment in the Funds (1) | $ | 112,913,481 | $ | 87,850,946 | ||||
Redemptions receivable from the Funds | 193,777 | 4,643,766 | ||||||
Equity in trading account: | ||||||||
Unrestricted cash | 233,958,999 | 255,092,796 | ||||||
Restricted cash | 21,429,618 | 17,796,571 | ||||||
Net unrealized appreciation on open futures contracts | 22,710,723 | 0 | ||||||
Options purchased, at fair value (premiums paid $6,852,840 and $6,040,660 at March 31, 2022 and December 31, 2021, respectively) | 30,477,205 | 13,241,142 | ||||||
Total equity in trading account | 308,576,545 | 286,130,509 | ||||||
Interest receivable | 35,294 | 8,159 | ||||||
Total assets | $ | 421,719,097 | $ | 378,633,380 | ||||
Liabilities and Partners’ Capital: | ||||||||
Liabilities: | ||||||||
Net unrealized depreciation on open futures contracts | $ | - | $ | 1,400,643 | ||||
Options written, at fair value (premiums received $6,407,420 and $5,733,790 at March 31, 2022 and December 31, 2021, respectively) | 16,416,517 | 6,649,119 | ||||||
Accrued expenses: | ||||||||
Ongoing selling agent fees | 248,009 | 225,873 | ||||||
Management fees | 242,947 | 237,202 | ||||||
General Partner fees | 252,909 | 231,254 | ||||||
Incentive fees | 5,207,849 | 5,219,344 | ||||||
Professional fees | 399,565 | 351,627 | ||||||
Redemptions payable to General Partner | - | 350,001 | ||||||
Redemptions payable to Limited Partners | 1,000,800 | 2,110,287 | ||||||
Total liabilities | 23,768,596 | 16,775,350 | ||||||
Partners’ Capital: | ||||||||
General Partner, Class Z, 3,070.7533 Redeemable Units outstanding at March 31, 2022 and December 31, 2021 | 4,557,209 | 4,078,652 | ||||||
Limited Partners, Class A, 108,554.2008 and 109,712.3338 Redeemable Units outstanding at March 31, 2022 and December 31, 2021, respectively | 389,705,594 | 353,170,511 | ||||||
Limited Partners, Class Z, 2,484.8582 and 3,469.9432 Redeemable Units outstanding at March 31, 2022 and December 31, 2021, respectively | 3,687,698 | 4,608,867 | ||||||
Total partners’ capital (net asset value) | 397,950,501 | 361,858,030 | ||||||
Total liabilities and partners’ capital | $ | 421,719,097 | $ | 378,633,380 | ||||
Net asset value per Redeemable Unit: | ||||||||
Class A | $ | 3,589.96 | $ | 3,219.06 | ||||
Class Z | $ | 1,484.07 | $ | 1,328.23 | ||||
(1)
Defined in Note 1.
See accompanying notes to financial statements.
1
Ceres Orion L.P.
Condensed Schedule of Investments
March 31, 2022
(Unaudited)
Number of Contracts | Fair Value | % of Partners’ Capital | ||||||||||
Futures Contracts Purchased | ||||||||||||
Currencies | 710 | $ | 440,770 | 0.11 | % | |||||||
Energy | ||||||||||||
GLOBEX NAT GAS LD DEC23 | 281 | 4,639,900 | 1.17 | |||||||||
NAT GAS LAST DAY Dec22 | 324 | 10,461,020 | 2.63 | |||||||||
NATURAL GAS FUTR Dec22 | 2,563 | 21,224,825 | 5.33 | |||||||||
NATURAL GAS FUTR DEC23 | 1,626 | 5,187,490 | 1.30 | |||||||||
NATURAL GAS FUTR Nov22 | 2,193 | 16,648,048 | 4.18 | |||||||||
NATURAL GAS FUTR Nov23 | 2,965 | 6,859,173 | 1.72 | |||||||||
Other | 5,938 | 23,170,238 | 5.84 | |||||||||
Grains | 1,013 | 1,154,771 | 0.29 | |||||||||
Indices | 442 | 1,477,469 | 0.37 | |||||||||
Interest Rates U.S. | 36 | (37,993) | (0.01) | |||||||||
Interest Rates Non-U.S. | 24 | (24,233) | (0.01) | |||||||||
Livestock | 309 | (42,323) | (0.01) | |||||||||
Metals | 641 | 939,931 | 0.24 | |||||||||
Softs | 931 | 757,218 | 0.19 | |||||||||
Total futures contracts purchased | 92,856,304 | 23.34 | ||||||||||
Futures Contracts Sold | ||||||||||||
Currencies | 558 | 291,274 | 0.07 | |||||||||
Energy | ||||||||||||
NATURAL GAS FUTR May22 | 1,969 | (11,357,483) | (2.85) | |||||||||
NATURAL GAS FUTR Oct22 | 896 | (6,481,975) | (1.63) | |||||||||
NATURAL GAS FUTR APR23 | 2,275 | (4,450,083) | (1.12) | |||||||||
NATURAL GAS FUTR JUL22 | 658 | (7,544,920) | (1.90) | |||||||||
NATURAL GAS FUTR SEP22 | 1,315 | (10,132,620) | (2.55) | |||||||||
Other | 11,634 | (30,533,892) | (7.67) | |||||||||
Grains | 368 | 154,773 | 0.04 | |||||||||
Indices | 912 | (1,003,407) | (0.25) | |||||||||
Interest Rates U.S. | 530 | 787,054 | 0.20 | |||||||||
Interest Rates Non-U.S. | 2,187 | 1,428,337 | 0.36 | |||||||||
Livestock | 56 | 20,478 | 0.01 | |||||||||
Metals | 237 | (546,345) | (0.14) | |||||||||
Softs | 444 | (776,772) | (0.20) | |||||||||
Total futures contracts sold | (70,145,581) | (17.63) | ||||||||||
Net unrealized appreciation on open futures contracts | $ | 22,710,723 | 5.71 | % | ||||||||
Options Purchased | ||||||||||||
Calls | ||||||||||||
Energy | 2,297 | $ | 30,400,718 | 7.64 | % | |||||||
Puts | ||||||||||||
Energy | 980 | 76,487 | 0.02 | |||||||||
Total options purchased (premiums paid $6,852,840) | $ | 30,477,205 | 7.66 | % | ||||||||
Options Written | ||||||||||||
Calls | ||||||||||||
Energy | 1,828 | $ | (14,315,710) | (3.60) | % | |||||||
Puts | ||||||||||||
Energy | 2,510 | (2,100,807) | (0.53) | |||||||||
Total options written (premiums received $6,407,420) | $ | (16,416,517) | (4.13) | % | ||||||||
Investment in the Funds | ||||||||||||
CMF TT II, LLC | $ | 84,700,653 | 21.28 | % | ||||||||
CMF NL Master Fund LLC | 28,212,828 | 7.09 | ||||||||||
Total investment in the Funds | $ | 112,913,481 | 28.37 | % | ||||||||
See accompanying notes to financial statements.
2
Ceres Orion L.P.
Condensed Schedule of Investments
December 31, 2021
Number of Contracts | Fair Value | % of Partners’ Capital | ||||||||||
Futures Contracts Purchased | ||||||||||||
Currencies | 377 | $ | 184,170 | 0.05 | % | |||||||
Energy | ||||||||||||
NATURAL GAS FUTR DEC22 | 2,643 | 7,354,680 | 2.03 | |||||||||
NAT GAS LAST DAY Dec22 | 324 | 4,084,700 | 1.13 | |||||||||
NATURAL GAS FUTR Nov22 | 2,206 | 5,659,453 | 1.57 | |||||||||
Other | 9,415 | 6,445,494 | 1.78 | |||||||||
Grains | 1,031 | 11,298 | 0.00 | * | ||||||||
Indices | 801 | 111,957 | 0.03 | |||||||||
Interest Rates U.S. | 174 | 39,530 | 0.01 | |||||||||
Interest Rates Non-U.S. | 678 | (781,525) | (0.22) | |||||||||
Livestock | 137 | 116,515 | 0.03 | |||||||||
Metals | 534 | 897,934 | 0.25 | |||||||||
Softs | 1,030 | (327,420) | (0.09) | |||||||||
Total futures contracts purchased | 23,796,786 | 6.57 | ||||||||||
Futures Contracts Sold | ||||||||||||
Currencies | 594 | (270,449) | (0.07) | |||||||||
Energy | ||||||||||||
NAT GAS LAST DAY Mar22 | 699 | (7,601,640) | (2.10) | |||||||||
Other | 16,799 | (15,199,704) | (4.20) | |||||||||
Grains | 773 | (191,934) | (0.05) | |||||||||
Indices | 531 | (83,321) | (0.02) | |||||||||
Interest Rates U.S. | 207 | (195) | (0.00) | * | ||||||||
Interest Rates Non-U.S. | 276 | 13,356 | 0.00 | * | ||||||||
Livestock | 85 | (52,462) | (0.01) | |||||||||
Metals | 398 | (756,914) | (0.21) | |||||||||
Softs | 922 | (1,054,166) | (0.30) | |||||||||
Total futures contracts sold | (25,197,429) | (6.96) | ||||||||||
Net unrealized depreciation on open futures contracts | $ | (1,400,643) | (0.39) | % | ||||||||
Options Purchased | ||||||||||||
Calls | ||||||||||||
Energy | 1,985 | $ | 12,576,831 | 3.48 | % | |||||||
Puts | ||||||||||||
Energy | 1,206 | 664,311 | 0.18 | |||||||||
Total options purchased (premiums paid $6,040,660) | $ | 13,241,142 | 3.66 | % | ||||||||
Options Written | ||||||||||||
Calls | ||||||||||||
Energy | 1,510 | $ | (4,167,011) | (1.15) | % | |||||||
Puts | ||||||||||||
Energy | 2,437 | (2,482,108) | (0.69) | |||||||||
Total options written (premiums received $5,733,790) | $ | (6,649,119) | (1.84) | % | ||||||||
Investment in the Funds | ||||||||||||
CMF TT II, LLC | $ | 56,580,003 | 15.64 | % | ||||||||
CMF NL Master Fund LLC | 31,270,943 | 8.64 | ||||||||||
Total investment in the Funds | $ | 87,850,946 | 24.28 | % | ||||||||
| * | Due to rounding. |
See accompanying notes to financial statements.
3
Ceres Orion L.P.
Statements of Income and Expenses
(Unaudited)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Investment Income: | ||||||||
Interest income | $ | 49,397 | $ | 21,675 | ||||
Interest income allocated from the Funds | 5,199 | 7,105 | ||||||
Total investment income | 54,596 | 28,780 | ||||||
Expenses: | ||||||||
Expenses allocated from the Funds | 3,656,977 | 1,733,093 | ||||||
Clearing fees related to direct investments | 497,824 | 586,686 | ||||||
Ongoing selling agent fees | 705,114 | 658,207 | ||||||
Management fees | 709,213 | 756,934 | ||||||
General Partner fees | 719,720 | 673,537 | ||||||
Incentive fees | 5,207,849 | 2,568,765 | ||||||
Professional fees | 228,300 | 238,437 | ||||||
Total expenses | 11,724,997 | 7,215,659 | ||||||
Net investment loss | (11,670,401) | (7,186,879) | ||||||
Trading Results: | ||||||||
Net gains (losses) on trading of commodity interests and investment in the Funds: | ||||||||
Net realized gains (losses) on closed contracts | (4,364,287) | 10,432,023 | ||||||
Net realized gains (losses) on closed contracts allocated from the Funds | 17,127,965 | 14,835,965 | ||||||
Net change in unrealized gains (losses) on open contracts | 31,499,221 | 4,571,635 | ||||||
Net change in unrealized gains (losses) on open contracts allocated from the Funds | 8,780,222 | (4,727,995) | ||||||
Total trading results | 53,043,121 | 25,111,628 | ||||||
Net income (loss) | $ | 41,372,720 | $ | 17,924,749 | ||||
Net income (loss) per Redeemable Unit*: | ||||||||
Class A | $ | 370.90 | $ | 145.32 | ||||
Class Z | $ | 155.84 | $ | 61.77 | ||||
Weighted average Redeemable Units outstanding: | ||||||||
Class A | 109,406.4278 | 122,441.2871 | ||||||
Class Z | 5,935.7905 | 7,409.1508 | ||||||
* 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, 2022 and 2021
(Unaudited)
Class A | Class Z | Total | ||||||||||||||||||||||
Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | |||||||||||||||||||
Partners’ Capital, December 31, 2020 | $ | 350,633,583 | 126,595.8958 | $ | 8,621,162 | 7,601.3365 | $ | 359,254,745 | 134,197.2323 | |||||||||||||||
Subscriptions - Limited Partners | 2,519,943 | 890.9890 | 19,685 | 17.3570 | 2,539,628 | 908.3460 | ||||||||||||||||||
Redemptions - General Partner | 0 | 0 | (575,000) | (490.0250) | (575,000) | (490.0250) | ||||||||||||||||||
Redemptions - Limited Partners | (29,412,023) | (10,435.0970) | (273,445) | (231.2570) | (29,685,468) | (10,666.3540) | ||||||||||||||||||
Net income (loss) | 17,468,319 | - | 456,430 | - | 17,924,749 | - | ||||||||||||||||||
Partners’ Capital, March 31, 2021 | $ | 341,209,822 | 117,051.7878 | $ | 8,248,832 | 6,897.4115 | $ | 349,458,654 | 123,949.1993 | |||||||||||||||
Class A | Class Z | Total | ||||||||||||||||||||||
Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | |||||||||||||||||||
Partners’ Capital, December 31, 2021 | $ | 353,170,511 | 109,712.3338 | $ | 8,687,519 | 6,540.6965 | $ | 361,858,030 | 116,253.0303 | |||||||||||||||
Subscriptions - Limited Partners | 3,613,000 | 1,092.3120 | 0 | 0 | 3,613,000 | 1,092.3120 | ||||||||||||||||||
Redemptions - Limited Partners | (7,554,597) | (2,250.4450) | (1,338,652) | (985.0850) | (8,893,249) | (3,235.5300) | ||||||||||||||||||
Net income (loss) | 40,476,680 | - | 896,040 | - | 41,372,720 | - | ||||||||||||||||||
Partners’ Capital, March 31, 2022 | $ | 389,705,594 | 108,554.2008 | $ | 8,244,907 | 5,555.6115 | $ | 397,950,501 | 114,109.8123 | |||||||||||||||
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 0 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 and is the trading manager (the “Trading Manager”) of Transtrend 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, 2022, all trading decisions were made for the Partnership by Transtrend B.V. (“Transtrend”), John Street Capital Limited (“JSCL”), Northlander Commodity Advisors LLP (“Northlander”), Pan Capital Management L.P. (“Pan”), Quantica Capital AG (“Quantica”) and Breakout Funds LLC (“Breakout”) (each an “Advisor” and, collectively, the “Advisors”), each of which is a registered commodity trading advisor. Effective January 31, 2022, Greenwave Capital Management LLC (“Greenwave”) ceased to act as a commodity trading advisor to the Partnership. On October 31, 2021, the Partnership fully redeemed its investment from CMF FORT Contrarian Master Fund LLC (“FORT Contrarian Master”). Also effective October 31, 2021, FORT L.P. (“FORT”) ceased to act as a commodity trading advisor to the Partnership. References herein to the “Advisors” may include, as relevant, FORT and Greenwave. 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 July 1, 2021, Breakout directly trades a portion of the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to an enhanced version of Breakout’s Propeller Program. The General Partner and Breakout have agreed that Breakout will trade the Partnership’s assets allocated to Breakout at 2 times the amount of the assets allocated. The amount of leverage may be increased or decreased in the future, subject to certain restrictions.
Effective October 1, 2020, Quantica directly trades the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to the Quantica Managed Futures Program. The General Partner and Quantica have agreed that Quantica will trade the Partnership’s assets allocated to Quantica at 1.75 times the amount of the assets allocated. The amount of leverage may be increased or decreased in the future.
Effective 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.
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. The General Partner and JSCL have agreed that JSCL will trade the Partnership’s assets allocated to it at a level that is up to 2 times the amount of assets allocated to it; provided that if the assets allocated to JSCL are $80 million or less, JSCL will trade the Partnership’s assets allocated to it at the level that is up to 1.5 times the amount of assets allocated to it. The amount of leverage may be increased or decreased in the future.
Prior to its termination effective January 31, 2022, Greenwave directly traded the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to an enhanced version of Greenwave’s Flagship Plus 2X Program. The General Partner and Greenwave had agreed that Greenwave would trade the Partnership’s assets allocated to Greenwave at a level that was up to 2 times the amount of the assets allocated.
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
6
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
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, 2022 and 2021, 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.
As of March 31, 2022, the Partnership and CMF TT II, LLC (“Transtrend Master”) have entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. CMF NL Master Fund LLC (“NL Master”) has, and prior to its full redemption, FORT Contrarian Master had, entered into futures brokerage account agreements with MS&Co. Transtrend Master and NL Master are collectively referred to as the “Funds.” References herein to “Funds” may also include, as relevant, FORT Contrarian Master.
Transtrend Master entered into certain agreements with JPMorgan in connection with trading in forward foreign currency contracts on behalf of Transtrend Master 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. Under the FX Agreement, JPMorgan charges a fee on the aggregate foreign currency transactions entered into on behalf of Transtrend Master 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 at a flat annual rate equal to 0.75% per year of the adjusted net assets of Class A Redeemable Units (computed monthly by multiplying the adjusted net assets of the Class A Redeemable Units by
0.75% and dividing the result thereof by 12). Class Z Redeemable Units are not subject to an ongoing selling agent fee. 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.
The Partnership has 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 andsub-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, 2022 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 additionalone-year
periods. Pursuant to the Harbor Selling Agreement, the Partnership pays Harbor a monthly ongoing selling agent fee at a flat annual rate equal to 0.75% per year of the adjusted net assets of Class A Redeemable Units (computed monthly by multiplying the adjusted net assets of the Class A Redeemable Units by 0.75% and dividing the result thereof by 12).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.
Effective January 1, 2021, the incentive fee payable to Transtrend by Transtrend Master was reduced from 20% to 16% of New Trading Profits (as defined in the management agreement among Transtrend Master, the Trading Manager and Transtrend), accrued monthly, but payable semi-annually.
The General Partner has delegated certain administrative functions to SS&C Technologies, Inc., a Delaware corporation,
7
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
currently doing business as SS&C GlobeOp (the “Administrator”). Pursuant to a master services agreement, the Administrator furnishes certain administrative, accounting, regulatory reporting, tax and other services as agreed from time to time. In addition, the Administrator maintains certain books and records of the Partnership. The cost of retaining the Administrator is allocated among the pools operated by the General Partner, including the Partnership.
2. Basis of Presentation and Summary of Significant Accounting Policies:
The 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, 2022 and the results of its operations and changes in partners’ capital for the three months ended March 31, 2022 and 2021. 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 “Form10-K”)
filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2021. The December 31, 2021 information has been derived from the audited financial statements as of and for the year ended December 31, 2021.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.
Profit Allocation.
Statement of Cash Flows.
“Statement of Cash Flows.”
Partnership’s Investment in the Funds.
Partnership’s/Funds’ Derivative Investments.
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.
8
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
2022 and December 31, 2021, respectively.
Income
Taxes
Income Taxes
“more-likely-than-not”
of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet themore-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 0 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 2018 through 2021 tax years remain subject to examination by U.S. federal and most state tax authorities.Investment Company Status.
2013-08
“Financial Services—Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements
Net Income (Loss) Per Redeemable Unit.
“Financial Services - Investment Companies.”
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, 2021.9
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, 2022 and 2021 were as follows:
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||
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) | $ | 475.42 | $ | 195.46 | $ | 202.71 | $ | 83.41 | ||||||||
Net investment loss | (104.52) | (39.62) | (57.39) | (21.64) | ||||||||||||
Increase (decrease) for the period | 370.90 | 155.84 | 145.32 | 61.77 | ||||||||||||
Net asset value per Redeemable Unit, beginning of period | 3,219.06 | 1,328.23 | 2,769.71 | 1,134.16 | ||||||||||||
Net asset value per Redeemable Unit, end of period | $ | 3,589.96 | $ | 1,484.07 | $ | 2,915.03 | $ | 1,195.93 | ||||||||
Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |||||||||||||||
Class A | Class Z | Class A | Class Z | |||||||||||||
Ratios to Average Limited Partners’ Capital:** | ||||||||||||||||
Net investment loss*** | (5.7) | % | (4.9) | % | (4.9) | % | (4.1) | % | ||||||||
Operating expenses | 3.5 | % | 2.8 | % | 3.8 | % | 3.0 | % | ||||||||
Incentive fees | 2.3 | % | 2.2 | % | 1.1 | % | 1.1 | % | ||||||||
Total expenses | 5.8 | % | 5.0 | % | 4.9 | % | 4.1 | % | ||||||||
Total return: | ||||||||||||||||
Total return before incentive fees | 13.9 | % | 14.0 | % | 6.4 | % | 6.6 | % | ||||||||
Incentive fees | (2.4) | % | (2.3) | % | (1.2) | % | (1.2) | % | ||||||||
Total return after incentive fees | 11.5 | % | 11.7 | % | 5.2 | % | 5.4 | % | ||||||||
| * | 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. |
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. or JPMorgan, as applicable, 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,” have been met.
210-20,
“Balance Sheet
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, 2022 and 2021 was 45,350 and 47,907, respectively. The monthly average number of option contracts traded directly by the Partnership during the three months ended March 31, 2022 and 2021 was 7,422 and 5,277, 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 Funds’ 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, 2022 and December 31, 2021, respectively.
March 31, 2022 | 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 | $ | 100,661,977 | $ | (77,951,254) | $ | 22,710,723 | $ | 0 | $ | 0 | $ | 22,710,723 | ||||||||||||
Total assets | $ | 100,661,977 | $ | (77,951,254) | $ | 22,710,723 | $ | 0 | $ | 0 | $ | 22,710,723 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Futures | $ | (77,951,254) | $ | 77,951,254 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Total liabilities | $ | (77,951,254) | $ | 77,951,254 | $ | 0 | $ | 0- | $ | 0 | $ | 0 | ||||||||||||
Net fair value | $ | 22,710,723 | * | |||||||||||||||||||||
December 31, 2021 | 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 | $ | 40,087,611 | $ | (40,087,611) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Total assets | $ | 40,087,611 | $ | (40,087,611) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Futures | $ | (41,488,254) | $ | 40,087,611 | $ | (1,400,643) | $ | 0 | $ | 1,400,643 | $ | 0 | ||||||||||||
Total liabilities | $ | (41,488,254) | $ | 40,087,611 | $ | (1,400,643) | $ | 0 | $ | 1,400,643 | $ | 0 | ||||||||||||
Net fair value | $ | 0 | * | |||||||||||||||||||||
| * | 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 held directly by the Partnership as separate assets and liabilities as of March 31, 2022 and December 31, 2021, respectively.
March 31, 2022 | ||||
Assets | ||||
Futures Contracts | ||||
Currencies | $ | 869,329 | ||
Energy | 90,868,778 | |||
Grains | 2,074,744 | |||
Indices | 1,733,415 | |||
Interest Rates U.S. | 844,723 | |||
Interest Rates Non-U.S. | 1,771,886 | |||
Livestock | 105,443 | |||
Metals | 1,157,675 | |||
Softs | 1,235,984 | |||
Total unrealized appreciation on open futures contracts | 100,661,977 | |||
Liabilities | ||||
Futures Contracts | ||||
Currencies | (137,285) | |||
Energy | (73,179,057) | |||
Grains | (765,200) | |||
Indices | (1,259,353) | |||
Interest Rates U.S. | (95,662) | |||
Interest Rates Non-U.S. | (367,782) | |||
Livestock | (127,288) | |||
Metals | (764,089) | |||
Softs | (1,255,538) | |||
Total unrealized depreciation on open futures contracts | (77,951,254) | |||
Net unrealized appreciation on open futures contracts | $ | 22,710,723 | * | |
Assets | ||||
Options Purchased | ||||
Energy | $ | 30,477,205 | ||
Total options purchased | $ | 30,477,205 | ** | |
Liabilities | ||||
Options Written | ||||
Energy | $ | (16,416,517) | ||
Total options written | $ | (16,416,517) | *** | |
| * | This amount is in “Net unrealized appreciation on open futures contracts” in the Statements of Financial Condition. |
| ** | This amount is in “Options purchased, at fair value” in the Statements of Financial Condition. |
| *** | This amount is in “Options written, at fair value” in the Statements of Financial Condition. |
13
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
December 31, 2021 | ||||
Assets | ||||
Futures Contracts | ||||
Currencies | $ | 343,757 | ||
Energy | 34,992,511 | |||
Grains | 1,274,260 | |||
Indices | 1,506,900 | |||
Interest Rates U.S. | 139,705 | |||
Interest Rates Non-U.S. | 38,600 | |||
Livestock | 126,551 | |||
Metals | 965,861 | |||
Softs | 699,466 | |||
Total unrealized appreciation on open futures contracts | 40,087,611 | |||
Liabilities | ||||
Futures Contracts | ||||
Currencies | (430,036) | |||
Energy | (34,249,528) | |||
Grains | (1,454,896) | |||
Indices | (1,478,264) | |||
Interest Rates U.S. | (100,370) | |||
Interest Rates Non-U.S. | (806,769) | |||
Livestock | (62,498) | |||
Metals | (824,841) | |||
Softs | (2,081,052) | |||
Total unrealized depreciation on open futures contracts | (41,488,254) | |||
Net unrealized depreciation on open futures contracts | $ | (1,400,643) | * | |
Assets | ||||
Options Purchased | ||||
Energy | $ | 13,241,142 | ||
Total options purchased | $ | 13,241,142 | ** | |
Liabilities | ||||
Options Written | ||||
Energy | $ | (6,649,119) | ||
Total options written | $ | (6,649,119) | *** | |
| * | 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. |
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, 2022 and 2021, respectively.
Three Months Ended March 31, | ||||||||
Sector | 2022 | 2021 | ||||||
Currencies | $ 157,836 | $ (1,665,750) | ||||||
Energy | 18,895,189 | 5,254,973 | ||||||
Grains | 1,437,503 | 2,394,344 | ||||||
Indices | 4,715,053 | 3,311,199 | ||||||
Interest Rates U.S. | 2,231,808 | 4,725,960 | ||||||
Interest Rates Non-U.S. | (82,558) | (1,444,502) | ||||||
Livestock | (305,332) | 583,542 | ||||||
Metals | (16,037) | 1,553,760 | ||||||
Softs | 101,472 | 290,132 | ||||||
Total | $ 27,134,934 | **** | $ 15,003,658 | **** | ||||
**** 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
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
futures, 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,
2022and December
31,
2021and for the periods ended March
31,
2022and
2021, the Partnership and the Funds did
0t 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, 2022 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Futures | $ | 100,661,977 | $ | 100,195,408 | $ | 466,569 | $ | 0 | ||||||||
Options purchased | 30,477,205 | 30,477,205 | 0 | 0 | ||||||||||||
Total assets | $ | 131,139,182 | $ | 130,672,613 | $ | 466,569 | $ | 0 | ||||||||
Liabilities | ||||||||||||||||
Futures | $ | 77,951,254 | $ | 77,611,459 | $ | 339,795 | $ | 0 | ||||||||
Options written | 16,416,517 | 16,416,517 | 0 | 0 | ||||||||||||
Total liabilities | $ | 94,367,771 | $ | 94,027,976 | $ | 339,795 | $ | 0 | ||||||||
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Futures | $ | 40,087,611 | $ | 40,087,611 | $ | 0 | $ | 0 | ||||||||
Options purchased | 13,241,142 | 13,241,142 | 0 | 0 | ||||||||||||
Total assets | $ | 53,328,753 | $ | 53,328,753 | $ | 0 | $ | 0 | ||||||||
Liabilities | ||||||||||||||||
Futures | $ | 41,488,254 | $ | 41,488,254 | $ | 0 | $ | 0 | ||||||||
Options written | 6,649,119 | 6,649,119 | 0 | 0 | ||||||||||||
Total liabilities | $ | 48,137,373 | $ | 48,137,373 | $ | 0 | $ | 0 | ||||||||
The Investment in the Funds measured using the net asset value per share practical expedient is not required to be included in the fair value hierarchy. Please refer to the Condensed Schedules of Investments as of March 31, 2022 and December 31, 2021, respectively.
6. Investment in the Funds:
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. Transtrend generally trades its Enhanced Risk Profile (US Dollar) using 1.5 times the leverage employed by the Standard Risk Profile. 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 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.
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. The Partnership fully redeemed its investment in FORT Contrarian Master on October 31, 2021.
16
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
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, 2022.
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 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 Trading Manager at least three days in advance of the Redemption Date. Such withdrawals are classified as a liability when the member elects to redeem and informs the Funds. However, a member may request a withdrawal as of the end of any day if such request is received by the 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’ 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, 2022, the Partnership owned 100.0% of Transtrend Master and approximately 72.5% of NL Master. At December 31, 2021, the Partnership owned 100.0% of Transtrend Master and approximately 74.0% 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 members’ capital of the Funds is shown in the following tables:
March 31, 2022 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
Transtrend Master | $ | 88,227,475 | $ | 3,526,822 | $ | 84,700,653 | ||||||
NL Master | 39,059,751 | 127,262 | 38,932,489 | |||||||||
December 31, 2021 | ||||||||||||
Total Assets | Total | Total Capital | ||||||||||
Transtrend Master | $ | 59,771,411 | $ | 3,191,408 | $ | 56,580,003 | ||||||
NL Master | 50,260,292 | 8,006,342 | 42,253,950 | |||||||||
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, 2022 | ||||||||||||
Net Investment Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
Transtrend Master | $ | (3,622,497) | $ | 21,067,232 | $ | 17,444,735 | ||||||
NL Master | (39,824) | 6,608,368 | 6,568,544 | |||||||||
For the three months ended March 31, 2021 | ||||||||||||
Net Investment Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
Transtrend Master | $ | (1,657,051) | $ | 8,955,958 | $ | 7,298,907 | ||||||
FORT Contrarian Master | (39,067) | (1,078,566) | (1,117,633) | |||||||||
NL Master | (37,646) | 2,842,858 | 2,805,212 | |||||||||
18
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
Summarized information reflecting the Partnership’s investments in and the Partnership’s
pro-rata
share of the results of operations of the Funds are shown in the following tables: March 31, 2022 | For the three months ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Management Fees | Incentive Fee | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||||||||
Transtrend Master | 21.28 | % | $ 84,700,653 | $ 21,068,106 | $ 138,975 | $ 17,000 | $ 144,756 | $ 3,322,640 | $ 17,444,735 | Commodity Portfolio | Monthly | |||||||||||||||||||||||||||||
NL Master | 7.09 | % | 28,212,828 | 4,845,280 | 22,387 | 11,219 | - | - | 4,811,674 | Commodity Portfolio | Monthly | |||||||||||||||||||||||||||||
Total | $ 112,913,481 | $ 25,913,386 | $ 161,362 | $ | $ 144,756 | $ 3,322,640 | $ 22,256,409 | |||||||||||||||||||||||||||||||||
December 31, 2021 | For the three months ended March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Management Fees | Incentive Fee | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||||||||
Transtrend Master | 15.64 | % | $ 56,580,003 | $ 8,956,732 | $ 108,810 | $ 16,584 | $ 142,311 | $ 1,390,121 | $ 7,298,906 | Commodity Portfolio | Monthly | |||||||||||||||||||||||||||||
FORT Contrarian Master | 0 | % | 0- | (1,073,372) | 29,018 | 15,242 | - | - | (1,117,632) | Commodity Portfolio | Monthly | |||||||||||||||||||||||||||||
NL Master | 8.64 | % | 31,270,943 | 2,231,715 | 19,168 | 11,839 | - | - | 2,200,708 | Commodity Portfolio | Monthly | |||||||||||||||||||||||||||||
Total | $ 87,850,946 | $ 10,115,075 | $ 156,996 | $ 43,665 | $ 142,311 | $ 1,390,121 | $ 8,381,982 | |||||||||||||||||||||||||||||||||
19
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 withoff-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 orover-the-counter
1.2
%
to3.5
% of the Partnership’s/Funds’ contracts are traded OTC.
Futures Contracts
Forward Foreign Currency Contracts.
London Metal Exchange Forward Contracts.
20
Ceres Orion L.P.
Notes to Financial Statements
(Unaudited)
Options
marked-to-market
marked-to-market
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.
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 yearof 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.
21
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.
Since its discovery in December 2019, a new strain of coronavirus, which causes the viral disease known as
COVID-19,
has spread from China to many other countries, including the United States. The outbreak has been declared a pandemic by the World Health Organization, and the U.S. Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak.Thedirectives and increased remote work protocols. If the pandemic continues to be prolonged or the actions of governments and central banks are unsuccessful, including actions to facilitate the comprehensive distribution of effective vaccines, the adverse impact on the global economy will deepen.
COVID-19
pandemic and related voluntary and government-imposed social and business restrictions has impacted global economic conditions and adversely affected various industries (including, but not limited to, transportation, hospitality and entertainment), resulting in volatility in the global financial markets, disruption in global supply chains, increased unemployment, and operational challenges such as the temporary and permanent closures of businesses,sheltering-in-place
Given the continuing development of this situation, it is not possible to accurately predict how the market disruptions caused by
COVID-19
will further impact the U.S and other world economies or the value of the Partnership’s/Funds’ investments, or for how long the effects of such events will continue. Nevertheless, the novel coronavirus continues to present material uncertainty and risk with respect to the Partnership’s/Funds’ investments and operations.On February 22, 2022, the United States and several European nations announced sanctions against Russia in response to Russia’s mobilization of forces and threat of invasion of the Ukraine, and governments around the world imposed, and may in the future impose, additional sanctions on Russia in response to its continued escalation of this conflict. On February 24, 2022, Russian President Putin commenced a full-scale invasion of Russia’s
pre-positioned
forces into the Ukraine. The conflict has created volatility in the price of various commodities and may have a negative impact on business activity globally, and therefore could adversely affect the performance of the Partnership’s/Funds’ investments. Furthermore, uncertainties regarding the conflict between the two nations and the varying involvement of the United States and other NATO countries preclude prediction as to the ultimate impact on global economic and market conditions, and, as a result, presents material uncertainty and risk with respect to the Partnership/Funds and the performance of their investments or operations, and the ability of the Partnership to achieve its investment objectives. Additionally, to the extent that investors, service providers and/or other third parties have material operations or assets in Russia or Ukraine, they may have their operations disrupted and/or suffer adverse consequences related to the ongoing conflict.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, other than disclosed below, there were no subsequent events requiring adjustment to or disclosure in the financial statements.
On May 1, 2022, the Partnership allocated a portion of its assets to Drakewood Capital Management Limited (“Drakewood”), which is invested in CMF Drakewood Master Fund LLC and is traded by Drakewood pursuant to Drakewood’s Drakewood Prospect Fund Strategy.
22
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 2022.
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, 2022, the Partnership’s capital increased 10.0% from $361,858,030 to $397,950,501. This increase was attributable to subscriptions of 1,092.3120 Class A limited partner Redeemable Units totaling $3,613,000 and net income of $41,372,720, which was partially offset by redemptions of 2,250.4450 Class A limited partner Redeemable Units totaling $7,554,597 and redemptions of 985.0850 Class Z limited partner Redeemable Units totaling $1,338,652. 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 ObligationsThe 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.
23
Results of Operations
During the Partnership’s first quarter of 2022, the net asset value per Redeemable Unit for Class A increased 11.5% from $3,219.06 to $3,589.96, as compared to an increase of 5.2% in the first quarter of 2021. During the Partnership’s first quarter of 2022, the net asset value per Redeemable Unit for Class Z increased 11.7% from $1,328.23 to $1,484.07, as compared to an increase of 5.4% in the first quarter of 2021. The Partnership experienced a net trading gain before fees and expenses in the first quarter of 2022 of $53,043,121. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in currencies, energy, grains, indices, U.S. interest rates, livestock and metals and were partially offset by losses in
non-U.S.
interest rates and softs. The Partnership experienced a net trading gain before fees and expenses in the first quarter of 2021 of $25,111,628. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, indices, U.S. interest rates, livestock, metals and softs and were partially offset by losses in currencies andnon-U.S.
interest rates.During the first quarter of 2022, the most notable gains were achieved within the energy markets during January, February, and March from long positions in natural gas, European electrical power, Brent crude oil, and coal futures as energy prices surged on the combination of the impact of the Russian invasion of Ukraine on global energy supplies and growing consumption demand for energies. Additional gains were recorded within the global fixed income sector during March from short positions in U.S. Treasury note futures as prices declined amid an outlook for the U.S. Federal Reserve to be aggressive in raising interest rates to combat inflation for the near future. Gains in the agricultural markets were experienced during February from long positions in wheat, corn, and soybean futures as prices rallied amid concern Russia’s invasion of Ukraine would curtail grain exports from Ukrainian farms. Additional gains in the agricultural sector were recorded throughout a majority of the quarter from long positions in canola oil and palm oil futures. Within the metals markets, gains were achieved during February and March from long positions in gold futures as investor demand for safe-haven assets boosted prices. Additional metals gains were recorded from long positions in nickel futures during January, February, and March. Further gains were recorded during February within the global stock index sector from short positions in U.S. equity index futures as prices fell as geopolitical hostilities in Europe threatened global markets. Gains within the currencies were achieved during March from short positions in the euro versus the U.S. dollar as the value of the European currency weakened against the dollar amid the war in Ukraine. Further gains within the currency markets were recorded throughout the quarter from long positions in the Brazilian real and South African rand.
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.
24
As of March 31, 2022, interest income was earned on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s, except for 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. 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 the4-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, 2022 increased by $25,816 as compared to the corresponding period in 2021. The increase in interest income was primarily due to higher4-week
U.S. Treasury bill discount rates along with higher average daily equity during the three months ended March 31, 2022 as compared to the corresponding period in 2021. 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, 2022 decreased by $88,862 as compared to the corresponding period in 2021. The decrease in these clearing fees was primarily due to a decrease in the number of direct trades made by the Partnership during the three months ended March 31, 2022 as compared to the corresponding period in 2021.
Ongoing selling agent fees are calculated as a percentage of the Partnership’s adjusted net asset value for Class A Redeemable Units as of the end of each month and are affected by trading performance, subscriptions and redemptions. Ongoing selling agent fees for the three months ended March 31, 2022 increased by $46,907 as compared to the corresponding period in 2021. The increase in ongoing selling agent fees was primarily due to higher average adjusted net assets during the three months ended March 31, 2022 as compared to the corresponding period in 2021.
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, 2022 decreased by $45,276 as compared to the corresponding period in 2021. The decrease in management fees was due to lower average management fee rates during the three months ended March 31, 2022 as compared to the corresponding period in 2021.
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, 2022 increased by $46,183 as compared to the corresponding period in 2021. The increase in the General Partner fees was due to higher average adjusted net assets during the three months ended March 31, 2022 as compared to the corresponding period in 2021.
25
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, 2022 resulted in incentive fees of $8,530,489. Trading performance for the three months ended March 31, 2021 resulted in incentive fees of $3,958,886. 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.
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, 2022 and December 31, 2021, the Partnership’s assets were allocated among the Advisors in the following approximate percentages:
Advisor | March 31, 2022 | March 31, 2022 (percentage of Partners’ Capital) | December 31, 2021 | December 31, 2021 (percentage of Partners’ Capital) | ||||||||||||
Transtrend | $ | 84,700,354 | 21 | % | $ | 56,579,756 | 16 | % | ||||||||
Northlander | $ | 27,298,425 | 7 | % | $ | 31,271,064 | 9 | % | ||||||||
JSCL | $ | 115,637,026 | 29 | % | $ | 102,282,327 | 28 | % | ||||||||
Pan | $ | 29,584,953 | 7 | % | $ | 24,089,029 | 7 | % | ||||||||
Greenwave | $ | - | 0 | % | $ | 18,655,140 | 5 | % | ||||||||
Quantica | $ | 59,117,071 | 15 | % | $ | 55,673,228 | 15 | % | ||||||||
Breakout | $ | 22,394,017 | 6 | % | $ | 20,866,322 | 6 | % | ||||||||
Unallocated | $ | 59,218,655 | 15 | % | $ | 52,441,164 | 14 | % | ||||||||
For additional disclosures about operational and financial risk related to the
COVID-19
outbreak, refer to Part II, Item 5. “Other Information
.” in this Form10-Q.
26
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.
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. JSCL, Pan, Quantica and Breakout directly trade, and Greenwave directly traded, managed accounts in the name of the Partnership. As of March 31, 2022, Transtrend and Northlander traded the Partnership’s assets indirectly in master fund managed accounts established in the name of the master funds over which they had 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. The remaining trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly (i.e. in the managed accounts in the Partnership’s name traded by JSCL, Pan, Greenwave, Quantica and Breakout, as applicable) 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, 2021.
27
The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of March 31, 2022 and December 31, 2021. As of March 31, 2022, the Partnership’s total capitalization was $397,950,501.
March 31, 2022
Market Sector | Value at Risk | % of Total Capitalization | ||||||
Currencies | $ | 9,661,973 | 2.43 | % | ||||
Energy | 17,724,757 | 4.45 | ||||||
Grains | 4,669,017 | 1.17 | ||||||
Indices | 3,850,529 | 0.97 | ||||||
Interest Rates U.S. | 2,068,480 | 0.52 | ||||||
Interest Rates Non-U.S. | 3,393,236 | 0.85 | ||||||
Livestock | 1,159,566 | 0.29 | ||||||
Metals | 4,002,503 | 1.01 | ||||||
Softs | 2,158,485 | 0.54 | ||||||
Total | $ | 48,688,546 | 12.23 | % | ||||
As of December 31, 2021, the Partnership’s total capitalization was $361,858,030.
December 31, 2021
Market Sector | Value at Risk | % of Total Capitalization | ||||||
Currencies | $ | 7,342,187 | 2.03 | % | ||||
Energy | 14,090,651 | 3.89 | ||||||
Grains | 2,932,799 | 0.81 | ||||||
Indices | 6,845,313 | 1.89 | ||||||
Interest Rates U.S. | 1,437,916 | 0.40 | ||||||
Interest Rates Non-U.S. | 2,696,233 | 0.75 | ||||||
Livestock | 952,985 | 0.26 | ||||||
Metals | 2,477,971 | 0.68 | ||||||
Softs | 2,377,888 | 0.66 | ||||||
Total | $ | 41,153,943 | 11.37 | % | ||||
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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, 2022 and December 31, 2021, and the highest, lowest and average values during the three months ended March 31, 2022 and the twelve months ended December 31, 2021, as applicable. All open position trading risk exposures have been included in calculating the figures set forth below.
At March 31, 2022, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:
March 31, 2022
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Currencies | $ | 2,344,596 | 0.59 | % | $ | 3,958,360 | $ | 956,385 | $ | 2,024,026 | ||||||||||
Energy | 7,884,890 | 1.98 | 20,291,690 | 7,340,288 | 11,749,693 | |||||||||||||||
Grains | 2,307,858 | 0.58 | 2,307,858 | 756,082 | 1,434,893 | |||||||||||||||
Indices | 1,828,312 | 0.46 | 5,171,372 | 1,641,275 | 2,896,107 | |||||||||||||||
Interest Rates U.S. | 691,494 | 0.17 | 2,110,692 | 287,060 | 899,671 | |||||||||||||||
Interest Rates Non-U.S. | 1,909,087 | 0.48 | 1,909,087 | 530,837 | 1,011,178 | |||||||||||||||
Livestock | 539,166 | 0.14 | 766,398 | 211,008 | 438,236 | |||||||||||||||
Metals | 2,377,859 | 0.60 | 2,824,368 | 1,086,426 | 1,713,442 | |||||||||||||||
Softs | 1,223,398 | 0.31 | 2,162,649 | 898,047 | 1,461,084 | |||||||||||||||
Total | $ | 21,106,660 | 5.31 | % | ||||||||||||||||
| * | Average of daily Values at Risk. |
At December 31, 2021, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:
December 31, 2021
Twelve Months Ended December 31, 2021 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Currencies | $ | 1,840,289 | 0.51 | % | $ | 6,665,910 | $ | 1,679,705 | $ | 3,854,279 | ||||||||||
Energy | 8,607,368 | 2.38 | 10,751,047 | 4,470,947 | 7,043,654 | |||||||||||||||
Grains | 858,443 | 0.24 | 3,853,094 | 726,045 | 1,834,983 | |||||||||||||||
Indices | 2,539,386 | 0.70 | 11,729,602 | 2,092,198 | 4,777,741 | |||||||||||||||
Interest Rates U.S. | 553,290 | 0.15 | 3,783,562 | 313,058 | 1,505,505 | |||||||||||||||
Interest Rates Non-U.S. | 752,788 | 0.21 | 6,868,118 | 645,511 | 3,606,934 | |||||||||||||||
Livestock | 269,610 | 0.07 | 977,708 | 93,704 | 559,894 | |||||||||||||||
Metals | 1,078,797 | 0.30 | 3,978,117 | 676,242 | 2,299,063 | |||||||||||||||
Softs | 1,086,622 | 0.30 | 3,534,137 | 1,006,127 | 1,662,532 | |||||||||||||||
Total | $ | 17,586,593 | 4.86 | % | ||||||||||||||||
| * | Annual average of daily Values at Risk. |
29
At March 31, 2022, Transtrend Master’s total capitalization was $84,700,653 and the Partnership owned 100.0% of Transtrend Master. As of March 31, 2022, 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, 2022
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Currencies | $ | 7,317,377 | 8.64 | % | $ | 7,317,377 | $ | 4,732,764 | $ | 5,784,939 | ||||||||||
Energy | 1,718,779 | 2.03 | 2,613,616 | 917,184 | 1,780,576 | |||||||||||||||
Grains | 2,361,159 | 2.79 | 2,361,159 | 1,499,363 | 1,893,374 | |||||||||||||||
Indices | 2,022,217 | 2.39 | 4,276,625 | 1,721,946 | 2,386,779 | |||||||||||||||
Interest Rates U.S. | 1,376,986 | 1.63 | 1,468,323 | 618,588 | 1,057,671 | |||||||||||||||
Interest Rates Non-U.S. | 1,484,149 | 1.75 | 2,188,664 | 1,198,680 | 1,520,036 | |||||||||||||||
Livestock | 620,400 | 0.73 | 848,375 | 558,250 | 699,185 | |||||||||||||||
Metals | 1,624,644 | 1.92 | 2,208,645 | 1,226,863 | 1,653,172 | |||||||||||||||
Softs | 935,087 | 1.10 | 1,865,217 | 839,439 | 1,253,341 | |||||||||||||||
Total | $ | 19,460,798 | 22.98 | % | ||||||||||||||||
* Average of daily Values at Risk.
At December 31, 2021, Transtrend Master’s total capitalization was $56,580,003 and the Partnership owned 100.0% of Transtrend Master. As of December 31, 2021, 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, 2021
Twelve Months Ended December 31, 2021 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Currencies | $ | 5,501,898 | 9.72 | % | $ | 6,059,954 | $ | 2,844,891 | $ | 4,276,357 | ||||||||||
Energy | 1,609,110 | 2.84 | 2,823,937 | 1,010,513 | 1,917,083 | |||||||||||||||
Grains | 2,074,356 | 3.67 | 2,194,459 | 690,338 | 1,453,799 | |||||||||||||||
Indices | 4,305,927 | 7.61 | 4,524,201 | 1,398,613 | 2,638,501 | |||||||||||||||
Interest Rates U.S. | 884,626 | 1.56 | 1,273,527 | 110,012 | 722,704 | |||||||||||||||
Interest Rates Non-U.S. | 1,943,445 | 3.43 | 4,360,437 | 555,327 | 2,185,233 | |||||||||||||||
Livestock | 683,375 | 1.21 | 800,030 | 152,062 | 493,212 | |||||||||||||||
Metals | 1,399,174 | 2.47 | 2,536,086 | 794,627 | 1,488,952 | |||||||||||||||
Softs | 1,291,266 | 2.28 | 1,992,444 | 750,065 | 1,212,201 | |||||||||||||||
Total | $ | 19,693,177 | 34.79 | % | ||||||||||||||||
* Annual average of daily Values at Risk.
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At March 31, 2022, NL Master’s total capitalization was $38,932,489 and the Partnership owned approximately 72.5% of NL Master. As of March 31, 2022, 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, 2022
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Energy | $ | 11,201,500 | 28.77 | % | $ | 12,115,826 | $ | 2,176,917 | $ | 6,024,722 | ||||||||||
Total | $ | 11,201,500 | 28.77 | % | ||||||||||||||||
| * | Average of daily Values at Risk. |
At December 31, 2021, NL Master’s total capitalization was $42,253,950 and the Partnership owned approximately 74.0% of NL Master. As of December 31, 2021, 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, 2021
Twelve Months Ended December 31, 2021 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk* | |||||||||||||||
Energy | $ | 5,235,369 | 12.39 | % | $ | 12,881,816 | $ | 670,621 | $ | 3,221,401 | ||||||||||
Total | $ | 5,235,369 | 12.39 | % | ||||||||||||||||
| * | Annual average of daily Values at Risk. |
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Item 4. | Controls and Procedures. |
The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President 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)
and15d-15(e)
under the Exchange Act) as of March 31, 2022 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’sis 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:
internal control over financial reporting
| • | 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, 2022, 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 2021, 2020, 2019, 2018, and 2017. 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 atwww.morganstanley.com
. We refer you to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2020 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.
33
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 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.On September 30, 2020, the SEC entered into a settlement order with MS&Co. settling an administrative action which relates to MS&Co.’s violations of the order marking requirements of Regulation SHO of the Exchange Act resulting from its improper use of aggregation units in structuring the Firm’s equity swaps business. The order found that MS&Co. improperly operated its equity swaps business without netting certain “long” and “short” positions as required by Rule 200(c) of Regulation SHO. The order found that the long exposure to an equity security (the “Long Unit”) and the short exposure to an equity security (the “Short Unit”) were not independent from one another and did not have separate trading strategies or objectives without regard to each other, and that the Long and Short Units were not eligible for the exception in Rule 200(f) of Regulation SHO. The order found that MS&Co. willfully violated Section 200(g) of Regulation SHO. MS&Co. consented, without admitting or denying the findings and without adjudication of any issue of law or fact, to a censure; to cease and desist from committing or causing future violations; to pay a civil penalty of $5 million; and to comply with the undertaking enumerated in the order.
Civil Litigation
On August 18, 2009, Relators Roger Hayes and C. Talbot Heppenstall, Jr., filed a qui tam action in New Jersey state court styled. The complaint, filed under seal pursuant to the New Jersey False Claims Act, alleged that the Company and several other underwriters of municipal bonds had defrauded New Jersey issuers by misrepresenting that they would achieve the best price or lowest cost of capital in connection with certain municipal bond issuances. On March 17, 2016, the court entered an order unsealing the complaint. On November 17, 2017, Relators filed an amended complaint to allege the Company mispriced certain bonds issued in twenty-three bond offerings between 2008 and 2017, having a total par amount of $6,946 million. The complaint seeks, among other relief, treble damages. On February 22, 2018, the Company moved to dismiss the amended complaint, and on July 17, 2018, the court denied the Company’s motion. On October 13, 2021, following a series of voluntary and involuntary dismissals, Relators limited their claims to certain bonds issued in five offerings the Company underwrote between 2008 and 2011, having a total par amount of $3,856 million.
State of New Jersey ex. rel. Hayes v. Bank of America Corp., et al
34
On May 17, 2013, plaintiff infiled a complaint against MS&Co. and certain affiliates in the Supreme Court of the State of New York County (“Supreme Court of NY”). The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $133 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On October 29, 2014, the court granted in part and denied in part MS&Co.’s motion to dismiss. All claims regarding four certificates were dismissed. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $116 million. On August 11, 2016, the Appellate Division, First Department (“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
IKB International S.A. in Liquidation, et al. v. Morgan Stanley, et al.
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 Southern District of New York (“SDNY”) styledPlaintiffs 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 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. A decision on plaintiffs’ motion for class certification is pending.
Iowa Public Employees’ Retirement System et al. v. Bank of America Corporation et al.
Settled Civil Litigation
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co., styled, in the Supreme Court of NY. The complaint related to a $275 million credit default swap (“CDS”) referencing the super senior portion of the STACK
China
Development Industrial Bank v. Morgan Stanley
& Co. Incorporated et al.
2006-1
CDO. The complaint asserted claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that MS&Co. misrepresented the risks of the STACK2006-1
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. On March 22, 2021, the parties entered into a settlement agreement. On April 16, 2021, the court entered a stipulation of voluntary discontinuance, with prejudice.35
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, styledA 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. On November 4, 2021, the Firm entered into an agreement to settle the litigation.
Federal Home Loan Bank of
Chicago
v.
Bank of America Funding Corporation
et al.
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 styledAn 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.
Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al.
On May 3, 2013, plaintiffs infiled 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.
Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al.
On April 1, 2016, the California Attorney General’s Office filed an action against MS&Co. in California state court styled, 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.
California v. Morgan Stanley, et al.
36
Beginning on March 25, 2019, MS&Co. was named as a defendant in a series of putative class action complaints filed in the United States District Court for the SDNY, the first of which is styled. Each complaint alleged 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. The purported class period for each suit is from January 1, 2012 to June 1, 2018. Each complaint raised a claim under Section 1 of the Sherman Act and sought, among other things, injunctive relief and treble compensatory damages. On May 23, 2019, plaintiffs filed a consolidated amended class action complaint styled, with a purported class period 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 denied MS&Co.’s motion to dismiss. On December 15, 2019, MS&Co. and certain other defendants entered into a stipulation of settlement to resolve the action as against each of them in its entirety. On June 16, 2020, the court granted final approval of the settlement.
Alaska Electrical Pension Fund v. BofA Secs., Inc., et al
In re GSE Bonds Antitrust Litigation
Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co., as a major futures commission merchant, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co. may establish reserves from time to time in connections with such actions.
37
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 Form10-K
for the fiscal year ended December 31, 2021 other than as disclosed in Note 7, “Financial Instrument Risks,” of the Financial Statements.Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds . |
For the three months ended March 31, 2022, there were subscriptions of 1,092.3120 Class A Redeemable Units totaling $3,613,000. 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, 2022 - January 31, 2022 | 739.3960 | $ | 3,265.41 | 907.3590 | $ | 1,348.20 | N/A | N/A | ||||||||||||
| February 1, 2022 - February 28, 2022 | 1,264.4030 | $ | 3,365.00 | N/A | N/A | N/A | N/A | |||||||||||||
| March 1, 2022 - March 31, 2022 | 246.6460 | $ | 3,589.96 | 77.7260 | $ | 1,484.07 | N/A | N/A | ||||||||||||
| 2,250.4450 | $ | 3,356.93 | 985.0850 | $ | 1,358.92 | |||||||||||||||
| * | 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 . — |
Item 4. | Mine Safety Disclosures . — |
Item 5. | Other Information . |
Certain impacts to public health conditions particular to the coronavirus
(COVID-19)
outbreak that occurred after December 31, 2021 could impact the operations and financial performance of the Partnership’s investments subsequent to March 31, 2022. The extent of the impact to the financial performance of the Partnership’s 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’s investments is impacted because of these factors for an extended period, the Partnership’s performance may be adversely affected.38
Item 6. | Exhibits . |
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Document.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
39
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, 2022 | ||
| By: | /s/ Brooke Lambert | |
| Brooke Lambert | ||
| Chief Financial Officer | ||
| (Principal Accounting Officer) | ||
| Date: May 11, 2022 | ||
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.
40