New York | 20-2718952 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Large accelerated filer | Accelerated filer | Non-accelerated filer X | ||||
Smaller reporting company | Emerging growth company |
September 30, 2022 (Unaudited) | December 31, 2021 | |||||||
Assets: | ||||||||
Investment in the Funds (1) , at fair value | $ | 24,425,250 | $ | 31,910,757 | ||||
Redemptions receivable from the Funds | 65,146 | 9,530,301 | ||||||
Equity in trading account: | ||||||||
Unrestricted cash | 32,119,004 | 83,266,107 | ||||||
Restricted cash | 26,557,697 | 7,622,510 | ||||||
Net unrealized appreciation on open futures contracts | 68,891,220 | 2,520,777 | ||||||
Net unrealized appreciation on open forward contracts | - | 32,498 | ||||||
Options purchased, at fair value (premiums paid $2,690,693 and $6,171,271 at September 30, 2022 and December 31, 2021, respectively) | 8,587,854 | 11,866,605 | ||||||
Total equity in trading account | 136,155,775 | 105,308,497 | ||||||
Interest receivable | 208,319 | 2,728 | ||||||
Total assets | $ | 160,854,490 | $ | 146,752,283 | ||||
Liabilities and Partners’ Capital: | ||||||||
Liabilities: | ||||||||
Net unrealized depreciation on open forward contracts | $ | 24,960 | $ | - | ||||
Options written, at fair value (premiums received $4,447,959 and $6,265,420 at September 30, 2022 and December 31, 2021, respectively) | 6,369,174 | 7,039,257 | ||||||
Accrued expenses: | ||||||||
Ongoing selling agent fees | 93,937 | 85,818 | ||||||
Management fees | 153,862 | 125,544 | ||||||
General Partner fees | 96,350 | 87,151 | ||||||
Incentive fees | 2,935,276 | 10,012,065 | ||||||
Professional fees | 206,611 | 186,105 | ||||||
Redemptions payable to General Partner | - | 50,000 | ||||||
Redemptions payable to Limited Partners | 1,057,313 | 1,255,919 | ||||||
Total liabilities | 10,937,483 | 18,841,859 | ||||||
Partners’ Capital: | ||||||||
General Partner, Class Z, 748.1180 Redeemable Units outstanding at September 30, 2022 and December 31, 2021 | 1,633,001 | 1,394,753 | ||||||
Limited Partners, Class A, 54,229.8067 and 54,425.1587 Redeemable Units outstanding at September 30, 2022 and December 31, 2021, respectively | 144,578,196 | 124,645,209 | ||||||
Limited Partners, Class D, 600.0580 Redeemable Units outstanding at September 30, 2022 and December 31, 2021 | 1,268,592 | 1,089,766 | ||||||
Limited Partners, Class Z, 1,116.5490 and 418.7500 Redeemable Units outstanding at September 30, 2022 and December 31, 2021, respectively | 2,437,218 | 780,696 | ||||||
Total partners’ capital (net asset value) | 149,917,007 | 127,910,424 | ||||||
Total liabilities and partners’ capital | $ | 160,854,490 | $ | 146,752,283 | ||||
Net asset value per Redeemable Unit: | ||||||||
Class A | $ | 2,666.03 | $ | 2,290.21 | ||||
Class D | $ | 2,114.12 | $ | 1,816.10 | ||||
Class Z | $ | 2,182.81 | $ | 1,864.35 | ||||
(1) | Defined in Note 1. |
Number of Contracts | Fair Value | % of Partners Capital | ||||||||||||
Futures Contracts Purchased | ||||||||||||||
Currencies | 142 | $ | (366,777 | ) | (0.22) | % | ||||||||
Energy | ||||||||||||||
Henry LD1 Fix FUT Dec22 | 2,327 | 23,884,807 | 15.93 | |||||||||||
Henry LD1 Fix FUT Nov22 | 2,164 | 21,169,125 | 14.12 | |||||||||||
Henry LD1 Fix FUT Nov23 | 3,190 | 16,144,592 | 10.77 | |||||||||||
NAT GAS LAST DAY Dec22 | 230 | 10,013,960 | 6.68 | |||||||||||
GLOBEX NAT GAS LD DEC23 | 235 | 6,752,550 | 4.50 | |||||||||||
Henry LD1 Fix FUT Dec23 | 1,060 | 4,819,300 | 3.21 | |||||||||||
Henry LD1 Fix FUT Dec24 | 775 | 3,215,128 | 2.14 | |||||||||||
NAT GAS LAST DAY Nov22 | 95 | 2,567,040 | 1.71 | |||||||||||
NATURAL GAS FUTR JAN23 | 252 | (4,042,270 | ) | (2.70) | ||||||||||
Other | 5,147 | 6,505,131 | 4.34 | |||||||||||
Grains | 443 | 392,292 | 0.26 | |||||||||||
Indices | 110 | (179,682 | ) | (0.12) | ||||||||||
Livestock | 41 | (53,040 | ) | (0.04) | ||||||||||
Metals | 42 | (65,985 | ) | (0.04) | ||||||||||
Softs | 605 | 376,867 | 0.25 | |||||||||||
Total futures contracts purchased | 91,133,038 | 60.79 | ||||||||||||
Futures Contracts Sold | ||||||||||||||
Currencies | 94 | 254,655 | 0.16 | |||||||||||
Energy | ||||||||||||||
NATURAL GAS FUTR NOV22 | 859 | 9,057,690 | 6.04 | |||||||||||
NATURAL GAS FUTR DEC22 | 546 | 5,862,970 | 3.91 | |||||||||||
Henry LD1 Fix FUT Sep24 | 663 | (2,082,995 | ) | (1.39) | ||||||||||
GLOBEX NAT GAS LD MAR23 | 65 | (2,176,480 | ) | (1.45) | ||||||||||
NATURAL GAS FUTR MAY23 | 692 | (2,742,630 | ) | (1.83) | ||||||||||
Henry LD1 Fix FUT Jan 2023 | 865 | (2,984,828 | ) | (1.99) | ||||||||||
GLOBEX NAT GAS LD MAR24 | 235 | (5,689,990 | ) | (3.80) | ||||||||||
Henry LD1 Fix FUT Apr23 | 2,236 | (8,849,017 | ) | (5.90) | ||||||||||
Other | 8,601 | (13,345,727 | ) | (8.90) | ||||||||||
Grains | 371 | 46,254 | 0.03 | |||||||||||
Indices | 145 | 159,566 | 0.11 | |||||||||||
Livestock | 34 | 22,665 | 0.02 | |||||||||||
Metals | 69 | 25,868 | 0.02 | |||||||||||
Softs | 267 | 200,181 | 0.13 | |||||||||||
Total futures contracts sold | (22,241,818 | ) | (14.84) | |||||||||||
Net unrealized appreciation on open futures contracts | $ | 68,891,220 | 45.95 | % | ||||||||||
Unrealized Appreciation on Open Forward Contracts | ||||||||||||||
Metals | 329 | $ | 2,391,761 | 1.60 | % | |||||||||
Total unrealized appreciation on open forward contracts | 2,391,761 | 1.60 | ||||||||||||
Unrealized Depreciation on Open Forward Contracts | ||||||||||||||
Metals | 272 | (2,416,721 | ) | (1.62) | ||||||||||
Total unrealized depreciation on open forward contracts | (2,416,721 | ) | (1.62) | |||||||||||
Net unrealized depreciation on open forward contracts | $ | (24,960 | ) | (0.02) | % | |||||||||
Options Purchased | ||||||||||||||
Calls | ||||||||||||||
Energy | 481 | $ | 8,086,126 | 5.39 | % | |||||||||
Metals | 139 | 132,710 | 0.09 | |||||||||||
Softs | 89 | 29,920 | 0.02 | |||||||||||
Puts | ||||||||||||||
Energy | 593 | 115,846 | 0.08 | |||||||||||
Metals | 11 | 223,252 | 0.15 | |||||||||||
Total options purchased (premiums paid $2,690,693 ) | $ | 8,587,854 | 5.73 | % | ||||||||||
Options Written | ||||||||||||||
Calls | ||||||||||||||
Energy | 350 | $ | (4,437,875 | ) | (2.97) | % | ||||||||
Grains | 49 | (93,712 | ) | (0.06) | ||||||||||
Metals | 89 | (94,546 | ) | (0.06) | ||||||||||
Softs | 5 | (19,969 | ) | (0.01) | ||||||||||
Puts | ||||||||||||||
Energy | 925 | (1,234,806 | ) | (0.82) | ||||||||||
Metals | 15 | (263,671 | ) | (0.18) | ||||||||||
Softs | 140 | (224,595 | ) | (0.15) | ||||||||||
Total options written (premiums received $4,447,959 ) | $ | (6,369,174 | ) | (4.25) | % | |||||||||
Fair Value | % of Partners’ Capital | |||||||||||||
Investment in the Funds | ||||||||||||||
CMF NL Master Fund LLC | $ | 12,412,833 | 8.28 | % | ||||||||||
CMF Drakewood Master Fund LLC | 12,012,417 | 8.01 | ||||||||||||
Total investment in the Funds | $ | 24,425,250 | 16.29 | % | ||||||||||
Number of Contracts | Fair Value | % of Partners’ Capital | ||||||||||
Futures Contracts Purchased | ||||||||||||
Currencies | 40 | $ | 9,055 | 0.01 | ||||||||
Energy | ||||||||||||
NATURAL GAS FUTR Feb 22 - Dec 24 | 12,525 | 15,688,463 | 12.26 | |||||||||
NAT GAS LAST DAY Dec 22 | 230 | 2,925,360 | 2.29 | |||||||||
GLOBEX NAT GAS LD Dec 23 | 235 | 1,984,400 | 1.55 | |||||||||
Other | 2,294 | 1,051,178 | 0.82 | |||||||||
Grains | 285 | 37,245 | 0.03 | |||||||||
Indices | 476 | (1,154,113 | ) | (0.90) | ||||||||
Livestock | 31 | 990 | 0.00 | * | ||||||||
Metals | 110 | 134,848 | 0.11 | |||||||||
Softs | 322 | 1,057 | 0.00 | * | ||||||||
Total futures contracts purchased | 20,678,483 | 16.17 | ||||||||||
Futures Contracts Sold | ||||||||||||
Energy | ||||||||||||
NATURAL GAS FUTR Mar 22 - Mar 25 | 13,228 | (7,865,625 | ) | (6.15) | ||||||||
NAT GAS LAST DAY Mar 22 - Oct 22 | 699 | (6,817,820 | ) | (5.33) | ||||||||
GLOBEX NAT GAS LD Mar 24 | 235 | (1,558,690 | ) | (1.22) | ||||||||
Other | 3,371 | (2,197,193 | ) | (1.72) | ||||||||
Grains | 211 | 115,235 | 0.09 | |||||||||
Indices | 320 | 233,958 | 0.18 | |||||||||
Livestock | 42 | (12,440 | ) | (0.01) | ||||||||
Metals | 34 | (17,100 | ) | (0.01) | ||||||||
Softs | 249 | (38,031 | ) | (0.03) | ||||||||
Total futures contracts sold | (18,157,706 | ) | (14.20) | |||||||||
Net unrealized appreciation on open futures contracts | $ | 2,520,777 | 1.97 | % | ||||||||
Unrealized Appreciation on Open Forward Contracts | ||||||||||||
Metals | 493 | $ | 2,333,825 | 1.83 | % | |||||||
Total unrealized appreciation on open forward contracts | 2,333,825 | 1.83 | ||||||||||
Unrealized Depreciation on Open Forward Contracts | ||||||||||||
Metals | 507 | (2,301,327 | ) | (1.80) | ||||||||
Total unrealized depreciation on open forward contracts | (2,301,327 | ) | (1.80) | |||||||||
Net unrealized appreciation on open forward contracts | $ | 32,498 | 0.03 | % | ||||||||
Options Purchased | ||||||||||||
Calls | ||||||||||||
Energy | ||||||||||||
NAT GAS EUR OPT C, 3% - 4.25%, Feb 22 - Dec 25 | 1,695 | $ | 10,523,414 | 8.23 | % | |||||||
Metals | 97 | 551,393 | 0.43 | |||||||||
Puts | ||||||||||||
Energy | 920 | 661,421 | 0.52 | |||||||||
Metals | 83 | 130,377 | 0.10 | |||||||||
Total options purchased (premiums paid $6,171,271 ) | $ | 11,866,605 | 9.28 | % | ||||||||
Options Written | ||||||||||||
Calls | ||||||||||||
Energy | 1,377 | $ | (3,786,346 | ) | (2.96) | % | ||||||
Metals | 97 | (551,393 | ) | (0.43) | ||||||||
Puts | ||||||||||||
Energy | 2,179 | (2,553,333 | ) | (2.00) | ||||||||
Metals | 83 | (130,377 | ) | (0.10) | ||||||||
Softs | 25 | (17,808 | ) | (0.01) | ||||||||
Total options written (premiums received $6,265,420 ) | $ | (7,039,257 | ) | (5.50) | % | |||||||
Fair Value | % of Partners’ Capital | |||||||||||
Investment in the Funds | ||||||||||||
CMF NL Master Fund LLC | $ | 10,984,329 | 8.59 | % | ||||||||
CMF GSL Master Fund LLC | 20,926,428 | 16.36 | ||||||||||
Total investment in the Funds | $ | 31,910,757 | 24.95 | % | ||||||||
* | Due to rounding. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Investment Income: | ||||||||||||||||
Interest income | $ | 538,815 | $ | 8,284 | $ | 675,204 | $ | 16,944 | ||||||||
Interest income allocated from the Funds | 103,151 | 3,598 | 162,591 | 6,975 | ||||||||||||
Total investment income | 641,966 | 11,882 | 837,795 | 23,919 | ||||||||||||
Expenses: | ||||||||||||||||
Expenses allocated from the Funds | 28,370 | 63,481 | 144,684 | 197,131 | ||||||||||||
Clearing fees related to direct investments | 212,452 | 241,521 | 659,076 | 814,031 | ||||||||||||
Ongoing selling agent fees | 284,449 | 236,689 | 817,608 | 653,981 | ||||||||||||
Management fees | 454,171 | 343,661 | 1,244,444 | 951,017 | ||||||||||||
General Partner fees | 291,417 | 240,130 | 834,070 | 663,128 | ||||||||||||
Incentive fees | 426,693 | 1,766,430 | 5,650,564 | 10,114,235 | ||||||||||||
Professional fees | 124,640 | 111,544 | 362,406 | 320,318 | ||||||||||||
Total expenses | 1,822,192 | 3,003,456 | 9,712,852 | 13,713,841 | ||||||||||||
Net investment loss | (1,180,226 | ) | (2,991,574 | ) | (8,875,057 | ) | (13,689,922 | ) | ||||||||
Trading Results: | ||||||||||||||||
Net gains (losses) on trading of commodity interests and investments in the Funds: | ||||||||||||||||
Net realized gains (losses) on closed contracts | 1,129,824 | (2,727,412 | ) | (42,267,790 | ) | 7,462,257 | ||||||||||
Net realized gains (losses) on closed contracts allocated from the Funds | (984,940 | ) | 3,600,237 | 3,992,879 | 35,014,567 | |||||||||||
Net change in unrealized gains (losses) on open contracts | 2,528,784 | 7,643,511 | 65,344,112 | 10,715,067 | ||||||||||||
Net change in unrealized gains (losses) on open contracts allocated from the Funds | 1,616,984 | 1,331,183 | 3,014,573 | 2,526,472 | ||||||||||||
Total trading results | 4,290,652 | 9,847,519 | 30,083,774 | 55,718,363 | ||||||||||||
Net income (loss) | $ | 3,110,426 | $ | 6,855,945 | $ | 21,208,717 | $ | 42,028,441 | ||||||||
Net income (loss) per Redeemable Unit: * | ||||||||||||||||
Class A | $ | 54.23 | $ | 122.68 | $ | 375.82 | $ | 742.76 | ||||||||
Class D | $ | 43.01 | $ | 97.28 | $ | 298.02 | $ | 588.99 | ||||||||
Class Z | $ | 48.50 | $ | 103.06 | $ | 318.46 | $ | 610.46 | ||||||||
Weighted average Redeemable Units outstanding: | ||||||||||||||||
Class A | 54,960.8080 | 54,395.5797 | 54,907.5884 | 54,399.5583 | ||||||||||||
Class D | 600.0580 | 600.0580 | 600.0580 | 600.0580 | ||||||||||||
Class Z | 1,813.5447 | 1,138.9740 | 1,508.4578 | 1,098.7269 | ||||||||||||
* | Represents the change in net asset value per Redeemable Unit during the period. |
Class A | Class D | Class Z | Total | |||||||||||||||||||||||||||||
Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | |||||||||||||||||||||||||
Partners’ Capital, December 31, 2020 | $ | 81,673,675 | 56,256.1017 | $ | 690,828 | 600.0580 | $ | 1,274,933 | 1,087.4260 | $ | 83,639,436 | 57,943.5857 | ||||||||||||||||||||
Subscriptions - Limited Partners | 6,903,560 | 3,488.8770 | - | - | 225,000 | 139.4870 | 7,128,560 | 3,628.3640 | ||||||||||||||||||||||||
Redemptions - General Partner | - | - | - | - | (140,000 | ) | (87.9390 | ) | (140,000 | ) | (87.9390 | ) | ||||||||||||||||||||
Redemptions - Limited Partners | (10,771,322 | ) | (5,606.9350 | ) | - | - | - | - | (10,771,322 | ) | (5,606.9350 | ) | ||||||||||||||||||||
Net income (loss) | 41,004,280 | - | 353,431 | - | 670,730 | - | 42,028,441 | - | ||||||||||||||||||||||||
Partners’ Capital, September 30, 2021 | $ | 118,810,193 | 54,138.0437 | $ | 1,044,259 | 600.0580 | $ | 2,030,663 | 1,138.9740 | $ | 121,885,115 | 55,877.0757 | ||||||||||||||||||||
Partners’ Capital, June 30, 2021 | $ | 110,731,359 | 53,444.4687 | $ | 985,883 | 600.0580 | $ | 1,863,286 | 1,109.2090 | $ | 113,580,528 | 55,153.7357 | ||||||||||||||||||||
Subscriptions - Limited Partners | 3,386,000 | 1,614.7500 | - | - | 50,000 | 29.7650 | 3,436,000 | 1,644.5150 | ||||||||||||||||||||||||
Redemptions - Limited Partners | (1,987,358 | ) | (921.1750 | ) | - | - | - | - | (1,987,358 | ) | (921.1750 | ) | ||||||||||||||||||||
Net income (loss) | 6,680,192 | - | 58,376 | - | 117,377 | - | 6,855,945 | - | ||||||||||||||||||||||||
Partners’ Capital, September 30, 2021 | $ | 118,810,193 | 54,138.0437 | $ | 1,044,259 | 600.0580 | $ | 2,030,663 | 1,138.9740 | $ | 121,885,115 | 55,877.0757 | ||||||||||||||||||||
Class A | Class D | Class Z | Total | |||||||||||||||||||||||||||||
Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | Amount | Redeemable Units | |||||||||||||||||||||||||
Partners’ Capital, December 31, 2021 | $ | 124,645,209 | 54,425.1587 | $ | 1,089,766 | 600.0580 | $ | 2,175,449 | 1,166.8680 | $ | 127,910,424 | 56,192.0847 | ||||||||||||||||||||
Subscriptions - Limited Partners | 8,785,500 | 3,447.0320 | - | - | 1,575,000 | 744.4880 | 10,360,500 | 4,191.5200 | ||||||||||||||||||||||||
Redemptions - Limited Partners | (9,460,167 | ) | (3,642.3840 | ) | - | - | (102,467 | ) | (46.6890 | ) | (9,562,634 | ) | (3,689.0730 | ) | ||||||||||||||||||
Net income (loss) | 20,607,654 | - | 178,826 | - | 422,237 | - | 21,208,717 | - | ||||||||||||||||||||||||
Partners’ Capital, September 30, 2022 | $ | 144,578,196 | 54,229.8067 | $ | 1,268,592 | 600.0580 | $ | 4,070,219 | 1,864.6670 | $ | 149,917,007 | 56,694.5317 | ||||||||||||||||||||
Partners’ Capital, June 30, 2022 | $ | 141,751,370 | 54,273.4647 | $ | 1,242,788 | 600.0580 | $ | 3,586,429 | 1,680.3690 | $ | 146,580,587 | 56,553.8917 | ||||||||||||||||||||
Subscriptions - Limited Partners | 4,405,500 | 1,678.2720 | - | - | 500,000 | 230.9870 | 4,905,500 | 1,909.2590 | ||||||||||||||||||||||||
Redemptions - Limited Partners | (4,577,039 | ) | (1,721.9300 | ) | - | - | (102,467 | ) | (46.6890 | ) | (4,679,506 | ) | (1,768.6190 | ) | ||||||||||||||||||
Net income (loss) | 2,998,365 | - | 25,804 | - | 86,257 | - | 3,110,426 | - | ||||||||||||||||||||||||
Partners’ Capital, September 30, 2022 | $ | 144,578,196 | 54,229.8067 | $ | 1,268,592 | 600.0580 | $ | 4,070,219 | 1,864.6670 | $ | 149,917,007 | 56,694.5317 | ||||||||||||||||||||
1. | Organization: |
2. | Basis of Presentation and Summary of Significant Accounting Policies: |
3. | Financial Highlights: |
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | Class D | Class Z | Class A | Class D | Class Z | Class A | Class D | Class Z | Class A | Class D | Class Z | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Per Redeemable Unit Performance (for a unit outstanding throughout the period): * | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net realized and unrealized gains (losses) | $ | 75.11 | $ | 59.50 | $ | 61.04 | $ | 176.37 | $ | 139.82 | $ | 143.09 | $ | 533.24 | $ | 422.96 | $ | 422.09 | $ | 988.50 | $ | 781.82 | $ | 779.17 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net investment loss | (20.88 | ) | (16.49 | ) | (12.54 | ) | (53.69 | ) | (42.54 | ) | (40.03 | ) | (157.42 | ) | (124.94 | ) | (103.63 | ) | (245.74 | ) | (192.83 | ) | (168.71 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) for the period | 54.23 | 43.01 | 48.50 | 122.68 | 97.28 | 103.06 | 375.82 | 298.02 | 318.46 | 742.76 | 588.99 | 610.46 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value per Redeemable Unit, beginning of period | 2,611.80 | 2,071.11 | 2,134.31 | 2,071.90 | 1,642.98 | 1,679.83 | 2,290.21 | 1,816.10 | 1,864.35 | 1,451.82 | 1,151.27 | 1,172.43 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net asset value per Redeemable Unit, end of period | $ | 2,666.03 | $ | 2,114.12 | $ | 2,182.81 | $ | 2,194.58 | $ | 1,740.26 | $ | 1,782.89 | $ | 2,666.03 | $ | 2,114.12 | $ | 2,182.81 | $ | 2,194.58 | $ | 1,740.26 | $ | 1,782.89 | ||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | Class D | Class Z | Class A | Class D | Class Z | Class A | Class D | Class Z | Class A | Class D | Class Z | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratios to Average Limited Partners’ Capital: ** | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment loss *** | (2.3 | ) | % | (2.3 | ) | % | (1.6 | ) | % | (5.7 | ) | % | (5.6 | ) | % | (4.9 | ) | % | (7.0 | ) | % | (7.0 | ) | % | (5.1 | ) | % | (14.0 | ) | % | (13.6 | ) | % | (11.8 | ) | % | ||||||||||||||||||||||||||||||||||||
Operating expenses | 3.7 | % | 3.7 | % | 3.0 | % | 4.2 | % | 4.2 | % | 3.4 | % | 3.8 | % | 3.8 | % | 3.2 | % | 4.5 | % | 4.5 | % | 3.7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Incentive fees | 0.3 | % | 0.3 | % | 0.3 | % | 1.5 | % | 1.5 | % | 1.5 | % | 4.0 | % | 4.0 | % | 3.0 | % | 9.5 | % | 9.2 | % | 8.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Total expenses | 4.0 | % | 4.0 | % | 3.3 | % | 5.7 | % | 5.7 | % | 4.9 | % | 7.8 | % | 7.8 | % | 6.2 | % | 14.0 | % | 13.7 | % | 11.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Total return: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total return before incentive fees | 2.4 | % | 2.4 | % | 2.5 | % | 7.4 | % | 7.4 | % | 7.7 | % | 20.8 | % | 20.8 | % | 20.3 | % | 63.7 | % | 63.5 | % | 62.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Incentive fees | (0.3 | ) | % | (0.3 | ) | % | (0.2 | ) | % | (1.5 | ) | % | (1.5 | ) | % | (1.6 | ) | % | (4.4 | ) | % | (4.4 | ) | % | (3.2 | ) | % | (12.5 | ) | % | (12.3 | ) | % | (10.7 | ) | % | ||||||||||||||||||||||||||||||||||||
Total return after incentive fees | 2.1 | % | 2.1 | % | 2.3 | % | 5.9 | % | 5.9 | % | 6.1 | % | 16.4 | % | 16.4 | % | 17.1 | % | 51.2 | % | 51.2 | % | 52.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
* | 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. |
4. | Trading Activities: |
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 | |||||||||||||||||||||
September 30, 2022 | Financial Instruments | Cash Collateral Received/ Pledged* | Net Amount | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Futures | $ | 123,494,882 | $ | (54,603,662 | ) | $ | 68,891,220 | $ | - | $ | - | $ | 68,891,220 | |||||||||||
Forwards | 2,391,761 | (2,391,761 | ) | - | - | - | - | |||||||||||||||||
Total assets | $ | 125,886,643 | $ | (56,995,423) | $ | 68,891,220 | $ | - | $ | - | $ | 68,891,220 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Futures | $ | (54,603,662 | ) | $ | 54,603,662 | $ | - | $ | - | $ | - | $ | - | |||||||||||
Forwards | (2,416,721 | ) | 2,391,761 | (24,960 | ) | - | 24,960 | - | ||||||||||||||||
Total liabilities | $ | (57,020,383 | ) | $ | 56,995,423 | $ | (24,960 | ) | $ | - | $ | 24,960 | $ | - | ||||||||||
Net fair value | $ | 68,891,220 | * | |||||||||||||||||||||
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 | |||||||||||||||||||||
December 31, 2021 | Financial Instruments | Cash Collateral Received/ Pledged* | Net Amount | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Futures | $ | 33,395,257 | $ | (30,874,480) | $ | 2,520,777 | $ | - | $ | - | $ | 2,520,777 | ||||||||||||
Forwards | 2,333,825 | (2,301,327) | 32,498 | - | - | 32,498 | ||||||||||||||||||
Total assets | $ | 35,729,082 | $ | (33,175,807 | ) | $ | 2,553,275 | $ | - | $ | - | $ | 2,553,275 | |||||||||||
Liabilities | ||||||||||||||||||||||||
Futures | $ | (30,874,480) | $ | 30,874,480 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Forwards | (2,301,327) | 2,301,327 | - | - | - | - | ||||||||||||||||||
Total liabilities | $ | (33,175,807) | $ | 33,175,807 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Net fair value | $ | 2,553,275 | * | |||||||||||||||||||||
* | 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. |
September 30, 2022 | |||||
Assets | |||||
Futures Contracts | |||||
Currencies | $ | 308,158 | |||
Energy | 121,499,252 | ||||
Grains | 712,688 | ||||
Indices | 162,547 | ||||
Livestock | 23,895 | ||||
Metals | 72,408 | ||||
Softs | 715,934 | ||||
Total unrealized appreciation on open futures contracts | 123,494,882 | ||||
Liabilities | |||||
Futures Contracts | |||||
Currencies | (420,280) | ||||
Energy | (53,420,896) | ||||
Grains | (274,142) | ||||
Indices | (182,663) | ||||
Livestock | (54,270) | ||||
Metals | (112,525) | ||||
Softs | (138,886) | ||||
Total unrealized depreciation on open futures contracts | (54,603,662) | ||||
Net unrealized appreciation on open futures contracts | $ | 68,891,220 | * | ||
Assets | |||||
Forward Contracts | |||||
Metals | $ | 2,391,761 | |||
Total unrealized appreciation on open forward contracts | 2,391,761 | ||||
Liabilities | |||||
Forward Contracts | |||||
Metals | (2,416,721) | ||||
Total unrealized depreciation on open forward contracts | (2,416,721) | ||||
Net unrealized depreciation on open forward contracts | $ | (24,960) | ** | ||
Assets | |||||
Options Purchased | |||||
Energy | $ | 8,201,972 | |||
Metals | 355,962 | ||||
Softs | 29,920 | ||||
Total options purchased | $ | 8,587,854 | *** | ||
Liabilities | |||||
Options Written | |||||
Energy | $ | (5,672,681) | |||
Grains | (93,712) | ||||
Metals | (358,217) | ||||
Softs | (244,564) | ||||
Total options written | $ | (6,369,174) | **** | ||
* | This amount is in “Net unrealized appreciation on open futures contracts” in the Statements of Financial Condition. |
** | This amount is in “Net unrealized depreciation on open forward contracts” in the Statements of Financial Condition. |
*** | 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. |
December 31, 2021 | ||||
Assets | ||||
Futures Contracts | ||||
Currencies | $ | 19,552 | ||
Energy | 32,506,206 | |||
Grains | 269,015 | |||
Indices | 240,961 | |||
Livestock | 14,300 | |||
Metals | 164,478 | |||
Softs | 180,745 | |||
Total unrealized appreciation on open futures contracts | 33,395,257 | |||
Liabilities | ||||
Futures Contracts | ||||
Currencies | (10,497) | |||
Energy | (29,296,133) | |||
Grains | (116,535) | |||
Indices | (1,161,116) | |||
Livestock | (25,750) | |||
Metals | (46,730) | |||
Softs | (217,719) | |||
Total unrealized depreciation on open futures contracts | (30,874,480) | |||
Net unrealized appreciation on open futures contracts | $ | 2,520,777 | * | |
Assets | ||||
Forward Contracts | ||||
Metals | $ | 2,333,825 | ||
Total unrealized appreciation on open forward contracts | 2,333,825 | |||
Liabilities | ||||
Forward Contracts | ||||
Metals | (2,301,327) | |||
Total unrealized depreciation on open forward contracts | (2,301,327) | |||
Net unrealized appreciation on open forward contracts | $ | 32,498 | ** | |
Assets | ||||
Options Purchased | ||||
Energy | $ | 11,184,835 | ||
Metals | 681,770 | |||
Total options purchased | $ | 11,866,605 | *** | |
Liabilities | ||||
Options Written | ||||
Energy | $ | (6,339,679) | ||
Metals | (681,770) | |||
Softs | (17,808) | |||
Total options written | $ | (7,039,257) | **** | |
* | This amount is in “Net unrealized appreciation on open futures contracts” in the Statements of Financial Condition. |
** | This amount is in “Net unrealized appreciation on open forward contracts” in the Statements of Financial Condition. |
*** | 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. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Sector | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Currencies | $ | (330,135) | $ | (48,781) | $ | (599,296) | $ | (77,293) | ||||||||
Energy | 3,660,824 | 4,674,691 | 21,843,037 | 13,791,060 | ||||||||||||
Grains | 272,444 | 496,329 | 1,609,425 | 1,214,184 | ||||||||||||
Indices | (32,723) | (602,932) | 388,927 | 1,026,463 | ||||||||||||
Livestock | 35,327 | 78,520 | 65,013 | (832,474) | ||||||||||||
Metals | (218,805) | 107,204 | (1,435,358) | 1,926,648 | ||||||||||||
Softs | 271,676 | 211,068 | 1,204,574 | 1,128,736 | ||||||||||||
Total | $ | 3,658,608 | ***** | $ | 4,916,099 | ***** | $ | 23,076,322 | ***** | $ | 18,177,324 | ***** | ||||
***** | This amount is included in “Total trading results” in the Statements of Income and Expenses. |
5. | Fair Value Measurements: |
September 30, 2022 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Asset s | ||||||||||||||||
Future s | $ | 123,494,882 | $ | 47,900,767 | $ | 75,594,115 | $ | - | ||||||||
Forwards | 2,391,761 | - | 2,391,761 | - | ||||||||||||
Options purchased | 8,587,854 | 8,587,854 | - | - | ||||||||||||
Total assets | $ | 134,474,497 | $ | 56,488,621 | $ | 77,985,876 | $ | - | ||||||||
Liabilities | ||||||||||||||||
Futures | $ | 54,603,662 | $ | 26,521,346 | $ | 28,082,316 | $ | - | ||||||||
Forwards | 2,416,721 | - | 2,416,721 | - | ||||||||||||
Options written | 6,369,174 | 6,369,174 | - | - | ||||||||||||
Total liabilities | $ | 63,389,557 | $ | 32,890,520 | $ | 30,499,037 | $ | - | ||||||||
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets | ||||||||||||||||
Futures | $ | 33,395,257 | $ | 33,395,257 | $ | - | $ | - | ||||||||
Forwards | 2,333,825 | - | 2,333,825 | - | ||||||||||||
Options purchased | 11,866,605 | 11,866,605 | - | - | ||||||||||||
Total assets | $ | 47,595,687 | $ | 45,261,862 | $ | 2,333,825 | $ | - | ||||||||
Liabilities | ||||||||||||||||
Futures | $ | 30,874,480 | $ | 30,874,480 | $ | - | $ | - | ||||||||
Forwards | 2,301,327 | - | 2,301,327 | - | ||||||||||||
Options written | 7,039,257 | 7,039,257 | - | - | ||||||||||||
Total liabilities | $ | 40,215,064 | $ | 37,913,737 | $ | 2,301,327 | $ | - | ||||||||
6. | Investment in the Funds: |
September 30, 2022 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
NL Master | $ | 45,119,448 | $ | 157,777 | $ | 44,961,671 | ||||||
Drakewood Master | 41,365,935 | 953,549 | 40,412,386 | |||||||||
December 31, 2021 | ||||||||||||
Total Assets | Total Liabilities | Total Capital | ||||||||||
GSL Master | $ | 27,210,336 | $ | 6,284,765 | $ | 20,925,571 | ||||||
NL Master | 50,260,292 | 8,006,342 | 42,253,950 |
For the three months ended September 30, 2022 | ||||||||||||
Net Investment Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
NL Master | $ | 162,938 | $ | 2,109,657 | $ | 2,272,595 | ||||||
Drakewood Master | 103,477 | 458,651 | 562,128 | |||||||||
For the nine months ended September 30, 2022 | ||||||||||||
Net Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
GSL Master | $ | (49,612) | $ | 3,221,886 | $ | 3,172,274 | ||||||
NL Master | 140,150 | 15,876,257 | 16,016,407 | |||||||||
Drakewood Master (a) | 97,288 | (1,671,264) | (1,573,976) | |||||||||
For the three months ended September 30, 2021 | ||||||||||||
Net Investment Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
GSL Master | $ | (39,413) | $ | 1,973,719 | $ | 1,934,306 | ||||||
NL Master | (67,004) | 9,624,263 | 9,557,259 | |||||||||
For the nine months ended September 30, 2021 | ||||||||||||
Net Investment Income (Loss) | Total Trading Results | Net Income (Loss) | ||||||||||
GSL Master | $ | (145,971) | $ | 32,121,939 | $ | 31,975,968 | ||||||
NL Master | (163,934) | 19,345,108 | 19,181,174 |
(a) | From May 1, 2022, commencement of operations for Drakewood Master, through September 30, 2022. |
September 30, 2022 | For the three months ended September 30, 2022 | |||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||
NL Master | 8.28 | % | $ | 12,412,833 | $ | 549,284 | $ | 5,150 | $ | 4,165 | $ | 539,969 | Commodity Portfolio | Monthly | ||||||||||||||||||
Drakewood Master | 8.01 | % | 12,012,417 | 185,911 | 11,470 | 7,585 | 166,856 | Commodity Portfolio | Monthly | |||||||||||||||||||||||
$ | 24,425,250 | $ | 735,195 | $ | 16,620 | $ | 11,750 | $ | 706,825 | |||||||||||||||||||||||
September 30, 2022 | For the nine months ended September 30, 2022 | |||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||
GSL Master (a) | - | % | $ | - | $ | 3,254,806 | $ | 29,730 | $ | 52,803 | $ | 3,172,273 | Commodity Portfolio | Monthly | ||||||||||||||||||
NL Master | 8.28 | % | 12,412,833 | 4,308,161 | 17,591 | 12,436 | 4,278,134 | Commodity Portfolio | Monthly | |||||||||||||||||||||||
Drakewood Master (b) | 8.01 | % | 12,012,417 | (392,924 | ) | 19,828 | 12,296 | (425,048) | Commodity Portfolio | Monthly | ||||||||||||||||||||||
$ | 24,425,250 | $ | 7,170,043 | $ | 67,149 | $ | 77,535 | $ | 7,025,359 | |||||||||||||||||||||||
December 31, 2021 | For the three months ended September 30, 2021 | |||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||
GSL Master | 16.36 | % | $ | 20,926,428 | $ | 1,976,391 | $ | 24,752 | $ | 17,334 | $ | 1,934,305 | Commodity Portfolio | Monthly | ||||||||||||||||||
NL Master | 8.59 | % | 10,984,329 | 2,958,627 | 17,011 | 4,384 | 2,937,232 | Commodity Portfolio | Monthly | |||||||||||||||||||||||
$ | 31,910,757 | $ | 4,935,018 | $ | 41,763 | $ | 21,718 | $ | 4,871,537 | |||||||||||||||||||||||
December 31, 2021 | For the nine months ended September 30, 2021 | |||||||||||||||||||||||||||||||
% of Partners’ Capital | Expenses | Net Income (Loss) | ||||||||||||||||||||||||||||||
Funds | Fair Value | Income (Loss) | Clearing Fees | Professional Fees | Investment Objective | Redemptions Permitted | ||||||||||||||||||||||||||
GSL Master | 16.36 | % | $ | 20,926,428 | $ | 32,127,537 | $ | 99,735 | $ | 51,835 | $ | 31,975,967 | Commodity Portfolio | Monthly | ||||||||||||||||||
NL Master | 8.59 | % | 10,984,329 | 5,420,477 | 34,419 | 11,142 | 5,374,916 | Commodity Portfolio | Monthly | |||||||||||||||||||||||
$ | 31,910,757 | $ | 37,548,014 | $ | 134,154 | $ | 62,977 | $ | 37,350,883 | |||||||||||||||||||||||
(a) | From January 1, 2022 through June 30, 2022, the date the Partnership fully redeemed its investment in GSL Master. |
(b) | The Partnership first invested into Drakewood Master on May 1, 2022. |
7. | Financial Instrument Risks: |
8. | Subsequent Events: |
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) equity in trading account, consisting of unrestricted cash, restricted cash, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts and options purchased at fair value, if applicable, and (iv) interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its direct investments and investment in the Funds. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the third 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/Funds from promptly liquidating their futures or option contracts and result in restrictions on redemptions.
Other than the risks inherent in commodity futures, forwards, options and swaps trading, and U.S. Treasury bills and money market mutual fund securities, the General Partner/Trading Manager knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Partnership’s/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 and losses on trading and by expenses, interest income, subscriptions and redemptions of Redeemable Units and distributions of profits, if any.
For the nine months ended September 30, 2022, Partnership capital increased 17.2% from $127,910,424 to $149,917,007. This increase was attributable to subscriptions of 3,447.0320 Class A limited partner Redeemable Units totaling $8,785,500, subscriptions of 744.4880 Class Z limited partner Redeemable Units totaling $1,575,000 and net income of $21,208,717 which was partially offset by redemptions of 3,642.3840 Class A limited partner Redeemable Units totaling $9,460,167 and redemptions of 46.6890 Class Z limited partner Redeemable Units totaling $102,467. Future redemptions can impact the amount of funds available for direct investments and investment in the Funds in subsequent periods.
Other than as discussed above, there are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership’s capital resource arrangements at the present time.
Off-Balance Sheet Arrangements and Contractual Obligations
The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments, that would affect its liquidity or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting periods. The General Partner believes that the estimates and assumptions utilized in preparing the financial statements are reasonable. As a result, actual results could differ from those estimates. A summary of the Partnership’s significant accounting policies is described in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Financial Statements.
The Partnership/Funds record all investments at fair value in their respective 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 respective Statements of Income and Expenses.
22
Results of Operations
During the Partnership’s third quarter of 2022, the net asset value per Redeemable Unit for Class A increased 2.1% from $2,611.80 to $2,666.03 as compared to an increase of 5.9% in the third quarter of 2021. During the Partnership’s third quarter of 2022, the net asset value per Redeemable Unit for Class D increased 2.1% from $2,071.11 to $2,114.12 as compared to an increase of 5.9% in the third quarter of 2021. During the Partnership’s third quarter of 2022, the net asset value per Redeemable Unit for Class Z increased 2.3% from $2,134.31 to $2,182.81 as compared to an increase of 6.1% in the third quarter of 2021. The Partnership experienced a net trading gain before fees and expenses during the third quarter of 2022 of $4,290,652. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, livestock and softs and were partially offset by losses in currencies and metals. The Partnership experienced a net trading gain before fees and expenses during the third quarter of 2021 of $9,847,519. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, livestock, metals and softs and were partially offset by losses in currencies.
During the third quarter, the most notable gains were achieved within the energy sector during July and August from long positions in U.S. and European natural gas futures as supply constraints and heavy demand from power production due to summer heatwaves in both regions boosted prices. In the soft commodities sector, gains were recorded due to positions in cocoa futures during August and September as the Partnership’s sub-advising managers successfully traded around both bullish and bearish price moves in the global cocoa markets. Additional gains were experienced within the grains primarily during July from long positions in corn and soybean oil futures as increased fertilizer costs pushed prices higher. Gains were also achieved from short positions in lean hog futures throughout the quarter as prices declined on an outlook for weakening consumer demand due to inflation pushing prices higher in earlier in the year. A portion of the Partnership’s gains for the quarter was offset by losses incurred within the metals markets during July from long positions in silver futures as a strengthening U.S. dollar diminished demand for precious metals. Additional losses in the metals were recorded from long positions in aluminum futures as prices fell amid global demand concerns. Smaller losses were experienced during August and September from long British pound currency hedging positions as the value of pound declined.
During the Partnership’s nine months ended September 30, 2022, the net asset value per Redeemable Unit for Class A increased 16.4% from $2,290.21 to $2,666.03 as compared to an increase of 51.2% during the nine months ended September 30, 2021. During the Partnership’s nine months ended September 30, 2022, the net asset value per Redeemable Unit for Class D increased 16.4% from $1,816.10 to $2,114.12 as compared to an increase of 51.2% during the nine months ended September 30, 2021. During the Partnership’s nine months ended September 30, 2022, the net asset value per Redeemable Unit for Class Z increased 17.1% from $1,864.35 to $2,182.81 as compared to an increase of 52.1% during the nine months ended September 30, 2021. The Partnership experienced a net trading gain before fees and expenses for the nine months ended September 30, 2022 of $30,083,774. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, livestock and softs and were partially offset by losses in currencies and metals. The Partnership experienced a net trading gain before fees and expenses for the nine months ended September 30, 2021 of $55,718,363. Gains were primarily attributable to the Partnership’s/Funds’ trading of commodity futures in energy, grains, metals and softs and were partially offset by losses in currencies and livestock.
During the first nine months of the year, the most notable gains were experienced from long positions in a wide variety of energy markets as a combination of growing global demand, lack of long-term capital expenditures into energy infrastructure, and the war between Russia and Ukraine pushed prices higher from January through August. Within the grains, gains were recorded during April from long futures positions in wheat, soybeans, and corn as the continued conflict between Russia and Ukraine threatened to curtail European grain exports. Further gains were recorded during March from long positions in sugar, cotton, and cocoa futures as inflationary pressures pushed commodity prices higher. The Partnership’s overall trading gains for the first nine months of the year were partially offset by losses recorded in the metals sector from positions in both industrial and precious metals as currency fluctuations, concerns for global industrial growth, and the uncertain impact of sanctions on Russian metal exports caused short-term price volatility throughout a majority of the first nine months of the year. Smaller losses were experienced during August and September from long British pound currency hedging positions as the value of pound declined.
Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase not only the risks involved in commodity trading, but also the possibility of profit. The profitability of the Partnership/Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other factors, changing supply and demand relationships, weather, pandemics, epidemics and other health crises, 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.
23
Interest income on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of the Funds’) brokerage account during each month is earned at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. For the avoidance of doubt, the Partnership/Funds will not receive interest on amounts in the futures brokerage account that are committed to margin. Any interest earned on the Partnership’s and/or the Funds’ 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 income earned on U.S. Treasury bills and money market mutual fund securities will be retained by the Partnership and/or the Funds, as applicable. Interest income earned for the three and nine months ended September 30, 2022 increased by $630,084 and $813,876, respectively, as compared to the corresponding periods in 2021. The increase in interest income was primarily due to higher interest rates and average daily equity during the three and nine months ended September 30, 2022 as compared to the corresponding periods 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 applicable 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 or MS&Co. has control.
Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees related to direct investments for the three and nine months ended September 30, 2022 decreased by $29,069 and $154,955, respectively, as compared to the corresponding periods 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 and nine months ended September 30, 2022 as compared to the corresponding periods in 2021.
Ongoing selling agent fees are calculated as a percentage of the Partnership’s adjusted Net Assets of Class A Redeemable Units and Class D Redeemable Units as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Ongoing selling agent fees for the three and nine months ended September 30, 2022 increased by $47,760 and $163,627, respectively, as compared to the corresponding periods in 2021. The increase was due to higher average adjusted net assets during the three and nine months ended September 30, 2022 as compared to the corresponding periods in 2021.
Management fees are calculated as a percentage of the Partnership’s adjusted Net Assets as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Management fees for the three and nine months ended September 30, 2022 increased by $110,510 and $293,427, respectively, as compared to the corresponding periods in 2021. The increase was due to higher average net assets during the three and nine months ended September 30, 2022 as compared to the corresponding periods in 2021.
General Partner fees are paid to the General Partner for administering the business and affairs of the Partnership including, among other things, (i) selecting, appointing and terminating the Partnership’s commodity trading advisors, (ii) allocating and reallocating the Partnership’s assets among the commodity trading advisors and (iii) monitoring the activities of the commodity trading advisors. These fees are calculated as a percentage of the Partnership’s adjusted net assets as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. General Partner fees for the three and nine months ended September 30, 2022 increased by $51,287 and $170,942, respectively, as compared to the corresponding periods in 2021. This increase was due to higher average net assets during the three and nine months ended September 30, 2022 as compared to the corresponding periods in 2021.
Incentive fees are based on the Net Trading Profits (as defined in the respective management agreements between the Partnership, the General Partner and each Advisor) generated by each Advisor at the end of each quarter, half year or year, as applicable. Trading performance for the three and nine months ended September 30, 2022 resulted in incentive fees of $426,693 and $5,650,564, respectively. Trading performance for the three and nine months ended September 30, 2021 resulted in incentive fees of $1,766,430 and $10,114,235, respectively. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until such Advisor recovers any net loss incurred and earns additional new trading profits for the Partnership.
In allocating substantially all of the assets of the Partnership among the Advisors, the General Partner considers, among other factors, the Advisors’ past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisors and allocate assets to additional advisors at any time.
24
As of September 30, 2022 and June 30, 2022, the Partnership’s assets were allocated among the Advisors in the following approximate percentages:
Advisor | September 30, 2022 | September 30, 2022 (percentage of Partners’ Capital) | June 30, 2022 * | June 30, 2022 (percentage of Partners’ Capital) * | ||||||||||||
Millburn | $ | 41,227,928 | 28% | $ | 32,933,398 | 22% | ||||||||||
Ospraie | 37,727,320 | 25% | 30,280,454 | 21% | ||||||||||||
Pan | 35,651,525 | 24% | 28,993,520 | 20% | ||||||||||||
Northlander | 11,629,331 | 8% | 13,151,519 | 9% | ||||||||||||
Geosol | - | 0% | 20,612,288 | 14% | ||||||||||||
Drakewood | 12,012,416 | 7% | 10,846,009 | 7% | ||||||||||||
EMC | 7,556,489 | 5% | - | 0% | ||||||||||||
Unallocated | 4,111,998 | 3% | 9,763,399 | 7% |
* | Allocation presented is prior to Geosol’s termination effective the close of business on June 30, 2022. |
For additional disclosures about operational and financial risk related to the COVID-19 outbreak, refer to Part II, Item 5. “Other Information.” in this Form 10-Q.
25
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 positions and, consequently, in their earnings and cash balances. The Partnership’s/Funds’ market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s/Funds’ open positions and the liquidity of the markets in which they trade.
The Partnership/Funds rapidly acquire and liquidate both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance, and the Partnership’s/Funds’ past performance is not necessarily indicative of their future results.
Quantifying the Partnership’s and the Funds’ Trading Value at Risk
The following quantitative disclosures regarding the Partnership’s/Funds’ market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.
The Partnership/Funds account for open positions on the basis of fair value accounting principles. Any loss in the market value of the Partnership’s/Funds’ open positions is directly reflected in the Partnership’s/Funds’ earnings and cash flow.
The Partnership’s/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 sensitive instruments. Northlander and Drakewood trade, and Geosol traded, the Partnership’s assets indirectly in master fund managed accounts established in the name of the master funds over which they have or had been granted limited authority to make trading decisions. Millburn, Ospraie, Pan and EMC directly trade managed accounts in the name of the Partnership. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly and through its investments 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 certain Advisors) and indirectly by each Fund separately. There have been no material changes 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.
26
The following table indicates the trading Value at Risk associated with the Partnership’s open positions by market category as of September 30, 2022. As of September 30, 2022, the Partnership’s total capitalization was $149,917,007.
September 30, 2022 |
| |||||||||||
Market Sector | Value at Risk | % of Total Capitalization | ||||||||||
Currencies | $ | 572,143 | 0.38 | % | ||||||||
Energy | 19,237,138 | 12.83 | ||||||||||
Grains | 1,881,596 | 1.26 | ||||||||||
Livestock | 95,755 | 0.06 | ||||||||||
Metals | 2,534,770 | 1.69 | ||||||||||
Softs | 1,750,878 | 1.17 | ||||||||||
|
|
|
|
| ||||||||
Total | $ | 26,072,280 | 17.39 | % |
The following table indicates the trading Value at Risk associated with the Partnership’s open positions by market category as of December 31, 2021. As of December 31, 2021, the Partnership’s total capitalization was $127,910,424.
December 31, 2021 |
| |||||||||||
Market Sector | Value at Risk | % of Total Capitalization | ||||||||||
Currencies | $ | 94,600 | 0.08 | % | ||||||||
Energy | 6,985,797 | 5.46 | ||||||||||
Grains | 470,493 | 0.37 | ||||||||||
Livestock | 81,180 | 0.06 | ||||||||||
Metals | 910,596 | 0.71 | ||||||||||
Softs | 844,031 | 0.66 | ||||||||||
|
|
|
| |||||||||
Total | $ | 9,386,697 | 7.34 | % |
The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investment in the Funds as of September 30, 2022 and December 31, 2021, and the highest, lowest and average values during the three months ended September 30, 2022 and the twelve months ended December 31, 2021. All open contracts trading risk exposures have been included in calculating the figures set forth below.
As of September 30, 2022 and December 31, 2021, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:
September 30, 2022 |
| |||||||||||||||||||
Three Months Ended September 30, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk * | |||||||||||||||
Currencies | $ | 519,365 | 0.35 | % | $ | 519,365 | $ | 160,105 | $ | 260,220 | ||||||||||
Energy | 17,990,129 | 12.00 | 18,079,938 | 5,648,671 | 9,611,507 | |||||||||||||||
Grains | 1,881,596 | 1.26 | 2,431,285 | 1,421,239 | 1,892,291 | |||||||||||||||
Livestock | 95,755 | 0.06 | 181,225 | 41,250 | 119,474 | |||||||||||||||
Metals | 1,621,136 | 1.08 | 2,842,004 | 967,266 | 1,906,911 | |||||||||||||||
Softs | 1,750,878 | 1.17 | 1,750,878 | 656,885 | 1,287,493 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 23,858,859 | 15.92 | % | ||||||||||||||||
|
|
|
|
* | Average of daily Values at Risk. |
27
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 | $ | 94,600 | 0.07 | % | $ | 122,815 | $ | - | $ | 34,894 | ||||||||||
Energy | 5,371,868 | 4.20 | 7,462,084 | 1,836,386 | 3,525,980 | |||||||||||||||
Grains | 470,493 | 0.37 | 1,842,907 | 301,478 | 946,454 | |||||||||||||||
Livestock | 81,180 | 0.06 | 748,599 | 32,615 | 234,921 | |||||||||||||||
Metals | 910,596 | 0.71 | 2,702,004 | 357,295 | 1,494,999 | |||||||||||||||
Softs | 844,031 | 0.66 | 1,213,593 | 266,446 | 770,096 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 7,772,768 | 6.07 | % | ||||||||||||||||
|
|
|
|
* | Annual average of daily Values at Risk. |
As of September 30, 2022, NL Master’s total capitalization was $44,961,671, and the Partnership owned approximately 27.6% of NL Master. As of September 30, 2022, NL Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to NL Master for trading) was as follows:
September 30, 2022 | ||||||||||||||||||||
Three Months Ended September 30, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk * | |||||||||||||||
Energy | $ | 4,518,148 | 10.05 | % | $ | 7,498,234 | $ | 4,518,148 | $ | 6,226,056 | ||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 4,518,148 | 10.05 | % | ||||||||||||||||
|
|
|
|
* | Average of daily Values at Risk. |
As of December 31, 2021, NL Master’s total capitalization was $42,253,950, and the Partnership owned approximately 26.0% 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 NL Master 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. |
As of September 30, 2022, Drakewood Master’s total capitalization was $40,412,386, and the Partnership owned approximately 29.7% of Drakewood Master. As of September 30, 2022, Drakewood Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Drakewood Master for trading) was as follows:
September 30, 2022 |
| |||||||||||||||||||
Three Months Ended September 30, 2022 | ||||||||||||||||||||
Market Sector | Value at Risk | % of Total Capitalization | High Value at Risk | Low Value at Risk | Average Value at Risk * | |||||||||||||||
Currencies | $ | 177,705 | 0.44 | % | $ | 343,915 | $ | 173,415 | $ | 257,506 | ||||||||||
Metals | 3,076,210 | 7.61 | 5,048,668 | 2,173,349 | 3,140,590 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 3,253,915 | 8.05 | % | ||||||||||||||||
|
|
|
|
* | Average of daily Values at Risk. |
28
As of June 30, 2022, the Partnership fully redeemed its investment from GSL Master.
As of December 31, 2021, GSL Master’s total capitalization was $20,925,571, and the Partnership owned 100% of GSL Master. As of December 31, 2021, GSL Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to GSL Master 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 | $ | 252,733 | 1.21 | % | $ | 4,098,617 | $ | - | $ | 564,146 | ||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 252,733 | 1.21 | % | ||||||||||||||||
|
|
|
|
* | Annual average of daily Values at Risk. |
29
Item 4. Controls and Procedures.
The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.
The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.
The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 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’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |
• | provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |
• | provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements. |
There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
30
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.” or “the Company”).
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 at www.morganstanley.com. We refer you to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2021 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, as well as being subject to regulatory investigations arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions or regulatory investigations include claims for substantial penalties, compensatory and/or punitive damages or claims for indeterminate amounts of penalties or damages.
MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.
During the preceding five years, the following administrative, civil, or criminal actions pending, on appeal or concluded against MS&Co. or any of its principals are material within the meaning of CFTC Rule 4.24(l)(2) or 4.34(k)(2):
Regulatory and Governmental Matters.
On 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.
31
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.
The Firm has reached agreements in principle with two regulatory agencies—the SEC for $125 million and the CFTC for $75 million—to resolve record-keeping related investigations by those agencies relating to business communications on messaging platforms that had not been approved by the Firm. The Company was one of the entities involved in these investigations, and has recognized a provision of $63 million in anticipation of concluding the settlement with the SEC. On September 27, 2022, the Firm’s settlements with the SEC and the CFTC became effective.
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 State of New Jersey ex. rel. Hayes v. Bank of America Corp., et al. 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.
On May 17, 2013, plaintiff in IKB International S.A. in Liquidation, et al. v. Morgan Stanley, et al. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of 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
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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. On July 15, 2022, MS&Co. filed a motion for summary judgment. At December 25, 2019, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $22 million, and the certificates had incurred actual losses of $58 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $22 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., or upon sale, plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
In August of 2017, MS&Co. was named as a defendant in a purported antitrust class action in the United States District Court for the Southern District of New York (“SDNY”) styled Iowa Public Employees’ Retirement System et al. v. Bank of America Corporation et al. Plaintiffs allege, inter alia, that MS&Co., together with a number of other financial institution defendants, violated U.S. antitrust laws and New York state law in connection with their alleged efforts to prevent the development of electronic exchange-based platforms for securities lending. The class action complaint was filed on behalf of a purported class of borrowers and lenders who entered into stock loan transactions with the defendants. The 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. On June 30, 2022, a magistrate judge issued recommendations that the court certify a class.
Settled Civil Litigation
On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co., styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., 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 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 STACK 2006-1 CDO to CDIB, and that MS&Co knew that the assets backing the CDO were of poor quality when it entered into the CDS with CDIB. 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.
On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co. and other defendants in the Circuit Court of the State of Illinois, styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. A corrected amended complaint was filed on April 8, 2011, which alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans and asserts claims under Illinois law. The total amount of certificates allegedly sold to plaintiff by MS&Co. at issue in the action was approximately $203 million. The complaint seeks, among other things, to rescind the
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plaintiff’s purchase of such certificates. On November 4, 2021, the Firm entered into an agreement to settle the litigation.
On April 20, 2011, the Federal Home Loan Bank of Boston filed a complaint against MS&Co. and other defendants in the Superior Court of the Commonwealth of Massachusetts styled Federal Home Loan Bank of Boston v. Ally Financial, Inc. F/K/A GMAC LLC et al. An amended complaint was filed on June 29, 2012 and alleged that defendants made untrue statements and material omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $385 million. The amended complaint raised claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and sought, among other things, to rescind the plaintiff’s purchase of such certificates. On November 25, 2013, July 16, 2014, and May 19, 2015, respectively, the plaintiff voluntarily dismissed its claims against MS&Co. with respect to three of the securitizations at issue. After these voluntary dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $332 million. On July 13, 2018, the parties reached an agreement in principle to settle the litigation.
On May 3, 2013, plaintiffs in Deutsche Zentral-Genossenschaftsbank AG et al. v. Morgan Stanley et al. filed a complaint against MS&Co., certain affiliates, and other defendants in the Supreme Court of NY. The complaint alleged that defendants made material misrepresentations and omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $634 million. The complaint alleged causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and sought, among other things, compensatory and punitive damages. On June 26, 2018, the parties entered into an agreement to settle the litigation.
On April 1, 2016, the California Attorney General’s Office filed an action against MS&Co. in California state court styled California v. Morgan Stanley, et al., on behalf of California investors, including the California Public Employees’ Retirement System and the California Teachers’ Retirement System. The complaint alleged that MS&Co. made misrepresentations and omissions regarding residential mortgage-backed securities and notes issued by the Cheyne SIV, and asserted violations of the California False Claims Act and other state laws and sought treble damages, civil penalties, disgorgement, and injunctive relief. On April 24, 2019, the parties reached an agreement to settle the litigation.
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 Alaska Electrical Pension Fund v. BofA Secs., Inc., et al. 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 In re GSE Bonds Antitrust Litigation, 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,
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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.
Additional lawsuits containing claims similar to those described above may be filed in the future. In the course of its business, MS&Co., as a major futures commission merchant, is party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of MS&Co. MS&Co. may establish reserves from time to time in connections with such actions.
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Item 1A. Risk Factors.
There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors.” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 other than as disclosed in Note 7, “Financial Instrument Risks.” of the Financial Statements and under Part II, Item 1A. “Risk Factors.” in the Partnership’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
For the three months ended September 30, 2022, there were subscriptions of 1,678.2720 Class A Redeemable Units totaling $4,405,500 and 230.9870 Class Z Redeemable Units totaling $500,000. Redeemable Units are issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and Section 506 of Regulation D promulgated thereunder. The Redeemable Units are purchased by accredited investors, as described in Regulation D. In determining the applicability of the exemption, the General Partner relies on the fact that the Redeemable Units are purchased by accredited investors in a private offering.
Proceeds from the sale of Redeemable Units are used in the trading of commodity interests including futures, option and forward contracts and any other interests pertaining thereto, including interest in commodity pools.
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 by Purchased Under the Plans or Programs | ||||||||||||||||||
July 1, 2022 - July 31, 2022 | 1,115.4370 | $ | 2,647.20 | 15.7580 | $ | 2,164.62 | N/A | N/A | ||||||||||||||||
August 1, 2022 - August 31, 2022 | 209.9060 | $ | 2,700.93 | 30.9310 | $ | 2,209.98 | N/A | N/A | ||||||||||||||||
September 1, 2022 - September 30, 2022 | 396.5870 | $ | 2,666.03 | N/A | N/A | N/A | N/A | |||||||||||||||||
1,721.9300 | $ | 2,658.09 | 46.6890 | $ | 2,194.67 |
* | Generally, limited partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date, the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for limited partners. |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions. |
Item 3. Defaults Upon Senior Securities. None.
Item 4. Mine Safety Disclosures. Not Applicable.
Item 5. Other Information.
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 September 30, 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.
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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 Linkbase Document. | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CERES TACTICAL COMMODITY L.P. | ||
By: | Ceres Managed Futures LLC (General Partner) | |
By: | /s/ Patrick T. Egan | |
Patrick T. Egan President and Director | ||
Date: | November 10, 2022 | |
By: | /s/ Brooke Lambert | |
Brooke Lambert | ||
Chief Financial Officer | ||
(Principal Accounting Officer) | ||
Date: | November 10, 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.
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