Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - GLOBAL DIVERSIFIED FUTURES FUND L.P. | Financial_Report.xls |
EX-31.2 - EX-31.2 - GLOBAL DIVERSIFIED FUTURES FUND L.P. | d910515dex312.htm |
EX-32.2 - EX-32.2 - GLOBAL DIVERSIFIED FUTURES FUND L.P. | d910515dex322.htm |
EX-31.1 - EX-31.1 - GLOBAL DIVERSIFIED FUTURES FUND L.P. | d910515dex311.htm |
EX-32.1 - EX-32.1 - GLOBAL DIVERSIFIED FUTURES FUND L.P. | d910515dex321.htm |
Table of Contents
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, 2015
OR ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 000-30455
GLOBAL DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York | 13-4015586 | |
(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
(Registrants telephone number, including area code)
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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ |
Accelerated filer ¨ | Non-accelerated filer þ | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of April 30, 2015, 8,940.4208 Limited Partnership Redeemable Units were outstanding.
Table of Contents
GLOBAL DIVERSIFIED FUTURES FUND L.P.
FORM 10-Q
INDEX
2
Table of Contents
Global Diversified Futures Fund L.P.
Statements of Financial Condition
(Unaudited) | ||||||||
March
31, 2015 |
December
31, 2014 |
|||||||
Assets: |
||||||||
Investment in Funds(1), at fair value |
$ | 15,784,230 | $ | 15,044,274 | ||||
Cash |
124,981 | 51,485 | ||||||
|
|
|
|
|||||
Total assets |
$ | 15,909,211 | $ | 15,095,759 | ||||
|
|
|
|
|||||
Liabilities and Partners Capital: |
||||||||
Liabilities: |
||||||||
Accrued expenses: |
||||||||
Ongoing selling agent fees |
$ | 26,515 | $ | 25,160 | ||||
Management fees |
15,356 | 14,819 | ||||||
Administrative fees |
11,805 | 11,242 | ||||||
Incentive fees |
115,918 | 13,643 | ||||||
Other |
142,188 | 81,895 | ||||||
Redemptions payable to Limited Partners |
181,163 | 43,986 | ||||||
|
|
|
|
|||||
Total liabilities |
492,945 | 190,745 | ||||||
|
|
|
|
|||||
Partners Capital: |
||||||||
General Partner, 100.5634 Redeemable Units outstanding at March 31, 2015 and December 31, 2014 |
169,980 | 161,414 | ||||||
Limited Partners, 9,019.9828 and 9,185.4848 Redeemable Units outstanding at March 31, 2015 and December 31, 2014, respectively |
15,246,286 | 14,743,600 | ||||||
|
|
|
|
|||||
Total partners capital |
15,416,266 | 14,905,014 | ||||||
|
|
|
|
|||||
Total liabilities and partners capital |
$ | 15,909,211 | $ | 15,095,759 | ||||
|
|
|
|
|||||
Net asset value per unit |
$ | 1,690.28 | $ | 1,605.10 | ||||
|
|
|
|
(1) | Defined in Note 1. |
See accompanying notes to financial statements.
3
Table of Contents
Global Diversified Futures Fund L.P.
Schedule of Investments
March 31, 2015
(Unaudited)
Fair Value | % of Partners Capital |
|||||||
Investment in Funds |
||||||||
CMF Aspect Master Fund L.P. |
$ | 6,787,150 | 44.03 | % | ||||
CMF Altis Partners Master Fund L.P. |
4,331,085 | 28.09 | ||||||
Blackwater Master Fund L.P. |
4,665,995 | 30.27 | ||||||
|
|
|
|
|||||
Total investment in Funds, at fair value |
$ | 15,784,230 | 102.39 | % | ||||
|
|
|
|
See accompanying notes to financial statements.
4
Table of Contents
Global Diversified Futures Fund L.P.
Schedule of Investments
December 31, 2014
Fair Value | % of Partners Capital |
|||||||
Investment in Funds |
||||||||
CMF Aspect Master Fund L.P. |
$ | 6,726,238 | 45.12 | % | ||||
CMF Altis Partners Master Fund L.P. |
4,269,884 | 28.65 | ||||||
Blackwater Master Fund L.P. |
4,048,152 | 27.16 | ||||||
|
|
|
|
|||||
Total investment in Funds, at fair value |
$ | 15,044,274 | 100.93 | % | ||||
|
|
|
|
See accompanying notes to financial statements.
5
Table of Contents
Global Diversified Futures Fund L.P.
Statements of Income and Expenses and Changes in Partners Capital
(Unaudited)
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Investment income: |
||||||||
Interest income allocated from Funds |
$ | 270 | $ | 874 | ||||
|
|
|
|
|||||
Expenses: |
||||||||
Ongoing selling agent fees |
79,103 | 187,705 | ||||||
Expenses allocated from Funds |
18,127 | 14,534 | ||||||
Management fees |
45,988 | 39,529 | ||||||
Administrative fees |
35,258 | | ||||||
Incentive fees |
115,918 | | ||||||
Other |
72,884 | 42,423 | ||||||
|
|
|
|
|||||
Total expenses |
367,278 | 284,191 | ||||||
|
|
|
|
|||||
Net investment income (loss) |
(367,008 | ) | (283,317 | ) | ||||
|
|
|
|
|||||
Trading Results: |
||||||||
Net realized gains (losses) on investments allocated from Funds |
1,704,145 | (562,118 | ) | |||||
Change in net unrealized gains (losses) on investments allocated from Funds |
(547,748 | ) | (432,978 | ) | ||||
|
|
|
|
|||||
Total trading results |
1,156,397 | (995,096 | ) | |||||
|
|
|
|
|||||
Net income (loss) |
789,389 | (1,278,413 | ) | |||||
Redemptions - Limited Partners |
(278,137 | ) | (201,822 | ) | ||||
Redemptions - General Partner |
| | ||||||
|
|
|
|
|||||
Net increase (decrease) in Partners Capital |
511,252 | (1,480,235 | ) | |||||
Partners Capital, beginning of period |
14,905,014 | 14,952,043 | ||||||
|
|
|
|
|||||
Partners Capital, end of period |
$ | 15,416,266 | $ | 13,471,808 | ||||
|
|
|
|
|||||
Net asset value per Unit (9,120.5462 and 10,255.2362 Units outstanding at March 31, 2015, and 2014, respectively) |
$ | 1,690.28 | $ | 1,313.65 | ||||
|
|
|
|
|||||
Net income (loss) per unit* |
$ | 85.18 | $ | (122.97 | ) | |||
|
|
|
|
|||||
Weighted average units outstanding |
9,262.0612 | 10,366.4235 | ||||||
|
|
|
|
* | Represents the change in net asset value per unit during the period. |
See accompanying notes to financial statements.
6
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
1. Organization:
Global Diversified Futures Fund L.P. (the Partnership) is a limited partnership organized under the partnership laws of the State of New York on June 15, 1998, to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests, including futures, option, swap and forward contracts on United States exchanges and certain foreign exchanges. The sectors traded include currencies, energy, grains, indices, metals, softs, livestock, lumber and U.S. and non-U.S. interest rates. The commodity interests that are traded by the Funds (as defined below) are volatile and involve a high degree of market risk. The Partnership commenced trading on February 2, 1999. The General Partner may also determine to invest up to all of the Partnerships assets in United States Treasury bills. The Partnership was authorized to sell up to 100,000 redeemable units (Redeemable Units) during its initial offering period. The Partnership no longer offers Redeemable Units for sale.
Ceres Managed Futures LLC, a Delaware limited liability company (the General Partner), acts as the general partner and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (MSSB Holdings). MSSB 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. Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings, and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.
As of March 31, 2015, all commodity trading decisions for the Partnership are made by Aspect Capital Limited (Aspect), Altis Partners (Jersey) Limited (Altis) and Blackwater Capital Management LLC (Blackwater) (each, an Advisor and collectively, the Advisors), each of which is a registered commodity trading advisor. Each Advisor is allocated a portion of the Partnerships assets to manage. The Partnership invests the portion of its assets allocated to each Advisor indirectly through investments in the Funds.
As of March 31, 2015, the Partnerships/Funds commodity broker was Morgan Stanley & Co. LLC (MS&Co.), a registered futures commission merchant. MS&Co. is a wholly owned subsidiary of Morgan Stanley.
Blackwater Master Fund L.P. (Blackwater Master), CMF Aspect Master Fund L.P. (Aspect Master) and CMF Altis Partners Master Fund L.P. (Altis Master, together with Blackwater Master and Aspect Master, the Funds) have entered into a futures brokerage account agreement with MS&Co. Aspect Master has also entered into a foreign exchange brokerage account agreement with MS&Co. The Partnership, through its investment in the Funds, pays MS&Co. trading fees for the clearing and, where applicable, execution of transactions.
The Partnership has also entered into a selling agreement with Morgan Stanley Smith Barney LLC (d/b/a Morgan Stanley Wealth Management). Pursuant to the selling agreement, Morgan Stanley Wealth Management receives a monthly selling agent fee equal to 2.0% per year of adjusted net assets. The selling agent fee received by Morgan Stanley Wealth Management will be shared with the properly registered/exempted financial advisers of Morgan Stanley Wealth Management who sell redeemable units in the Partnership.
Effective April 1, 2014, the monthly ongoing selling agent fee was reduced from an annual rate of 5.4% to an annual rate of 2.9%.
Effective October 1, 2014, the monthly ongoing selling agent fee was further reduced from an annual rate of 2.9% to its current annual rate of 2.0%. As of the same date, the Partnership began paying an administrative fee to the General Partner at an annual rate of 0.9%. The October 1, 2014 fee changes offset each other and, accordingly, there was no change to the aggregate fees incurred by the Partnership.
7
Table of Contents
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 Partnerships financial condition at March 31, 2015 and December 31, 2014 and the results of its operations and changes in partners capital for the three months ended March 31, 2015 and 2014. These financial statements present the results of interim periods and do not include all of the disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnerships Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) for the year ended December 31, 2014. The December 31, 2014 information has been derived from the audited financial statements as of and for the year ended December 31, 2014
The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (GAAP) requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.
The clearing fees and other expenses allocated from the Funds which were previously disclosed separately on the Statements of Income and Expenses, are now disclosed in aggregate as expenses allocated from the Funds.
The General Partner and each limited partner of the Partnership (each, a Limited Partner) share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no Limited Partner is liable for obligations of the Partnership in excess of its capital contributions and profits, if any, or net of distributions or redemptions and losses, if any.
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.
Partnerships Investment: The Partnership carries its investments in the Funds at fair value based on the respective Funds net asset value per unit as calculated by the Funds.
Funds Investments: Fair value of exchange-traded futures, options and forward contracts is determined by the various futures 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.
All commodity interests of the Funds (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in the trading account on the Funds Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported on the Funds Statements of Income and Expenses and Changes in Partners Capital.
Investment Company Status. The Partnership adopted, Accounting Standards Update (ASU) 2013-08, Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements and based on the General Partners assessment, the Partnership has been deemed to be an investment company since inception.
Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnerships income and expenses. GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnerships financial statements to determine whether the tax positions are more-likely-than-not to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The General Partner has concluded that no provision for income tax is required in the Partnerships financial statements.
The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2011 through 2014 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Net Income (loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 3, Financial Highlights.
Recent Accounting Pronouncement: In May 2015, the Financial Accounting Standards Board issued ASU 2015-07 Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) which relates to disclosures for investments that calculate net asset value per share (potentially funds of fund structures). The ASU requires investments for which the practical expedient is used to measure fair value at Net Asset Value (NAV) be removed from the fair value hierarchy. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. Further, the ASU requires entities to provide the disclosures in Accounting Standards Codification (ASC) 820-10-50-6A only for investments for which they elect to use the NAV practical expedient to determine fair value. The standard is effective for public business entities for fiscal years beginning after December 15, 2015, early adoption is permitted. The General Partner is currently evaluating the impact that the new pronouncement would have on the Partnerships financial statements.
There have been no material changes with respect to the Partnerships critical accounting policies as reported in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2014.
8
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
3. Financial Highlights:
Financial highlights for the limited partner class as a whole for the three months ended March 31, 2015 and 2014 were as follows:
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Net realized and unrealized gains (losses) |
$ | 124.80 | $ | (95.64 | ) | |||
Interest income |
0.03 | 0.08 | ||||||
Expenses |
(39.65 | ) | (27.41 | ) | ||||
|
|
|
|
|||||
Increase (decrease) for the period |
85.18 | (122.97 | ) | |||||
Net asset value per unit, beginning of period |
1,605.10 | 1,436.62 | ||||||
|
|
|
|
|||||
Net asset value per unit, end of period |
$ | 1,690.28 | $ | 1,313.65 | ||||
|
|
|
|
Certain prior period amounts have been reclassified to conform to current period presentation. In the financial highlights, the ongoing selling agent fees and clearing fees allocated from the Funds which were previously included in the net realized and unrealized gains (losses) per unit and excluded from expenses per unit, are now excluded from the net realized gains (losses) per unit and included in expenses per unit. This information was previously included as a footnote to the financial highlights table.
Three Months Ended March 31, |
||||||||
2015 | 2014 | |||||||
Ratios to average net assets:*** |
||||||||
Net investment income (loss)**** |
(6.6 | )% | (8.2 | )% | ||||
Operating expenses |
6.6 | % | 8.2 | % | ||||
Incentive fees |
0.8 | % | | % | ||||
|
|
|
|
|||||
Total expenses |
7.4 | % | 8.2 | % | ||||
|
|
|
|
|||||
Total return: |
||||||||
Total return before incentive fees |
6.1 | % | (8.6 | )% | ||||
Incentive fees |
(0.8 | )% | | % | ||||
|
|
|
|
|||||
Total return after incentive fees |
5.3 | % | (8.6 | )% | ||||
|
|
|
|
*** | Annualized (other than incentive fees). |
**** | Interest income less total expenses. Does not reflect the effects of incentive fees. |
The above ratios and total return may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner class using the Limited Partners share of income, expenses and average net assets of the Partnership and includes the income and expenses allocated from the Funds.
9
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(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 interests. The Partnership invests substantially all of its assets through a master/feeder structure. The Partnerships pro-rata share of the results of the Funds trading activities are shown on the Statements of Income and Expenses and Changes in Partners Capital.
The customer agreement among the Partnership, MS&Co. and each of the Funds gives the Partnership and the Funds the legal right to net unrealized gains and losses on open futures and open forward contracts. The Funds net, for financial reporting purposes, the unrealized gains and losses on open futures and open forward contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification 210-20, Balance Sheet, have been met.
All of the commodity interests owned by the Funds are held for trading purposes.
Ongoing selling agent fees paid to Morgan Stanley Wealth Management are calculated as a percentage of the Partnerships adjusted net asset value on the last day of each month and were affected by trading performance, subscriptions and redemptions. Trading and transaction fees are based on the number of trades executed by the Advisors for the Funds. All trading, exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the clearing fees) paid to MS&Co. are borne by the Funds and allocated to the limited partners, including the Partnership.
5. Fair Value Measurements:
Funds Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The Funds consider prices for exchange-traded commodity futures, forwards, swaps and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of non-exchange-traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended March 31, 2015 and December 31, 2014, the Funds investments were classified as either Level 1 or Level 2 and did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partners assumptions and internal valuation pricing models (Level 3). Transfers between levels are recognized at the end of the reporting period. During the three months ended March 31, 2015 and twelve months ended December 31, 2014, there were no transfers of assets or liabilities between Level 1 and Level 2.
10
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
6. Investment in Funds:
On March 1, 2005, the assets allocated to Aspect for trading were invested in Aspect Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 16,015.3206 units of Aspect Master with cash equal to $14,955,106 and a contribution of open commodity futures and forward contracts with a fair value of $1,060,214. Aspect Master permits accounts managed by Aspect using Aspects Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Aspect Master. Individual and pooled accounts currently managed by Aspect, including the Partnership, are permitted to be limited partners of Aspect Master. The General Partner and Aspect believe that trading through this structure should promote efficiency and economy in the trading process.
On November 1, 2005, the assets allocated to Altis for trading were invested in Altis Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 13,013.6283 units of Altis Master with cash equal to $11,227,843 and a contribution of open commodity futures and forward contracts with a fair value of $1,785,785. Altis Master permits accounts managed by Altis using the Global Futures Portfolio Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Altis Master. Individual and pooled accounts currently managed by Altis, including the Partnership, are permitted to be limited partners of Altis Master. The General Partner and Altis believe that trading through this structure should promote efficiency and economy in the trading process.
On November 1, 2010, the assets allocated to Blackwater for trading were invested in Blackwater Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership invested in Blackwater Master with cash equal to $5,000,000. Blackwater Master permits accounts managed by Blackwater using its Global Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Blackwater Master. Individual and pooled accounts currently managed by Blackwater, including the Partnership, are permitted to be limited partners of Blackwater Master. The General Partner and Blackwater believe that trading through this structure should promote efficiency and economy in the trading process.
11
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
The General Partner is not aware of any material changes to any of the trading programs discussed above during the fiscal quarter ended March 31, 2015.
The Funds trading of future, forward, swap and option contracts, if applicable, on commodities is done primarily on United States of America commodity exchanges and foreign commodity exchanges. The Funds engage in such trading through commodity brokerage accounts maintained by MS&Co.
A limited partner of the Funds may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds as of the end of any day (the Redemption Date) after a request for redemption has been made to the General Partner at least three days in advance of the Redemption Date. Such withdrawals are classified as a liability when the limited partner elects to redeem and informs the Funds.
Management and incentive fees are charged at the Partnership level. The clearing fees are borne by the Funds and allocated to the Funds limited partners including the Partnership. All other fees are charged at the Partnership level.
At March 31, 2015, the Partnership owned approximately 8.1%, 9.4% and 21.2% of Aspect Master, Altis Master and Blackwater Master, respectively. At December 31, 2014, the Partnership owned approximately 8.6%, 8.3% and 16.2% of Aspect Master, Altis Master and Blackwater Master, respectively. It is the intention of the Partnership to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to the investors as a result of the 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 partners and capital of the Funds is shown in the following tables.
March 31, 2015 | ||||||||||||
Total Assets | Total Liabilities |
Total
Partners Capital |
||||||||||
Aspect Master |
$ | 83,801,311 | $ | 276,855 | $ | 83,524,456 | ||||||
Altis Master |
46,059,140 | 77,830 | 45,981,310 | |||||||||
Blackwater Master |
22,094,523 | 85,598 | 22,008,925 | |||||||||
December 31, 2014 | ||||||||||||
Total Assets | Total Liabilities |
Total
Partners Capital |
||||||||||
Aspect Master |
$ | 78,421,434 | $ | 50,766 | $ | 78,370,668 | ||||||
Altis Master |
51,413,912 | 51,279 | 51,362,633 | |||||||||
Blackwater Master |
24,973,305 | 43,208 | 24,930,097 |
12
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(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, 2015 | ||||||||||||
Net Investment Income (Loss) |
Total Trading Results |
Net Income (Loss) |
||||||||||
Aspect Master |
$ | (59,710 | ) | $ | 8,187,646 | $ | 8,127,936 | |||||
Altis Master |
(70,592 | ) | 5,217,902 | 5,147,310 | ||||||||
Blackwater Master |
(10,233 | ) | 245,808 | 235,575 | ||||||||
For the three months ended March 31, 2014 | ||||||||||||
Net Investment Income (Loss) |
Total Trading Results |
Net Income (Loss) |
||||||||||
Aspect Master |
(80,498 | ) | (4,728,957 | ) | (4,809,455 | ) | ||||||
Altis Master |
(88,817 | ) | (7,819,046 | ) | (7,907,863 | ) | ||||||
Blackwater Master |
(23,138 | ) | (4,034,100 | ) | (4,057,238 | ) |
13
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
Summarized information reflecting the Partnerships investment in, and the Partnerships pro rata share of the results of operations of the Funds is shown in the following tables.
March 31, 2015 | For the three months ended March 31, 2015 | |||||||||||||||||||||||||||||||
% of Partnerships Net Assets |
Fair Value |
Income (Loss) |
Expenses | Net Income (Loss) |
Investment Objective |
Redemptions Permitted |
||||||||||||||||||||||||||
Funds |
Clearing Fees | Other | ||||||||||||||||||||||||||||||
Aspect Master |
44.03 | % | $ | 6,787,150 | $ | 687,415 | $ | 2,766 | $ | 2,294 | $ | 682,355 | |
Commodity Portfolio |
|
Monthly | ||||||||||||||||
Altis Master |
28.09 | % | 4,331,085 | 456,922 | 3,752 | 2,724 | 450,446 | |
Commodity Portfolio |
|
Monthly | |||||||||||||||||||||
Blackwater Master |
30.27 | % | 4,665,995 | 12,330 | 2,100 | 4,491 | 5,739 | |
Commodity Portfolio |
|
Monthly | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total |
$ | 15,784,230 | $ | 1,156,667 | $ | 8,618 | $ | 9,509 | $ | 1,138,540 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
December 31, 2014 | For the three months ended March 31, 2014 | |||||||||||||||||||||||||||||||
% of Partnerships Net Assets |
Fair Value |
Income (Loss) |
Expenses | Net Income |
Investment Objective |
Redemptions Permitted |
||||||||||||||||||||||||||
Funds |
Clearing Fees | Other | (Loss) | |||||||||||||||||||||||||||||
Aspect Master |
45.12 | % | $ | 6,726,238 | $ | (268,163 | ) | $ | 3,452 | $ | 1,547 | $ | (273,162 | ) | |
Commodity Portfolio |
|
Monthly | ||||||||||||||
Altis Master |
28.65 | % | 4,269,884 | (393,662 | ) | 4,093 | 662 | (398,417 | ) | |
Commodity Portfolio |
|
Monthly | |||||||||||||||||||
Blackwater Master |
27.16 | % | 4,048,152 | (332,397 | ) | 2,805 | 1,975 | (337,177 | ) | |
Commodity Portfolio |
|
Monthly | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Total |
$ | 15,044,274 | $ | (994,222 | ) | $ | 10,350 | $ | 4,184 | $ | (1,008,756 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
14
Table of Contents
Global Diversified Futures Fund L.P.
Notes to Financial Statements
March 31, 2015
(Unaudited)
7. Financial Instrument Risks:
In the normal course of business, the Partnership, indirectly through its investments in the Funds, is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options, and swaps whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, 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 or over-the-counter (OTC). Exchange-traded instruments include futures and certain standardized forward and option contracts. Certain swap contracts may also be trading on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain standardized forward, swap and option contracts. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 2.9% to 28.0% of the Funds contracts are traded OTC.
The Funds trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500 Index), whereby such contract is settled in cash. Payments (variation margin) may be made or received by the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Funds. When the contract is closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Funds Statements of Income and Expenses and Changes in Partners Capital.
Forward foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Forward foreign currency contracts are valued daily, and the Funds net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Funds Statements of Financial Condition. Net realized gains (losses) and changes in net unrealized gains (losses) on forward foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Funds Statements of Income and Expenses and Changes in Partners Capital.
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 Funds Statements of Income and Expenses and Changes in Partners Capital.
The risk to the Limited Partners that have purchased Redeemable Units is limited to the amount of their share of the Partnerships net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership during the reporting period and in prior periods included in this report under New York law.
Market risk is the potential for changes in the value of the financial instruments traded by the 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 Funds are exposed to a market risk equal to the value of the futures and forward contracts purchased 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 Funds risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Funds risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Funds had credit risk and concentration risk as MS&Co. or MS&Co. affiliate is the sole counterparty or broker with respect to the Funds assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through MS&Co. the Funds counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to control the 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 Funds may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.
The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Funds business, these instruments may not be held to maturity.
8. Subsequent Events.
The General Partner evaluates events that occur after the balance sheet date but before financial statements are issued. The General Partner has assessed the subsequent events through the date of issuance and has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.
15
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership does not engage in sales of goods or services. Its only assets are its investments in the Funds and cash. The Funds do not engage in sales of goods or services. The Funds only assets are their equity in trading accounts, consisting of cash and cash margin, net unrealized appreciation on open futures contracts, net unrealized appreciation on forward contracts and commodity options purchased, if applicable, and 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 investments in the Funds. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the first quarter of 2015.
The Partnerships capital consists of the capital contributions of the partners, as increased or decreased by net income or loss on trading and by expenses, interest income and redemptions of Redeemable Units and distributions of profits, if any.
For the three months ended March 31, 2015, Partnership capital increased 3.4% from $14,905,014 to $15,416,266. This increase was attributable to net income of $789,389, coupled with redemptions of 165.5020 Redeemable Units totaling $278,137. Future redemptions could impact the amount of funds available for investment in the Funds in subsequent periods.
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 period. The General Partner believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnerships/Funds significant accounting policies are described in detail in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of the Financial Statements.
The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses and Changes in Partners Capital.
16
Table of Contents
Results of Operations
During the Partnerships first quarter of 2015, the net asset value per unit increased 5.3% from $1,605.10 to $1,690.28 as compared to a decrease of 8.6% in the first quarter of 2014. The Partnership experienced a net trading gain, before fees and expenses in the first quarter of 2015 of $1,156,397. Gains were primarily attributable to the Funds trading of commodity futures in currencies, U.S. and non-U.S. interest rates, softs, livestock, metals and indices and were partially offset by losses in energy and grains. The Partnership experienced a net trading loss, before fees and expenses in the first quarter of 2014 of $995,096. Losses were primarily attributable to the Funds trading of commodity futures in energy, grains, U.S. and non-U.S. interest rates, metals, softs and indices and were partially offset by gains in currencies and livestock.
The most significant gains were achieved within the global interest rate markets primarily during January from long positions in European, U.S., British, and Australian fixed income futures as prices moved higher as investor concern about the economic recovery in Europe spurred demand for the relative safety of government assets. Within the currency sector, gains were experienced during January from short positions in the euro versus the U.S. dollar as the relative value of the euro declined amid a deteriorating economic outlook in Europe. Additional gains in the currency sector were recorded during March from short positions in the euro versus the U.S. dollar as the relative value of the dollar advanced on reports of U.S. manufacturing growth and speculation the Federal Reserve remained committed to increasing interest rates in the near future. Within the metals markets, gains were achieved during January from short positions in copper futures as prices moved lower over growing concern a slowdown in Chinese manufacturing would limit demand for the industrial metal. During March, gains were experienced due to short positions in nickel, tin, and aluminum futures as prices fell amid investor concern a weakening Chinese economy would limit manufacturing demand. Within the global stock index sector, gains were recorded primarily during February from long positions in U.S., European, and Asian equity index futures as prices moved higher as positive global macro-economic signals spurred investor sentiment. A portion of the Partnerships gains for the quarter was offset by trading losses incurred within the energy markets during February from short positions in gasoil, heating oil, and Brent crude oil futures as prices rallied as cold weather blanketed much of the U.S. and OPEC released a bullish monthly oil-market report. Within the agricultural markets, losses were experienced during January from long positions in cocoa futures as prices fell after industry reports indicated crop harvests from the Ivory Coast would exceed analysts expectations. Additional losses during January were recorded from long positions in corn futures as a strengthening U.S. dollar curbed global demand for Midwest corn crops.
17
Table of Contents
Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. To the extent that market trends exist and the Advisors are able to identify them, the Funds expect to increase capital through operations.
During the reporting period, interest income on 80% of the Partnerships (or the Partnerships allocable portion of a Funds) average daily equity maintained in cash during each month was earned at the monthly average of the 4-week U.S. Treasury bill rate. Interest income for the three months ended March 31, 2015 decreased by $604, as compared to the corresponding period in 2014. The decrease in interest income is due to lower U.S. Treasury bill rates and lower average net assets during the three months ended March 31, 2015, as compared to the corresponding period in 2014. The amount of interest income earned by the Partnership/Funds depends on the average daily equity in the Partnerships/Funds accounts and upon interest rates over which neither the Partnership/Funds nor MS&Co. has control.
Ongoing selling agent fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Ongoing selling agent fees for the three months ended March 31, 2015, decreased by $108,602, as compared to the corresponding period in 2014. This decrease in ongoing selling agent fees is primarily due to a decrease in the number of trades during the three months ended March 31, 2015, as compared to the corresponding period in 2014.
Certain clearing fees are based on the number of trades executed by the Advisors for the Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees for the three months ended March 31, 2015 decreased by $1,732, as compared to the corresponding period in 2014. The decrease in clearing fees is primarily due to a decrease in the number of trades during the three months ended March 31, 2015, as compared to the corresponding period in 2014.
Management fees are calculated as a percentage of the Partnerships adjusted net asset value as of the end of each month and are affected by trading performance and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three months ended March 31, 2015 increased by $6,459, as compared to the corresponding period in 2014. The increase in management fees was due to higher average net assets during the three months ended March 31, 2015, as compared to the corresponding period in 2014.
Incentive fees are based on the new trading profits generated by each Advisor as defined in the management agreements among the Partnership, the General Partner and each Advisor and are payable annually. Trading performance for the three months ended March 31, 2015 and 2014 resulted in incentive fees accruals of $115,918 and $0, 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 by the Advisor and earns additional new trading profits for the Partnership.
As of March 31, 2015 and December 31, 2014, the Partnerships assets were allocated among the Advisors in the following approximate percentages:
Advisor |
March 31, 2015 | December 31, 2014 | ||||||||||||||
Aspect Capital Limited. |
$ | 6,647,090 | 43 | % | $ | 6,683,300 | 45 | % | ||||||||
Altis Partners (Jersey) Limited. |
$ | 4,122,880 | 27 | % | $ | 4,195,532 | 28 | % | ||||||||
Blackwater Capital Management LLC |
$ | 4,646,296 | 30 | % | $ | 4,026,182 | 27 | % |
18
Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market Risk
All of the Partnerships assets are subject to the risk of trading loss through its investments in the Funds. The Funds are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the 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 Funds main lines 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 Funds open contracts and, consequently in their earnings and cash balances. The Funds market risks are 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 of the Funds open contracts and the liquidity of the market in which they trade.
The 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 Funds past performances are not necessarily indicative of their future results.
Value at Risk is a measure of the maximum amount which the Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds speculative trading and the recurrence in the markets traded by the 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 Funds experiences 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 Funds losses in any market sector will be limited to Value at Risk or by the Funds attempts to manage their market risks.
Exchange margin requirements have been used by the Funds as the measure of their Value at Risk. Margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.
Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors currently trade the Partnerships assets indirectly in master fund managed accounts established in the name of the Masters, over which they have been granted limited authority to make trading decisions. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership indirectly, through its investments in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by each Fund, separately. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2014.
19
Table of Contents
The following tables indicate the trading Value at Risk associated with the Partnerships open positions by market category as of March 31, 2015 and December 31, 2014. As of March 31, 2015, the Partnerships total capitalization was $15,416,266.
March 31, 2015
Market Sector |
Value at Risk |
% of Total Capitalization |
||||||
Currencies |
$ | 605,226 | 3.93 | % | ||||
Energy |
209,749 | 1.36 | % | |||||
Grains |
111,671 | 0.72 | % | |||||
Indices |
477,481 | 3.10 | % | |||||
Interest Rates U.S. |
44,201 | 0.29 | % | |||||
Interest Rates Non-U.S. |
217,587 | 1.41 | % | |||||
Livestock |
43,411 | 0.28 | % | |||||
Metals |
314,339 | 2.04 | % | |||||
Softs |
124,605 | 0.81 | % | |||||
|
|
|
|
|||||
Total |
$ | 2,148,270 | 13.94 | % | ||||
|
|
|
|
As of December 31, 2014, the Partnerships total capitalization was $14,905,014.
December 31, 2014
Market Sector |
Value at Risk | % of
Total Capitalization |
||||||
Currencies |
$ | 563,645 | 3.78 | % | ||||
Energy |
187,840 | 1.26 | % | |||||
Grains |
163,830 | 1.10 | % | |||||
Indices |
249,267 | 1.67 | % | |||||
Interest Rates U.S. |
60,592 | 0.41 | % | |||||
Interest Rates Non-U.S. |
397,659 | 2.67 | % | |||||
Livestock |
20,725 | 0.14 | % | |||||
Metals |
315,852 | 2.12 | % | |||||
Softs |
102,268 | 0.69 | % | |||||
|
|
|
|
|||||
Total |
$ | 2,061,678 | 13.84 | % | ||||
|
|
|
|
20
Table of Contents
The following tables indicate the trading Value at Risk associated with the Partnerships investments in the Funds by market category as of March 31, 2015 and December 31, 2014, and the highest, lowest and average value during the three months ended March 31, 2015 and during the twelve months ended December 31, 2014. All open contracts trading risk exposures have been included in calculating the figures set forth below.
As of March 31, 2015, Aspect Masters total capitalization was $83,524,456. The Partnership owned approximately 8.1% of Aspect Master. As of March 31, 2015, Aspect Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Aspect for trading) was as follows:
March 31, 2015
Three Months Ended March 31, 2015 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 5,249,972 | 6.28 | % | $ | 7,618,931 | $ | 621,769 | $ | 5,048,435 | ||||||||||
Energy |
1,096,174 | 1.31 | % | 1,526,470 | 1,008,865 | 1,172,579 | ||||||||||||||
Grains |
499,803 | 0.60 | % | 577,885 | 169,143 | 480,353 | ||||||||||||||
Indices |
2,786,265 | 3.33 | % | 3,105,216 | 1,234,846 | 2,524,755 | ||||||||||||||
Interest Rates U.S. |
323,045 | 0.39 | % | 385,653 | 89,018 | 281,473 | ||||||||||||||
Interest Rates Non-U.S. |
1,559,136 | 1.87 | % | 2,845,509 | 1,276,960 | 1,760,267 | ||||||||||||||
Livestock |
88,275 | 0.11 | % | 142,230 | 49,995 | 71,786 | ||||||||||||||
Metals |
1,309,875 | 1.57 | % | 1,556,855 | 635,320 | 1,051,216 | ||||||||||||||
Softs |
600,792 | 0.72 | % | 600,792 | 392,228 | 489,049 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 13,513,337 | 16.18 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2014, Aspect Masters total capitalization was $78,370,668. The Partnership owned approximately 8.6% of Aspect Master. As of December 31, 2014, Aspect Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Aspect for trading) was as follows:
December 31, 2014
Twelve Months Ended December 31, 2014 | |||||||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* | ||||||||||||||||||||
Currencies |
$ | 5,363,857 | 6.84 | % | $ | 8,988,668 | $ | 4,216,734 | $ | 6,042,682 | |||||||||||||||
Energy |
1,391,555 | 1.78 | % | 2,217,050 | 350,285 | 1,038,970 | |||||||||||||||||||
Grains |
177,860 | 0.23 | % | 1,084,329 | 177,860 | 478,736 | |||||||||||||||||||
Indices |
1,694,021 | 2.16 | % | 3,786,974 | 433,618 | 2,147,069 | |||||||||||||||||||
Interest Rates U.S. |
278,316 | 0.35 | % | 802,798 | 81,696 | 376,114 | |||||||||||||||||||
Interest Rates Non-U.S. |
2,657,992 | 3.39 | % | 3,729,772 | 757,202 | 2,139,887 | |||||||||||||||||||
Livestock |
115,830 | 0.15 | % | 217,350 | 29,040 | 109,643 | |||||||||||||||||||
Metals |
641,723 | 0.82 | % | 1,569,663 | 534,577 | 901,895 | |||||||||||||||||||
Softs |
453,010 | 0.58 | % | 478,791 | 169,885 | 351,314 | |||||||||||||||||||
|
|
|
|
||||||||||||||||||||||
Total |
$ | 12,774,164 | 16.30 | % | |||||||||||||||||||||
|
|
|
|
* | Annual average of month-end Values at Risk. |
21
Table of Contents
As of March 31, 2015, Altis Masters total capitalization was $45,981,310. The Partnership owned approximately 9.4% of Altis Master. As of March 31, 2015, Altis Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Altis for trading) was as follows:
March 31, 2015
Three Months Ended March 31, 2015 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High Value at Risk |
Low Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 1,736,512 | 3.78 | % | $ | 3,035,507 | $ | 762,004 | $ | 1,445,819 | ||||||||||
Energy |
1,286,802 | 2.80 | % | 1,849,188 | 722,918 | 1,499,435 | ||||||||||||||
Grains |
524,603 | 1.14 | % | 1,459,731 | 341,578 | 472,175 | ||||||||||||||
Indices |
1,390,574 | 3.02 | % | 1,390,574 | 430,768 | 899,190 | ||||||||||||||
Interest Rates U.S. |
104,775 | 0.23 | % | 261,305 | 12,089 | 136,134 | ||||||||||||||
Interest Rates Non-U.S. |
738,151 | 1.60 | % | 1,742,647 | 645,134 | 1,190,694 | ||||||||||||||
Livestock |
233,926 | 0.51 | % | 233,926 | 81,978 | 172,630 | ||||||||||||||
Metals |
1,654,216 | 3.60 | % | 2,030,371 | 1,221,087 | 1,708,789 | ||||||||||||||
Softs |
807,881 | 1.76 | % | 1,172,317 | 729,986 | 947,258 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 8,477,440 | 18.44 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2014, Altis Masters total capitalization was $51,362,633. The Partnership owned approximately 8.3% of Altis Master. As of December 31, 2014, the Altis Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Altis Master for trading) was as follows:
December 31, 2014
Twelve Months Ended December 31, 2014 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High
Value at Risk |
Low
Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 762,004 | 1.49 | % | $ | 2,500,488 | $ | 676,543 | $ | 1,240,735 | ||||||||||
Energy |
795,517 | 1.55 | % | 2,239,925 | 225,837 | 1,246,149 | ||||||||||||||
Grains |
1,413,845 | 2.75 | % | 3,309,847 | 105,669 | 1,160,262 | ||||||||||||||
Indices |
853,780 | 1.66 | % | 4,747,619 | 490,193 | 2,482,617 | ||||||||||||||
Interest Rates U.S. |
261,305 | 0.51 | % | 1,592,113 | 33,462 | 332,514 | ||||||||||||||
Interest Rates Non-U.S. |
1,659,921 | 3.23 | % | 2,147,638 | 159,067 | 874,705 | ||||||||||||||
Livestock |
129,685 | 0.25 | % | 636,728 | 80,245 | 332,206 | ||||||||||||||
Metals |
1,952,797 | 3.80 | % | 4,399,127 | 992,841 | 2,878,470 | ||||||||||||||
Softs |
762,762 | 1.49 | % | 1,336,257 | 553,594 | 890,767 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 8,591,616 | 16.73 | % | ||||||||||||||||
|
|
|
|
* | Annual average of month-end Values at Risk. |
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As of March 31, 2015, Blackwater Masters total capitalization was $22,008,925. The Partnership owned approximately 21.2% of Blackwater Master. As of March 31, 2015, Blackwater Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Blackwater for trading) was as follows:
March 31, 2015
Three Months Ended March 31, 2015 | ||||||||||||||||||||
% of Total | High | Low | Average | |||||||||||||||||
Market Sector |
Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 78,991 | 0.36 | % | $ | 406,340 | $ | 78,991 | $ | 124,531 | ||||||||||
Grains |
103,180 | 0.47 | % | 225,500 | 37,180 | 100,687 | ||||||||||||||
Indices |
571,128 | 2.59 | % | 1,091,309 | 150,681 | 505,022 | ||||||||||||||
Interest Rates U.S. |
38,610 | 0.18 | % | 415,855 | 16,720 | 131,102 | ||||||||||||||
Interest Rates Non -U.S. |
103,355 | 0.47 | % | 193,198 | 2,561 | 68,585 | ||||||||||||||
Livestock |
67,320 | 0.30 | % | 67,320 | 19,800 | 29,040 | ||||||||||||||
Metals |
248,787 | 1.13 | % | 931,589 | 126,384 | 323,996 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 1,211,371 | 5.50 | % | ||||||||||||||||
|
|
|
|
* | Average of month-end Values at Risk. |
As of December 31, 2014, Blackwater Masters total capitalization was $24,930,097. The Partnership owned approximately 16.2% of Blackwater Master. As of December 31, 2014, the Blackwater Masters Value at Risk for its assets (including the portion of the Partnerships assets allocated to Blackwater for trading) was as follows:
December 31, 2014
Twelve Months Ended December 31, 2014 | ||||||||||||||||||||
Market Sector |
Value at Risk | % of Total Capitalization |
High
Value at Risk |
Low
Value at Risk |
Average Value at Risk* |
|||||||||||||||
Currencies |
$ | 241,401 | 0.97 | % | $ | 3,189,941 | $ | 51,293 | $ | 1,235,089 | ||||||||||
Energy |
13,200 | 0.05 | % | 658,814 | 10,560 | 296,649 | ||||||||||||||
Grains |
192,500 | 0.77 | % | 938,926 | 2,750 | 171,159 | ||||||||||||||
Indices |
201,959 | 0.81 | % | 3,462,814 | 145,756 | 999,140 | ||||||||||||||
Interest Rates U.S. |
92,400 | 0.37 | % | 655,463 | 8,580 | 221,480 | ||||||||||||||
Interest Rates Non-U.S. |
193,198 | 0.78 | % | 1,412,783 | 17,944 | 399,111 | ||||||||||||||
Metals |
608,528 | 2.44 | % | 2,895,022 | 340,845 | 928,952 | ||||||||||||||
|
|
|
|
|||||||||||||||||
Total |
$ | 1,543,186 | 6.19 | % | ||||||||||||||||
|
|
|
|
* | Annual average of month-end Values at Risk. |
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Item 4. Controls and Procedures.
The Partnerships 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 Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the time periods expected in the SECs 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 (the 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 Partnerships external disclosures.
The General Partners President and CFO have evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2015, and, based on that evaluation, the General Partners President and CFO have concluded that, at that date, the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision of the General Partners 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 Partnerships 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 Partnerships assets that could have a material effect on the financial statements. |
There were no changes in the Partnerships internal control over financial reporting process during the fiscal quarter ended March 31, 2015 that materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
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There are no material legal proceedings pending against the Partnership nor the General Partner.
The following information supplements and amends the discussion set forth under Part I, Item 3. Legal Proceedings in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC (MS&Co.).
MS&Co. is a wholly-owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the SEC as required by the Exchange Act, 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, please refer to the Legal Proceedings section of Morgan Stanleys SEC 10-K filings for 2014, 2013, 2012, 2011 and 2010.
In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.
MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.
Regulatory and Governmental Matters.
On April 21, 2015, the Chicago Board Options Exchange, Incorporated (CBOE) and the CBOE Futures Exchange, LLC (CFE) filed statements of charges against MS&Co. in connection with trading by one of MS&Co.s former traders of EEM options contracts that allegedly disrupted the final settlement price of the November 2012 VXEM futures. CBOE alleged that MS&Co. violated CBOE Rules 4.1, 4.2 and 4.7, Sections 9(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder. CFE alleged that MS&Co. violated CFE Rules 608, 609 and 620. Both matters are ongoing.
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Other Litigation.
On March 15, 2010, the Federal Home Loan Bank of San Francisco filed two complaints against MS&Co. and other defendants in the Superior Court of the State of California. These actions are styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al., and Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al., respectively. Amended complaints filed on June 10, 2010 allege that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. in these cases was approximately $704 million and $276 million, respectively. The complaints raise claims under both the federal securities laws and California law and seek, among other things, to rescind the plaintiffs purchase of such certificates. On August 11, 2011, plaintiffs federal securities law claims were dismissed with prejudice. The defendants filed answers to the amended complaints on October 7, 2011. On February 9, 2012, defendants demurrers with respect to all other claims were overruled. On December 20, 2013, plaintiffs negligent misrepresentation claims were dismissed with prejudice. On January 26, 2015, as a result of a settlement with certain other defendants, the plaintiff requested and the court subsequently entered a dismissal with prejudice of certain of the plaintiffs claims, including all remaining claims against MS&Co. in the Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al. action. On February 18, 2015, the court entered an order setting a number of claims for trial throughout 2016. Claims against MS&Co. have not yet been set for trial. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in these cases was approximately $66 million, and the certificates had incurred actual losses of approximately $1 million. Based on currently available information, MS&Co. believes it could incur a loss for this action up to the difference between the $66 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.
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. The corrected amended complaint 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 plaintiffs purchase of such certificates. The defendants filed a motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. After that dismissal, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $78 million. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $53 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $53 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.
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On July 18, 2011, the Western and Southern Life Insurance Company and certain affiliated companies filed a complaint against MS&Co. and other defendants in the Court of Common Pleas in Ohio, styled Western and Southern Life Insurance Company, et al. v. Morgan Stanley Mortgage Capital Inc., et al. An amended complaint was filed on April 2, 2012 and alleges that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by MS&Co. was approximately $153 million. The amended complaint raises claims under the Ohio Securities Act, federal securities laws, and common law and seeks, among other things, to rescind the plaintiffs purchases of such certificates. On May 21, 2012, the Morgan Stanley defendants filed a motion to dismiss the amended complaint, which was denied on August 3, 2012. MS&Co. filed its answer on August 17, 2012. MS&Co. filed a motion for summary judgment on January 20, 2015. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $108 million, and the certificates had incurred actual losses of approximately $2 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $108 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 an offset for interest received by the plaintiff prior to a judgment.
On November 4, 2011, the Federal Deposit Insurance Corporation (FDIC), as receiver for Franklin Bank S.S.B., filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation as Receiver for Franklin Bank, S.S.B. v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. The complaints each raised claims under both federal securities law and the Texas Securities Act and each seeks, among other things, compensatory damages associated with plaintiffs purchase of such certificates. On June 7, 2012, the two cases were consolidated. MS&Co. filed a motion for summary judgment and special exceptions, which was denied in substantial part on April 26, 2013. The FDIC filed a second amended consolidated complaint on May 3, 2013. MS&Co. filed a motion for leave to file an interlocutory appeal as to the courts order denying its motion for summary judgment and special exceptions, which was denied on August 1, 2013. On October 7, 2014, the court denied MS&Co.s motion for reconsideration of the courts order denying its motion for summary judgment and special exceptions and granted its motion for reconsideration of the courts order denying leave to file an interlocutory appeal. On November 21, 2014, MS&Co. filed a motion for summary judgment, which was denied on February 10, 2015. The Texas Fourteenth Court of Appeals denied Morgan Stanleys petition for interlocutory appeal on November 25, 2014. Trial is currently scheduled to begin in July 2015. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $41 million, and the certificates had incurred actual losses of approximately $5 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $41 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.
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On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Superior Court of the State of New Jersey, styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. On October 16, 2012, plaintiffs filed an amended complaint. The amended complaint alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. is approximately $1.073 billion. The amended complaint raises claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey RICO statute, and includes a claim for treble damages. On March 15, 2013, the court denied the defendants motion to dismiss the amended complaint. On January 2, 2015, the court denied defendants renewed motion to dismiss the amended complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $598 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $598 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.
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 alleges 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 raises claims under the Massachusetts Uniform Securities Act, the Massachusetts Consumer Protection Act and common law and seeks, among other things, to rescind the plaintiffs purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. On October 11, 2012, defendants filed motions to dismiss the amended complaint, which were granted in part and denied in part on September 30, 2013. The defendants filed an answer to the amended complaint on December 16, 2013. Plaintiff has voluntarily dismissed its claims against MS&Co. with respect to two of the securitizations at issue, such that the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. is approximately $358 million. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $64 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $64 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.
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On February 14, 2013, Bank Hapoalim B.M. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of the State of New York, New York County (Supreme Court of NY), styled Bank Hapoalim B.M. v. Morgan Stanley et al. 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 $141 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 April 22, 2014, the defendants motion to dismiss was denied in substantial part. On August 29, 2014, MS&Co. filed its answer to the complaint, and on September 18, 2014, MS&Co. filed a notice of appeal from the ruling denying defendants motion to dismiss. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $71 million, and the certificates had not yet incurred actual losses. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $71 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.
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 alleges 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 $694 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, negligent misrepresentation, and rescission and seeks, among other things, compensatory and punitive damages. On June 10, 2014, the court denied the defendants motion to dismiss. On August 4, 2014, claims regarding two certificates were dismissed by stipulation. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $644 million. On September 12, 2014, MS&Co. filed a notice of appeal from the denial of the motion to dismiss. On January 12, 2015, MS&Co. filed an amended answer to the complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $289 million, and the certificates had incurred actual losses of approximately $79 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $289 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.
On September 23, 2013, the plaintiff in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the United States District Court for the Southern District of New York (SDNY). The complaint alleges that defendants made untrue statements of material fact or omitted to state material facts in the sale to the plaintiff of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiffs was approximately $417 million. The complaint alleges causes of action against MS&Co. for violations of Section 11 and Section 12(a)(2) of the Securities Act, violations of the Texas Securities Act, and violations of the Illinois Securities Law of 1953 and seeks, among other things, rescissory and compensatory
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damages. The defendants filed a motion to dismiss the complaint on November 13, 2013. On January 22, 2014 the court granted defendants motion to dismiss with respect to claims arising under the Securities Act and denied defendants motion to dismiss with respect to claims arising under Texas Securities Act and the Illinois Securities Law of 1953. On November 17, 2014, the plaintiff filed an amended complaint. On December 15, 2014, defendants answered the amended complaint. At March 25, 2015, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $204 million, and the certificates had incurred actual losses of $28 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $204 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.
Settled Civil Litigation.
On August 25, 2008, MS&Co. and two ratings agencies were named as defendants in a purported class action related to securities issued by a structured investment vehicle called Cheyne Finance PLC and Cheyne Finance LLC (together, the Cheyne structured investment vehicle). The case was styled Abu Dhabi Commercial Bank, et al. v. Morgan Stanley & Co. Inc., et al. The complaint alleged, among other things, that the ratings assigned to the securities issued by the Cheyne structured investment vehicle were false and misleading, including because the ratings did not accurately reflect the risks associated with the subprime residential mortgage backed securities held by the Cheyne structured investment vehicle. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne structured investment vehicle. On April 24, 2013, the parties reached an agreement to settle the case, and on April 26, 2013, the court dismissed the action with prejudice. The settlement does not cover certain claims that were previously dismissed.
On July 9, 2010 and February 11, 2011, Cambridge Place Investment Management Inc. filed two separate complaints against MS&Co. and/or its affiliates and other defendants in the Superior Court of the Commonwealth of Massachusetts, both styled Cambridge Place Investment Management Inc. v. Morgan Stanley & Co., Inc., et al. The complaints asserted claims on behalf of certain clients of plaintiffs affiliates and allege that defendants made untrue statements and material omissions in the sale of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued by MS&Co. and/or its affiliates or sold to plaintiffs affiliates clients by MS&Co. and/or its affiliates in the two matters was approximately $263 million. On February 11, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.
On October 25, 2010, MS&Co., certain affiliates and Pinnacle Performance Limited, a special purpose vehicle, were named as defendants in a purported class action related to securities issued by the special purpose vehicle in Singapore, commonly referred to as Pinnacle Notes. The case is styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. and is pending in the SDNY. An amended complaint was filed on October 22, 2012. The court denied the defendants motion to dismiss the amended complaint on August 22, 2013, and granted class certification on October 17, 2013. On October 30, 2013, the defendants filed a petition for permission to appeal the courts decision granting class certification. On January 31, 2014, the plaintiffs filed a second amended complaint. The second amended complaint alleges that the defendants engaged in a
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fraudulent scheme to defraud investors by structuring the Pinnacle Notes to fail and benefited subsequently from the securities failure. In addition, the second amended complaint alleges that the securities offering materials contained material misstatements or omissions regarding the securities underlying assets and the alleged conflicts of interest between the defendants and the investors. The second amended complaint asserts common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On July 17, 2014, the parties reached an agreement in principle to settle the litigation, which received preliminary court approval December 2, 2014. The final approval hearing is scheduled for July 2, 2015.
On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. in the Supreme Court of NY, styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011, and alleges that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to the plaintiffs by MS&Co. was approximately $104 million. The complaint raised common law claims of fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with the plaintiffs purchases of such certificates. On March 15, 2013, the court denied in substantial part the defendants motion to dismiss the amended complaint, which order MS&Co. appealed on April 11, 2013. On May 3, 2013, MS&Co. filed its answer to the amended complaint. On January 16, 2015, the parties reached an agreement to settle the litigation.
On April 25, 2012, Metropolitan Life Insurance Company and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY styled, Metropolitan Life Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on June 29, 2012, and alleges that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten, and/or sold by MS&Co. was approximately $758 million. The amended complaint raised common law claims of fraud, fraudulent inducement, and aiding and abetting fraud and seeks, among other things, rescission, compensatory, and/or rescissionary damages, as well as punitive damages, associated with the plaintiffs purchases of such certificates. On April 11, 2014, the parties entered into a settlement agreement.
In re Morgan Stanley Mortgage Pass-Through Certificates Litigation, which had been pending in the SDNY, was a putative class action involving allegations that, among other things, the registration statements and offering documents related to the offerings of certain mortgage pass-through certificates in 2006 and 2007 contained false and misleading information concerning the pools of residential loans that backed these securitizations. On December 18, 2014, the parties agreement to settle the litigation received final court approval, and on December 19, 2014, the court entered an order dismissing the action.
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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There have been no material changes to the risk factors set forth under Part 1, Item 1A. Risk Factors in the Partnerships Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Partnership no longer offers Redeemable Units for sale.
The following chart sets forth the purchases of Redeemable Units by the Partnership.
Period | (a) Total Number of Redeemable Units Purchased* |
(b)
Average Price Paid per Redeemable Unit** |
(c) Total Number 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, 2015 January 31, 2015 |
13.6380 | $ | 1,696.51 | N/A | N/A | |||||||||||||
February 1, 2015 February 28, 2015 |
44.6850 | $ | 1,652.39 | N/A | N/A | |||||||||||||
March 1, 2015 March 31, 2015 |
107.1790 | $ | 1,690.28 | N/A | N/A | |||||||||||||
165.5020 | $ | 1,680.56 |
* | 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 Partnerships business in connection with effecting redemptions for Limited Partners. |
** | Redemptions of Redeemable Units are effected as of the end of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions. |
Item 3. Defaults Upon Senior Securities None
Item 4. Mine Safety Disclosures Not Applicable
Item 5. Other Information None
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Exhibits:
3.1 Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York, dated June 12, 1998 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on August 20, 1998 and incorporated herein by reference).
(a) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated June 30, 1998 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on August 20, 1998 and incorporated herein by reference). |
(b) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated October 1, 1999 (filed as Exhibit 3.1(b) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
(c) | Certificate of Change to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, effective January 31, 2000 (filed as Exhibit 3.1(c) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
(d) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated May 21, 2003 (filed as Exhibit 3.1(d) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
(e) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 21, 2005 (filed as Exhibit 3.1(e) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
(f) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated August 27, 2008 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 2, 2008 and incorporated herein by reference). |
(g) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the Office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference). |
(h) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on September 30, 2009 and incorporated herein by reference). |
(i) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated June 30, 2010 (filed as Exhibit 3.1(i) to the Current Report on Form 8-K filed on July 2, 2010 and incorporated herein by reference). |
(j) | Certificate of Amendment to the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 7, 2011 and incorporated herein by reference). |
(k) | Certificate of Amendment to the Certificate of Limited Partnership dated August 7, 2013 (filed as Exhibit 3.1(k) to the Quarterly Report on Form 10-Q filed on August 13, 2013 and incorporated herein by reference). |
3.2 Limited Partnership Agreement, dated June 15, 1998 (filed as Exhibit A to the Registration Statement on Form S-1 filed on August 20, 1998 and incorporated herein by reference).
(a) | Amendment No. 1 to the Limited Partnership Agreement, dated August 8, 2014 (filed as Exhibit 3.2(a) to the Quarterly Report on Form 10-Q filed on August 13, 2014 and incorporated herein by reference). |
10.1 Customer Agreement between the Partnership and Salomon Smith Barney Inc., dated October 21, 1998 (filed as Exhibit 10.1 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on October 22, 1998 and incorporated herein by reference).
10.2 Escrow Agreement among the Partnership, Smith Barney Inc., and European American Bank, dated October 21, 1998 (filed as Exhibit 10.3 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on October 22, 1998 and incorporated herein by reference).
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10.3 Management Agreement among the Partnership, the General Partner and Aspect Capital Management Limited, dated April 17, 2001 (filed as Exhibit 10.12 to the Annual Report on Form 10-K filed on March 28, 2002 and incorporated herein by reference).
(a) | Letter from the General Partner extending Management Agreement with Aspect Capital Management Limited, from June 30, 2014 to June 30, 2015, (filed as Exhibit 10.3(a) to the Annual Report on Form 10-K filed on March 30, 2015 and incorporated herein by reference). |
10.4 Management Agreement among the Partnership, the General Partner and Altis Partners (Jersey) Limited, dated October 1, 2005 (filed as Exhibit 33.1 to the Quarterly Report on Form 10-Q/A filed on November 16, 2005 and incorporated herein by reference).
(a) | Letter from the General Partner extending Management Agreement with Altis Partners (Jersey) Limited, from June 30, 2014 to June 30, 2015, (filed as Exhibit 10.4(a) to the Annual Report on Form 10-K filed on March 30, 2015 and incorporated herein by reference). |
10.5 Management Agreement among the Partnership, the General Partner and Blackwater Capital Management LLC, dated October 29, 2010 (filed as Exhibit 10.9 to the Current Report on Form 8-K filed on November 4, 2010 and incorporated herein be reference).
(a) | Amendment to the Management Agreement among the Partnership, the General Partner and Blackwater Capital Management LLC, dated December 1, 2013 (filed as Exhibit 10.6(a) to the Quartely Report on Form 10-Q filed May 14, 2014 and incorporated herein by reference). |
(b) | Letter from the General Partner extending Management Agreement among the Partnership, the General Partner and Blackwater Capital Management LLC, from June 30, 2014 to June 30, 2015, (filed as Exhibit 10.6(b) to the Annual Report on Form 10-K filed on March 30, 2015 and incorporated herein by reference). |
10.9 Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management effective October 1, 2013 (filed as Exhibit 10.9 to the Quarterly Report on Form 10-Q filed November 14, 2013 and incorporated herein by reference)
(a) | Amendment to the Alternative Investment Selling Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, effective April 1, 2014 (filed as Exhibit 10.9(a) to the Quarterly Report on Form 10-Q filed May 14, 2014 and incorporated herein by reference). |
(b) | Amendment to the Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, effective October 1, 2014 (filed as Exhibit 10.9(b) to the Quarterly Report on Form 10-Q filed August 13, 2014 and incorporated herein by reference). |
10.10 Commodity Futures Customer Agreement between the Partnership and MS&Co., effective October 29, 2013 (filed as Exhibit 10.9 to the quarterly report on Form 10-Q filed November 14, 2013 and incorporated herein by reference)
31.1 Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).
31.2 Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer).
32.1 Section 1350 Certification (Certification of President and Director).
32.2 Section 1350 Certification (Certification of Chief Financial Officer).
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Document. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLOBAL DIVERSIFIED FUTURES FUND L.P. | ||
By: | Ceres Managed Futures LLC (General Partner) | |
By: | /s/ Patrick T. Egan | |
Patrick T. Egan | ||
President and Director | ||
Date: May 13, 2015 | ||
By: | /s/ Steven Ross | |
Steven Ross | ||
Chief Financial Officer (Principal Accounting Officer) | ||
Date: May 13, 2015 |
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