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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 June 30, 2017

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 000-50718

TACTICAL DIVERSIFIED FUTURES FUND L.P.

 

 

(Exact name of registrant as specified in its charter)

 

New York   13-4224248

(State or other jurisdiction of

  (I.R.S. Employer

incorporation or organization)

  Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue

New York, New York 10036

 

 

(Address of principal executive offices) (Zip Code)

(855) 672-4468

 

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X    No     

Indicate by check mark whether the registrant has submitted electronically 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 X  No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer                                 Accelerated filer                                                              Non-accelerated filer X

Smaller reporting company                        Emerging growth company     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No   X

As of July 31, 2017, 126,022.2028 Limited Partnership Redeemable Units were outstanding.    

 


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Tactical Diversified Futures Fund L.P.

Statements of Financial Condition

 

    

June 30,

2017

   December 31,
2016
     (Unaudited)   

 

Assets:

     

Investment in the Funds (1), at fair value

     $ 98,511,977        $ 126,238,109  
  

 

 

 

  

 

 

 

Equity in trading account:

     

Unrestricted cash

     10,954,421        12,654,296  

Restricted cash

     5,512,585        4,205,299  

Net unrealized appreciation on open futures contracts

     -          434,371  
  

 

 

 

  

 

 

 

Total equity in trading account

     16,467,006        17,293,966  
  

 

 

 

  

 

 

 

Cash at bank

     825        218  

Interest receivable

     8,546        4,172  
  

 

 

 

  

 

 

 

Total assets

     $ 114,988,354        $ 143,536,465  
  

 

 

 

  

 

 

 

Liabilities and Partners’ Capital:

     

Liabilities:

     

Net unrealized depreciation on open futures contracts

     $ 456,370        $ -    

Net unrealized depreciation on open forward contracts

     36,374        64,394  

Accrued expenses:

     

Ongoing selling agent fees

     190,826        239,121  

Management fees

     132,312        163,269  

General Partner fees

     94,995        119,183  

Professional fees

     310,891        213,317  

Redemptions payable to General Partner

     270,000        250,011  

Redemptions payable to Limited Partners

     3,347,102        5,822,306  
  

 

 

 

  

 

 

 

Total liabilities

     4,838,870        6,871,601  
  

 

 

 

  

 

 

 

Partners’ Capital:

     

General Partner, 1,371.6544 and 1,690.0654 Redeemable Units
outstanding at June 30, 2017 and December 31, 2016, respectively

     1,163,106        1,497,130  

Limited Partners, 128,527.8828 and 152,586.7508 Redeemable Units
outstanding at June 30, 2017 and December 31, 2016, respectively

     108,986,378        135,167,734  
  

 

 

 

  

 

 

 

Total partners’ capital (net asset value)

     110,149,484        136,664,864  
  

 

 

 

  

 

 

 

Total liabilities and partners’ capital

     $         114,988,354        $         143,536,465  
  

 

 

 

  

 

 

 

Net asset value per Redeemable Unit

     $ 847.96        $ 885.84  
  

 

 

 

  

 

 

 

(1) Defined in Note 1.

See accompanying notes to financial statements.

 

1


Tactical Diversified Futures Fund, L.P.

Condensed Schedule of Investments

June 30, 2017

(Unaudited)

 

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

Futures Contracts Purchased

        

Currencies

     22        $ 10,914         0.01   

Energy

     5        1,889         0.00   

Grains

     13        4,674         0.00   

Indices

     775        (110,854)        (0.10)    

Interest Rates U.S.

     22        (8,281)        (0.00)  

Interest Rates Non-U.S.

     533        (208,097)        (0.19)    

Livestock

     24        235         0.00   

Metals

     39        40,334         0.04     

Softs

     2        100         0.00   
     

 

 

 

  

 

 

 

Total futures contracts purchased

        (269,086)        (0.24)    
     

 

 

 

  

 

 

 

Futures Contracts Sold

        

Currencies

     4        2,973         0.00   

Energy

     162        (178,957)        (0.16)    

Grains

     174        (100,166)        (0.09)    

Indices

     128        (9,811)        (0.01)    

Interest Rates U.S.

     13        1,469         0.00   

Interest Rates Non-U.S.

     77        16,654         0.01     

Metals

     18        (3,615)        (0.00)  

Softs

     164        84,169         0.08     
     

 

 

 

  

 

 

 

Total futures contracts sold

        (187,284)        (0.17)    
     

 

 

 

  

 

 

 

Net unrealized depreciation on open futures contracts

        $ (456,370)        (0.41)  
     

 

 

 

  

 

 

 

Unrealized Appreciation on Open Forward Contracts

        

Currencies

   $         17,836,994        $         175,130         0.16   

Metals

     22        42,512         0.04     
     

 

 

 

  

 

 

 

Total unrealized appreciation on open forward contracts

        217,642         0.20     
     

 

 

 

  

 

 

 

Unrealized Depreciation on Open Forward Contracts

        

Currencies

   $ 17,437,038        (194,856)        (0.18)    

Metals

     40        (59,160)        (0.05)    
     

 

 

 

  

 

 

 

Total unrealized depreciation on open forward contracts

        (254,016)        (0.23)    
     

 

 

 

  

 

 

 

Net unrealized depreciation on open forward contracts

        $ (36,374)        (0.03)  
     

 

 

 

  

 

 

 
Investment in the Funds         Fair Value    % of Partners’
Capital
 

CMF Willowbridge Master Fund L.P.

        $ 33,393,884         30.32   

CMF Aspect Master Fund L.P.

        17,213,206         15.63     

CMF Graham Capital Master Fund L.P.

        14,672,932         13.32     

CMF Boronia I, LLC

        10,613,558         9.63     

Cambridge Master Fund L.P.

        22,618,397         20.53     
     

 

 

 

  

 

 

 

Total investment in the Funds

        $         98,511,977         89.43   
     

 

 

 

  

 

 

 

 

*

Due to rounding.

See accompanying notes to financial statements.

 

2


Tactical Diversified Futures Fund L.P.

Condensed Schedule of Investments

December 31, 2016

 

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

Futures Contracts Purchased

        

Currencies

     21        $ 6,943         0.01   

Energy

     70        116,207         0.08     

Grains

     140        (24,086)        (0.02)    

Indices

     289        48,627         0.03     

Interest Rates Non-U.S.

     267        43,862         0.03     

Livestock

     9        500         0.00   

Metals

     28        21,623         0.02     

Softs

     59        37,285         0.03     
     

 

 

 

  

 

 

 

Total futures contracts purchased

        250,961         0.18     
     

 

 

 

  

 

 

 

Futures Contracts Sold

        

Currencies

     11        (4,328)        (0.00)  

Energy

     8        (12,870)        (0.01)    

Grains

     185        (3,514)        (0.00)  

Indices

     212        (7,692)        (0.01)    

Interest Rates U.S.

     83        11,516         0.01     

Interest Rates Non-U.S.

     293        23,986         0.02     

Livestock

     1        475         0.00   

Metals

     25        35,568         0.03     

Softs

     63        140,269         0.10     
     

 

 

 

  

 

 

 

Total futures contracts sold

        183,410         0.14     
     

 

 

 

  

 

 

 

Net unrealized appreciation on open futures contracts

        $ 434,371         0.32   
     

 

 

 

  

 

 

 

Unrealized Appreciation on Open Forward Contracts

        

Currencies

     $         12,549,341        $ 118,251         0.09   

Metals

     26        124,856         0.09     
     

 

 

 

  

 

 

 

Total unrealized appreciation on open forward contracts

        243,107         0.18     
     

 

 

 

  

 

 

 

Unrealized Depreciation on Open Forward Contracts

        

Currencies

     $ 16,294,760        (194,963)        (0.15)    

Metals

     42        (112,538)        (0.08)    
     

 

 

 

  

 

 

 

Total unrealized depreciation on open forward contracts

        (307,501)        (0.23)    
     

 

 

 

  

 

 

 

Net unrealized depreciation on open forward contracts

        $ (64,394)        (0.05)  
     

 

 

 

  

 

 

 
Investment in the Funds         Fair Value    % of Partners’
Capital
 

CMF Willowbridge Master Fund L.P.

        $ 38,198,019         27.95   

CMF Aspect Master Fund L.P.

        24,000,563         17.56     

CMF Graham Capital Master Fund L.P.

        22,617,006         16.55     

Morgan Stanley Smith Barney Boronia I, LLC

        16,206,218         11.86     

Cambridge Master Fund L.P.

        25,216,303         18.45     
     

 

 

 

  

 

 

 

Total investment in the Funds

        $         126,238,109         92.37   
     

 

 

 

  

 

 

 

 

*

Due to rounding.

See accompanying notes to financial statements.

 

3


Tactical Diversified Futures Fund L.P.

Statements of Income and Expenses and Changes in Partners’ Capital

(Unaudited)

 

     Three Months Ended   Six Months Ended
     June 30,   June 30,
     2017   2016   2017   2016

Investment Income:

        

Interest income

     $ 23,982       $ -         $ 40,908       $ -    

Interest income allocated from the Funds

     150,852       78,719       268,286       175,232  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment income

     174,834       78,719       309,194       175,232  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

        

Expenses allocated from the Funds

     224,364       685,016       454,541       1,261,421  

Clearing fees related to direct investments

     19,808       -         40,267       -    

Ongoing selling agent fees

     600,508       943,888       1,261,788       1,988,126  

General Partner fees

     299,001       470,426       628,444       990,890  

Management fees

     417,356       627,926       879,999       1,297,188  

Incentive fees

     -         -         -         188,689  

Professional fees

     128,268       152,208       260,730       302,912  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

     1,689,305       2,879,464       3,525,769       6,029,226  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment loss

     (1,514,471     (2,800,745     (3,216,575     (5,853,994
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading Results:

        

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

        

Net realized gains (losses) on closed contracts

     (199,807     -         (258,985     -    

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

     (110,086     (4,446,348     (366,594     (1,372,984

Net change in unrealized gains (losses) on open contracts

     (417,930     -         (861,703     -    

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

     (699,306     3,114,467       (694,747     2,485,845  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total trading results

     (1,427,129     (1,331,881     (2,182,029     1,112,861  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

     (2,941,600     (4,132,626     (5,398,604     (4,741,133

Subscriptions — Limited Partners

     -       -         33,000       -    

Redemptions — General Partner

     (270,000     -         (270,000     -    

Redemptions — Limited Partners

     (10,774,657     (10,894,701     (20,879,776     (20,609,700

Net increase (decrease) in Partners’ Capital

     (13,986,257     (15,027,327     (26,515,380     (25,350,833
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, beginning of period

     124,135,741       196,545,748       136,664,864       206,869,254  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ Capital, end of period

     $     110,149,484       $     181,518,421       $     110,149,484       $     181,518,421  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net asset value per Redeemable Unit
(129,899.5372 and 189,552.4882 Redeemable Units outstanding at June 30, 2017 and 2016, respectively)

     $ 847.96       $ 957.62       $ 847.96       $ 957.62  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per Redeemable Unit*

     $ (21.63     $ (20.14     $ (37.88     $ (23.83
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Redeemable Units outstanding

     138,843.6852       197,767.0429       144,627.8827       202,821.7579  
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

See accompanying notes to financial statements.

 

4


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

1.   Organization:

Tactical Diversified Futures Fund L.P. (the “Partnership”) is a limited partnership organized under the partnership laws of the State of New York on December 3, 2002 to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures, option, swap and forward contracts. The sectors traded include currencies, energy, grains, indices, U.S. and non-U.S. interest rates, livestock, metals and softs. The commodity interests that are traded by the Partnership directly or indirectly through its investments in the Funds (as defined below) are volatile and involve a high degree of market risk. The General Partner may also determine to invest up to all of the Partnership’s and/or the Funds’ assets in United States (“U.S.”) Treasury bills and/or money market mutual funds, including money market mutual funds managed by Morgan Stanley or its affiliates.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner” or, with respect to Boronia Trading Company (defined below), the “Trading Manager”) and commodity pool operator of the Partnership. As of January 1, 2017, the General Partner became a wholly-owned subsidiary of Morgan Stanley Domestic Holdings, Inc. (“MSD Holdings”). MSD Holdings is ultimately owned by Morgan Stanley. Morgan Stanley is a publicly held company whose shares are listed on the New York Stock Exchange. Morgan Stanley is engaged in various financial services and other businesses. Prior to January 1, 2017, the General Partner was a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC.

All trading decisions are made for the Partnership by Willowbridge Associates Inc. (“Willowbridge”), Aspect Capital Limited (“Aspect”), Graham Capital Management, L.P., (“Graham”), Boronia Capital Pty. Ltd. (“Boronia”), The Cambridge Strategy (Asset Management) Limited (“Cambridge”) and International Standard Asset Management (“ISAM”) (each an “Advisor” and collectively, the “Advisors”), each of which is a registered commodity trading advisor. Effective September 30, 2016, JE Moody & Company LLC (“JE Moody”) ceased to act as a commodity trading advisor to the Partnership. Effective June 30, 2016, Altis Partners (Jersey) Limited (“Altis”) ceased to act as a commodity trading advisor to the Partnership. Reference herein to “Advisors” may include, as relevant, Altis and JE Moody. Each Advisor is allocated a portion of the Partnership’s assets to manage. The Partnership invests the portion of its assets allocated to each of the Advisors either directly, through individually managed accounts, or indirectly, through its investments in the Funds.

Between March 27, 2003 (commencement of the public offering period) and April 30, 2003, 36,616 redeemable units of limited partnership interest in the Partnership (“Redeemable Units”) were sold at $1,000 per Redeemable Unit. The proceeds of the initial public offering were held in an escrow account until April 30, 2003, at which time they were turned over to the Partnership for trading. The Partnership was authorized to publicly offer 300,000 Redeemable Units during the initial public offering period. As of December 4, 2003, the Partnership was authorized to publicly offer an additional 700,000 Redeemable Units. As of October 7, 2004, the Partnership was authorized to publicly offer an additional 1,000,000 Redeemable Units. As of June 30, 2005, the Partnership was authorized to publicly offer Redeemable Units previously registered. The public offering of Redeemable Units terminated on November 30, 2008. The Partnership currently privately and continuously offers Redeemable Units to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.

During the reporting periods ended June 30, 2017 and 2016, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. The Partnership/Funds also deposit a portion of their cash in a non-trading account at JPMorgan Chase Bank, N.A. (“JPMorgan”).

ISAM directly trades the Partnership’s assets allocated to it through a managed account in the name of the Partnership pursuant to ISAM’s Systematic Trend Programme.

CMF Willowbridge Master Fund L.P. (“Willowbridge Master”), CMF Aspect Master Fund L.P. (“Aspect Master”), CMF Graham Capital Master Fund L.P. (“Graham Master”), CMF Boronia I, LLC (formerly, Morgan Stanley Smith Barney Boronia I, LLC) (“Boronia I, LLC” or “Boronia Trading Company”), Cambridge Master Fund L.P. (“Cambridge Master”) and prior to their termination, CMF Altis Partners Master Fund L.P. (“Altis Master”) and JEM Master Fund L.P. (“JEM Master”), have entered into a futures brokerage account agreement with MS&Co. Willowbridge Master, Aspect Master, Graham Master, Boronia I, LLC and Cambridge Master are collectively referred to as the “Funds”. Reference herein to the “Funds” may include, as relevant, Altis Master and JEM Master. Willowbridge Master, Aspect Master, Graham Master, Boronia I, LLC and Cambridge Master have also entered into a foreign exchange prime brokerage agreement with MS&Co. The Partnership has also entered into a futures brokerage account agreement with MS&Co. The Partnership, directly and through its investment in the Funds, pays MS&Co. (or will reimburse MS&Co. if previously paid) its allocable share of all trading fees for the clearing and, where applicable, execution of transactions as well as exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively, the “clearing fees”).

 

5


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

The Partnership has also entered into a selling agreement (the “Selling Agreement”) with Morgan Stanley Smith Barney LLC, doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”). Pursuant to the Selling Agreement, Morgan Stanley Wealth Management receives a monthly ongoing selling agent fee equal to 2.0% per year of the Partnership’s adjusted month-end net assets. The ongoing selling agent fee received by Morgan Stanley Wealth Management is shared with the properly registered/exempted financial advisors of Morgan Stanley Wealth Management who sell Redeemable Units in the Partnership.

In July 2015, the General Partner delegated certain administrative functions to SS&C Technologies, Inc., a Delaware corporation, currently doing business as SS&C GlobeOp (the “Administrator”). Pursuant to a master services agreement, the Administrator furnishes certain administrative, accounting, regulatory reporting, tax and other services as agreed from time to time. In addition, the Administrator maintains certain books and records of the Partnership. The cost of retaining the Administrator is allocated among the pools operated by the General Partner, including the Partnership.

2.    Basis of Presentation and Summary of Significant Accounting Policies:

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at June 30, 2017, and the results of its operations and changes in partners’ capital for the three and six months ended June 30, 2017 and 2016. These financial statements present the results for interim periods and do not include all disclosures normally provided in annual financial statements. These financial statements should be read together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2016. The December 31, 2016 information has been derived from the audited financial statements as of and for the year ended December 31, 2016.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates, and those differences could be material.

Profit Allocation. The General Partner and each limited partner of the Partnership share in the profits and losses of the Partnership in proportion to the amount of Partnership interest owned by each, except that no limited partner shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions or redemptions and losses, if any.

Statement of Cash Flows. The Partnership has not provided a Statement of Cash Flows, as permitted by Accounting Standards Codification (“ASC”) 230, “Statement of Cash Flows.” The Statements of Income and Expenses and Changes in Partners’ Capital is included herein, and as of and for the periods ended June 30, 2017 and 2016, the Partnership carried no debt and substantially all of the Partnership’s investments were carried at fair value and classified as Level 1 and Level 2 measurements.

Partnership’s Investments in the Funds. The Partnership carries its investments in the Funds at fair value based on the respective Fund’s net asset value per unit as calculated by the Funds or the Partnership’s (1) net contribution to the Funds and (2) its allocated share of the undistributed profits and losses, including realized gains (losses) and net change in unrealized gains (losses), of the Funds.

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

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

 

6


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

Partnership’s Cash. The Partnership’s cash includes cash denominated in foreign currencies of $(290,321) (proceeds of $291,186) and $144,332 (cost of $144,485) as of June 30, 2017 and December 31, 2016, respectively.

Income Taxes. Income taxes have not been listed as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The Partnership follows the guidance of ASC 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet the more-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnership’s Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Statements of Income and Expenses and Changes in Partners’ Capital in the period in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2013 through 2016 tax years remain subject to examination by U.S. federal and most state tax authorities.

Investment Company Status. Effective January 1, 2014, the Partnership adopted Accounting Standard Update 2013-08, “Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements” and based on the General Partner’s assessment, the Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of Topic 946 and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses and Changes in Partners’ Capital.

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

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

7


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

3.    Financial Highlights:

Financial highlights for the limited partner class as a whole for the three and six months ended June 30, 2017 and 2016 were as follows:

 

    Three Months Ended   Six Months Ended    
    June 30,   June 30,    
    2017       2016       2017       2016    

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

               

Net realized and unrealized gains (losses)

    $ (10.72       $ (5.98       $ (15.64       $ 5.03    

Net investment loss

    (10.91       (14.16       (22.24       (28.86  
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Increase (decrease) for the period

    (21.63       (20.14       (37.88       (23.83  

Net asset value per Redeemable Unit, beginning of period

    869.59         977.76         885.84         981.45    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Net asset value per Redeemable Unit, end of period

    $       847.96         $       957.62         $       847.96         $       957.62    
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 
    Three Months Ended       Six Months Ended    
    June 30,       June 30,    
    2017       2016       2017       2016    

Ratios to Average Limited Partners’ Capital:**

               

Net investment loss***

    (5.2   %     (5.7   %     (5.2   %     (5.8   %
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Operating expenses

    5.8     %     5.8     %     5.7     %     5.8     %

Incentive fees

    -       %     0.1     %     -       %     0.2     %
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total expenses

    5.8     %     5.9     %     5.7     %     6.0     %
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total return:

               

Total return before incentive fees

    (2.5   %     (2.0   %     (4.3   %     (2.2   %

Incentive fees

    -       %     (0.1   %     -       %     (0.2   %
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

Total return after incentive fees

    (2.5   %     (2.1   %     (4.3   %     (2.4   %
 

 

 

 

   

 

 

 

   

 

 

 

   

 

 

 

 

 

*

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

 

**

Annualized (except for incentive fees).

 

***

Interest income less total expenses.

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

4.   Trading Activities:

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

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

 

8


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

All of the commodity interests owned by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the three and six months ended June 30, 2017 was 2,154 and 2,045, respectively. The monthly average number of metals forward contracts traded directly by the Partnership during the three and six months ended June 30, 2017 was 86 and 102, respectively. The monthly average notional value of currency forward contracts traded directly by the Partnership during the three and six months ended June 30, 2017 was $63,053,954 and $57,610,088, respectively. There were no direct investments at June 30, 2016.

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

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

The following tables summarize the gross and net amounts recognized relating to assets and liabilities of the Partnership’s derivatives and their offsetting subject to master netting arrangements or similar agreements as of June 30, 2017 and December 31, 2016, respectively.

 

                                                                                                                 

June 30, 2017

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

Assets

           

Futures

    $ 347,164       $ (347,164)       $ -           $ -           $ -           $ -      

Forwards

    217,642       (217,642)       -           -           -           -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

    $ 564,806       $ (564,806)       $ -           $ -           $ -           $ -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

           

Futures

    $ (803,534)       $ 347,164       $ (456,370)       $ -           $ -           $ (456,370)  

Forwards

    (254,016)       217,642       (36,374)       -           -           (36,374)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

    $   (1,057,550)       $ 564,806       $   (492,744)       $ -           $ -           $ (492,744)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fair value

              $ (492,744) 
           

 

 

 

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

December 31, 2016

           

Assets

           

Futures

    $ 652,819       $ (218,448)       $ 434,371       $ -           $ -           $ 434,371  

Forwards

    243,107       (243,107)       -           -           -           -      
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

    $ 895,926       $ (461,555)       $ 434,371       $ -           $ -           $ 434,371  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

           

Futures

    $ (218,448)       $ 218,448       $ -           $ -           $ -           $ -      

Forwards

    (307,501)       243,107       (64,394)       -           -           (64,394)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

    $ (525,949)       $ 461,555       $ (64,394)       $ -           $ -           $ (64,394)  
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net fair value

              $ 369,977  * 
           

 

 

 

 

*

In the event of default by the Partnership, MS&Co., the Partnership’s commodity futures broker and the sole counterparty to the Partnership’s non-exchange-traded contracts, as applicable, has the right to offset the Partnership’s obligation with the Partnership’s cash and/or U.S. Treasury bills held by MS&Co., thereby minimizing MS&Co.’s risk of loss. There is no collateral posted by MS&Co. and as such, in the event of default by MS&Co., the Partnership is exposed to the amount shown in the Statements of Financial Condition. In the case of exchange-traded contracts, the Partnership’s exposure to counterparty risk may be reduced since the exchange’s clearinghouse interposes its credit between buyer and seller and the clearinghouse’s guarantee funds may be available in the event of a default.

 

9


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

The following tables indicate the gross fair values of derivative instruments of futures and forward contracts held directly by the Partnership as separate assets and liabilities as of June 30, 2017 and December 31, 2016, respectively.

 

     June 30,
2017
 

Assets

  

Futures Contracts

  

Currencies

     $ 18,266     

Energy

     17,036     

Grains

     6,646     

Indices

     52,529     

Interest Rates U.S.

     8,500     

Interest Rates Non-U.S.

     57,920     

Livestock

     18,745     

Metals

     51,008     

Softs

     116,514     
  

 

 

 

Total unrealized appreciation on open futures contracts

     347,164     
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (4,379)    

Energy

     (194,104)    

Grains

     (102,138)    

Indices

     (173,194)    

Interest Rates U.S.

     (15,312)    

Interest Rates Non-U.S.

     (249,363)    

Livestock

     (18,510)    

Metals

     (14,289)    

Softs

     (32,245)    
  

 

 

 

Total unrealized depreciation on open futures contracts

     (803,534)    
  

 

 

 

Net unrealized depreciation on open futures contracts

     $         (456,370)  
  

 

 

 

Assets

  

Forward Contracts

  

Currencies

     $ 175,130     

Metals

     42,512     
  

 

 

 

Total unrealized appreciation on open forward contracts

     217,642     
  

 

 

 

Liabilities

  

Forward Contracts

  

Currencies

     (194,856)    

Metals

     (59,160)    
  

 

 

 

Total unrealized depreciation on open forward contracts

     (254,016)    
  

 

 

 

Net unrealized depreciation on open forward contracts

     $ (36,374)   ** 
  

 

 

 

 

*

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

 

**

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

 

10


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

     December 31,
2016
 

Assets

  

Futures Contracts

  

Currencies

     $ 8,276     

Energy

     118,837     

Grains

     38,610     

Indices

     95,026     

Interest Rates U.S.

     21,211     

Interest Rates Non-U.S.

     100,985     

Livestock

     2,455     

Metals

     67,712     

Softs

     199,707     
  

 

 

 

Total unrealized appreciation on open futures contracts

     652,819     
  

 

 

 

Liabilities

  

Futures Contracts

  

Currencies

     (5,661)    

Energy

     (15,500)    

Grains

     (66,210)    

Indices

     (54,091)    

Interest Rates U.S.

     (9,695)    

Interest Rates Non-U.S.

     (33,137)    

Livestock

     (1,480)    

Metals

     (10,521)    

Softs

     (22,153)    
  

 

 

 

Total unrealized depreciation on open futures contracts

     (218,448)    
  

 

 

 

Net unrealized appreciation on open futures contracts

     $         434,371  
  

 

 

 

Assets

  

Forward Contracts

  

Currencies

     $ 118,251     

Metals

     124,856     
  

 

 

 

Total unrealized appreciation on open forward contracts

     243,107     
  

 

 

 

Liabilities

  

Forward Contracts

  

Currencies

     (194,963)    

Metals

     (112,538)    
  

 

 

 

Total unrealized depreciation on open forward contracts

     (307,501)    
  

 

 

 

Net unrealized depreciation on open forward contracts

     $ (64,394)    ** 
  

 

 

 

 

*

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

 

**

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

 

11


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the three and six months ended June 30, 2017. There were no derivative instruments traded directly by the Partnership during the three and six months ended June 30, 2016.

 

         Three Months Ended             Six Months Ended      

Sector

   June 30, 2017     June 30, 2017  

Currencies

     $ (189,115)         $ (408,701)    

Energy

     (253,161)         (686,221)    

Grains

     (329,176)         (521,592)    

Indices

     437,063          1,102,450     

Interest Rates U.S.

     (38,609)         (148,695)    

Interest Rates Non-U.S.

     (240,907)         (489,510)    

Livestock

     72,028          43,313     

Metals

     (260,818)         (192,510)    

Softs

     184,958          180,778     
  

 

 

   

 

 

 

Total

     $ (617,737)   ***      $ (1,120,688)   *** 
  

 

 

   

 

 

 

 

***

 This amount is included in “Total trading results” in the Statements of Income and Expenses and Changes in Partners’ Capital.

5.   Fair Value Measurements:

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

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

The Partnership and the Funds consider prices for exchange-traded commodity futures, forward, swap and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain option contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of June 30, 2017 and December 31, 2016 and for the periods ended June 30, 2017 and 2016, the Partnership and the Funds did not hold any derivative instruments that were priced at fair value using unobservable inputs through the application of the General Partner’s assumptions and internal valuation pricing models (Level 3). Transfers between levels are recognized at the end of the reporting period. During the reporting periods, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

12


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

                                                                                                               

June 30, 2017

   Total    Level 1    Level 2    Level 3

Assets

           

Futures

     $ 347,164        $ 347,164        $ -            $ -      

Forwards

     217,642        42,512        175,130        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total Assets

     $ 564,806        $ 389,676        $ 175,130        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Liabilities

           

Futures

     $ 803,534        $ 803,534        $ -            $ -      

Forwards

     254,016        59,160        194,856        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total Liabilities

     $ 1,057,550        $ 862,694        $ 194,856        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

December 31, 2016

   Total    Level 1    Level 2    Level 3

Assets

           

Futures

     $ 652,819        $ 652,819        $ -            $ -      

Forwards

     243,107        124,856        118,251        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total Assets

     $ 895,926        $ 777,675        $ 118,251        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Liabilities

           

Futures

     $ 218,448        $ 218,448        $ -            $ -      

Forwards

     307,501        112,538        194,963        -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total Liabilities

     $ 525,949        $ 330,986        $ 194,963        $ -      
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

6.   Investment in the 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 131,340.8450 units of Aspect Master with cash equal to $122,786,448 and a contribution of open commodity futures and forward contracts with a fair value of $8,554,397. Aspect Master permits accounts managed by Aspect using the 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 July 1, 2005, the assets allocated to Willowbridge for trading were invested in Willowbridge Master (formerly CMF Willowbridge Argo Master Fund L.P.), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 95,795.8082 units of Willowbridge Master with cash equal to $85,442,868 and a contribution of open commodity futures and forward contracts with a fair value of $10,352,940. Willowbridge Master permits accounts managed by Willowbridge using its wPraxis Futures Trading Approach, a proprietary, discretionary trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Willowbridge have agreed that Willowbridge will trade the assets allocated to Willowbridge at a level up to 3 times the amount of assets allocated. Prior to January 1, 2013, Willowbridge traded the Partnership’s assets pursuant to its Argo Trading System.

On June 1, 2006, the assets allocated to Graham for trading were invested in Graham Master, a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 101,486.0491 units of Graham Master with cash equal to $103,008,482. Graham Master permits accounts managed by Graham using the K4D-15V Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process.

 

13


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

On May 1, 2011, 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 21,851.9469 units of Altis Master with cash equal to $70,000,000. Prior to its termination, Altis Master permitted commodity pools managed by Altis using the Global Futures Portfolio Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The Partnership fully redeemed its investment in Altis Master on June 30, 2016 for cash equal to $19,215,106.

On January 1, 2013, the assets allocated to Boronia for trading were invested in Boronia I, LLC, a limited liability company organized under the limited liability company laws of the State of Delaware. The Partnership purchased an interest in Boronia I, LLC with cash equal to $36,000,000. Boronia I, LLC permits accounts managed by Boronia using the Boronia Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner is also the trading manager of Boronia I, LLC. Individual and pooled accounts currently managed by Boronia, including the Partnership, are permitted to be members of Boronia I, LLC. The Trading Manager and Boronia believe that trading through this structure should promote efficiency and economy in the trading process. The Trading Manager and Boronia agreed that Boronia will trade the Partnership’s assets allocated to Boronia at a level up to 1.5 times the amount of assets allocated.

On August 1, 2013, the assets allocated to JE Moody for trading were invested in JEM Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership purchased 11,968.0895 units of JEM Master with cash equal to $15,820,000. Prior to its termination, JEM Master permitted accounts managed by JE Moody using the JEM Commodity Relative Value Program, a proprietary, systematic trading program, to invest together in one trading vehicle. The Partnership fully redeemed its investment in JEM Master on September 30, 2016 for cash equal to $9,054,379.

On December 1, 2015, the assets allocated to Cambridge for trading were invested in Cambridge Master, a limited partnership organized under the partnership laws of the State of Delaware. The Partnership purchased an interest in Cambridge Master with cash equal to $17,000,000. Cambridge Master permits accounts managed by Cambridge using the Asian Markets Alpha Programme and the Emerging Markets Alpha Programme, each a proprietary, systematic trading program, to invest together in one trading vehicle. The General Partner is also the general partner of Cambridge Master. Individual and pooled accounts currently managed by Cambridge, including the Partnership, are permitted to be limited partners of Cambridge Master. The General Partner and Cambridge believe that trading through this structure should promote efficiency and economy in the trading process. The General Partner and Cambridge agreed that Cambridge will trade the Partnership’s assets allocated to Cambridge at a level that is up to 1.5 times the amount of assets allocated. The amount of leverage may be increased or decreased in the future. However, in no event will the amount of leverage be greater than 2 times the amount of assets allocated.

The General Partner is not aware of any material changes to the trading programs discussed above during the fiscal quarter ended June 30, 2017.

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

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

Management fees, General Partner fees, ongoing selling agent fees and incentive fees are charged at the Partnership level, except for management and incentive fees payable to Boronia which are charged at the Boronia Trading Company level. All clearing fees paid to MS&Co. are borne directly by the Partnership for its direct trading. In addition, clearing fees are borne by the Funds and allocated to the Funds’ limited partners/non-managing members, including the Partnership. Professional fees are borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level.

 

14


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

As of June 30, 2017, the Partnership owned approximately 8.7% of Willowbridge Master, 43.5% of Aspect Master, 68.7% of Graham Master, 34.5% of Boronia I, LLC and 50.1% of Cambridge Master. At December 31, 2016, the Partnership owned approximately 9.8% of Willowbridge Master, 44.7% of Aspect Master, 68.6% of Graham Master, 35.0% of Boronia I, LLC and 44.1% of Cambridge Master. It is the Partnership’s intention to continue to invest in the Funds. The performance of the Partnership is directly affected by the performance of the Funds. Expenses to investors as a result of investment in the Funds are approximately the same as they would be if the Partnership traded directly and the redemption rights are not affected.

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

 

                                                                                   
     June 30, 2017
     Total Assets    Total Liabilities    Total Capital

Willowbridge Master

     $ 390,257,421        $ 6,451,000        $ 383,806,421  

Aspect Master

     40,801,392        1,233,449        39,567,943  

Graham Master

     22,708,569        1,363,808        21,344,761  

Boronia I, LLC

     30,812,425        46,443        30,765,982  

Cambridge Master

     45,122,966        39,161        45,083,805  
     December 31, 2016
     Total Assets    Total Liabilities    Total Capital

Willowbridge Master

     $ 396,846,845        $ 5,348,232        $ 391,498,613  

Aspect Master

     53,867,283        237,915        53,629,368  

Graham Master

     32,989,339        23,229        32,966,110  

Boronia I, LLC

     46,628,650        267,197        46,361,453  

Cambridge Master

     58,282,466        1,125,600        57,156,866  

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 June 30, 2017
     Net Investment   Total Trading    
     Income (Loss)   Results   Net Income (Loss)

Willowbridge Master

     $ 375,645       $ 3,267,721       $ 3,643,366  

Aspect Master

     23,666       (1,848,627     (1,824,961

Graham Master

     7,285       (1,174,536     (1,167,251

Boronia I, LLC

     (372,467     290,771       (81,696

Cambridge Master

     44,132       937,924       982,056  
     For the six months ended June 30, 2017
     Net Investment   Total Trading    
     Income (Loss)   Results   Net Income (Loss)

Willowbridge Master

     $ 572,557       $ (3,370,192     $ (2,797,635

Aspect Master

     32,657       (2,652,534     (2,619,877

Graham Master

     6,966       (849,069     (842,103

Boronia I, LLC

     (778,252     (5,034,254     (5,812,506

Cambridge Master

     63,518       5,659,416       5,722,934  

 

15


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

                                                                                   
     For the three months ended June 30, 2016
     Net Investment   Total Trading    
     Income (Loss)   Results   Net Income (Loss)

Willowbridge Master

     $ (74,889     $ (8,464,297     $ (8,539,186

Aspect Master

     (29,293     (934,276     (963,569

Graham Master

     (24,319     1,248,149       1,223,830  

Altis Master

     (97,959     (2,266,823     (2,364,782

JEM Master

     (124,117     (826,843     (950,960

Boronia I, LLC

     (1,082,633     4,790,599       3,707,966  

Cambridge Master

     (2,337     (2,101,071     (2,103,408
     For the six months ended June 30, 2016
     Net Investment   Total Trading    
     Income (Loss)   Results   Net Income (Loss)

Willowbridge Master

     $ (184,455     $ (10,557,807     $ (10,742,262

Aspect Master

     (54,116     527,474       473,358  

Graham Master

     (51,696     (345,784     (397,480

Altis Master

     (150,778     (5,588,130     (5,738,908

JEM Master

     (268,754     (1,106,840     (1,375,594

Boronia I, LLC

     (1,773,815     11,497,535       9,723,720  

Cambridge Master

     7,573       2,578,583       2,586,156  

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

 

     June 30, 2017    For the three months ended June 30, 2017         
     % of            Expenses    Net         
     Partners’   Fair    Income   Clearing    Professional    Management    Incentive    Income   Investment    Redemptions

Funds

   Capital   Value    (Loss)   Fees    Fees    Fee    Fee    (Loss)   Objective    Permitted

Willowbridge Master

     30.32     $     33,393,884        $     315,466       $     25,153        $     1,607        $     -            $       -            $   288,706       Commodity Portfolio        Monthly  

Aspect Master

     15.63     17,213,206        (769,572     11,817        6,822        -            -            (788,211     Commodity Portfolio        Monthly  

Graham Master

     13.32     14,672,932        (790,045     10,528        10,793        -            -            (811,366     Commodity Portfolio        Monthly  

Boronia I, LLC

     9.63     10,613,558        102,751       91,218        9,754        41,522        -            (39,743     Commodity Portfolio        Monthly  

Cambridge Master

     20.53     22,618,397        482,860       7,909        7,241        -            -            467,710       Commodity Portfolio        Monthly  
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

Total

       $     98,511,977        $     (658,540     $     146,625        $     36,217        $     41,522        $       -            $   (882,904     
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

 

16


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

     June 30, 2017    For the six months ended June 30, 2017         
     % of            Expenses    Net         
     Partners’   Fair    Income   Clearing    Professional    Management    Incentive    Income   Investment    Redemptions

Funds

   Capital   Value    (Loss)   Fees    Fees    Fee    Fee    (Loss)   Objective    Permitted

Willowbridge Master

     30.32     $     33,393,884        $   (302,137     $     49,619        $     3,295        $     -          $       -          $   (355,051     Commodity Portfolio        Monthly  

Aspect Master

     15.63     17,213,206        (1,093,273     22,874        13,550        -          -          (1,129,697     Commodity Portfolio        Monthly  

Graham Master

     13.32     14,672,932        (525,629     22,212        21,724        -          -          (569,565     Commodity Portfolio        Monthly  

Boronia I, LLC

     9.63     10,613,558        (1,588,738     176,181        20,786        88,537        -          (1,874,242     Commodity Portfolio        Monthly  

Cambridge Master

     20.53     22,618,397        2,716,722       21,574        14,189        -          -          2,680,959       Commodity Portfolio        Monthly  
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

Total

       $     98,511,977        $   (793,055     $     292,460        $     73,544        $     88,537        $   -          $ (1,247,596     
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    
     December 31, 2016    For the three months ended June 30, 2016         
     % of            Expenses    Net         
     Partners’   Fair    Income   Clearing    Professional    Management    Incentive    Income   Investment    Redemptions

Funds

   Capital   Value    (Loss)   Fees    Fees    Fee    Fee    (Loss)   Objective    Permitted

Willowbridge Master

     27.95     $     38,198,019        $     (914,597     $     26,206        $     2,271        $   -          $ -          $     (943,074     Commodity Portfolio        Monthly  

Aspect Master

     17.56     24,000,563        (518,356     15,819        10,599        -          -          (544,774     Commodity Portfolio        Monthly  

Graham Master

     16.55     22,617,006        940,588       18,296        14,787        -          -          907,505       Commodity Portfolio        Monthly  

Altis Master

     0.00     -          (1,334,205     46,156        18,898        -          -          (1,399,259     Commodity Portfolio        Monthly  

JEM Master

     0.00     -          (523,311     69,020        13,043        -          -          (605,374     Commodity Portfolio        Monthly  

Boronia I, LLC

     11.86     16,206,218        1,956,851       131,114        19,518        83,303        199,853        1,523,063       Commodity Portfolio        Monthly  

Cambridge Master

     18.45     25,216,303        (860,132     7,627        8,506        -          -          (876,265     Commodity Portfolio        Monthly  
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

Total

       $     126,238,109        $     (1,253,162     $   314,238        $     87,622        $       83,303        $     199,853        $     (1,938,178     
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    
     December 31, 2016    For the six months ended June 30, 2016         
     % of            Expenses    Net         
     Partners’   Fair    Income   Clearing    Professional    Management    Incentive    Income   Investment    Redemptions

Funds

   Capital   Value    (Loss)   Fees    Fees    Fee    Fee    (Loss)   Objective    Permitted

Willowbridge Master

     27.95     $     38,198,019        $     (1,109,745     $     62,603        $   4,786        $ -          $ -          $ (1,177,134     Commodity Portfolio        Monthly  

Aspect Master

     17.56     24,000,563        391,483       31,568        21,578        -          -          338,337       Commodity Portfolio        Monthly  

Graham Master

     16.55     22,617,006        (172,195     36,465        29,576        -          -          (238,236     Commodity Portfolio        Monthly  

Altis Master

     0.00     -          (3,222,037     77,805        30,569        -          -          (3,330,411     Commodity Portfolio        Monthly  

JEM Master

     0.00     -          (691,425     148,763        25,688        -          -          (865,876     Commodity Portfolio        Monthly  

Boronia I, LLC

     11.86     16,206,218        5,170,442       296,423        46,459        198,385        220,099        4,409,076       Commodity Portfolio        Monthly  

Cambridge Master

     18.45     25,216,303        921,570       14,467        16,187        -          -          890,916       Commodity Portfolio        Monthly  
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

Total

       $     126,238,109        $     1,288,093       $     668,094        $     174,843        $     198,385        $ 220,099        $     26,672       
    

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

    

 

17


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

7.   Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are parties to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forward, futures, option and swap contracts, 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, a swap execution facility or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward, swap and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward, swap and option contracts. Each of these instruments is subject to various risks similar to those related 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 61.3% to 72.5% of the Partnership’s/Funds’ contracts are traded OTC.

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

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

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

 

18


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

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

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

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

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

The General Partner monitors and attempts to mitigate the Partnership’s/Funds’ risk exposure on a daily basis through financial, credit and risk management monitoring systems and, accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership/Funds may be subject. These monitoring systems generally allow the General Partner 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 Partnership’s/Funds’ business, these instruments may not be held to maturity.

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

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

8.    Subsequent Events:

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

 

19


Tactical Diversified Futures Fund L.P.

Notes to Financial Statements

(Unaudited)

 

Effective July 12, 2017 Aspect Master, Cambridge Master, Graham Master and Willowbridge Master each entered into certain agreements with JPMorgan in connection with trading in forward foreign currency contracts on behalf of the referenced master funds and indirectly, the Partnership. These agreements include a foreign exchange and bullion authorization agreement (“FX Agreement”), an International Swap Dealers Association, Inc. master agreement (“Master Agreement”), a schedule to the Master Agreement, a 2016 credit support annex for variation margin to the schedule and an institutional account agreement. In addition to Cambridge Master and Willowbridge Master, Cambridge and Willowbridge are both parties to the FX Agreements for the master funds each acts as advisor to. Under each FX Agreement, JPMorgan will charge a fee on the aggregate foreign currency transactions entered into on behalf of the respective Fund during a month.

 

 

20


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not have, nor does it expect to have, any capital assets. The Partnership does not engage in sales of goods or services. Its assets are its (i) investment in the Funds, (ii) equity in trading account, consisting of unrestricted cash, restricted cash, net unrealized appreciation on open futures contracts, net unrealized appreciation on open forward contracts, options purchased at fair value and investment in U.S. Treasury bills at fair value, if applicable, (iii) cash at bank and (iv) interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership, through its investment in the Funds and direct investments. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the second quarter of 2017.

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

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

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

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

For the six months ended June 30, 2017, the Partnership’s capital decreased 19.4% from $136,664,864 to $110,149,484. This decrease was attributable to redemptions of 24,096.1210 limited partner Redeemable Units totaling $20,879,776, redemptions of 318.4110 General Partner Redeemable Units totaling $270,000 and a net loss of $5,398,604, which was partially offset by the subscriptions of 37.2530 limited partner Redeemable Units totaling $33,000. Future redemptions can impact the amount of funds available for investment in subsequent periods.

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

Off-Balance Sheet Arrangements and Contractual Obligations

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

Critical Accounting Policies

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

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

 

21


Results of Operations

During the Partnership’s second quarter of 2017, the Partnership’s net asset value per Redeemable Unit decreased 2.5% from $869.59 to $847.96 as compared to a decrease of 2.1% in the same period of 2016. The Partnership experienced a net trading loss before fees and expenses in the second quarter of 2017 of $1,427,129. Losses were primarily attributable to the Partnership’s/Funds’ trading in currencies, energy, grains, U.S. and non U.S. interest rates, and metals, and were partially offset by gains in indices, livestock and softs. The Partnership experienced a net trading loss before fees and expenses in the second quarter of 2016 of $1,331,881. Losses were primarily attributable to the Funds’ trading in energy, global stock index, metals and currency markets and were partially offset by gains in global interest rate and agricultural markets.

The most significant losses were incurred within the metals sector during April from long positions in aluminum, copper, and zinc futures as prices for industrial metals tumbled amid increasing concern over the strength of China’s manufacturing base. Additional losses were recorded within the metals markets during May from positions in copper and silver futures. Within the global interest rate sector, losses were experienced primarily during June from long positions in European fixed income futures as hawkish comments from European Central Bank President, Mario Draghi, sparked a sell-off in global bonds. Further losses in this sector during June were recorded from positions in U.S., British, Canadian, and Australian fixed income futures. Losses within the currency markets were incurred during May from short positions in the Japanese yen and euro versus the U.S. dollar as the value of the U.S. currency weakened amid the debate surrounding the Trump Administration’s alleged ties to Russia. Within the energy sector, losses were recorded during May from long positions in the crude oil complex as prices declined after the release of industry reports which indicated U.S. oil rig counts continue to climb higher. A portion of the Partnership’s losses for the second quarter was offset by gains achieved within the global stock index sector during April and May from long positions in European and Asian equity index futures as prices were buoyed by increased consumer confidence in the growing global economy. Within the agricultural markets, gains were recorded during April from short positions in cocoa futures as prices plunged lower on news that bumper crops in Africa will add to the growing global supply glut. Additional gains within the agricultural markets during April were experienced from long positions in cattle futures as prices rose sharply.

During the Partnership’s six months ended June 30, 2017, the net asset value per Redeemable Unit decreased 4.3% from $885.84 to $847.96 as compared to a decrease of 2.4% in the same period of 2016. The Partnership experienced a net trading loss before fees and expenses in the six months ended June 30, 2017 of $2,182,029. Losses were primarily attributable to the Partnership’s/Funds’ trading in currencies, energy, grains, U.S. and non U.S. interest rates, and metals, and were partially offset by gains in indices, livestock and softs. The Partnership experienced a net trading gain before fees and expenses in the six months ended June 30, 2016 of $1,112,861. Gains were primarily attributable to the Funds’ trading in global interest rate and currency markets and were partially offset by losses in the metals, energy, agricultural, and global stock index sectors.

The most significant losses were incurred within the energy markets during January from long positions in natural gas futures as prices declined as mild weather throughout much of the U.S. limited demand for heating fuel demand. Additional losses within this sector were experienced during February from positions in the crude oil complex as choppy price actions dominated throughout the month. Within the global interest rate sector, losses were recorded during March from long positions in European and U.S. fixed income futures as prices declined amid speculation of growing hawkish sentiment in central banks across the globe. During June, losses within the global interest rate markets were incurred due to long positions in various global fixed income futures as prices fell after hawkish comments from European Central Bank President, Mario Draghi, sparked a sell-off in global bonds. Further losses in this sector were recorded during March from long positions in European and U.S. fixed income futures as prices declined amid speculation of growing hawkish sentiment from central banks across the globe. Within the metals markets, losses were incurred during April from long positions in aluminum, copper, and zinc futures as prices for industrial metals tumbled amid increasing concern over the strength of China’s manufacturing base. Additional losses were recorded within the metals markets during May from positions in copper and silver futures. Losses within the agricultural sector were experienced during January from short positions in corn and wheat futures as prices rallied after reports indicated U.S. farmers may allocate fewer acres to corn and wheat plantings in 2017. Further losses within the agricultural markets were experienced during June from short positions in wheat and soybean futures as prices spiked due to drought conditions in the Midwest. A portion of the Partnership’s losses for the first six months of the year was offset by gains achieved within the global stock index markets during February, March, April, and May from long positions in European and Asian equity index futures as prices were buoyed by positive economic sentiment across the globe. During January and February, gains within the global stock index sector were also experienced due to long positions in U.S. equity index futures as prices were buoyed by speculation that newly elected U.S. President Donald Trump’s fiscal policies would stimulate the U.S. economy.

 

22


Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase not only the risks involved in commodity trading, but also the possibility of profit. The profitability of the Partnership/Funds depends on the existence of major price trends and the ability of the Advisors to correctly identify those price trends. Price trends are influenced by, among other 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.

Interest income on 80% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s, other than Boronia I, LLC) brokerage account during each month is earned at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. credits Boronia I, LLC on 100% of the average daily equity maintained in cash in the account of Boronia I, LLC during each month at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month but in no event less than zero. When the effective rate is less than zero, no interest is earned. Any interest earned on the Partnership’s and/or each Fund’s cash account in excess of the amounts described above, if any, will be retained by MS&Co. and/or shared with the General Partner. All interest income earned on U.S. Treasury bills and money market mutual fund securities will be retained by the Partnership and/or the Funds, as applicable. Interest income earned for the three and six months ended June 30, 2017 increased by $96,115 and $133,962, respectively, as compared to the corresponding periods in 2016. The increase in interest income is primarily due to higher 4-week U.S. Treasury bill discount rates during the three and six months ended June 30, 2017 as compared to the corresponding periods in 2016. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on (1) the average daily equity maintained in cash in the Partnership’s and/or applicable Fund’s account, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds or MS&Co. has control.

Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees related to direct investments for the three and six months ended June 30, 2017 were $19,808 and $40,267, respectively. The Partnership did not trade directly during the three and six months ended June 30, 2016.

Ongoing selling agent fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Ongoing selling agent fees for the three and six months ended June 30, 2017 decreased by $343,380 and $726,338, respectively, as compared to the corresponding periods in 2016. The decrease is primarily due to a decrease in average net assets during the three and six months ended June 30, 2017 as compared to the corresponding periods in 2016.

General Partner fees are paid to the General Partner for administering the business and affairs of the Partnership. General Partner fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. General Partner fees for the three and six months ended June 30, 2017 decreased by $171,425 and $362,446, respectively, as compared to the corresponding periods in 2016. The decrease is primarily due to a decrease in average net assets during the three and six months ended June 30, 2017 as compared to the corresponding periods in 2016.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Management fees for the three and six months ended June 30, 2017 decreased by $252,351 and $527,037, respectively, as compared to the corresponding periods in 2016. The decrease is due to a decrease in average net assets during the three and six months ended June 30, 2017 as compared to the corresponding periods in 2016.

Incentive fees are based on the new trading profits generated by each Advisor at the end of the quarter, as defined in the respective management agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three and six months ended June 30, 2017 resulted in incentive fees of $0. Trading performance for the three and six months ended June 30, 2016 resulted in incentive fees of $199,853 and $408,788, 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.

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

 

23


As of June 30, 2017 and March 31, 2017, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages:

 

Advisor

   June 30, 2017      March 31, 2017

Willowbridge Associates Inc.

                 30   $ 33,287,748                      30   $ 36,969,870  

Aspect Capital Limited

     15   $ 16,174,402          15   $ 19,091,183  

Graham Capital Management, L.P.

     12   $ 13,018,743          14   $ 17,743,176  

Boronia Capital Pty. Ltd.

     10   $ 10,580,073          10   $ 11,620,956  

Cambridge Master Fund L.P.

     20   $ 22,525,385          18   $ 22,335,441  

International Standard Asset Management

     13   $     14,563,133          13   $     16,375,115  

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Partnership/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 Partnership’s/Funds’ assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership’s/Funds’ main line of business.

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

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

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

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

The following quantitative disclosures regarding the Partnership’s/Funds’ market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

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

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

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

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

 

24


Value at Risk tables represent a probabilistic assessment of the risk of loss in market risk sensitive instruments. The Advisors, with exception to ISAM, currently trade the Partnership’s assets indirectly in master fund managed accounts established in the name of the master funds over which they have been granted limited authority to make trading decisions. ISAM directly trades a managed account in the name of the Partnership. The first two trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly and through its investment in the Funds. The remaining trading Value at Risk tables reflect the market sensitive instruments held by the Partnership directly (i.e., in the managed account in the Partnership’s name traded by ISAM) and indirectly by each Fund separately. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016.

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of June 30, 2017 and December 31, 2016. As of June 30, 2017, the Partnership’s total capitalization was $110,149,484.

 

                                                 
June 30, 2017  
          % of Total  

Market Sector

   Value at Risk    Capitalization  

Commodities

     $ 3,384,677        3.07    % 

Currencies

     23,827,587        21.63    

Equity

     3,130,828        2.84    

Interest Rates

     3,696,532        3.36    
  

 

 

 

  

 

 

 

Total

     $ 34,039,624        30.90    % 
  

 

 

 

  

 

 

 

As of December 31, 2016, the Partnership’s total capitalization was $136,664,864.

 

                                                 
December 31, 2016  
          % of Total  

Market Sector

   Value at Risk    Capitalization  

Commodities

     $ 3,808,959        2.79    % 

Currencies

     15,778,436        11.55    

Equity

     4,732,421        3.46    

Interest Rates

     2,276,871        1.66    
  

 

 

 

  

 

 

 

Total

     $ 26,596,687        19.46    % 
  

 

 

 

  

 

 

 

 

25


The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investments in the Funds by market category as of June 30, 2017 and December 31, 2016, and the highest, lowest and average values during the three months ended June 30, 2017 and the twelve months ended December 31, 2016. All open contracts trading risk exposures have been included in calculating the figures set forth below.

As of June 30, 2017 and December 31, 2016, the Partnership’s Value at Risk for the portion of its assets that are traded directly was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 2,803,742        2.55    %      $ 2,950,801        $ 1,764,631        $ 2,394,537  

Energy

     467,359        0.42         496,037        130,301        294,668  

Grains

     188,174        0.17         273,910        149,414        230,758  

Indices

     936,629        0.85         1,020,005        791,281        956,249  

Interest Rates U.S.

     45,871        0.04         63,036        3,048        41,807  

Interest Rates Non-U.S.

     389,795        0.35         483,532        280,433        398,234  

Livestock

     46,915        0.04         80,080        37,345        56,778  

Metals

     319,085        0.29         324,384        197,783        262,011  

Softs

     298,410        0.27         298,410        230,276        265,381  
  

 

 

 

  

 

 

         

Total

     $ 5,495,980        4.98    %         
  

 

 

 

  

 

 

         

*     Average of month-end Values at Risk.    

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 2,175,345        1.59    %      $ 2,731,803        $ -            $ 941,077  

Energy

     231,529        0.17         246,199        -            65,955  

Grains

     249,367        0.18         294,010        -            96,410  

Indices

     651,249        0.48         659,106        -            205,357  

Interest Rates U.S.

     115,060        0.08         124,355        -            28,673  

Interest Rates Non-U.S.

     320,785        0.23         473,126        -            129,713  

Livestock

     13,513        0.01         85,883        -            24,460  

Metals

     260,511        0.19         336,955        -            97,708  

Softs

     174,364        0.13         210,024        -            73,289  
  

 

 

 

  

 

 

         

Total

     $ 4,191,723        3.06    %         
  

 

 

 

  

 

 

         

*     Annual average of month-end Values at Risk.    

 

26


As of June 30, 2017, Willowbridge Master’s total capitalization was $383,806,421. The Partnership owned approximately 8.7% of Willowbridge Master. As of June 30, 2017, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 70,550,728        18.38    %    $ 73,637,789        $ 4,056,924        $ 48,977,398  

Energy

     3,214,110        0.84         5,785,464        -            3,112,216  

Interest Rates U.S.

     10,835,329        2.82         14,440,460        -            9,608,314  

Interest Rates Non-U.S.

     10,430,810        2.72         10,430,810        -            4,934,727  
  

 

 

 

  

 

 

         

Total

     $ 95,030,977        24.76    %         
  

 

 

 

  

 

 

         

 

*

Average of month-end Values at Risk.

As of December 31, 2016, Willowbridge Master’s total capitalization was $391,498,613. The Partnership owned approximately 9.8% of Willowbridge Master. As of December 31, 2016, Willowbridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Willowbridge for trading) was as follows:

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 7,479,249        1.91    %      $ 79,559,952        $ 147,470        $ 26,078,802  

Energy

     4,703,756        1.20         12,259,443        -            2,270,260  

Indices

     8,069,535        2.06         11,808,296        -            2,983,129  

Interest Rates U.S.

     1,170,235        0.30         22,748,409        -            4,116,353  

Interest Rates Non-U.S.

     2,194,981        0.56         4,206,401        -            1,168,020  

Metals

     319,854        0.08         4,745,455        -            841,842  
  

 

 

 

  

 

 

         

Total

     $ 23,937,610        6.11    %         
  

 

 

 

  

 

 

         

 

*

Annual average of month-end Values at Risk.

 

27


As of June 30, 2017, Aspect Master’s total capitalization was $39,567,943. The Partnership owned approximately 43.5% of Aspect Master. As of June 30, 2017, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 4,279,889        10.82    %      $ 6,170,736        $ 4,066,154        $ 5,180,109  

Energy

     449,651        1.14         566,849        157,014        296,126  

Grains

     378,676        0.96         517,162        321,981        443,480  

Indices

     1,646,463        4.16         1,859,026        1,646,463        1,726,851  

Interest Rates U.S.

     29,020        0.07         200,309        17,734        66,558  

Interest Rates Non-U.S.

     926,884        2.34         1,157,453        311,263        1,007,292  

Livestock

     166,733        0.42         192,005        127,655        172,022  

Metals

     515,560        1.30         595,865        345,880        458,616  

Softs

     550,152        1.39         560,789        422,940        514,307  
  

 

 

 

  

 

 

         

Total

     $ 8,943,028        22.60    %         
  

 

 

 

  

 

 

         

 

*

Average of month-end Values at Risk.

As of December 31, 2016, Aspect Master’s total capitalization was $53,629,368. The Partnership owned approximately 44.7% of Aspect Master. As of December 31, 2016, Aspect Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Aspect for trading) was as follows:

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 3,584,628        6.68    %      $ 5,495,895        $ 2,004,831        $ 3,746,199  

Energy

     324,801        0.61         1,599,620        66,554        394,050  

Grains

     370,844        0.69         682,790        294,513        403,401  

Indices

     2,391,035        4.46         2,562,786        501,719        1,442,103  

Interest Rates U.S.

     409,866        0.76         749,348        57,315        330,990  

Interest Rates Non-U.S.

     860,718        1.60         1,676,537        644,150        1,215,260  

Livestock

     34,993        0.07         203,363        19,751        77,084  

Metals

     688,095        1.28         1,354,919        292,857        635,834  

Softs

     275,454        0.51         621,153        124,438        330,137  
  

 

 

 

  

 

 

         

Total

     $ 8,940,434        16.66    %         
  

 

 

 

  

 

 

         

 

*

Annual average of month-end Values at Risk.

 

28


As of June 30, 2017, Graham Master’s total capitalization was $21,344,761. The Partnership owned approximately 68.7% of Graham Master. As of June 30, 2017, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 1,189,623        5.57    %      $ 3,829,165        $ 1,189,623        $ 2,647,922  

Energy

     450,340        2.11         547,426        268,070        400,620  

Grains

     160,765        0.75         222,530        160,765        184,122  

Indices

     1,432,273        6.71         2,153,831        1,432,273        1,759,430  

Interest Rates U.S.

     313,970        1.47         718,997        152,795        529,089  

Interest Rates Non-U.S.

     506,471        2.37         693,497        506,471        597,377  

Metals

     242,870        1.14         604,049        233,040        324,917  

Softs

     118,162        0.55         145,441        112,081        129,077  
  

 

 

 

  

 

 

         

Total

     $ 4,414,474        20.67    %         
  

 

 

 

  

 

 

         

 

*

Average of month-end Values at Risk.

As of December 31, 2016, Graham Master’s total capitalization was $32,966,110. The Partnership owned approximately 68.6% of Graham Master. As of December 31, 2016, Graham Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Graham for trading) was as follows:

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 2,447,426        7.42    %      $ 3,987,099        $ 1,614,161        $ 2,611,134  

Energy

     580,745        1.76         1,053,470        95,021        526,525  

Grains

     211,811        0.64         531,949        180,994        316,649  

Indices

     2,221,816        6.74         3,550,849        1,030,449        2,049,189  

Interest Rates U.S.

     330,644        1.00         835,863        150,947        381,007  

Interest Rates Non-U.S.

     540,262        1.64         1,420,966        474,659        955,427  

Metals

     814,274        2.47         1,548,556        251,791        816,143  

Softs

     186,559        0.57         275,968        130,334        197,062  
  

 

 

 

  

 

 

         

Total

     $ 7,333,537        22.24    %         
  

 

 

 

  

 

 

         

 

*

Annual average of month-end Values at Risk.

 

29


As of June 30, 2017 Boronia I, LLC’s total capitalization was $30,765,982. The Partnership owned approximately 34.5% of Boronia I, LLC. As of June 30, 2017 Boronia I, LLC’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Boronia for trading) was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 2,305,958        7.50    %      $ 2,910,397        $ 1,074,761        $ 1,750,023  

Interest Rates

     1,250,001        4.06         1,909,207        506,435        981,013  

Equity

     1,431,932        4.65         4,037,696        1,185,412        2,255,753  

Commodity

     640,036        2.08         1,627,383        640,036        1,251,268  
  

 

 

 

  

 

 

         

Total

     $ 5,627,927        18.29    %         
  

 

 

 

  

 

 

         

*      Average of month-end Values at Risk.

As of December 31, 2016, Boronia I, LLC’s total capitalization was $46,361,453. The Partnership owned approximately 35.0% of Boronia I, LLC. As of December 31, 2016, Boronia I, LLC’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Boronia for trading) was as follows:

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 2,017,334        4.35    %      $ 5,618,136        $ 960,149        $ 2,730,285  

Interest Rates

     988,120        2.13         3,333,809        663,603        1,683,414  

Equity

     1,992,570        4.30         4,125,302        1,043,389        2,212,080  

Commodity

     1,142,270        2.46         5,168,817        1,018,691        2,276,841  
  

 

 

 

  

 

 

         

Total

     $ 6,140,294        13.24    %         
  

 

 

 

  

 

 

         

 

*

Annual average of month-end Values at Risk.

 

30


As of June 30, 2017 Cambridge Master’s total capitalization was $45,083,805. The Partnership owned approximately 50.1% of Cambridge Master. As of June 30, 2017 Cambridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Cambridge for trading) was as follows:

 

                                                                                                                                           
          June 30, 2017            
                Three Months Ended June 30, 2017
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 22,777,152        50.52    %      $ 25,579,221        $ 15,833,626        $ 21,866,906  
  

 

 

 

  

 

 

         

Total

     $ 22,777,152        50.52    %         
  

 

 

 

  

 

 

         

 

*

Average of month-end Values at Risk.

As of December 31, 2016, Cambridge Master’s total capitalization was $57,156,866. The Partnership owned approximately 44.1% of Cambridge Master. As of December 31, 2016, Cambridge Master’s Value at Risk for its assets (including the portion of the Partnership’s assets allocated to Cambridge for trading) was as follows:

 

                                                                                                                                           
          December 31, 2016            
                Twelve Months Ended December 31, 2016
          % of Total     High    Low    Average

Market Sector

   Value at Risk    Capitalization     Value at Risk    Value at Risk    Value at Risk*

Currencies

     $ 20,142,391        35.24    %      $ 44,182,579        $ 15,170,546        $ 28,591,831  
  

 

 

 

  

 

 

         

Total

     $ 20,142,391        35.24    %         
  

 

 

 

  

 

 

         

 

*

Annual average of month-end Values at Risk.

As of June 30, 2016, the Partnership has fully redeemed its investment in Altis Master.

As of September 30, 2016, the Partnership has fully redeemed its investment in JEM Master.

Item 4. Controls and Procedures.

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

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

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2017 and, based on that evaluation, the General Partner’s President and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:

 

   

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

 

   

provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and

 

   

provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended June 30, 2017 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

31


PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which MS&Co. or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.

On June 1, 2011, Morgan Stanley & Co. Incorporated converted from a Delaware corporation to a Delaware limited liability company. As a result of that conversion, Morgan Stanley & Co. Incorporated is now named Morgan Stanley & Co. LLC (“MS&Co.”).

MS&Co. is a wholly owned, indirect subsidiary of Morgan Stanley, a Delaware holding company. Morgan Stanley files periodic reports with the SEC as required by the 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 Stanley’s SEC 10-K filings for 2016, 2015, 2014, 2013 and 2012. In addition, MS&Co. annually prepares an Audited, Consolidated Statement of Financial Condition (“Audited Financial Statement”) that is publicly available on Morgan Stanley’s website at www.morganstanley.com. Please refer to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2016 Audited Financial Statement.

In addition to the matters described in those filings, in the normal course of business, each of Morgan Stanley and MS&Co. has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation, arising in connection with its activities as a global diversified financial services institution. Certain of the legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Each of Morgan Stanley and MS&Co. is also involved, from time to time, in investigations and proceedings by governmental and/or regulatory agencies or self-regulatory organizations, certain of which may result in adverse judgments, fines or penalties. The number of these investigations and proceedings has increased in recent years with regard to many financial services institutions, including Morgan Stanley and MS&Co.

MS&Co. is a Delaware limited liability company with its main business office located at 1585 Broadway, New York, New York 10036. Among other registrations and memberships, MS&Co. is registered as a futures commission merchant and is a member of the National Futures Association.

Regulatory and Governmental Matters

MS&Co. has received subpoenas and requests for information from certain federal and state regulatory and governmental entities, including among others various members of the RMBS Working Group of the Financial Fraud Enforcement Task Force, such as the United States Department of Justice, Civil Division and several state Attorney General’s Offices, concerning the origination, financing, purchase, securitization and servicing of subprime and non-subprime residential mortgages and related matters such as residential mortgage-backed securities (“RMBS”), collateralized debt obligations (“CDOs”), structured investment vehicles (“SIVs”) and credit default swaps backed by or referencing mortgage pass-through certificates. These matters, some of which are in advanced stages, include, but are not limited to, investigations related to MS&Co.’s due diligence on the loans that it purchased for securitization, MS&Co.’s communications with ratings agencies, MS&Co.’s disclosures to investors, and MS&Co.’s handling of servicing and foreclosure related issues.

On February 25, 2015, MS&Co. reached an agreement in principle with the United States Department of Justice, Civil Division and the United States Attorney’s Office for the Northern District of California, Civil Division (collectively, the “Civil Division”) to pay $2.6 billion to resolve certain claims that the Civil Division indicated it intended to bring against MS&Co. That settlement was finalized on February 10, 2016.

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

 

32


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

On June 5, 2012, MS&Co. consented to and became the subject of an Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as amended, Making Findings and Imposing Remedial Sanctions by the Commodity Futures Trading Commission (“CFTC”) to resolve allegations related to the failure of a salesperson to comply with exchange rules that prohibit off-exchange futures transactions unless there is an Exchange for Related Position (“EFRP”). Specifically, the CFTC found that from April 2008 through October 2009, MS&Co. violated Section 4c(a) of the Commodity Exchange Act and CFTC Regulation 1.38 by executing, processing and reporting numerous off-exchange futures trades to the Chicago Mercantile Exchange (“CME”) and Chicago Board of Trade (“CBOT”) as EFRPs in violation of CME and CBOT rules because those trades lacked the corresponding and related cash, OTC swap, OTC option, or other OTC derivative position. In addition, the CFTC found that MS&Co. violated CFTC Regulation 166.3 by failing to supervise the handling of the trades at issue and failing to have adequate policies and procedures designed to detect and deter the violations of the Commodity Exchange Act and CFTC Regulations. Without admitting or denying the underlying allegations and without adjudication of any issue of law or fact, MS&Co. accepted and consented to entry of findings and the imposition of a cease and desist order, a fine of $5,000,000, and undertakings related to public statements, cooperation and payment of the fine. MS&Co. entered into corresponding and related settlements with the CME and CBOT in which the CME found that MS&Co. violated CME Rules 432.Q and 538 and fined MS&Co. $750,000 and CBOT found that MS&Co. violated CBOT Rules 432.Q and 538 and fined MS&Co. $1,000,000.

On July 23, 2014, the SEC approved a settlement by MS&Co. and certain affiliates to resolve an investigation related to certain subprime RMBS transactions sponsored and underwritten by those entities in 2007. Pursuant to the settlement, MS&Co. and certain affiliates were charged with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as amended, agreed to pay disgorgement and penalties in an amount of $275 million and neither admitted nor denied the SEC’s findings.

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

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

On August 6, 2015, MS&Co. consented to and became the subject of an order by the CFTC to resolve allegations that MS&Co. violated CFTC Regulation 22.9(a) by failing to hold sufficient U.S. dollars in cleared swap segregated accounts in the United States to meet all U.S. dollar obligations to cleared swaps customers. Specifically, the CFTC found that while MS&Co. at all times held sufficient funds in segregation to cover its obligations to its customers, on certain days during 2013 and 2014, it held currencies, such as euros, instead of U.S. dollars, to meet its U.S. dollar obligations. In addition, the CFTC found that MS&Co. violated CFTC Regulation 166.3 by failing to have in place adequate procedures to ensure that it complied with CFTC Regulation 22.9(a). Without admitting or denying the findings or conclusions and without adjudication of any issue of law or fact, MS&Co. accepted and consented to the entry of findings, the imposition of a cease and desist order, a civil monetary penalty of $300,000, and undertakings related to public statements, cooperation, and payment of the monetary penalty.

 

33


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

Civil Litigation

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co., styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap referencing the super senior portion of the STACK 2006-1 CDO. The complaint asserts claims for common law fraud, fraudulent inducement and fraudulent concealment and alleges that MS&Co. misrepresented the risks of the STACK 2006-1 CDO to CDIB, and that MS&Co. knew that the assets backing the CDO were of poor quality when it entered into the credit default swap with CDIB. The complaint seeks compensatory damages related to the approximately $228 million that CDIB alleges it has already lost under the credit default swap, rescission of CDIB’s obligation to pay an additional $12 million, punitive damages, equitable relief, fees and costs. On February 28, 2011, the court denied MS&Co.’s motion to dismiss the complaint. Based on currently available information, MS&Co. believes it could incur a loss of up to approximately $240 million plus pre- and post-judgment interest, fees and costs.

On October 15, 2010, the Federal Home Loan Bank of Chicago filed a complaint against MS&Co. and other defendants in the Circuit Court of the State of Illinois, styled Federal Home Loan Bank of Chicago v. Bank of America Funding Corporation et al. A corrected amended complaint was filed on April 8, 2011, which alleges that defendants made untrue statements and material omissions in the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans and asserts claims under Illinois law. The total amount of certificates allegedly sold to plaintiff by MS&Co. at issue in the action was approximately $203 million. The complaint seeks, among other things, to rescind the plaintiff’s purchase of such certificates. The defendants filed a motion to dismiss the corrected amended complaint on May 27, 2011, which was denied on September 19, 2012. On December 13, 2013, the court entered an order dismissing all claims related to one of the securitizations at issue. 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 June 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $45 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 $45 million unpaid balance of these certificates (plus any losses incurred) and their fair market value at the time of a judgment against MS&Co., plus pre- and post-judgment interest, fees and costs. MS&Co. may be entitled to be indemnified for some of these losses and to an offset for interest received by the plaintiff prior to a judgment.

On 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 plaintiff’s purchase of such certificates. On May 26, 2011, defendants removed the case to the United States District Court for the District of Massachusetts. The defendants’ motions to dismiss the amended complaint were granted in part and denied in part on September 30, 2013. On November 25, 2013, July 16, 2014, and May 19, 2015, respectively, the plaintiff voluntarily dismissed its claims against MS&Co. with respect to three of the securitizations at issue. After these voluntary dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $332 million. At June 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $48 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 $48 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 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 $644 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 granted in part and denied in part MS&Co.’s motion to dismiss the complaint. On June 20, 2017 the Appellate Division, First Department, affirmed the lower court’s June 10, 2014 order. At March 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $237 million, and the certificates had incurred actual losses of approximately $87 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $237 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 May 17, 2013, plaintiff in IKB International S.A. in Liquidation, et al. v. Morgan Stanley, et al. filed a complaint against MS&Co. and certain affiliates in the Supreme Court of NY. The complaint alleges that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $132 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On October 29, 2014, the court granted in part and denied in part MS&Co.’s motion to dismiss. All claims regarding four certificates were dismissed. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $116 million. On August 26, 2015, MS&Co. perfected its appeal from the court’s October 29, 2014 decision. On August 11, 2016, the Appellate Division, First Department affirmed the trial court’s decision denying in part MS&Co.’s motion to dismiss the complaint. At June 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $25 million, and the certificates had incurred actual losses of $58 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $25 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 1, 2016, the California Attorney General’s Office filed an action against MS&Co. in California state court styled California v. Morgan Stanley, et al., on behalf of California investors, including the California Public Employees’ Retirement System and the California Teachers’ Retirement System. The complaint alleges that MS&Co. made misrepresentations and omissions regarding residential mortgage-backed securities and notes issued by the Cheyne SIV (defined below), and asserts violations of the California False Claims Act and other state laws and seeks treble damages, civil penalties, disgorgement, and injunctive relief. On September 30, 2016, the court granted MS&Co.’s demurrer, with leave to replead. On October 21, 2016, the California Attorney General filed an amended complaint. On January 25, 2017, the court denied MS&Co.’s demurrer with respect to the amended complaint.

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 SIV”). 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 SIV 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 SIV. The plaintiffs asserted allegations of aiding and abetting fraud and negligent misrepresentation relating to approximately $852 million of securities issued by the Cheyne SIV. 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.

 

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On December 23, 2009, the Federal Home Loan Bank of Seattle filed a complaint against MS&Co. and another defendant in the Superior Court of the State of Washington, styled Federal Home Loan Bank of Seattle v. Morgan Stanley & Co. Inc., et al. The amended complaint, filed on September 28, 2010, 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 sold to plaintiff by MS&Co. was approximately $233 million. The complaint raises claims under the Washington State Securities Act and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On January 23, 2017, the parties reached an agreement to settle the litigation.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed a complaint against MS&Co. and other defendants in the Superior Court of the State of California styled Federal Home Loan Bank of San Francisco v. Credit Suisse Securities (USA) LLC, et al. An amended complaint filed on June 10, 2010 alleged that defendants made untrue statements and material omissions in connection with the sale to plaintiff of a number of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $704 million. The complaint raised claims under both the federal securities laws and California law and sought, among other things, to rescind the plaintiff’s purchase of such certificates. On January 26, 2015, as a result of a settlement with certain other defendants, the plaintiff requested and the court subsequently entered a dismissal with prejudice of certain of the plaintiff’s claims, including all remaining claims against MS&Co.

On March 15, 2010, the Federal Home Loan Bank of San Francisco filed a complaint against MS&Co. and other defendants in the Superior Court of the State of California styled Federal Home Loan Bank of San Francisco v. Deutsche Bank Securities Inc. et al. An amended complaint, filed on June 10, 2010, alleges that defendants made untrue statements and material omissions in connection with the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly sold to plaintiff by MS&Co. was approximately $276 million. The complaint raises claims under both the federal securities laws and California law and seeks, among other things, to rescind the plaintiff’s purchase of such certificates. On December 21, 2016, the parties reached an agreement to settle the litigation.

On 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 plaintiff’s affiliates and alleged 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 plaintiff’s 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 (“SPV”), were named as defendants in a purported class action in the United States District Court for the Southern District of New York (“SDNY”), styled Ge Dandong, et al. v. Pinnacle Performance Ltd., et al. On January 31, 2014, the plaintiffs in the action, which related to securities issued by the SPV in Singapore, filed a second amended complaint, which asserted common law claims of fraud, aiding and abetting fraud, fraudulent inducement, aiding and abetting fraudulent inducement, and breach of the implied covenant of good faith and fair dealing. On July 17, 2014, the parties reached an agreement to settle the litigation, which received final court approval on July 2, 2015.

On July 5, 2011, Allstate Insurance Company and certain of its affiliated entities filed a complaint against MS&Co. in the Supreme Court of NY, styled Allstate Insurance Company, et al. v. Morgan Stanley, et al. An amended complaint was filed on September 9, 2011, and alleged that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly issued and/or sold to the plaintiffs by MS&Co. was approximately $104 million. The complaint raised common law claims of fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation and seeks, among other things, compensatory and/or recessionary damages associated with the plaintiffs’ purchases of such certificates. On January 16, 2015, the parties reached an agreement to settle the litigation.

 

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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 alleged that defendants made untrue statements and material omissions in the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of the certificates allegedly sold to plaintiffs by MS&Co. was approximately $153 million. On June 8, 2015, the parties reached an agreement to settle the litigation.

On September 2, 2011, the Federal Housing Finance Agency, as conservator for Fannie Mae and Freddie Mac, filed 17 complaints against numerous financial services companies, including MS&Co. and certain affiliates. A complaint against MS&Co. and certain affiliates and other defendants was filed in the Supreme Court of NY, styled Federal Housing Finance Agency, as Conservator v. Morgan Stanley et al. The complaint alleged that defendants made untrue statements and material omissions in connection with the sale to Fannie Mae and Freddie Mac of residential mortgage pass-through certificates with an original unpaid balance of approximately $11 billion. The complaint raised claims under federal and state securities laws and common law and sought, among other things, rescission and compensatory and punitive damages. On February 7, 2014, the parties entered into an agreement to settle the litigation. On February 20, 2014, the court dismissed the action.

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 alleged that the defendants made untrue statements and material omissions in the sale to the plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly 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 sought, 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.

On April 25, 2012, The Prudential Insurance Company of America and certain affiliates filed a complaint against MS&Co. and certain affiliates in the Superior Court of the State of New Jersey, styled The Prudential Insurance Company of America, et al. v. Morgan Stanley, et al. On October 16, 2012, plaintiffs filed an amended complaint. The amended complaint alleged that defendants made untrue statements and material omissions in connection with the sale to plaintiffs of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. was approximately $1.073 billion. The amended complaint raised claims under the New Jersey Uniform Securities Law, as well as common law claims of negligent misrepresentation, fraud, fraudulent inducement, equitable fraud, aiding and abetting fraud, and violations of the New Jersey Racketeer Influenced and Corrupt Organizations Act, and included a claim for treble damages. On January 8, 2016, the parties reached an agreement to settle the litigation.

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

On November 4, 2011, the Federal Deposit Insurance Corporation, as receiver for Franklin Bank S.S.B, filed two complaints against MS&Co. in the District Court of the State of Texas. Each was styled Federal Deposit Insurance Corporation as Receiver for Franklin Bank, S.S.B v. Morgan Stanley & Company LLC F/K/A Morgan Stanley & Co. Inc. and alleged that MS&Co. made untrue statements and material omissions in connection with the sale to plaintiff of mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The amount of certificates allegedly underwritten and sold to plaintiff by MS&Co. in these cases was approximately $67 million and $35 million, respectively. On July 2, 2015, the parties reached an agreement to settle the litigation.

 

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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 NY, styled Bank Hapoalim B.M. v. Morgan Stanley et al. The complaint alleged that defendants made material misrepresentations and omissions in the sale to plaintiff of certain mortgage pass-through certificates backed by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiff was approximately $141 million. On July 28, 2015, the parties reached an agreement to settle the litigation, and on August 12, 2015, the plaintiff filed a stipulation of discontinuance with prejudice.

On September 23, 2013, the plaintiff in National Credit Union Administration Board v. Morgan Stanley & Co. Inc., et al. filed a complaint against MS&Co. and certain affiliates in the SDNY. The complaint alleged that defendants made untrue statements of material fact or omitted to state material facts in the sale to the plaintiff of certain mortgage pass-through certificates issued by securitization trusts containing residential mortgage loans. The total amount of certificates allegedly sponsored, underwritten and/or sold by MS&Co. to plaintiffs in the matter was approximately $417 million. The complaint alleged violations of federal and various state securities laws and sought, among other things, rescissionary and compensatory damages. On November 23, 2015, the parties reached an agreement to settle the matter.

On September 16, 2014, the Virginia Attorney General’s Office filed a civil lawsuit, styled Commonwealth of Virginia ex rel. Integra REC LLC v. Barclays Capital Inc., et al., against MS&Co. and several other defendants in the Circuit Court of the City of Richmond related to RMBS. The lawsuit alleged that MS&Co. and the other defendants knowingly made misrepresentations and omissions related to the loans backing RMBS purchased by the Virginia Retirement System. The complaint asserted claims under the Virginia Fraud Against Taxpayers Act, as well as common law claims of actual and constructive fraud, and sought, among other things, treble damages and civil penalties. On January 6, 2016, the parties reached an agreement to settle the litigation. An order dismissing the action with prejudice was entered on January 28, 2016.

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

 

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Item 1A. Risk Factors.

There have been no material changes to the risk factors set forth under Part I, Item lA., “Risk Factors.” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and under Part II, Item 1A. “Risk Factors.” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

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

The public offering of Redeemable Units terminated on November 30, 2008.

For the three months ended June 30, 2017, there were no additional subscriptions. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and Section 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors, as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

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

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

 

                                                                                                   
                            (f) Maximum Number (or  
                    (c) Total Number of      Approximate Dollar  
                    Shares (or Redeemable      Value) of Shares (or  
                    Units) Purchased as      Redeemable Units) that  
      (a) Total Number of        (b) Average Price        Part      May yet be Purchased  
      Redeemable Units        Paid per        of Publicly Announced      Under the Plans or  
Period    Purchased*        Redeemable Unit**        Plans or Programs      Programs  

April 1, 2017 - April 30, 2017

     3,138.4660      $ 866.21      N/A    N/A

May 1, 2017 - May 31, 2017

     5,448.5110      $ 864.27      N/A    N/A

June 1, 2017 - June 30, 2017

     3,947.2410      $ 847.96      N/A    N/A
       12,534.2180      $ 859.62            

 

*

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

 

**

Redemptions of Redeemable Units are effected as of the 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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Item 6. 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 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on December 20, 2002 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 May 21, 2003 (filed as Exhibit 99.2 to the Current Report on Form 8-K filed on November 3, 2009 and incorporated herein by reference).

    (b)

  

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 21, 2005 (filed as Exhibit 99.3 to the Current Report on Form 8-K filed on November 3, 2009 and incorporated herein by reference).

    (c)

  

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 19, 2008 (filed as Exhibit 99.4 to the Current Report on Form 8-K filed on November 3, 2009 and incorporated herein by reference).

    (d)

  

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).

    (e)

  

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 29, 2010 (filed as Exhibit 3.1(e) to the Current Report on Form 8-K filed on July 2, 2010 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 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).

    (g)

  

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 7, 2013 (filed as Exhibit 3.1(g) to the Quarterly Report on Form 10-Q filed on August 14, 2013 and incorporated herein by reference).

  3.2

  

Limited Partnership Agreement (filed as Exhibit A to the Post-Effective Amendment No. 5 to the Registration Statement on Form S-1 filed on April 22, 2008 and incorporated herein by reference).

    (a)

  

Amendment No. 1 to the Limited Partnership Agreement, dated May 31, 2009 (filed as Exhibit 99.1 to the Current Report on Form 8-K filed on November 3, 2009 and incorporated herein by reference).

    (b)

  

Amendment No. 2 to the Limited Partnership Agreement dated as of August 8, 2014 and effective October 1, 2014 (filed as Exhibit 3.2(b) to the Quarterly Report on Form 10-Q filed August 13, 2014 and incorporated herein by reference)

    (c)

  

Amendment No. 3 to the Limited Partnership Agreement dated as of December 30, 2015 and effective January 1, 2016 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on January 5, 2016 and incorporated herein by reference).

10.1

  

Amended & Restated Commodity Futures Customer Agreement between the Partnership and MS&Co., effective September 24, 2013 (filed as Exhibit 10.1(b) to the Quarterly Report on Form 10-Q filed on November 14, 2013 and incorporated herein by reference).

    (a)

  

U.S. Treasury Securities Purchase Authorization Agreement between the Partnership and MS&Co., effective June 1, 2015 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on November 4, 2015 and incorporated herein by reference).

    (b)

  

Supplement to the Amended & Restated Commodity Futures Customer Agreement among the Partnership, Aspect Master, Cambridge Master, Willowbridge Master, Boronia I, LLC, Graham Master and MS&Co., dated July 25, 2017 (filed as Exhibit 10.1(b) to the Current Report on Form 8-K filed on July 28, 2017 and incorporated herein by reference).

10.2

  

Subscription Escrow Agreement among the General Partner, Morgan Stanley Smith Barney LLC and The Bank of New York (filed as Exhibit 10.2 to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

    (a)

  

Amendment No. 5 to the Escrow Agreement among The Bank of New York, the General Partner and Morgan Stanley Smith Barney LLC (filed as Exhibit 10.2(a) to the Annual Report on Form 10-K filed on March 27, 2013 and incorporated herein by reference).

 

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10.3

 

Management Agreement among the Partnership, the General Partner and Graham (filed as Exhibit 10.5 to the Registration Statement on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

    (a)

 

Letter from the General Partner extending the Management Agreement with Graham from June 30, 2016 through June 30, 2017 (filed as Exhibit 10.3(a) to the Annual Report on Form 10-K filed on March 28, 2017 and incorporated herein by reference).

    (b)

 

Amendment No. 1 to the Management Agreement among the Partnership, the General Partner and Graham, effective April 1, 2014 (filed as Exhibit 10.3(b) to the Quarterly Report on Form 10-Q filed on May 14, 2014 and incorporated herein by reference).

10.4  

Management Agreement among the Partnership, the General Partner and Willowbridge (filed as Exhibit 10.7 to the Registration Statement on Form S-1 filed on December 20, 2002 and incorporated herein by reference).

    (a)  

Amendment to the Management Agreement among the Partnership, the General Partner and Willowbridge, effective January 1, 2013 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 7, 2013 and incorporated herein by reference).

    (b)  

Letter from the General Partner extending the Management Agreement with Willowbridge from June 30, 2016 through June 30, 2017 (filed as Exhibit 10.4(b) to the Annual Report on Form 10-K filed on March 28, 2017 and incorporated herein by reference).

10.5  

Management Agreement among the Partnership, the General Partner and Aspect (filed as Exhibit 10.4 to the Annual Report on Form 10-K filed on March 16, 2005 and incorporated herein by reference).

    (a)  

Letter from the General Partner extending Management Agreement with Aspect from June 30, 2016 through June 30, 2017 (filed as Exhibit 10.6(a) to the Annual Report on Form 10-K filed on March 28, 2017 and incorporated herein by reference).

10.6  

Management Agreement among the Partnership, the General Partner and Altis (filed as Exhibit 10.13 to the Current Report on Form 8-K filed on May 3, 2011 and incorporated herein by reference).

    (a)  

Letter from the General Partner extending the Management Agreement with Altis from June 30, 2016 through June 30, 2017 (filed as Exhibit 10.7(a) to the Annual Report on Form 10-K filed on March 28, 2017 and incorporated herein by reference).

    (b)  

Amendment to the Management Agreement among the Partnership, the General Partner and Altis, effective August 1, 2015 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 6, 2015 and incorporated herein by reference).

10.7  

Amended and Restated Alternative Investment Selling Agent Agreement between the Partnership, the General Partner and Morgan Stanley Wealth Management, dated March 3, 2016 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on March 8, 2016 and incorporated herein by reference).

10.8  

Form of Subscription Agreement (filed as Exhibit 10.12 to the Quarterly Report on Form 10-Q filed on November 14, 2012 and incorporated herein by reference).

10.9  

Management Agreement among the Partnership, the General Partner, and JE Moody (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 7, 2013 and incorporated herein by reference).

    (a)  

Amendment to the Management Agreement among the Partnership, the General Partner, and JE Moody, effective January 1, 2016 (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on January 5, 2016 and incorporated herein by reference).

10.10  

Amended & Restated Master Services Agreement by and among the Partnership, the General Partner and SS&C Technologies, Inc. (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on August 6, 2015 and incorporated herein by reference).

10.11  

Management Agreement among the Partnership, the General Partner and Cambridge (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on December 4, 2015 and incorporated herein by reference).

10.12  

Management Agreement among the Partnership, the General Partner and ISAM (filed as Exhibit 10.12 to the Quarterly Report on Form 10-Q filed on May 12, 2016 and incorporated herein by reference).

 

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11.1   

Foreign Exchange and Bullion Authorization Agreement between Aspect Master and JPMorgan (filed herewith).

11.2   

International Swap Dealers Association, Inc. Master Agreement between Aspect Master and JPMorgan (filed herewith).

11.3   

Schedule to International Swap Dealers Association, Inc. Master Agreement between Aspect Master and JPMorgan (filed herewith).

11.4   

2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between Aspect Master and JPMorgan (filed herewith).

11.5   

Institutional Account Agreement between Aspect Master and JPMorgan (filed herewith).

11.6   

Foreign Exchange and Bullion Authorization Agreement among Cambridge, Cambridge Master and JPMorgan (filed herewith).

11.7   

International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed herewith).

11.8   

Schedule to International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed herewith).

11.9   

2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed herewith).

11.10   

Institutional Account Agreement between Cambridge Master and JPMorgan (filed herewith).

11.11   

Foreign Exchange and Bullion Authorization Agreement between Graham Master and JPMorgan (filed herewith).

11.12   

International Swap Dealers Association, Inc. Master Agreement between Graham Master and JPMorgan (filed herewith).

11.13   

Schedule to International Swap Dealers Association, Inc. Master Agreement between Graham Master and JPMorgan (filed herewith).

11.14   

2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between Graham Master and JPMorgan (filed herewith).

11.15   

Institutional Account Agreement between Graham Master and JPMorgan (filed herewith).

11.16   

Foreign Exchange and Bullion Authorization Agreement among Willowbridge, Willowbridge Master and JPMorgan (filed herewith).

11.17   

International Swap Dealers Association, Inc. Master Agreement between Willowbridge Master and JPMorgan (filed herewith).

11.18   

Schedule to International Swap Dealers Association, Inc. Master Agreement between Willowbridge Master and JPMorgan (filed herewith).

11.19   

2016 Credit Support Annex for Variation Margin to the Schedule to the International Swap Dealers Association, Inc. Master Agreement between Willowbridge Master and JPMorgan (filed herewith).

11.20   

Institutional Account Agreement between Willowbridge Master and JPMorgan (filed herewith).

 

42


31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director) (filed herewith).

31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director) (filed herewith).

32.1 — Section 1350 Certification (Certification of President and Director) (filed herewith).

32.2 — Section 1350 Certification (Certification of Chief Financial Officer and Director) (filed herewith).

101. INS     XBRL Instance Document.

101. SCH    XBRL Taxonomy Extension Schema Document.

101. CAL    XBRL Taxonomy Extension Calculation Linkbase Document.

101. LAB    XBRL Taxonomy Extension Label Linkbase Document.

101. PRE    XBRL Taxonomy Extension Presentation Linkbase Document.

101. DEF    XBRL Taxonomy Extension Definition Linkbase Document.

 

43


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.

 

TACTICAL DIVERSIFIED FUTURES FUND L.P.   

By:

  

Ceres Managed Futures LLC

  
  

(General Partner)

  

By:

  

/s/ Patrick T. Egan

Patrick T. Egan

President and Director

  

Date:    

  

August 10, 2017

  

By:

  

/s/ Steven Ross

  
  

Steven Ross

  
  

Chief Financial Officer and Director

  
  

(Principal Accounting Officer)

  

Date:

  

August 10, 2017

  

The General Partner which signed the above is the only party authorized to act for the registrant. The registrant has no principal executive officer, principal financial officer, controller, or principal accounting officer and has no Board of Directors.

 

 

44