UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        

For the fiscal year ended December 31, 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

CERES TACTICAL SYSTEMATIC L.P.

 

 

(Exact name of registrant as specified in its charter)

 

New York		13-4224248
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue

New York, New York 10036

 

(Address and Zip Code of principal executive offices)

(855) 672-4468

 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Redeemable Units of Limited Partnership Interest

                (Title of Class)        

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes           No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes           No X

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. X

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. (Check one):

 

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

Limited Partnership Redeemable Units with an aggregate value of $108,986,378 were outstanding and held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of February 28, 2018, 201,459.2618 Limited Partnership Redeemable Units were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

[None]

---

PART I

Item 1. Business.

(a) General Development of Business. Ceres Tactical Systematic L.P. (formerly, 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 investment 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 assets (directly or indirectly through its investment in the Funds) 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.

A Registration Statement on Form S-1 relating to the public offering of 300,000 redeemable units of limited partnership interest (“Redeemable Units”) became effective March 27, 2003. Between March 27, 2003 (commencement of the offering period) and April 30, 2003, 36,616 Redeemable Units were publicly offered 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.

A second Registration Statement on Form S-1 relating to the public offering of 1,000,000 Redeemable Units (including the 300,000 Redeemable Units that had been previously registered) became effective on December 4, 2003. As of that date, 260,732.3028 Redeemable Units had been sold.

A third Registration Statement on Form S-1 relating to the public offering of 2,000,000 Redeemable Units (including the 1,000,000 Redeemable Units that had been previously registered) became effective on October 7, 2004. As of that date, 807,449.3782 Redeemable Units had been sold.

A fourth Registration Statement on Form S-1 relating to the public offering of 2,000,000 Redeemable Units previously registered became effective on June 30, 2005. As of that date, 1,027,701.7549 Redeemable Units had been sold. 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.

Subscriptions of additional Redeemable Units and additional General Partner contributions and redemptions of Redeemable Units for the years ended December 31, 2017, 2016 and 2015 are reported in the Statements of Changes in Partners’ Capital under “Item 8. Financial Statements and Supplementary Data.”

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership, and was the trading manager (the “Trading Manager”) of Boronia Trading Company (as defined below). 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. (“MSSB Holdings”). Prior to June 28, 2013, Morgan Stanley indirectly owned a majority equity interest in MSSB Holdings and Citigroup Inc. indirectly owned a minority equity interest in MSSB Holdings.

During the years ended December 31, 2017, 2016 and 2015, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. During prior periods included in this report, Citigroup Global Markets Inc. (“CGM”) also served as a commodity broker. The Partnership/Funds also deposit a portion of their cash in a non-trading account at JPMorgan Chase Bank, N.A. (“JPMorgan”).

Effective September 13, 2017, the Partnership changed its name from Tactical Diversified Futures Fund L.P. to Ceres Tactical Systematic L.P.

Effective after the close of business on December 31, 2017, all trading decisions are made for the Partnership by 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 the close of business on December 31, 2017, Willowbridge Associates Inc. (“Willowbridge”), Aspect Capital Limited (“Aspect”), Graham Capital Management, L.P. (“Graham”) and Boronia Capital Pty. Ltd. (“Boronia”) ceased to act as a commodity trading advisor to the Partnership. 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. Effective December 31, 2014, Krom River Trading AG and Krom River Investment Management (Cayman) Limited (collectively, “Krom River”) ceased to act as commodity trading advisors to the Partnership. Effective June 30, 2014, Drury Capital, Inc. (“Drury”) and Kaiser Trading Company Pty. Ltd. (“Kaiser”) ceased to act as commodity trading advisors to the Partnership. Reference herein to “Advisors” may include, as relevant, Willowbridge, Aspect, Graham, Boronia, JE Moody, Altis, Krom River, Drury and Kaiser. 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 investment in the Funds. The Advisors are not affiliated with one another, the General Partner or MS&Co. or CGM and are not responsible for the organization or operation of the Partnership.

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.

Cambridge Master Fund L.P. (“Cambridge Master”), and prior to their terminations, 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”), CMF Altis Partners Master Fund L.P. (“Altis Master”), JEM Master Fund L.P. (“JEM Master”), CMF Drury Capital Master Fund L.P. (“Drury Master”), KR Master Fund L.P. (“KR Master”) and Morgan Stanley Smith Barney Kaiser I, LLC (“Kaiser I, LLC” or “Kaiser Trading Company”) have entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. Cambridge Master is referred to as the “Fund”. Reference herein to the “Funds” may include, as relevant, Willowbridge Master, Aspect Master, Graham Master, Boronia I, LLC, Altis Master, JEM Master, Drury Master, KR Master and Kaiser I, LLC. The Partnership also entered into a futures brokerage account agreement and a foreign exchange prime brokerage agreement with MS&Co.

 

1

---

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

The Partnership, directly and through its investment in the Funds, pays MS&Co. trading fees for clearing and, where applicable, execution of transactions.

The Partnership will be liquidated upon the first to occur of the following: (1) December 31, 2022; (2) the net asset value per Redeemable Unit decreases to less than $400 per Redeemable Unit as of the close of any business day; or (3) the occurrence of certain other circumstances as set forth in the limited partnership agreement of the Partnership (the “Limited Partnership Agreement”).

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. Aspect Master permitted accounts managed by Aspect using the Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the general partner of Aspect Master. Individual and pooled accounts managed by Aspect, including the Partnership, were permitted to be limited partners of Aspect Master. The General Partner and Aspect believed that trading through this structure would promote efficiency and economy in the trading process. The Partnership fully redeemed its investment in Aspect Master on December 31, 2017.

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in Willowbridge Master, a limited partnership organized under the partnership laws of the State of New York. Willowbridge Master permitted 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 was also the general partner of Willowbridge Master. Individual and pooled accounts managed by Willowbridge, including the Partnership, were permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believed that trading through this structure would promote efficiency and economy in the trading process. The General Partner and Willowbridge agreed that Willowbridge would 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. The Partnership fully redeemed its investment in Willowbridge Master on December 31, 2017.

On August 1, 2005, the assets allocated to Drury for trading were invested in Drury Master, a limited partnership organized under the partnership laws of the State of New York. Drury Master permitted accounts managed by Drury using the Diversified Trend-Following Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The Partnership fully redeemed its investment in Drury Master on June 30, 2014.

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. Graham Master permitted accounts managed by Graham using the K4D-15V Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the general partner of Graham Master. Individual and pooled accounts managed by Graham, including the Partnership, were permitted to be limited partners of Graham Master. The General Partner and Graham believed that trading through this structure would promote efficiency and economy in the trading process. The Partnership fully redeemed its investment in Graham Master on December 31, 2017.

On May 1, 2011, the assets allocated to Krom River for trading were invested in KR Master, a limited partnership organized under the partnership laws of the State of Delaware. KR Master permitted commodity pools managed by Krom River using the Krom River Commodity Program, a proprietary, discretionary system which was traded on both a fundamental and technical basis, to invest together in one trading vehicle. The Partnership fully redeemed its investment in KR Master on December 31, 2014.

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. 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.

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. Boronia I, LLC permitted accounts managed by Boronia using the Boronia Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the trading manager of Boronia I, LLC. Individual and pooled accounts managed by Boronia, including the Partnership, were permitted to be members of Boronia I, LLC. The Trading Manager and Boronia believed that trading through this structure would promote efficiency and economy in the trading process. The Trading Manager and Boronia agreed that Boronia would trade the Partnership’s assets allocated to Boronia at a level up to 1.5 times the amount of assets allocated. The Partnership fully redeemed its investment in Boronia I, LLC on December 31, 2017.

On January 1, 2013, the assets allocated to Kaiser for trading were invested in Kaiser I, LLC and together with Boronia Trading Company, the “Trading Companies”), a limited liability company organized under the laws of the State of Delaware. Kaiser Trading Company permitted accounts managed by Kaiser using the Global Diversified trading program, a proprietary, systematic trading system, to invest together in one trading vehicle. The Partnership fully redeemed its investment in Kaiser Trading Company on June 30, 2014.

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. 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.

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. 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 promotes 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.

 

2

---

The General Partner is not aware of any material changes to the trading programs discussed above during the year ended December 31, 2017.

As of January 1, 2018, the Partnership began offering three classes of limited partnership interests, Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units. All Redeemable Units issued prior to January 1, 2018, were deemed Class A Redeemable Units. The rights, liabilities, risks, and fees associated with investment in the Class A Redeemable Units were not changed. Class A Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions, and non-U.S. investors. Class D Redeemable Units and Class Z Redeemable Units were first issued on January 1, 2018. Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Redeemable Units that a limited partner receives upon a subscription will generally depend upon the amount invested in the Partnership or the status of the limited partner, although the General Partner may determine to offer any Class of Redeemable Units to investors at its discretion. Class Z Redeemable Units are offered to limited partners who receive advisory services from Morgan Stanley Wealth Management and certain employees of Morgan Stanley and its subsidiaries (and their family members). Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units are identical, except that Class D Redeemable Units are subject to a monthly ongoing selling agent fee equal to 1/12 of 0.75% (a 0.75% annual rate) of the net assets of Class D Redeemable Units as of the end of each month, which differs from the Class A Redeemable Units’ monthly ongoing selling agent fee of 1/12 of 2.00% (a 2.00% annual rate) of the net assets of Class A Redeemable Units as of the end of each month. Class Z Redeemable Units are not subject to a monthly ongoing selling agent fee.

The Funds’ and the Partnership’s trading of futures, forward and option contracts, as 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. During prior periods included in this report, the Funds engaged in such trading through commodity brokerage accounts maintained with CGM.

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 (prior to its termination on December 31, 2017) which were charged at the Boronia Trading Company level and Kaiser (prior to its termination on June 30, 2014) which were charged at the Kaiser Trading Company level. Clearing fees are borne by the Funds and allocated to the Funds’ limited partners/non-managing members, including the Partnership. Clearing fees are also borne by the Partnership directly. Professional fees are borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level.

For the period January 1, 2017 through December 31, 2017, the approximate average market sector distribution for the Partnership was as follows:

Prior to the close of business on December 31, 2017, the Partnership owned approximately 8.1% of Willowbridge Master, 44.9% of Aspect Master, 65.7% of Graham Master, 35.0% of Boronia I, LLC and 65.9% 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 Fund. 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.

The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The General Partner has agreed to make capital contributions, if necessary, so that its general partnership interest will be equal to the greater of (1) an amount that will entitle the General Partner to an interest of at least 1% in each material item of Partnership income, gain, loss, deduction or credit and (2) the greater of (i) 1% of the partners’ contributions to the Partnership or (ii) $25,000. The Partnership pays the General Partner a monthly fee (“General Partner fee”) in return for its services equal to 1/12^th of 1% (1% per year) of month-end net assets of the Partnership. Month-end net assets, for the purpose of calculating General Partner fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s management fees, incentive fee accruals, the General Partner fee and any redemptions or distributions as of the end of such month.

 

3

---

The General Partner, on behalf of the Partnership, has entered into management agreements (each a “Management Agreement”) with the Advisors. Effective on January 1, 2018, Cambridge receives a monthly management fee equal to 1/12^th of 1.0% (1.0% per year) of month-end net assets allocated to Cambridge. Prior to January 1, 2018, Cambridge received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Cambridge. Effective November 1, 2017, ISAM receives a monthly management fee equal to 1/12^th of 1.0% (1.0% per year) of month-end net assets allocated to ISAM. Prior to November 1, 2017, ISAM received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to ISAM. Month-end net assets, for purposes of calculating management fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s incentive fee accruals, the monthly management fees, the General Partner fee and any redemptions or distributions as of the end of such month. Each Management Agreement may be terminated upon notice by either party.

Prior to its termination on December 31, 2017, Graham received a monthly management fee equal to 1/12^th of 1.75% (1.75% per year) of month-end net assets allocated to Graham. Prior to April 1, 2014, Graham received a monthly management fee of 1/6^th of 1% (2% per year) of month-end net assets allocated to Graham. Prior to their terminations on December 31, 2017, Willowbridge and Aspect received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Willowbridge and Aspect, respectively. Prior to its termination on December 31, 2017, Boronia Trading Company paid Boronia a monthly management fee of 1.5% per year of the aggregate net assets of the Boronia Trading Company as of the first day of each month. Prior to January 1, 2015, Boronia Trading Company paid Boronia a monthly management fee of 1.875% per year of the aggregate net assets of the Boronia Trading Company as of the first day of each month. Prior to its termination on September 30, 2016, JE Moody received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to JE Moody. Prior to January 1, 2016, JE Moody received a monthly management fee equal to 1/12^th of 2% (2% per year) of month-end net assets allocated to JE Moody. Prior to its termination on June 30, 2016, Altis received a monthly management fee equal to 1/12^th of 1.25% (1.25% per year) of month-end net assets allocated to Altis. Prior to August 1, 2015, Altis received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Altis. Prior to its termination on December 31, 2014, Krom River received a monthly management fee equal to 1/ 12^th of 1% (1% per year) of month-end net assets allocated to Krom River. Prior to October 1, 2013, Krom River received a monthly management fee equal to 1/12^th of 2% (2% per year). Prior to its termination on June 30, 2014, Drury received a monthly management fee equal to 1/12^th of 1.75% (1.75% per year) of month-end net assets allocated to Drury. During prior periods included in this report, Kaiser Trading Company paid Kaiser a monthly management fee of 2% per year of the aggregate net assets of Kaiser Trading Company as of the first day of each month. The Partnership paid Boronia and Kaiser indirectly, the Partnership’s pro-rata portion of the management fee of the Boronia Trading Company and Kaiser Trading Company, respectively.

Effective January 1, 2018, the Partnership is obligated to pay Cambridge an incentive fee, payable annually, equal to 15% of the New Trading Profits, as defined in the Management Agreement, earned by Cambridge for the Partnership during each calendar year. Prior to January 1, 2018, the Partnership was obligated to pay Cambridge an incentive fee, payable quarterly, equal to 15% of the New Trading Profits, as defined in the Management Agreement, earned by Cambridge for the Partnership during each calendar quarter. Effective November 1, 2017, the Partnership is obligated to pay ISAM an incentive fee, payable quarterly, equal to 25% of the New Trading Profits earned by ISAM. Prior to November 1, 2017, the Partnership was obligated to pay ISAM an incentive fee, payable quarterly, equal to 20% of the New Trading Profits earned by ISAM. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.

Prior to their terminations on December 31, 2017, the Partnership was obligated to pay Willowbridge, Aspect and Graham an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in each Management Agreement, earned by each such Advisor for the Partnership during each calendar quarter. Prior to its termination on December 31, 2017, Boronia received an incentive fee equal to 20% of the New Trading Profits earned by Boronia I, LLC. The incentive fee paid by Boronia I, LLC was allocated to the Partnership based on its proportionate ownership interest of Boronia I, LLC. Prior to its termination on September 30, 2016, JE Moody was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement, earned by JE Moody for the Partnership during each calendar quarter. Prior to its termination on June 30, 2016, Altis was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement, earned by Altis for the Partnership during each calendar quarter.

Each Management Agreement may be terminated upon notice by either party.

Prior to and during part of the third quarter of 2013, the Partnership was party to a customer agreement with CGM (the “CGM Customer Agreement”). Under the CGM Customer Agreement, the Partnership paid CGM a monthly brokerage fee equal to 1/12^th of 5.5% (5.5% per year) of month-end net assets, in lieu of brokerage fees on a per trade basis. Month-end net assets, for the purpose of calculating brokerage fees were net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s brokerage fees, incentive fee accruals, the monthly management fees and other expenses and any redemptions or distributions as of the end of such month. The Partnership paid for exchange, service, clearing, user, give-up, floor brokerage and National Futures Association (“NFA”) fees (collectively the “CGM clearing fees”) directly and through its investment in the Funds cleared through CGM. CGM clearing fees were allocated to the Partnership based on its proportionate share of each Fund. During the term of the CGM Customer Agreement, all of the Partnership’s assets that were not held in the Funds’ accounts at CGM (or with respect to the Trading Companies, at MS&Co.) were deposited in the Partnership’s account at CGM. The Partnership’s cash was deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading Commission (“CFTC”) regulations. CGM paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s except for the Trading Companies’) brokerage account at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing 30 days from the date on which such weekly rate is determined. The Partnership has terminated the CGM Customer Agreement.

 

4

---

The Partnership has entered into a customer agreement with MS&Co. (the “Customer Agreement”). Under the Customer Agreement and the foreign exchange brokerage account agreement, the Partnership will pay trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage and NFA fees (collectively the “MS&Co. clearing fees” and together with the CGM clearing fees, the “clearing fees”) through its investment in the Funds. MS&Co. clearing fees are allocated to the Partnership based on its proportionate share of each Fund. Clearing fees are also borne directly by the Partnership for its direct trading. Clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. All of the Partnership’s assets available for trading in commodity interests not held in the Funds’ accounts at MS&Co. or JPMorgan are deposited in the Partnership’s account at MS&Co. The Partnership/Funds also deposit a portion of their cash in non-trading bank account at JPMorgan. The Partnership’s cash deposited with MS&Co. is held in segregated bank accounts to the extent required by CFTC regulations. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At December 31, 2017 and 2016, the amount of cash held by the Partnership for margin requirements was $4,861,056 and $4,205,299, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. During the reporting period and prior periods included in this reports, MS&Co. paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s, except for the Trading Companies) brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. had agreed to pay the Trading Companies interest on 100% of the average daily equity maintained in cash in each Trading Company’s respective brokerage account 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 was less than zero, no interest was earned. For purposes of these interest credits, daily funds did not include monies due to the Trading Companies on or with respect to futures, forward, or option contracts that had not been received. The Customer Agreement may generally be terminated upon notice by either party.

The Partnership has entered into a selling agent agreement with Morgan Stanley Smith Barney LLC, doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) (the “Selling Agreement”). Under the Selling Agreement with Morgan Stanley Wealth Management, the Partnership pays Morgan Stanley Wealth Management a monthly ongoing selling agent fee. Prior to April 1, 2014, the ongoing selling agent fee was paid at a rate equal to 5.5% per year of month-end net assets. Effective April 1, 2014, the monthly ongoing selling agent fee was reduced from an annual rate of 5.5% to an annual rate of 3%. On October 1, 2014, the monthly ongoing selling agent fee was further reduced from an annual rate of 3% to an annual rate of 2%. As of January 1, 2018, Class D Redeemable Units are subject to a monthly ongoing selling agent fee equal to 1/12^th of 0.75% (a 0.75% annual rate) of the net assets of Class D Redeemable Units as of the end of each month, and Class A Redeemable Units are subject to a monthly ongoing selling agent fee equal to 1/12^th of 2.00% (a 2.00% annual rate) of the net assets of Class A Redeemable Units as of the end of each month. Class Z Redeemable Units are not subject to a monthly ongoing selling agent fee. Morgan Stanley Wealth Management will pay a portion of its ongoing selling agent fees to properly registered or exempted selling agents and to financial advisors who have sold Redeemable Units. Month-end net assets, for the purpose of calculating ongoing selling agent fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, incentive fee accruals, the monthly management fees, General Partner fee and other expenses and any redemptions or distributions as of the end of such month.

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 will be allocated among the pools operated by the General Partner, including the Partnership.

(b) Financial Information about Segments. The Partnership’s business consists of only one segment, speculative trading of commodity interests. The Partnership does not engage in sales of goods or services. The Partnership’s net income (loss) from operations for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 is set forth under “Item 6. Selected Financial Data.” The Partnership’s capital as of December 31, 2017 was $91,851,689.

(c) Narrative Description of Business.

See Paragraphs (a) and (b) above.

(i)    through (xii) — Not applicable.

(xiii) — The Partnership has no employees.

(d) Financial Information About Geographic Areas. The Partnership does not engage in the sale of goods or services or own any long lived assets, and therefore this item is not applicable.

(e) Available Information. The Partnership does not have an Internet address. The Partnership will provide paper copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports free of charge upon request.

(f) Reports to Security Holders. Not applicable.

(g) Enforceability of Civil Liabilities Against Foreign Persons. Not applicable.

(h) Smaller Reporting Companies. Not applicable.

Item 1A. Risk Factors.

As a result of leverage, small changes in the price of the Partnership’s positions may result in major losses.

The trading of commodity interests is speculative, volatile and involves a high degree of leverage. A small change in the market price of a commodity interest contract can produce major losses for the Partnership. Market prices can be influenced by, among other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events, weather and climate conditions, insects and plant disease, purchases and sales by foreign countries and changing interest rates.

An investor may lose all of its investment.

Due to the speculative nature of trading commodity interests, an investor could lose all of its investment in the Partnership.

 

5

---

The Partnership will pay substantial fees and expenses regardless of profitability.

Regardless of its trading performance, the Partnership will incur fees and expenses, including but not limited to clearing fees, General Partner fees, ongoing selling agent and management fees. Substantial incentive fees may be paid to one or more of the Advisors even if the Partnership experiences a net loss for the full year.

An investor’s ability to redeem or transfer Redeemable Units is limited.

An investor’s ability to redeem Redeemable Units is limited and no market exists for the Redeemable Units.

Conflicts of interest exist.

The Partnership is subject to numerous conflicts of interest including those that arise from the facts that:

 

1.

The General Partner and the Partnership’s/Funds’ commodity brokers are affiliates;

 

2.

Each of the Advisors, the Partnership’s/Funds’ commodity brokers, the General Partner and their respective principals and affiliates may trade in commodity interests for their own accounts;

 

3.

An investor’s financial advisor will receive ongoing compensation for providing services to the investor’s account; and

 

4.

The General Partner, on behalf of the Partnership, may purchase money market mutual fund shares from mutual funds affiliated and/or unaffiliated with the General Partner.

Investing in Redeemable Units might not provide the desired diversification of an investor’s overall portfolio.

One of the Partnership’s objectives is to add an element of diversification to a traditional stock and bond portfolio, but any benefit of portfolio diversification is dependent upon the Partnership achieving positive returns and such returns being independent of stock and bond market returns.

Past performance is no assurance of future results.

The Advisors’ trading strategies may not perform as they have performed in the past. The Advisors have from time to time incurred substantial losses in trading on behalf of clients.

An investor’s tax liability may exceed cash distributions.

Investors are taxed on their share of the Partnership’s income, even though the Partnership does not intend to make any distributions.

The General Partner may allocate the Partnership’s assets to undisclosed advisors.

The General Partner at any time may select and allocate the Partnership’s assets to undisclosed advisors. Investors may not be advised of such changes in advance or at all. Investors must rely on the ability of the General Partner to select commodity trading advisors and allocate assets among them.

Regulatory changes could restrict the Partnership’s operations and increase its operational costs.

Regulatory costs or changes could adversely affect the Partnership by restricting its markets or activities, limiting its trading and/or increasing the costs or taxes to which investors are subject. Pursuant to the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, the CFTC and the Securities and Exchange Commission (the “SEC”) have promulgated rules to regulate swap dealers and to mandate additional reporting and disclosure requirements and continue to promulgate rules regarding capital and margin requirements, to require that certain swaps be traded on an exchange or a swap execution facility, to mandate additional reporting and disclosure requirements and to require that derivatives (such as those traded by the Partnership) be moved into central clearinghouses. The CFTC and the prudential regulators that oversee swap dealers have adopted rules regarding margin requirements for certain derivatives. In addition, the CFTC and such prudential regulators have proposed or adopted, respectively, rules regarding capital requirements for swap dealers. These rules may negatively impact the manner in which swap contracts are traded and/or settled, increase the costs of such trades, and limit trading by speculators (such as the Partnership) in futures and over-the-counter (“OTC”) markets.

Speculative position and trading limits may reduce profitability.

The CFTC and U.S. commodity exchanges have established speculative position limits on the maximum net long or net short positions which any person or a group of persons may hold or control in particular futures, options on futures and swaps that perform a significant price discovery function. Most exchanges also limit the amount of fluctuation in commodity futures contract prices on a single trading day. The Advisors believe that established speculative position and trading limits will not materially adversely affect trading for the Partnership. The trading instructions of an advisor may have to be modified, and positions held by the Partnership may have to be liquidated, in order to avoid exceeding these limits. Such modification or liquidation could adversely affect the operations and profitability of the Partnership by increasing transaction costs to liquidate positions and limiting potential profits on the liquidated positions.

In December 2016, the CFTC re-proposed new rules regarding speculative position limits, replacing a prior proposal from November 2013. These rules, if adopted in substantially the same form, will impose position limits on certain futures and option contracts and physical commodity swaps that are “economically equivalent” to such contracts. If enacted, these rules could have an adverse effect on an Advisor’s trading for the Fund.

 

6

---

The General Partner, the Partnership and its Service Providers and their Respective Operations Are Potentially Vulnerable to Cyber-Security Attacks or Incidents.

Like other business enterprises, the use of the internet and other electronic media and technology exposes the General Partner, the Partnership and its service providers, and their respective operations, to potential risks from cyber-security attacks or incidents (collectively, “cyber events”). Cyber events may include, for example, unauthorized access to systems, networks or devices, infection from computer viruses or other malicious software code, mishandling or misuse of information and attacks which shut down, disable, slow or otherwise disrupt operations, business processes or website access or functionality. In addition to intentional cyber events, unintentional cyber events can occur. Unintentional cyber events may include, for example, the inadvertent release of confidential information, the mishandling or misuse of information and/or technological limitations or hardware failures (in the markets or otherwise) that constrain the Partnership’s and/or the Funds’ ability to gather, process and communicate information efficiently and securely, without interruption.

Any cyber event could adversely affect the Partnership’s business, financial condition or results of operations and cause the Partnership to incur financial loss and expense, as well as face exposure to regulatory penalties or legal claims, reputational damage and additional costs associated with corrective measures. A cyber-security breach could also jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the General Partner’s or a service provider’s computer systems. A cyber event may cause the Partnership or its service providers to lose proprietary information, suffer data corruption, lose operational capacity (such as, for example, the loss of the ability to process transactions, calculate the Partnership’s net asset value, or allow investors to transact business) and/or fail to comply with applicable privacy and other laws. Among other potentially harmful effects, cyber events also may result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems that support the Partnership or its service providers.

The nature of malicious cyber-attacks is becoming increasingly sophisticated and neither the General Partner nor the Partnership can control the cyber systems and cyber-security systems of the Advisors or other third-party service providers.

Tax laws are subject to change at any time.

Tax laws and court and IRS interpretations thereof are subject to change at any time, possibly with retroactive effect.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and is generally effective after December 31, 2017. The Tax Cuts and Jobs Act makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, including, in the case of individuals, reducing the top federal income rate to 37%, and eliminating or limiting various deductions, including capping the deduction for state and local taxes at $10,000 per year. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. For corporations, the Tax Cuts and Jobs Act reduces the top corporate income tax rate to 21%.

The Partnership does not anticipate that a limited partner’s share of income from the Partnership will be eligible for the 20% deduction established by the Tax Cuts and Jobs Act for qualified business income. However, in certain limited circumstances unlikely to apply to the Partnership, a portion of a limited partner’s gain upon a taxable disposition of an interest in the Partnership or a complete withdrawal may be eligible for the deduction.

The Tax Cuts and Jobs Act makes numerous other large and small changes to the federal income tax rules that may affect the Partnership’s investors and may directly or indirectly affect the Partnership. Moreover, Congressional leaders have recognized that the process of adopting extensive tax legislation in a short amount of time without hearings and substantial time for review is likely to have led to drafting errors, issues needing clarification, and unintended consequences that will have to be reviewed in subsequent tax legislation. At this point, it is not clear when Congress will address these issues or when the Internal Revenue Service will issue administrative guidance on the changes made in the Tax Cuts and Jobs Act.

Prospective investors are urged to consult with their tax advisors with respect to the Tax Cuts and Jobs Act and any other regulatory or administrative developments and proposals, and their potential effects on them based on their unique circumstances.

Item 2. Properties.

The Partnership does not own or lease any properties. The General Partner operates out of facilities provided by Morgan Stanley and/or one of its subsidiaries.

Item 3. 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 2017, 2016, 2015, 2014, and 2013. In addition, MS&Co. annually prepares an Audited, Consolidated Statement of Financial Condition (“Audited Financial Statement”) that is publicly available on Morgan Stanley’s website at www.morganstanley.com. Please refer to the Commitments, Guarantees and Contingencies – Legal section of MS&Co.’s 2017 Audited Financial.

 

7

---

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

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

Regulatory and Governmental Matters

On 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.

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.

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

On September 28, 2017, the CFTC issued an order filing and simultaneously settling charges against MS&Co. regarding violations of CFTC Rule 166.3 by failing to diligently supervise the reconciliation of exchange and clearing fees with the amounts it ultimately charged customers for certain transactions on multiple exchanges. The order and settlement required MS&Co. to pay a $500,000 penalty and cease and desist from violating Rule 166.3.

---

On November 2, 2017, the CFTC issued an order filing and simultaneously settling charges against MS&Co. for non-compliance with applicable rules governing Part 17 Large Trader reports to the CFTC. The order requires MS&Co. to pay a $350,000 penalty and cease and desist from further violations of the Commodity Exchange Act.

Civil Litigation

On July 15, 2010, China Development Industrial Bank (“CDIB”) filed a complaint against MS&Co., styled China Development Industrial Bank v. Morgan Stanley & Co. Incorporated et al., which is pending in the Supreme Court of the State of New York, New York County (“Supreme Court of NY”). The complaint relates to a $275 million credit default swap 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. On January 18, 2017, the court entered an order dismissing all claims related to an additional securitization at issue. After those dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $65 million. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $38 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 $38 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. On February 6, 2017, the action was remanded to the Superior Court of the Commonwealth of Massachusetts. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue remaining in this action was approximately $46 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 $46 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 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 $634 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. On July 28, 2017, MS&Co. filed a motion for leave to appeal that decision to the New York Court of Appeals. On October 3, 2017, the Appellate Division, First Department denied MS&Co.’s motion for leave to appeal. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $215 million, and the certificates had incurred actual losses of approximately $88 million. Based on currently available information, MS&Co. believes it could incur a loss in this action up to the difference between the $215 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 $133 million. The complaint alleges causes of action against MS&Co. for common law fraud, fraudulent concealment, aiding and abetting fraud, and negligent misrepresentation, and seeks, among other things, compensatory and punitive damages. On October 29, 2014, the court granted in part and denied in part MS&Co.’s motion to dismiss. All claims regarding four certificates were dismissed. After these dismissals, the remaining amount of certificates allegedly issued by MS&Co. or sold to plaintiff by MS&Co. was approximately $116 million. On August 11, 2016, the Appellate Division, First Department affirmed the trial court’s decision denying in part MS&Co.’s motion to dismiss the complaint. At December 25, 2017, the current unpaid balance of the mortgage pass-through certificates at issue in this action was approximately $24 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 $24 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.

---

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.

---

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.

---

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.

Item 4. Mine Safety Disclosures. Not applicable.

---

PART II

Item 5. Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchase of Equity Securities.

 

(a)

Market Information. The Partnership has issued no stock. There is no public market for the Redeemable Units.

 

(b)

Holders. The number of holders of Redeemable Units as of February 28, 2018 was 8,733.

 

(c)

Dividends. The Partnership did not declare any distributions in 2017 or 2016. The Partnership does not intend to declare distributions in the foreseeable future.

 

(d)

Securities Authorized for Issuance Under Equity Compensation Plans. None.

 

(e)

Performance Graph. Not applicable.

 

(f)

Recent Sales of Unregistered Securities-Use of Proceeds from Registered Securities. The public offering of Redeemable Units terminated on November 30, 2008. For the twelve months ended December 31, 2017, there were additional subscriptions of 37.2530 Redeemable Units totaling $33,000. For the twelve months ended December 31, 2016, there were additional subscriptions of 725.0740 Redeemable Units totaling $655,000. For the twelve months ended December 31, 2015, there were additional subscriptions of 1,201.8070 Redeemable Units totaling $1,259,286.

 

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 described in Regulation D. In determining the applicability of the private offering exemption, the General Partner relied on the fact that the Redeemable units were purchased by accredited investors in a private offering.

 

Proceeds of the net offering were used for the trading of commodity interests including futures contracts, options and forward contracts.

 

(g)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

 

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

 

Period		(a) Total Number of Redeemable Units Purchased*				(b) Average Price Paid per Redeemable Unit**				(c) Total Number of Shares (or Redeemable  Units) Purchased  as Part  of Publicly Announced Plans or Programs		(f) Maximum Number (or Approximate Dollar Value) of Shares (or Redeemable Units) that May yet be Purchased Under the Plans or Programs
October 1, 2017 - October 31, 2017			3,371.2990			$	833.87			N/A		N/A
November 1, 2017 - November 30, 2017			2,631.3790			$	827.54			N/A		N/A
December 1, 2017 - December 31, 2017			2,988.9660			$	825.63			N/A		N/A
			8,991.6440			$	829.28

 

*

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 6. Selected Financial Data.

Total investment income, total expenses, total trading results, net income (loss) and increase (decrease) in net asset value per Redeemable Unit for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 and net asset value per Redeemable Unit and total assets at December 31, 2017, 2016, 2015, 2014 and 2013 were as follows:

 

		2017				2016				2015				2014				2013
Total investment income		$	722,681			$	356,863			$	30,065			$	36,299			$	112,023
Total expenses			(6,494,410	)			(10,533,962	)			(16,165,341	)			(23,149,097	)			(37,929,758	)
Total trading results			(2,481,647	)			(7,490,744	)			9,695,899				44,862,557				25,507,734
Net income (loss)		$	(8,253,376	)		$	(17,667,843	)		$	(6,439,377	)		$	21,749,759			$	(12,310,001	)
Increase (decrease) in net asset value per Redeemable Unit		$	(60.21	)		$	(95.61	)		$	(28.64	)		$	109.81			$	(27.13	)
Net asset value per Redeemable Unit		$	825.63			$	885.84			$	981.45			$	1,010.09			$	900.28
Total assets		$	94,885,971			$	143,536,465			$	210,973,446			$	260,301,062			$	381,939,591

 

15

---

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Partnership, directly and through its investment in the Funds, aims to achieve substantial capital appreciation and permit investors to diversify a traditionally structured stock and bond portfolio. The Partnership attempts to accomplish its objectives through speculative trading in U.S. and international markets for currencies, interest rates, stock indices, agricultural and energy products and precious and base metals directly, or through investment in the Funds. The Funds may employ futures, options on futures, forward, spot and swaps contracts in those markets.

The General Partner manages all business of the Partnership/Funds. The General Partner has delegated its responsibility for the investment of the Partnership’s assets to the Advisors. The General Partner engages a team of approximately 25 professionals whose primary emphasis is on attempting to maintain quality control among the Advisors to the funds operated or managed by the General Partner. A full-time staff of due diligence professionals uses state-of-the-art technology and on-site evaluations to monitor new and existing futures money managers. The accounting and operations staff provides processing of subscriptions and redemptions and reporting to limited partners and regulatory authorities. The General Partner also includes staff involved in marketing and sales support.

Responsibilities of the General Partner include:

 

•

due diligence examinations of the Advisors;

 

•

selection, appointment and termination of the Advisors;

 

•

negotiation of the management agreements; and

 

•

monitoring the activity of the Advisors.

In addition, the General Partner prepares, or assists the Administrator in preparing, the books and records and provides, or assists the Administrator in providing, the administrative and compliance services that are required by law or regulation from time to time in connection with the operation of the Partnership/Funds.

While the Partnership and the Funds have the right to seek lower commission rates from other commodity brokers at any time, the General Partner believes that the customer agreements and other arrangements with the commodity broker are fair, reasonable and competitive.

The programs traded by each Advisor on behalf of the Partnership as of December 31, 2017 were: Cambridge — Asian Markets Alpha Programme and Emerging Markets Alpha Programme and ISAM — Systematic Trend Programme. Prior to their terminations on December 31, 2017, the programs traded by each Advisor on behalf of the Partnership were: Willowbridge — wPraxis Futures Trading Approach (“Praxis”), Aspect — Diversified Program, Graham — K4D-15V Program (“K4D”) and Boronia — Boronia Diversified Program. As of December 31, 2017 and September 30, 2017, the Partnership’s assets were allocated among the trading Advisors in the following approximate percentages:

 

Advisor						December 31, 2017												September 30, 2017
Willowbridge							29	%			$    26,962,568  *								30%				$    29,609,887
Aspect							13	%			$    11,523,239  *								14%				$    13,767,747
Graham							12	%			$    11,435,791  *								11%				$    10,899,426
Boronia							8	%			$      7,077,296  *								9%				$      8,778,726
Cambridge							22	%			$    19,891,352								22%				$    21,224,063
ISAM							16	%			$    14,961,443								14%				$    13,636,439

 

*	Amounts presented are prior to their terminations on December 31, 2017.

Willowbridge Associates Inc.

Willowbridge traded its w/Praxis Futures Trading Approach (“Praxis”) on behalf of Willowbridge Master. Praxis was a proprietary, discretionary trading system.

Praxis utilized a fully discretionary trading strategy to build a portfolio consisting of futures on currency, fixed income, stock indices and commodities pursuant to Praxis. The approach traded commodities, futures, forwards, options, swaps, spot contracts in commodities, currencies and fixed income markets. All positions were closely monitored to evaluate risk parameter status. As markets move, positions were refined and expectations updated in response to current market conditions.

Aspect Capital Limited.

Aspect traded its Diversified Program on behalf of Aspect Master. The Diversified Program was a proprietary, systematic global futures trading program. Its goal was the generation of significant medium-term capital growth independent of stock and bond market returns within a rigorous risk management framework.

The Diversified Program applied a systematic and broadly diversified global investment system, which deployed multiple investment strategies that, primarily through the use of listed futures and OTC foreign exchange contracts, sought to identify and exploit directional moves in the market behavior of a broad range of financial instruments and other assets including (but not limited to) currencies, interest rates, indices, debt securities (including bonds) and commodities (including energy, metal and agricultural commodities). By maintaining comparatively small exposure to any individual market and maintaining positions in a variety of contracts, Aspect aimed to achieve long-term diversification. Generally, the Diversified Program maintained positions in the majority of markets that had been identified as being available for investment by the program. Market concentration varied according to the strength of signals, volatility and liquidity, amongst other factors. The emphasis was upon structuring a genuinely diversified set of market risk allocations that was designed to maximize the probability of returns wherever profit opportunities appear. Market exposures were monitored daily and the level of exposure of the Diversified Program in each market was quantifiable at all times and changes in accordance with market volatility and liquidity.

 

16

---

The Diversified Program employed an automated system that collected, processed and analyzed market data (including current and historical price data) and identified and exploited directional moves in market behavior. The Diversified Program traded across a variety of frequencies to exploit trends over a range of timescales. Positions were taken according to the aggregate signal and were adjusted to attempt to control risk.

Graham Capital Management, L.P.

Graham traded its K4D program, a systematic, proprietary trading program on behalf of Graham Master.

Graham traded actively in both U.S. and foreign markets, primarily in futures contracts, forward contracts, spot contracts and associated derivative instruments such as options and swaps. Graham engaged in exchange for physical transactions, which involved the exchange of a futures position for the underlying physical commodity without making an open competitive trade on an exchange. Instruments and contracts not traded on an organized exchange may have been entered with banks, brokerage firms or other financial counterparties.

The K4D-15V Program utilized multiple computerized trading models and offered broad diversification in both financial and non-financial markets, trading in approximately 65-80 global markets. It intended to generate significant returns over time with an acceptable degree of risk and volatility. The computer models on a daily basis analyzed the recent price action, the relative strength and the risk characteristics of each market and compared statistically the quantitative results of this data to years of historical data on each market.

Graham believed strongly in the importance of research and development activity and particularly in the development of new trading strategies and portfolio management techniques. Trading strategies developed by Graham research and added to Graham investment programs included not only trend systems but also other styles of systems, with varying time horizons. Such systems generally were based on computerized mathematical models and relied both on technical and fundamental information as the basis for their trading decisions. Graham intended to add new trading strategies to its investment programs as well as to modify the systems currently in place in such programs in its ongoing efforts to keep pace with changing market conditions, and it anticipated that the constellation of trading strategies comprising each investment program will continue to grow and evolve over time. The decision to add or subtract systems or strategies from any investment program was at the sole discretion of Graham.

Boronia Capital Pty. Ltd.

Boronia traded its Boronia Diversified Program, a systematic trading program, on behalf of Boronia Trading Company. The trading systems used by Boronia were proprietary and confidential. The trading systems utilized quantitative techniques to generate returns in the financial markets. A diversified portfolio of over 60 liquid markets was traded across 4 asset classes and multiple time frames using futures on equity, bond, currency and commodity markets plus spot foreign exchange. Markets may be added or removed from the portfolio over time.

Trades were entered into markets on a fully automated basis directly by computer to the relevant exchange with no human intervention. The trading decisions were based on a number of robust and well researched proprietary algorithms developed by the advisor.

Since the inception of the trading program, Boronia continued to research new insights and other ways to improve its risk adjusted returns.

The Cambridge Strategy Ltd.

Cambridge trades its Asian Markets Alpha Programme and the Emerging Markets Alpha Programme, each a proprietary, systematic trading program on behalf of Cambridge Master.

The Asian Markets Alpha Programme aims to profit from short and medium term moves in the Asian markets’ currency pairs. To achieve this, Cambridge employs a largely systematic approach, designed to perform across diverse market environments. The process combines three decision making tools: a Systematic Technical Strategy, a Systematic Fundamental Strategy and a Market Information Strategy. During periods of higher volatility, the Systematic Technical Strategy uses a series of proprietary trading algorithms operating over multiple timeframes. The algorithms combine trend continuation and trend reversal signals. During periods of lower volatility, the Systematic Fundamental Strategy reflects a predetermined set of positions designed to reflect ‘market’ views on the relative attractiveness of currencies versus the U.S. dollar, thereby realizing the inherent benefits of the carry trade. The Market Information Strategy leverages the experience and global network of Cambridge’s portfolio managers to understand and exploit the behavior of other market participants and to participate in hedging and investment flows. It has characteristics often associated with discretionary managers. Cambridge’s proprietary Global Volatility Indicator serves as Cambridge’s regime shifting mechanism within the systematic strategies. Cambridge believes that long run success is achieved through successful mitigation of downside returns with risk controlled at the portfolio, strategy and individual trade levels.

The Emerging Markets Alpha Programme aims to profit from short and medium term moves in the developing markets’ currency pairs. To achieve this, Cambridge employs a largely systematic approach, designed to perform across diverse market environments. The process combines three decision making tools: a Systematic Technical Strategy, a Systematic Fundamental Strategy and a Market Information Strategy. During periods of higher volatility, the Systematic Technical Strategy uses a series of proprietary trading algorithms operating over multiple timeframes. The algorithms combine trend continuation and trend reversal signals. During periods of lower volatility, the Systematic Fundamental Strategy reflects a predetermined set of positions designed to reflect ‘market’ views on the relative attractiveness of currencies versus the U.S. dollar, thereby realizing the inherent benefits of the carry trade. The Market Information Strategy leverages the experience and global network of Cambridge’s portfolio managers to understand and exploit the behavior of other market participants and to participate in hedging and investment flows. It has characteristics often associated with discretionary managers. Cambridge’s proprietary Global Volatility Indicator serves as Cambridge’s regime shifting mechanism within the systematic strategies. Cambridge believes that long run success is achieved through successful mitigation of downside returns with risk controlled at the portfolio, strategy and individual trade levels.

International Standard Asset Management

ISAM directly trades a managed account in the name of the Partnership pursuant to ISAM’s Systematic Trend Programme. The Systematic Trend Programme’s investment objective is to achieve growth in the value of its assets, providing absolute returns with low correlations to the stock and bond markets through the implementation of systematic trading models. The system trades in the global futures markets covering stock indices, interest rates, currency, energy commodities, precious and base metals and agricultural products and may also trade in over-the-counter foreign exchange contracts (including currency spot contracts) and exchange-cleared swap and forward contracts.

 

17

---

ISAM relies on the comprehensive quantitative analysis of historical data to develop trading strategies. These proprietary trading strategies are then implemented subject to strict risk management and controls. ISAM’s guiding principle is that a disciplined trading approach combined with a broad diversification over a large number of markets, instruments and investment strategies is likely to lead to superior investment results, while maintaining risk at a level comparable to that associated with traditional asset classes. The target volatility of the portfolio is 15-20% annualized.

The Systematic Trend Programme’s investment strategy is to harness the performance of several systematic investment programs in a balanced portfolio, each program selected primarily for its methods of generating returns from global investments that are not highly correlated to the performance of traditional investment strategies such as the stock and bond markets. The goal remains to maximize diversification across various trading strategies and markets with the purpose of achieving capital appreciation objectives for investors while reducing overall portfolio volatility.

JE Moody & Company LLC

The JEM Commodity Relative Value Program was a systematic program that used quantitative models to detect and exploit price shifts and mispricings between related instruments in the energy, metal and agricultural markets, while employing hedging methods in an attempt to maintain approximate market or sector neutrality. The strategies did not make un-hedged directional bets. Most trades were implemented using offsetting long and short positions in futures and futures options, thus reducing exposure to sudden changes in market direction. As examples, such offsetting positions may have been in different delivery months of the same commodity market (e.g., calendar or butterfly spreads), in different but related markets (e.g., crude oil and unleaded gasoline) or between contracts traded on different exchanges (e.g., New York and London copper).

Market coverage for the JEM Commodity Relative Value Program portfolio included crude oil and petroleum distillates, natural gas, industrial metals, precious metals, grains, livestock, foodstuffs, fibers, and potentially other commodities. JE Moody utilized primarily exchange-traded futures and futures options to implement its relative value trades, although trades may have also been made using other instruments, such as commodity swaps or OTC derivatives contracts.

The trading opportunities captured by the JEM Commodity Relative Value Program models were believed to arise due to various factors, including: changes in relative supply and demand of different commodity contracts, the idiosyncratic actions of market participants, external events that may disrupt production (e.g., droughts, hurricanes, labor unrest or geopolitics), and risk premia associated with general uncertainties in future supply or demand. By virtue of their relative value nature, JEM Commodity Relative Value Program trades may have been interpreted as providing market liquidity to directional traders who needed it, and earning a risk premium by doing so.

Relative value strategies are frequently employed by hedge funds in the equity, fixed income, convertible bond and option markets, but are relatively uncommon in the commodity or managed futures arenas. Over extended time periods, relative value strategies have been observed to produce more consistent returns and higher Sharpe ratios than un-hedged, directional trading strategies. With the high leverage often used, however, some relative value managers have experienced significant losses, particularly when extreme market events have occurred.

JE Moody attempted to manage the risk of large losses by limiting the overall portfolio leverage and the degree of exposure to any single commodity market or sector. The Commodity Relative Value portfolio typically included about 18 to 24 active relative value trades, with the number of open positions depending on the arbitrage opportunities available. The JEM Commodity Relative Value Program trades had low mutual correlation, covered multiple markets and sectors and thus enabled meaningful diversification within the JEM Commodity Relative Value Program portfolio.

When few favorable relative value trading opportunities arose in the commodity markets, or as JE Moody may have determined, JE Moody may have chosen to make relative value trades in the financial futures, options, swap or derivatives markets. At times when many or few trading opportunities were available, JE Moody may have increased or reduced overall JEM Commodity Relative Value Program portfolio exposure.

To hedge offsetting long and short positions, JE Moody may have used techniques such as static hedging, dynamic hedging and option overlays. Moreover, hedging may seek to achieve market or sector neutrality via various benchmarks, such as by being “contract neutral,” “dollar neutral” or “delta neutral.” No hedging strategy is perfect, but each has its costs, risks, advantages and limitations. Even with well hedged positions, there is usually some residual exposure to directional market movements. JE Moody sought to balance the advantages of the hedging strategy used in a particular relative value trade versus the costs and risks of implementing the trade.

Altis Partners (Jersey) Limited.

Altis traded its Global Futures Portfolio Program on behalf of Altis Master. It was a proprietary, systematic, automated trading system. The Altis Global Futures Portfolio trading system traded in over 100 futures markets on recognized futures exchanges globally. Altis may have added or removed markets from the trading system in response to changes in market liquidity. Under the fully automated system, changes in market prices were forecast over a number of future periods and the portfolio was optimized to take best advantage of these forecasts. Forecasts were derived from a number of quantitative market phenomena; for instance, directional movement components looked for persistent upward or downward price movements over a number of time-scales, and anti-trending components were invoked when such movements may have gone too far too fast. Other inputs were derived from changes in perceived instrument volatility and the effect of one market against another closely correlated one.

Under the trading system, the relevant return forecasts, together with their corresponding measures of risk, and market correlation were re-estimated daily. Portfolio resources were then allocated to where the approach expected significant changes in prices, bearing in mind the need to diversify exposure to risk. As a result, portfolio composition was not fixed; there were no pre-assigned weightings to markets or sectors. Moreover, no one market was treated differently to its peers in terms of parameter inputs. Due to the number of inputs or indicators used, and their application across a broad range of markets, portfolio changes were generally small, except perhaps during periods of extreme volatility.

Krom River Trading Program.

Krom River traded its Commodity Program on behalf of KR Master, a systematic trading system that relied on fundamental and technical factors. The Commodity Program traded in at least 20 different markets including base metals, precious metals, energy, agricultural and softs. The trade types included long volatility, directional and relative value. The trading instruments had been exchange-listed futures and options, which had been traded on both fundamental and technical basis. Krom River’s Commodity Program did not trade OTC instruments, nor take physical deliveries.

 

18

---

Drury Capital, Inc.

Drury traded its Diversified Trend-Following Program on behalf of Drury Master. The Diversified Trend-Following program was systematic and technical. Drury may have exercised judgment regarding liquidity issues. Systematic traders relied primarily on trading programs or models that generated trading signals. The systems utilized to generate trading signals were changed from time to time (although generally infrequently), but the trading instructions generated by the system being used were followed without significant additional analysis or interpretation.

The Diversified Trend-Following Program was built on elements of trend-following and diversification. The program emphasized diversification by trading metals, agricultural products, foreign exchange, stock indices, energy products, financial instruments and tropical products (softs).

The Diversified Trend-Following Program traded 40 portfolio instruments and was generally positioned in 25 of these instruments on average. Positions could have been short as well as long. The Diversified Trend-Following Program had no market or sector bias, as Drury believed that each instrument could have produced long-term profits through the application of independent technical analysis and risk management.

Kaiser Trading Group Pty. Ltd.

Kaiser traded its Global Diversified Program, a systematic trading program on behalf of Kaiser Trading Company. Kaiser took trading opportunities by using a systematic, computer based and statistically validated approach built around the trading psychology of the markets.

The system had four major components: R&D environment, money management, risk measurement and trading rules. The details of the system in its entirety are proprietary and confidential. Therefore, the following details are general in nature.

Prior to its termination on June 30, 2014, Kaiser had 23 trading rules in operation. The rules were based on pattern matching and were short term in nature and include both break and contrarian models. These rules were traded over 39 different markets including foreign exchange forward and futures and options on, bonds, global indices, metals, energy and soft commodities. Each trading rule was the same, using the same parameters, regardless of the markets traded.

The trading rules were systematically tested over a comprehensive database using the systems research environment. The criteria that determined whether a trading rule was to be accepted into the system included: profitability, robustness, consistency and diversification. Once a trading rule was accepted into the system it was integrated using the same money management and risk analytic principles and software that had been applied to the preceding trading rules.

Risk measurement was accomplished by calculating pertinent risk measures such as correlation between markets and volatility of markets. These risk measures were then used to automatically scale trading positions or eliminate other positions.

Money management principles and tools were applied in a similar fashion to each rule. Entry levels, stop-loss and stop-gain positions were calculated daily. These were checked and sent to market.

No assurance can be given that the Advisors’ strategies will be successful or that they will generate profits for the Partnership.

Specific Fund level performance information is included in Note 6 to the financial statements included in “Item 8. Financial Statements and Supplementary Data.”

For the period January 1, 2017 through December 31, 2017, the average allocation by commodity market sector for Cambridge Master was as follows:

 

Cambridge Master
Currencies					100.0	%

(a) Liquidity.

The Partnership does not engage in sales of goods or services. Its assets are its (i) investment in the Fund, (ii) redemptions receivable from the Funds, (iii) equity in trading account, consisting of unrestricted and 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, (iv) cash at bank and (v) 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 its direct investments. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred during the year ended December 31, 2017.

To minimize the risk relating to low margin deposits, the Partnership/Funds follow certain trading policies, including:

 

(i)

The Partnership/Funds invest their assets only in commodity interests that an Advisor believes are traded in sufficient volume to permit ease of taking and liquidating positions. Sufficient volume, in this context, refers to a level of liquidity that an Advisor believes will permit it to enter and exit trades without noticeably moving the market.

 

(ii)

An Advisor will not initiate additional positions in any commodity if these positions would result in aggregate positions requiring a margin of more than 66 2/3% of the Partnership’s net assets allocated to that Advisor.

 

(iii)

The Partnership/Funds may occasionally accept physical delivery of a commodity. Unless such delivery is disposed of promptly by retendering the warehouse receipt representing the delivery to the appropriate clearinghouse, the physical commodity position will be fully hedged.

 

(iv)

The Partnership/Funds do not employ the trading technique commonly known as “pyramiding,” in which the speculator uses unrealized profits on existing positions as margin for the purchase or sale of additional positions in the same or related commodities.

 

(v)

The Partnership/Funds do not utilize borrowings except if the Partnership/Funds purchase or take delivery of commodities.

 

(vi)

The Advisors may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership/Funds. “Spreads” and “straddles” describe commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets.

 

19

---

(vii)

The Partnership/Funds will not permit the churning of their commodity trading accounts. The term “churning” refers to the practice of entering and exiting trades with a frequency unwarranted by legitimate efforts to profit from the trades, indicating the desire to generate commission income.

 

(viii)

The Partnership/Funds will not purchase, sell, or trade securities (except securities approved by the CFTC for investment of customer funds).

 

(ix)

The Advisors will trade only in those futures interests that have been approved by the General Partner.

 

(x)

The Partnership/Funds will, except under extraordinary circumstances, maintain positions in futures interests in at least two market segments (i.e., agricultural items, industrial items (including energies), metals, currencies, and financial instruments (including stock, financial and economic indexes)) at any one time.

 

(xi)

The Advisors will not generally take a positon after the first notice day in any futures interest during the delivery month of the futures interest, except to match.

From January 1, 2017 through December 31, 2017, the Partnership’s average margin to equity ratio (i.e., the percentage of assets on deposit required for margin) was approximately 16.7%. The foregoing margin to equity ratio takes into account cash held in the Partnership’s name, as well as the allocable value of the positions and cash held on behalf of the Partnership in the name of the Funds.

In the normal course of business, the Partnership and the Funds are party to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options, and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or OTC. Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 16.6% to 37.7% of the Partnership’s/Funds’ contracts are traded OTC.

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/Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnership’s/Funds’ risk of loss in the event of 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 MS&Co., CGM, an MS&Co. affiliate or JPMorgan are counterparties or brokers 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., CGM and/or an MS&Co. affiliate, the Partnership’s/Funds’ counterparty is an exchange or clearing organization.

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.

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, exchange-cleared swaps, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions. (See also “Item 8. Financial Statements and Supplementary Data” for further information on financial instrument risk included in the notes to financial statements.)

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

Other than the risks inherent in U.S. Treasury bills, money market mutual fund securities, commodity futures, forward, option and swap contracts the Partnership knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way. The Limited Partnership Agreement provides that the Partnership shall cease trading operations and liquidate all open positions under certain circumstances including a decrease in net asset value per Redeemable Unit to less than $400 as of the close of business on any trading day.

 

20

---

(b)

Capital Resources.

 

(i)

The Partnership has made no material commitments for capital expenditures.

 

(ii)

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by gains or losses on trading and by expenses, interest income, redemptions of Redeemable Units and distributions of profits, if any. Gains or losses on trading cannot be predicted. Market movements in commodities are dependent upon fundamental and technical factors which the Advisors may or may not be able to identify, such as 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. Partnership expenses consist of, among other things, clearing, ongoing selling agent and management and General Partner fees. The level of these expenses is dependent upon trading performance and the level of net assets maintained. In addition, the amount of interest income earned by the Partnership/Funds is dependent upon (1) the average daily equity maintained in cash in the Partnership’s and/or applicable Fund’s accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds, MS&Co. or JPMorgan has control.

No forecast can be made as to the level of redemptions in any given period. A limited partner may require the Partnership to redeem its Redeemable Units at the net asset value per Redeemable Unit as of the end of any month on three business days’ notice to the General Partner. There is no fee charged to limited partners in connection with redemptions. Redemptions generally are funded out of the Partnership’s cash holdings and/or redemptions from the Funds. For the year ended December 31, 2017, 42,744.8510 limited partner Redeemable Units were redeemed totaling $36,322,799 and 318.4110 General Partner Redeemable Units totaling $270,000. For the year ended December 31, 2016, 56,439.9990 limited partner Redeemable Units were redeemed totaling $52,481,536 and 787.6200 General Partner Redeemable Units totaling $710,011. For the year ended December 31, 2015, 40,641.1070 limited partner Redeemable Units were redeemed totaling $40,676,735 and 357.9740 General Partner Redeemable Units totaling $378,906.

The Partnership continues to offer Redeemable Units at the net asset value per Redeemable Unit as of the end of each month. For the year ended December 31, 2017, there were additional subscriptions of 37.2530 limited partner Redeemable Units totaling $33,000. For the year ended December 31, 2016, there were additional subscriptions of 725.0740 limited partner Redeemable Units totaling $655,000. For the year ended December 31, 2015, there were additional subscriptions of 1,201.8070 limited partner Redeemable Units totaling $1,259,286.

(c) Results of Operations.

For the year ended December 31, 2017, the net asset value per Redeemable Unit decreased 6.8% from $885.84 to $825.63. For the year ended December 31, 2016, the net asset value per Redeemable Unit decreased 9.7% from $981.45 to $885.84. For the year ended December 31, 2015, the net asset value per Redeemable Unit decreased 2.8% from $1,010.09 to $981.45.

The Partnership experienced a net trading loss of $2,481,647 before fees and expenses for the year ended December 31, 2017. Losses incurred during the first, second, and third quarters more than offset trading gains recorded during the fourth quarter. Overall, the Partnership experienced net trading losses primarily from positions in currencies, non-U.S. interest rates, livestock, and to a lesser extent, energies and metals. Meanwhile, gains from long positions in global stock indices helped to mitigate the losses elsewhere. The net trading gain (or loss) realized from the Partnership’s investment in the Funds is disclosed under “Item 8. Financial Statements and Supplementary Data.”

During the first quarter, the most notable losses were incurred within the energy markets during January from long positions in natural gas futures and during February due to positions in the crude oil complex. Losses were also recorded during January and March from long positions in European and U.S. fixed income futures amid hawkish global central bank actions. Further losses were experienced due to positions in wheat, corn, and soybean futures during January and February. The Partnership’s first quarter losses were partially offset by gains achieved during January, February, and March from long positions in global equity index futures as stock prices rose. Additional gains within the currency markets were recorded during January and February.

During the second quarter, the most meaningful losses were recorded during April from long positions in aluminum, copper, and zinc futures as prices for industrial metals tumbled. During June, losses were experienced from positions in European, U.S., British, Canadian, and Australian fixed income futures amid a global sell-off in bonds. Further losses were recorded in currencies during May from short positions in the Japanese yen and euro versus the U.S. dollar as the relative value of the dollar weakened. Smaller losses were incurred during May within the crude oil complex. These losses were partially offset by gains recorded in the global equity index sector as long positions in the U.S., Europe, and Asia profited from prices climbing higher during April and May. Gains were also recorded during April from positions in the global agricultural markets, specifically from short positions in cocoa futures.

During the third quarter, losses were incurred within currencies during August from long positions in the New Zealand dollar versus the U.S. dollar as the relative value of the Pacific Rim currency weakened amidst regional concern over North Korean aggression. A strengthening U.S. dollar during September resulted in additional currency losses. Losses were also experienced during September from long positions in European and U.S. fixed income futures. During July, losses were incurred from short positions in soybean and crude oil futures. A portion of the Partnership’s losses for the third quarter was offset by gains recorded during July and September from long positions in global equity index futures as stock prices continued to rise on growing confidence in the strength of the global economy. Additional gains were recorded in metals during August from long positions in copper, aluminum, and zinc futures.

During the fourth quarter, the Partnership recorded gains in global stock index futures during October and November from long positions as equity prices continued their rally on optimism for global economic growth. Gains were also recorded in the energy markets from long positions in crude oil and its refined products as prices rose throughout the quarter on expectations for further output cuts from OPEC and Russia. Additional trading gains were recorded in metals and grains during October and December and the global interest rate markets during November. The Partnership’s gains for the fourth quarter were partially offset by currency losses experienced during October, November, and December.

The Partnership experienced a net trading loss of $7,490,744 before fees and expenses for the year ended December 31, 2016. Losses were primarily attributed to the Funds’ trading in energy, grains, currency, metals, livestock, softs and U.S. interest rates and were offset by trading gains in global stock index and non-U.S interest rates.

 

21

---

The most significant losses were incurred within the energy markets during April from short positions in crude oil and its related products as prices surged as data from the Energy Information Agency showed U.S. crude oil production continued to decline. Additional losses within the energy sector were recorded during November from short positions in natural gas futures as prices advanced in the latter half of the month as demand from power generation and the private sector spiked. During March and April, further losses were incurred within the energies from natural gas positions. Within the metals complex, losses were recorded during May from long positions in gold and silver futures as a strengthening U.S. dollar diminished investor demand for precious metals. Additional metals losses were experienced during February from short positions in zinc and copper futures as prices advanced in anticipation of stimulus measures from the People’s Bank of China bolstering China’s manufacturing sector. Within the agricultural markets, losses were experienced during March from short positions in coffee and sugar futures as prices advanced on news that El Nino weather patterns brought dry conditions and exacerbated the spread of plant disease in South America. Losses within the agricultural markets were also recorded during January from long positions in cocoa futures as prices tumbled as funds cut bets on higher prices amid signs African crops were recovering from a five-year low. Losses within the currency sector were recorded during December from long positions in the Indian Rupee versus the U.S. dollar as the relative value of the Indian currency moved lower in the first half of the month after the Royal Bank of India introduced policies to ease liquidity concerns. Losses within this sector were also incurred during July from short positions in the Indian rupee versus the U.S. dollar as the relative value of the Indian currency advanced as demand for assets in emerging markets picked up amid optimism the U.K.’s vote to exit the European Union will not have a lasting effect on the South Asian nation’s markets. The Partnership’s losses for the year were partially offset by gains achieved within the global interest rate markets during January and February from long positions in European fixed income futures as prices rallied after European Central Bank (the “ECB”) head Mario Draghi said the ECB’s Governing Council would review its stimulus policy as the region’s inflation rate fell below zero. Additional gains in the global interest rate sector were recorded during June from positions in European and U.S. fixed income futures. Within the global stock index sector, gains were recorded during December from long positions in U.S. and European equity index futures as prices rallied amid hopes President-elect Donald Trump’s proposals to boost U.S. fiscal policies would aid the global economy. Additional gains within the global stock index sector were achieved during July from long positions in U.S. equity index futures as prices advanced after the release of reports which indicated the U.S. economy was more robust than previously predicted.

During the reporting period and prior periods included in this report, 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 was earned at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. credited 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 was less than zero, no interest was earned. Any interest earned on the Partnership’s and/or each Fund’s cash account in excess of the amounts described above, if any, was retained by MS&Co. and/or shared with the General Partner. All interest earned on U.S. Treasury bills and money market mutual fund securities was retained by the Partnership and/or the Funds, as applicable. Any interest income earned on collateral or excess cash deposited by certain of the Funds and held by JPMorgan in its capacity as such Funds’ forward foreign currency counterparty will be retained by such Funds, and the Partnership will receive its allocable portion of such interest from the applicable Fund. Interest income for the three and twelve months ended December 31, 2017 increased by $129,084 and $365,818, 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 twelve months ended December 31, 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 and the Funds depends on (1) the average daily equity maintained in cash in the Partnership’s and/or applicable Fund’s accounts, (2) the amount of U.S. Treasury bills and/or money market mutual fund securities held by the Partnership and/or the Funds and (3) interest rates over which none of the Partnership, the Funds, MS&Co. or JPMorgan has control.

Certain clearing fees are based on the number of trades executed by the Advisors for the Partnership/Funds. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees related to direct investments for the three and twelve months ended December 31, 2017 decreased by $4,936 and increased by $43,616, respectively, as compared to the corresponding periods in 2016. The decrease in these clearing fees is primarily due to a decrease in the number of direct trades made by the Partnership during the three months ended December 31, 2017, as compared to the corresponding periods in 2016. The increase in these clearing fees during the twelve months ended December 31, 2017, is due to the Partnership not trading directly prior to 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 twelve months ended December 31, 2017 decreased by $268,328 and $1,332,307, 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 twelve months ended December 31, 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 twelve months ended December 31, 2017 decreased by $221,670 and $1,005,942, respectively, as compared to the corresponding periods in 2016. The decrease is due to a decrease in average net assets during the three and twelve months ended December 31, 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 twelve months ended December 31, 2017 decreased by $134,009 and $665,201, 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 twelve months ended December 31, 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 twelve months ended December 31, 2017 resulted in incentive fees of $0. Trading performance for the three and twelve months ended December 31, 2016 resulted in incentive fees of $0 and $408,994, 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.

The Partnership pays professional fees, which generally include certain offering costs and legal, accounting, administrative, filing, reporting and data processing fees. Professional fees for the years ended December 31, 2017 and 2016 were $504,189 and $564,889, respectively.

 

15

---

The Partnership experienced a net trading gain of $9,695,899 before fees and expenses for the year ended December 31, 2015. Gains were primarily attributed to the Funds’ trading in energy, currency, metals, and global interest rate markets and were offset by trading losses in global stock index and agricultural futures.

The most significant losses were incurred within the global stock index sector during June from long positions in U.S., European, and Asian equity index futures as prices declined as concerns over Greece’s efforts to avoid a default weighed on global financial markets. Losses within this sector were also recorded during December from long positions in U.S., European, and Asian equity index futures as prices fell after weakness in Chinese economic data revived concern about the stability of the global economy. Additional losses were incurred within the global stock index sector during January from long positions in U.S. equity index futures as prices fell amid concern a tumble in oil prices and slowing overseas growth would adversely affect U.S. economic output. Losses were recorded within the agricultural markets during June from short positions in corn, soybeans, and wheat futures as prices rallied after heavy rainfall in the U.S. Midwest raised the potential for crop damage. Additional losses were incurred during April from short positions in sugar and coffee futures as prices advanced as wet weather slowed harvests in Brazil. The Partnership’s losses for the year were offset by gains achieved within the energy markets during November and December from short positions in crude oil and its related products as prices weakened after the OPEC nations failed to cut production amid a growing global supply glut. Additional gains were experienced during July from short positions in crude oil and its related products as prices declined as production levels in the U.S. reached record levels. Further gains in this sector were recorded during January, March, August, September, and October. Within the currency sector, gains were recorded during January from short positions in the Canadian dollar versus the U.S. dollar as the value of the Canadian currency moved lower over concerns falling oil prices would adversely affect the Canadian economy. Additional gains in this sector were experienced during May from short positions in the Japanese yen versus the U.S. dollar as the relative value of the yen fell after the release of strong U.S. employment figures and as the Bank of Japan pledged to continue its quantitative easing measures. Within the metals markets, gains were achieved during July from short positions in gold and silver futures as prices moved lower as a strengthening U.S. dollar curbed demand for precious metals as a store of value. Within the global interest rate markets, gains were recorded during January from long positions in European fixed income futures as prices advanced on increased speculation the European Central Bank would increase its quantitative easing measures to stimulate the Eurozone’s stagnant economy. Long positions in U.S. Treasury note futures were also profitable during January as prices advanced over investor concern a fall in crude oil prices would dampen inflation in the U.S. Additional gains were recorded from long positions in Canadian fixed income futures during January.

In the General Partner’s opinion, the Partnership’s Advisors continue to employ trading methods consistent with the objectives of the Partnership/Funds. The General Partner monitors the Advisors’ performance on a daily, weekly, monthly and annual basis to assure these objectives are met.

Commodity futures 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 Partnership/Funds expect to increase capital through operations.

In allocating the assets of the Partnership among the Advisors, the General Partner considers, among other factors, each Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets among the Advisors and may allocate assets to additional advisors at any time. Each Advisor’s percentage allocation and trading program is described in the “Overview” section of this Item 7.

(d) Off-Balance Sheet Arrangements. None.

(e) Contractual Obligations. None.

(f) Operational Risk.

The Partnership, directly or indirectly through its investment in the Funds, is exposed to market risk and credit risk, which arise in the normal course of its business activities. Slightly less direct, but of critical importance, are risks pertaining to operational and back office support. This is particularly the case in a rapidly changing and increasingly global environment with increasing transaction volumes and an expansion in the number and complexity of products in the marketplace.

Such risks include:

Operational/Settlement Risk — the risk of financial and opportunity loss and legal liability attributable to operational problems, such as inaccurate pricing of transactions, untimely trade execution, clearance and/or settlement, or the inability to process large volumes of transactions. The Partnership/Funds are subject to increased risks with respect to their trading activities in emerging market instruments, where clearance, settlement, and/or custodial risks are often greater than in more established markets.

Technological Risk — the risk of loss attributable to technological limitations or hardware failure that constrain the Partnership’s/Funds’ ability to gather, process, and communicate information efficiently and securely, without interruption, to customers and in the markets where the Partnership/Funds participate. Additionally, the General Partner’s computer systems may be vulnerable to unauthorized access, mishandling or misuse, computer viruses or malware, cyber attacks and other events that could have a security impact on such systems. If one or more of such events occur, this potentially could jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the General Partner’s computer systems, and adversely affect the Partnership’s business, financial condition or results of operations.

Legal/Documentation Risk — the risk of loss attributable to deficiencies in the documentation of transactions (such as trade confirmations) and customer relationships (such as master netting agreements) or errors that result in non-compliance with applicable legal and regulatory requirements.

Financial Control Risk — the risk of loss attributable to limitations in financial systems and controls. Strong financial systems and controls ensure that assets are safeguarded, that transactions are executed in accordance with management’s authorization, and that financial information utilized by management and communicated to external parties, including the Partnership’s unit holders, creditors, and regulators, is free of material errors.

 

23

---

(g) Critical Accounting Policies.

The preparation of financial statements in conformity with generally accepted accounting principles (“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 expenses during the reporting period. As a result, actual results could differ from these estimates. A summary of the Partnership’s significant accounting policies is described in Note 2 to the Partnership’s financial statements included in “Item 8. Financial Statements and Supplementary Data.”

The Partnership’s most significant accounting policy is the valuation of its investment in the Funds and in futures, option and forward contracts and U.S. Treasury bills, as applicable. The fair value of the investment in the Funds is determined based on the respective Fund’s net asset value per unit as calculated by the Fund 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. The fair value of exchange-traded futures, option and forward contracts is determined by the various exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as inputs the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. U.S. Treasury bills are valued at the last available bid price received from independent pricing services as of the close of the last business day of the reporting period.

 

24

---

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Introduction

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. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

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 are not necessarily indicative of their future results.

“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.

Materiality as used in this section is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Partnership’s/Funds’ market sensitive instruments.

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.

Exchange margin requirements have been used by the Partnership/Funds as the measure of its 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.

In the case of market sensitive instruments which are not exchange-traded (almost exclusively currencies in the case of the Partnership/Funds), the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

The fair value of the Partnership’s/Funds’ futures and forward positions does not have any optionality component. However, the Advisors may trade commodity options. The Value at Risk associated with options is reflected in the following tables as the margin requirement attributable to the instrument underlying each option. Where this instrument is a futures contract, the futures margin, and where this instrument is a physical commodity, the futures- equivalent margin has been used. This calculation is conservative in that it assumes that the fair value of an option will decline by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair values of the options traded by the Partnership/Funds in almost all cases fluctuate to a lesser extent than those of the underlying instruments.

In quantifying the Partnership’s/Funds’ Value at Risk, a 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been added to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Partnership’s/Funds’ positions are rarely, if ever, 100% positively correlated have not been reflected.

The Partnership’s and the Funds’ Trading Value at Risk in Different Market Sectors

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.

 

25

---

The following tables indicate the trading Value at Risk associated with the Partnership’s open positions by market category as of December 31, 2017 and 2016. As of December 31, 2017, the Partnership’s total capitalization was $91,851,689.

December 31, 2017

 

						% of Total
Market Sector		Value at Risk				Capitalization
Commodities		$	1,406,570				1.53	%
Currencies			7,802,035				8.49
Equity			867,139				0.94
Interest Rates			408,182				0.45
Total		$	10,483,926				11.41	%

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	%

The following tables indicate the trading Value at Risk associated with the Partnership’s direct investments and indirect investment in the Funds by market category as of December 31, 2017 and 2016, the highest and lowest value at any point and the average value during the year. All open position trading risk exposures have been included in calculating the figures set forth below.

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

December 31, 2017

 

										Twelve Months Ended December 31, 2017
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   Value at Risk*
Currencies		$	2,125,951				2.31	%		$	2,950,801			$	1,528,441			$	2,279,708
Energy			498,921				0.54				498,921				114,444				280,519
Grains			235,238				0.26				278,496				50,854				191,918
Indices			867,139				0.94				1,468,706				644,296				944,528
Interest Rates U.S.			70,521				0.08				140,327				3,048				49,165
Interest Rates Non-U.S.			337,661				0.37				496,244				202,785				350,141
Livestock			10,890				0.01				120,560				5,130				41,182
Metals			390,259				0.42				659,839				197,783				370,572
Softs			271,262				0.30				298,410				119,373				231,205
Total		$	4,807,842				5.23	%

 

*	Annual average of month-end Value at Risk.

December 31, 2016

 

										Twelve Months Ended December 31, 2016
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   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 Value at Risk.

 

26

---

Prior to the close of business on December 31, 2017, Cambridge Master’s total capitalization was $30,318,252. The Partnership owned approximately 65.9% of Cambridge Master. As of December 31, 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:

December 31, 2017

 

										Twelve Months Ended December 31, 2017
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   Value at Risk*
Currencies		$	8,074,088				26.63	%		$	33,190,552			$	6,699,509			$	17,900,275
Total		$	8,074,088				26.63	%

 

*	Annual average of month-end Value 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
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   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 Value at Risk.

As of December 31, 2017, the Partnership has fully redeemed its investment in Willowbridge Master for cash equal to $27,027,585. 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
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   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 Value at Risk.

As of December 31, 2017, the Partnership has fully redeemed its investment in Aspect Master for cash equal to $14,008,061. 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
Market Sector		Value at Risk				% of Total   Capitalization				High   Value at Risk				Low   Value at Risk				Average   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 Value at Risk.

 

27

---

As of December 31, 2017, the Partnership has fully redeemed its investment in Graham Master for cash equal to $11,450,505. 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 Value at Risk.

As of December 31, 2017, the Partnership has fully redeemed its investment in Boronia I, LLC for cash equal to $7,101,098. 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 daily Value at Risk.

Material Limitations on Value at Risk as an Assessment of Market Risk

The face value of the market sector instruments held by the Partnership/Funds is typically many times the applicable margin requirement (margin requirements generally range between 1% and 15% of contract face value, although an exchange may increase margin requirement on short notice) as well as many times the capitalization of the Partnership/Funds. The magnitude of the Partnership’s/Funds’ open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of the Partnership’s/Funds’ positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Partnership/Funds to incur severe losses over a short period of time. The foregoing Value at Risk tables — as well as the past performance of the Partnership/Funds — give no indication of this “risk of ruin.”

Non-Trading Risk

The Partnership/Funds have non-trading market risk on their foreign cash balances not needed for margin. However, these balances (as well as any market risk they represent) are immaterial.

Materiality as used in this section is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Partnership’s/Funds’ market sensitive instruments.

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s/Funds’ market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership/Funds manage their primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Partnership’s/Fund’s primary market risk exposures as well as the strategies used and to be used by the General Partner and the Advisors for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s/Funds’ risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the management strategies of the Partnership/Funds. There can be no assurance that the Partnership’s/Funds’ current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long- term. Investors must be prepared to lose all or substantially all of their investment in the Partnership.

 

28

---

The following were the primary trading risk exposures of the Partnership at December 31, 2017 by market sector. It may be anticipated, however, that these market exposures will vary materially over time.

Currencies. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations that disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The General Partner does not anticipate that the risk profile of the Partnership’s currency sector will change significantly in the future.

Equities. The Partnership’s primary equity exposure is to equity price risk in the G8 countries. The stock index futures traded by the Partnership are limited to futures on broadly based indices. As of December 31, 2017, the Partnership’s primary exposures were in the CBOE VIX Market Volatility Index (U.S.), Hang Seng (Hong Kong), NASDAQ 100 (U.S.), FTSE 100 (United Kingdom), S&P/TSX 60 (Canada), S&P 500 (U.S.) and SPI 200 (Australia) stock indices. The Partnership is primarily exposed to the risk of adverse price trends or static markets in the major European, U.S. and Pacific Rim indices. (Static markets would not cause major market changes but would make it difficult for the Partnership to avoid being “whipsawed” into numerous small losses.)

Interest Rates. Interest rate movements directly affect the price of the futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially affect the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in the U.S. and the other G8 countries. However, the Partnership may also take futures positions on the government debt of smaller nations — e.g., Australia and New Zealand.

Commodities:

Energy. The Partnership’s primary energy market exposure is to oil and natural gas price movements, often resulting from political developments in the Middle East and weather conditions. Energy prices can be volatile and substantial profits and losses, which have been experienced in the past, are expected to continue to be experienced in these markets in the future.

Metals. The Partnership’s primary metal market exposure as of December 31, 2017 was to fluctuations in the price of copper, zinc, aluminum, palladium, nickel and silver.

Grains. The Partnership’s trading risk exposure in the grains is primarily to agricultural price movements, which are often directly affected by severe or unexpected weather conditions. Wheat, corn and the soybean complex accounted for the majority of the Partnership’s grain exposure as of December 31, 2017.

Softs. The Partnership’s trading risk exposure in the soft commodities is to agricultural-related price movements, which are often directly affected by severe or unexpected weather conditions. Cocoa, coffee, cotton and sugar accounted for the majority of the Partnership’s soft commodities exposure as of December 31, 2017.

Livestock. The Partnership’s primary risk exposure in livestock is to fluctuations in cattle and hog prices.

Qualitative Disclosures Regarding Non-Trading Risk Exposure

The following was the only non-trading risk exposure of the Partnership/Funds as of December 31, 2017.

Foreign Currency Balances. The Partnership’s/Funds’ may hold various foreign balances. The Advisors regularly convert foreign currency balances to dollars in an attempt to manage the Partnership’s/Funds’ non-trading risk.

Qualitative Disclosures Regarding Means of Managing Risk Exposure

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 General Partner monitors the Partnership’s/Funds’ performance and the concentration of its open positions, and consults with the Advisors concerning the Partnership’s/Funds’ overall risk profile. If the General Partner felt it necessary to do so, the General Partner could require the Advisors to close out positions as well as enter positions traded on behalf of the Partnership/Funds. However, any such intervention would be a highly unusual event. The General Partner primarily relies on the Advisors’ own risk control policies while maintaining a general supervisory overview of the Partnership’s/Funds’ market risk exposures.

The Advisors apply their own risk management policies to their trading. The Advisors often follow diversification guidelines, margin limits and stop loss points to exit a position. The Advisors’ research of risk management often suggests ongoing modifications to their trading programs.

As part of the General Partner’s risk management, the General Partner periodically meets with each Advisor to discuss their risk management and to look for any material changes to the Advisors’ portfolio balance and trading techniques. The Advisors are required to notify the General Partner of any material changes to their programs.

 

29

---

Item 8. Financial Statements and Supplementary Data.

CERES TACTICAL SYSTEMATIC L.P.

(FORMERLY, TACTICAL DIVERSIFIED FUTURES FUND L.P.)

The following financial statements and related items of the Partnership are filed under this Item 8: Oath or Affirmation, Management’s Report on Internal Control over Financial Reporting, Report of Independent Registered Public Accounting Firm, for the years ended December 31, 2017, 2016 and 2015; Statements of Financial Condition at December 31, 2017 and 2016; Condensed Schedules of Investments at December 31, 2017 and 2016; Statements of Income and Expenses for the years ended December 31, 2017, 2016 and 2015; Statements of Changes in Partners’ Capital for the years ended December 31, 2017, 2016 and 2015; and Notes to Financial Statements. Additional financial information has been filed as Exhibits to this Form 10-K.

 

30

---

To the Limited Partners of

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.

 

 

31

---

Management’s Report on Internal Control Over

Financial Reporting

The management of Ceres Tactical Systematic L.P. (formerly, Tactical Diversified Futures Fund L.P.) (the “Partnership”), Ceres Managed Futures LLC, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Partnership’s internal control over financial reporting includes those policies and procedures that:

 

(i)

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

 

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and

 

(iii)

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.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management of Ceres Tactical Systematic L.P. has assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management concluded that the Partnership maintained effective internal control over financial reporting as of December 31, 2017 based on the criteria referred to above.

 

Patrick T. Egan				Steven Ross
President and Director				Chief Financial Officer and Director
Ceres Managed Futures LLC				Ceres Managed Futures LLC
General Partner,				General Partner,
Ceres Tactical Systematic L.P.				Ceres Tactical Systematic L.P.

 

32

---

Report of Independent Registered Public Accounting Firm

To the Partners of Ceres Tactical Systematic L.P. (formerly, Tactical Diversified Futures Fund L.P.),

Opinion on the Financial Statements

We have audited the accompanying statement of financial condition of Ceres Tactical Systematic L.P. (formerly, Tactical Diversified Futures Fund L.P.) (the “Partnership”), including the condensed schedule of investments as of December 31, 2017, and the related statements of income and expenses and changes in partners’ capital for the year ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2017, and the results of its operations and changes in its partners’ capital for the year ended December 31, 2017 in conformity with U.S. generally accepted accounting principles.

The statement of financial condition, including the condensed schedule of investments, as of December 31, 2016, and the related statements of income and expenses and changes in partners’ capital for the years ended December 31, 2016 and 2015 were audited by another independent registered public accounting firm whose report, dated March 24, 2017, expressed an unqualified opinion on those statements.

Basis for Opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of the Partnership’s internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the auditor of the Partnership since 2017.

Boston, MA

March 22, 2018

 

33

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Tactical Diversified Futures Fund L.P.:

We have audited the accompanying statements of financial condition of Tactical Diversified Futures Fund L.P. (the “Partnership”) as of December 31, 2016 and 2015, including the condensed schedule of investments as of December 31, 2016 and the schedule of investments as of December 31, 2015, and the related statements of income and expenses and changes in partners’ capital for the years then ended. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Tactical Diversified Futures Fund L.P. as of December 31, 2016 and 2015, and the results of its operations and changes in its partners’ capital for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

New York, New York

March 24, 2017

 

34

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Statements of Financial Condition

December 31, 2017 and 2016

 

		December 31,				December 31,
		2017				2016
Assets:
Investment in the Fund (1) , at fair value (Note 6)		$	19,891,353			$	126,238,109
Redemptions receivable from the Funds (1)			59,705,564				-
Equity in trading account:
Unrestricted cash (Note 3c)			9,691,004				12,654,296
Restricted cash (Note 3c)			4,861,056				4,205,299
Net unrealized appreciation on open futures contracts			555,896				434,371
Net unrealized appreciation on open forward contracts			169,466				-
Total equity in trading account			15,277,422				17,293,966
Cash at bank (Note 1)			436				218
Interest receivable (Note 3c)			11,196				4,172
Total assets		$	94,885,971			$	143,536,465
Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open forward contracts		$	-			$	64,394
Accrued expenses:
Ongoing selling agent fees (Note 3d)			158,143				239,121
Management fees (Note 3b)			105,419				163,269
General Partner fees (Note 3a)			78,753				119,183
Professional fees			224,186				213,317
Redemptions payable to General Partner (Note 7)			-				250,011
Redemptions payable to Limited Partners (Note 7)			2,467,781				5,822,306
Total liabilities			3,034,282				6,871,601
Partners’ Capital (Notes 1 and 7):
General Partner, 1,371.6544 and 1,690.0654 Redeemable Units outstanding at December 31, 2017 and 2016, respectively			1,132,474				1,497,130
Limited Partners, 109,879.1528 and 152,586.7508 Redeemable Units outstanding at December 31, 2017 and 2016, respectively			90,719,215				135,167,734
Total partners’ capital (net asset value)			91,851,689				136,664,864
Total liabilities and partners’ capital		$	94,885,971			$	143,536,465
Net asset value per Redeemable Unit		$	825.63			$	885.84

⁽¹⁾ Defined in Note 1.

See accompanying notes to financial statements.

 

35

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Condensed Schedule of Investments

December 31, 2017

 

		Notional ($)/   Number of								% of Partners’
		Contracts				Fair Value				Capital
Futures Contracts Purchased
Currencies			24			$	15,666				0.02	%
Energy			152				368,725				0.40
Indices			563				82,109				0.09
Interest Rates U.S.			3				(695)				(0.00)	*
Interest Rates Non-U.S.			412				(178,430)				(0.19)
Metals			59				105,520				0.11
Softs			14				33,505				0.04
Total futures contracts purchased							426,400				0.47
Futures Contracts Sold
Currencies			8				1,744				0.01
Energy			59				8,620				0.01
Grains			321				95,465				0.10
Indices			67				19,761				0.02
Interest Rates U.S.			96				45,937				0.05
Interest Rates Non-U.S.			212				45,621				0.05
Livestock			7				(7,560)				(0.01)
Metals			22				(71,630)				(0.08)
Softs			160				(8,462)				(0.01)
Total futures contracts sold							129,496				0.14
Net unrealized appreciation on open futures contracts						$	555,896				0.61	%
Unrealized Appreciation on Open Forward Contracts
Currencies		$	20,385,406			$	283,891				0.31	%
Metals			56				210,725				0.22
Total unrealized appreciation on open forward contracts							494,616				0.53
Unrealized Depreciation on Open Forward Contracts
Currencies		$	18,588,158				(167,812)				(0.18)
Metals			30				(157,338)				(0.17)
Total unrealized depreciation on open forward contracts							(325,150)				(0.35)
Net unrealized appreciation on open forward contracts						$	169,466				0.18	%
										% of Partners’
Investment in the Fund						Fair Value				Capital
Cambridge Master Fund L.P.						$	19,891,353				21.66	%
Total investment in the Fund						$	19,891,353				21.66	%

* Due to rounding.

See accompanying notes to financial statements.

 

36

---

Ceres Tactical Systematic L.P.

(formerly, 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.

 

37

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Statements of Income and Expenses

For the Years Ended

December 31, 2017, 2016 and 2015

 

		2017				2016				2015
Investment Income:
Interest income		$	100,285			$	13,464			$	-
Interest income allocated from the Funds			622,396				343,399				30,065
Total investment income			722,681				356,863				30,065
Expenses:
Expenses allocated from the Funds			920,141				1,931,290				4,018,497
Clearing fees related to direct investments (Note 3c)			78,467				34,851				-
Ongoing selling agent fees (Note 3d)			2,280,301				3,612,608				4,664,139
General Partner fees (Note 3a)			1,135,421				1,800,622				2,324,802
Management fees (Note 3b)			1,575,891				2,401,013				2,807,792
Incentive fees (Note 3b)			-				188,689				1,694,935
Professional fees			504,189				564,889				655,176
Total expenses			6,494,410				10,533,962				16,165,341
Net investment loss			(5,771,729)				(10,177,099)				(16,135,276)
Trading Results:
Net gains (losses) on trading of commodity interests and investment in the Funds:
Net realized gains (losses) on closed contracts			115,346				(1,471,792)				-
Net realized gains (losses) on closed contracts allocated from the Funds			(2,377,104)				(5,763,377)				20,924,263
Net change in unrealized gains (losses) on open contracts			371,299				369,824				-
Net change in unrealized gains (losses) on open contracts allocated from the Funds			(591,188)				(625,399)				(11,228,364)
Total trading results			(2,481,647)				(7,490,744)				9,695,899
Net income (loss)		$	(8,253,376)			$	(17,667,843)			$	(6,439,377)
Net income (loss) per Redeemable Unit (Note 8)*		$	(60.21)			$	(95.61)			$	(28.64)
Weighted average Redeemable Units outstanding			133,367.4640				190,017.8082				232,010.8995

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

See accompanying notes to financial statements.

 

38

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Statements of Changes in Partners’ Capital

For the Years Ended

December 31, 2017, 2016 and 2015

 

		Redeemable     Units				Limited     Partners				General     Partner				Total
Partners’ Capital, December 31, 2014			250,576.6352				250,240,714				2,864,272				253,104,986
Subscriptions - Limited Partners			1,201.8070				1,259,286				-				1,259,286
Redemptions - General Partner			(357.9740)				-				(378,906)				(378,906)
Redemptions - Limited Partners			(40,641.1070)				(40,676,735)				-				(40,676,735)
Net income (loss)			-				(6,385,734)				(53,643)				(6,439,377)
Partners’ Capital, December 31, 2015			210,779.3612				204,437,531				2,431,723				206,869,254
Subscriptions - Limited Partners			725.0740				655,000				-				655,000
Redemptions - General Partner			(787.6200)				-				(710,011)				(710,011)
Redemptions - Limited Partners			(56,439.9990)				(52,481,536)				-				(52,481,536)
Net income (loss)			-				(17,443,261)				(224,582)				(17,667,843)
Partners’ Capital, December 31, 2016			154,276.8162				135,167,734				1,497,130				136,664,864
Subscriptions - Limited Partners			37.2530				33,000				-				33,000
Redemptions - General Partner			(318.4110)				-				(270,000)				(270,000)
Redemptions - Limited Partners			(42,744.8510)				(36,322,799)				-				(36,322,799)
Net income (loss)			-				(8,158,720)				(94,656)				(8,253,376)
Partners’ Capital, December 31, 2017			111,250.8072			$	90,719,215			$	1,132,474			$	91,851,689

Net asset value per Redeemable Unit:

 

2015:		$	981.45
2016:		$	885.84
2017:		$	825.63

See accompanying notes to financial statements.

 

39

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

1.	Organization:

Ceres Tactical Systematic L.P. (formerly, 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 investment in the Funds (as defined below) are volatile and involve a high degree of market risk. The General Partner (as defined below) may also determine to invest up to all of the Partnership’s assets (directly or indirectly through its investment in the Funds) in 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”) and commodity pool operator of the Partnership, and was the trading manager (the “Trading Manager”) of Boronia Trading Company (as defined below). 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.

Effective after the close of business on December 31, 2017, all trading decisions were made for the Partnership by 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 the close of business on December 31, 2017, Willowbridge Associates Inc. (“Willowbridge”), Aspect Capital Limited (“Aspect”), Graham Capital Management, L.P. (“Graham”) and Boronia Capital Pty. Ltd. (“Boronia”) ceased to act as commodity trading advisors to the Partnership. 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, Willowbridge, Aspect, Graham, Boronia, JE Moody and Altis. 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 investment 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 covered by this report, the Partnership’s/Funds’ commodity broker was Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant. JPMorgan Chase Bank, N.A. (“JPMorgan”) was also a foreign exchange forward counterparty for certain Funds. The Partnership/Funds also deposit a portion of their cash in non-trading bank accounts at 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.

 

40

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

Cambridge Master Fund L.P. (“Cambridge Master”), and prior to the Partnership’s full redemption, 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”), CMF Altis Partners Master Fund L.P. (“Altis Master”) and JEM Master Fund L.P. (“JEM Master”), entered into futures brokerage account agreements and foreign exchange brokerage account agreements with MS&Co. Cambridge Master is referred to as the “Fund”. Reference herein to the “Funds” may include, as relevant, Willowbridge Master, Aspect Master, Graham Master, Boronia I, LLC, Altis Master and JEM Master. The Partnership also entered into a futures brokerage account agreement and a foreign exchange prime brokerage agreement with MS&Co.

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

Effective September 13, 2017, the Partnership changed its name from Tactical Diversified Futures Fund L.P. to Ceres Tactical Systematic L.P.

The Partnership, directly and through its investment in the Funds, pays MS&Co. trading fees for clearing, and where applicable, execution of transactions.

The Partnership will be liquidated upon the first to occur of the following: (1) December 31, 2022; (2) the net asset value per Redeemable Unit decreases to less than $400 per Redeemable Unit as of the close of any business day; or (3) the occurrence of certain other circumstances as set forth in the limited partnership agreement of the Partnership (the “Limited Partnership Agreement”).

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:

 

a.

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.

 

b.

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

 

c.

Statement of Cash Flows.  The Partnership has not provided a Statement of Cash Flows, as permitted by Accounting Standards Codification (“ASC”) 230, “Statement of Cash Flows.” The Statements of Changes in Partners’ Capital is included herein, and as of and for the years ended December 31, 2017, 2016 and 2015, the Partnership carried no debt and all of the Partnership’s and Fund’s investments were carried at fair value and classified as Level 1 or Level 2 measurements.

 

41

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

d.

Partnership’s Investment in the Funds.  The Partnership carries its investment 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.

 

e.

Partnership’s/Funds’ Derivative Investments.  All commodity interests held by the Partnership/Funds, including derivative financial instruments and derivative commodity instruments, are held for trading purposes. The commodity interests are recorded on 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 from the preceding period are reported in the Partnership’s/Funds’ Statements of Income and Expenses.

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

 

f.

Partnership’s Cash.  The Partnership’s cash includes cash denominated in foreign currencies of $1,279,677 (cost of $1,263,916) and $144,332 (cost of $144,485) as of December 31, 2017 and 2016, respectively.

 

g.

Income Taxes.  Income taxes have not been recorded as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The Partnership follows the guidance of ASC 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. Tax positions determined not to meet the more-likely-than-not threshold would be recorded as a tax benefit or liability in the Partnership’s Statements of Financial Condition for the current year. If a tax position does not meet the minimum statutory threshold to avoid the incurring of penalties, an expense for the amount of the statutory penalty and interest, if applicable, shall be recognized in the Statements of Income and Expenses in the years in which the position is claimed or expected to be claimed. The General Partner has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2014 through 2017 tax years remain subject to examination by U.S. federal and most state tax authorities.

 

h.

Investment Company Status.  Effective January 1, 2014, the Partnership adopted Accounting Standards 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.

 

i.

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 8, “Financial Highlights.”

 

42

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

3.	Agreements:

 

a.

Limited Partnership Agreement:

The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The General Partner has agreed to make capital contributions, if necessary, so that its general partnership interest will be equal to the greater of (1) an amount that will entitle the General Partner to an interest of at least 1% in each material item of Partnership income, gain, loss, deduction or credit and (2) the greater of (i) 1% of the partners’ contributions to the Partnership or (ii) $25,000. The Partnership pays the General Partner a monthly fee equal to 1/12^th of 1% (1% per year) of month-end net assets of the Partnership. Month-end net assets, for purposes of calculating General Partner fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s management fees, incentive fee accruals, the General Partner fee and any redemptions or distributions as of the end of such month.

 

b.

Management Agreement:

The General Partner, on behalf of the Partnership, has entered into management agreements (each a “Management Agreement”) with the Advisors. The Advisors are not affiliated with one another, are not affiliated with the General Partner or MS&Co. and are not responsible for the organization or operation of the Partnership.

At December 31, 2017, Cambridge received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Cambridge. Effective November 1, 2017, ISAM receives a monthly management fee equal to 1/12^th of 1.0% (1.0% per year) of month-end net assets allocated to ISAM. Prior to November 1, 2017, ISAM received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to ISAM. Month-end net assets, for purposes of calculating management fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s incentive fee accruals, the monthly management fees, the General Partner fee and any redemptions or distributions as of the end of such month. Each Management Agreement may be terminated upon notice by either party.

Prior to its termination on December 31, 2017, Graham received a monthly management fee equal to 1/12^th of 1.75% (1.75% per year) of month-end net assets allocated to Graham. Prior to April 1, 2014, Graham received a monthly management fee of 1/6^th of 1% (2% per year) of month-end net assets allocated to Graham. Prior to their terminations on December 31, 2017, Willowbridge and Aspect received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Willowbridge and Aspect, respectively. Prior to its termination on December 31, 2017, Boronia Trading Company paid Boronia a monthly management fee of 1.5% per year of the aggregate net assets of the Boronia Trading Company as of the first day of each month. The Partnership paid Boronia indirectly, the Partnership’s pro rata portion of the management fee of Boronia I, LLC. Prior to its termination on September 30, 2016, JE Moody received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to JE Moody. Prior to January 1, 2016, JE Moody received a monthly management fee equal to 1/6^th of 1% (2% per year) of month-end net assets allocated to JE Moody. Prior to its termination on June 30, 2016, Altis received a monthly management fee equal to 1/12^th of 1.25% (1.25% per year) of month-end net assets allocated to Altis. Prior to August 1, 2015, Altis received a monthly management fee equal to 1/12^th of 1.5% (1.5% per year) of month-end net assets allocated to Altis.

 

43

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

In addition, at December 31, 2017, the Partnership was obligated to pay Cambridge an incentive fee, payable quarterly, equal to 15% of the New Trading Profits, as defined in Management Agreement, earned by Cambridge for the Partnership during each calendar quarter. Effective November 1, 2017, the Partnership is obligated to pay ISAM an incentive fee, payable quarterly, equal to 25% of the New Trading Profits earned by ISAM. Prior to November 1, 2017, the Partnership was obligated to pay ISAM an incentive fee, payable quarterly, equal to 20% of the New Trading Profits earned by ISAM. To the extent an Advisor incurs a loss for the Partnership, the Advisor will not be paid incentive fees until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.

Prior to their terminations on December 31, 2017, the Partnership was obligated to pay Willowbridge Aspect and Graham an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in each Management Agreement, earned by each such Advisor for the Partnership during each calendar quarter. Prior to its termination on December 31, 2017, Boronia received an incentive fee equal to 20% of the New Trading Profits earned by Boronia I, LLC. The incentive fee paid by Boronia I, LLC was allocated to the Partnership based on its proportionate ownership interest of Boronia I, LLC. Prior to its termination on September 30, 2016, JE Moody was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement, earned by JE Moody for the Partnership during each calendar quarter. Prior to its termination on June 30, 2016, Altis was eligible to receive an incentive fee, payable quarterly, equal to 20% of the New Trading Profits, as defined in its Management Agreement, earned by Altis for the Partnership during each calendar quarter.

In allocating the assets of the Partnership among the trading 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 trading advisors and may allocate assets to additional trading advisors at any time.

 

c.

Customer Agreement:

The Partnership has entered into a customer agreement with MS&Co. (the “Customer Agreement”). Under the Customer Agreement and the foreign exchange brokerage account agreement (described in Note 1, “Organization”), the Partnership paid trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) directly and indirectly through its investment in the Funds. Clearing fees are allocated to the Partnership based on its proportionate share of each Fund. Clearing fees are also borne directly by the Partnership for its direct trading. Clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. All of the Partnership’s assets not held in the Funds’ accounts at MS&Co. and JPMorgan are deposited in the Partnership’s accounts at MS&Co. The Partnership’s cash is deposited by MS&Co. in segregated bank accounts to the extent required by Commodity Futures Trading Commission regulations. The Partnership’s restricted cash is equal to the cash portion of assets on deposit to meet margin requirements, as determined by the exchange or counterparty, and required by MS&Co. At December 31, 2017 and 2016, the amount of cash held by the Partnership for margin requirements was $4,861,056 and $4,205,299, respectively. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. During the reporting period and prior periods included in this report, MS&Co. paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s, except for Boronia I, LLC) brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. MS&Co. has agreed to pay Boronia I, LLC interest on 100% of the average daily equity maintained in cash in Boronia I, LLC’s brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate less 0.15% during such month but in no event less than zero. When the effective rate is less than zero, no interest is earned. For purposes of these interest credits, daily funds do not include monies due to Boronia I, LLC on or with respect to futures, forward, or option contracts that have not been received. The Customer Agreement may generally be terminated upon notice by either party.

 

44

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

d.

Selling Agent Agreement:

The Partnership has entered into a selling agent agreement with Morgan Stanley Smith Barney LLC, doing business as Morgan Stanley Wealth Management (“Morgan Stanley Wealth Management”) (the “Selling Agreement”). Under the Selling Agreement with Morgan Stanley Wealth Management, the Partnership pays Morgan Stanley Wealth Management a monthly ongoing selling agent fee equal to 2% per year of month-end net assets. Morgan Stanley Wealth Management paid a portion of its ongoing selling agent fees to properly registered or exempted selling agents and to financial advisors who have sold Redeemable Units. Month-end net assets, for purposes of calculating ongoing selling agent fees are net assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fees, incentive fee accruals, the monthly management fees, the General Partner fee, other expenses and any redemptions or distributions as of the end of such month.

 

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. 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.

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

All of the commodity interests owned directly by the Partnership are held for trading purposes. All of the commodity interests owned by the Funds are held for trading purposes. The monthly average number of futures contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were 2,046 and 1,485, respectively. The monthly average number of metals forward contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were 112 and 74, respectively. The monthly average notional value of currency forward contracts traded directly by the Partnership during the years ended December 31, 2017 and 2016 were $58,373,951 and $36,729,925, respectively. During the period January 1, 2016 to June 30, 2016, the assets of the Partnership were not traded directly.

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.

 

45

---

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 December 31, 2017 and 2016, respectively.

 

December 31, 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		$	1,027,835			$	(471,939)			$	555,896			$	-			$	-			$	555,896
Forwards			494,616				(325,150)				169,466				-				-				169,466
Total assets		$	1,522,451			$	(797,089)			$	725,362			$	-			$	-			$	725,362
Liabilities
Futures		$	(471,939)			$	471,939			$	-			$	-			$	-			$	-
Forwards			(325,150)				325,150				-				-				-				-
Total liabilities		$	(797,089)			$	797,089			$	-			$	-			$	-			$	-
Net fair value																						$	725,362				*

 

December 31, 2016		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		$	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 brokers and the sole counterparty to the Partnership’s non-exchange-traded contracts, as applicable, has the right to offset the Partnership’s obligation with the Partnership’s cash and/or U.S. Treasury bills held by MS&Co., thereby minimizing MS&Co.’s risk of loss. In certain instances, MS&Co. may not post collateral and as such, in the event of default by MS&Co., the Partnership is exposed to the amount shown in the Statements of Financial Condition. In the case of exchange-traded contracts, the Partnership’s exposure to counterparty risk may be reduced since the exchange’s clearinghouse interposes its credit between buyer and seller and the clearinghouse’s guarantee funds may be available in the event of a default.

 

46

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

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 as of December 31, 2017 and 2016, respectively.

 

		December 31, 2017
Assets
Futures Contracts
Currencies		$	19,411
Energy			435,850
Grains			105,003
Indices			147,860
Interest Rates U.S.			49,180
Interest Rates Non-U.S.			64,681
Metals			105,894
Softs			99,956
Total unrealized appreciation on open futures contracts			1,027,835
Liabilities
Futures Contracts
Currencies			(2,001)
Energy			(58,505)
Grains			(9,538)
Indices			(45,990)
Interest Rates U.S.			(3,938)
Interest Rates Non-U.S.			(197,490)
Livestock			(7,560)
Metals			(72,004)
Softs			(74,913)
Total unrealized depreciation on open futures contracts			(471,939)
Net unrealized appreciation on open futures contracts		$	555,896	*
Assets
Forward Contracts
Currencies		$	283,891
Metals			210,725
Total unrealized appreciation on open forward contracts			494,616
Liabilities
Forward Contracts
Currencies			(167,812)
Metals			(157,338)
Total unrealized depreciation on open forward contracts			(325,150)
Net unrealized appreciation on open forward contracts		$	169,466	**

 

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

 

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

 

47

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

		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.

 

48

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments traded directly by the Partnership for the year ended December 31, 2017 and 2016, respectively. During the year ended December 31, 2015, no derivative instruments were traded directly by the Partnership.

 

Sector		2017				2016
Currencies		$	(502,493)			$	12,482
Energy			59,510				(764,839)
Grains			(618,535)				61,794
Indices			2,388,247				11,075
Interest Rates U.S.			(169,085)				(30,501)
Interest Rates Non-U.S.			(553,886)				(423,179)
Livestock			(203,797)				24,283
Metals			203,690				(85,005)
Softs			(117,006)				91,922
Total		$	486,645	***		$	(1,101,968)	***

 

***

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

 

5.	Fair Value Measurements:

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

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

The Partnership and the Funds consider prices for commodity futures, swap and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain option contracts for which market quotations are not readily available are priced by pricing services that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the years ended December 31, 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 beginning of the reporting period.

 

49

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

December 31, 2017*		Total				Level 1				Level 2				Level 3
Assets
Futures		$	1,027,835			$	1,027,835			$	-			$	-
Forwards			494,616				-				494,616				-
Total Assets		$	1,522,451			$	1,027,835			$	494,616			$	-
Liabilities
Futures		$	471,939			$	471,939			$	-			$	-
Forwards			325,150				-				325,150				-
Total Liabilities		$	797,089			$	471,939			$	325,150			$	-
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			$	-

 

*

$124,856 of assets and $112,538 of liabilities were transferred from Level 1 to Level 2 during the year ended December 31, 2017. The General Partner believes that for London Metal Exchange (“LME”) contracts, the inputs are derived from an exchange and not actively quoted prices, which is more representative of a Level 2 security.

 

6.	Investment in the Funds:

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. 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 2.0 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.

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. Aspect Master permitted accounts managed by Aspect using the Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the general partner of Aspect Master. Individual and pooled accounts managed by Aspect, including the Partnership, were permitted to be limited partners of Aspect Master. The General Partner and Aspect believed that trading through this structure would promote efficiency and economy in the trading process. The Partnership fully redeemed its investment in Aspect Master on December 31, 2017.

 

43

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in Willowbridge Master, a limited partnership organized under the partnership laws of the State of New York. Willowbridge Master permitted 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 was also the general partner of Willowbridge Master. Individual and pooled accounts managed by Willowbridge, including the Partnership, were permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believed that trading through this structure would promote efficiency and economy in the trading process. The General Partner and Willowbridge agreed that Willowbridge would 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. The Partnership fully redeemed its investment in Willowbridge Master on December 31, 2017.

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. Graham Master permitted accounts managed by Graham using the K4D-15V Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the general partner of Graham Master. Individual and pooled accounts managed by Graham, including the Partnership, were permitted to be limited partners of Graham Master. The General Partner and Graham believed that trading through this structure would promote efficiency and economy in the trading process. The Partnership fully redeemed its investment in Graham Master on December 31, 2017.

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. 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.

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. Boronia I, LLC permitted accounts managed by Boronia using the Boronia Diversified Program, a proprietary, systematic trading system, to invest together in one trading vehicle. The General Partner was also the trading manager of Boronia I, LLC. Individual and pooled accounts managed by Boronia, including the Partnership, were permitted to be members of Boronia I, LLC. The Trading Manager and Boronia believed that trading through this structure would promote efficiency and economy in the trading process. The Trading Manager and Boronia agreed that Boronia would trade the Partnership’s assets allocated to Boronia at a level up to 1.5 times the amount of assets allocated. The Partnership fully redeemed its investment in Boronia I, LLC on December 31, 2017.

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. 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 General Partner was also the general partner of JEM Master. Individual and pooled accounts managed by JE Moody, including the Partnership, were permitted to be limited partners of JEM Master. The General Partner and JE Moody believed that trading through this structure would promote efficiency and economy in the trading process. The General Partner and JE Moody agreed that JE Moody would trade the Partnership’s assets allocated to JE Moody at a level that is up to 3 times the amount of assets allocated. The Partnership fully redeemed its investment in JEM Master on September 30, 2016.

The General Partner is not aware of any material changes to the trading programs discussed above during the year ended December 31, 2017.

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

 

51

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

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 (prior to its termination on December 31, 2017) which were charged at the Boronia Trading Company level. Clearing fees are borne by the Funds and allocated to the Funds’ limited partners/non-managing members, including the Partnership. Clearing fees are also borne by the Partnership directly. Professional fees are borne by the Funds and allocated to the Partnership, and also charged directly at the Partnership level.

Prior to the close of business on December 31, 2017, the Partnership owned approximately 8.1% of Willowbridge Master, 44.9% of Aspect Master, 65.7% of Graham Master, 35.0% of Boronia I, LLC and 65.9% 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 Fund. 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.

 

52

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

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

 

		December 31, 2017
		Total Assets				Total Liabilities				Total Capital
Willowbridge Master		$	336,101,673			$	39,096,772			$	297,004,901
Aspect Master			31,265,102				16,568,191				14,696,911
Graham Master			17,461,265				11,507,153				5,954,112
Boronia I, LLC			20,339,272				20,339,272				-
Cambridge Master			31,063,463				4,384,639				26,678,824
		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 year ended December 31, 2017
		Net Investment     Income (Loss)				Total Trading Results				Net Income (Loss)
Willowbridge Master		$	1,244,821			$	(27,512,190)			$	(26,267,369)
Aspect Master			86,824				237,022				323,846
Graham Master			17,954				1,841,308				1,859,262
Boronia I, LLC			(1,350,616)				(7,153,817)				(8,504,433)
Cambridge Master			141,596				1,967,437				2,109,033
		For the year ended December 31, 2016
		Net Investment Income (Loss)				Total Trading Results				Net Income (Loss)
Willowbridge Master		$	(120,715)			$	10,171,911			$	10,051,196
Aspect Master			(74,707)				(3,094,670)				(3,169,377)
Graham Master			(76,606)				(4,805,243)				(4,881,849)
Boronia I, LLC			(2,870,605)				3,734,634				864,029
Cambridge Master			10,557				(3,918,575)				(3,908,018)

 

53

---

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.

 

		December 31, 2017								For the year ended December 31, 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			0.00	%		$	-			$	(2,262,268	)		$	129,443			$	6,247			$	-			$	-			$	(2,397,958	)			Commodity Portfolio				Monthly
Aspect Master			0.00	%			-				217,908				48,096				27,426				-				-				142,386				Commodity Portfolio				Monthly
Graham Master			0.00	%			-				1,326,851				40,258				43,405				-				-				1,243,188				Commodity Portfolio				Monthly
Boronia I, LLC			0.00	%			-				(2,296,906	)			336,343				36,937				157,165				-				(2,827,351	)			Commodity Portfolio				Monthly
Cambridge Master			21.66	%			19,891,353				668,519				63,273				31,548				-				-				573,698				Commodity Portfolio				Monthly
Total						$	19,891,353			$	(2,345,896	)		$	617,413			$	145,563			$	157,165			$	-			$	(3,266,037	)

 

		December 31, 2016								For the year ended December 31, 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			$	947,051			$	103,822			$	8,116			$	-			$	-			$	835,113				Commodity Portfolio				Monthly
Aspect Master			17.56	%			24,000,563				(1,165,692	)			56,289				36,255				-				-				(1,258,236	)			Commodity Portfolio				Monthly
Graham Master			16.55	%			22,617,006				(3,271,114	)			64,839				52,852				-				-				(3,388,805	)			Commodity Portfolio				Monthly
Altis Master			0.00	%			-				(3,222,037	)			77,805				30,569				-				-				(3,330,411	)			Commodity Portfolio				Monthly
JEM Master			0.00	%			-				57,484				218,771				36,013				-				-				(197,300	)			Commodity Portfolio				Monthly
Boronia I, LLC			11.86	%			16,206,218				2,533,724				535,318				79,171				337,985				220,305				1,360,945				Commodity Portfolio				Monthly
Cambridge Master			18.45	%			25,216,303				(1,924,793	)			43,093				30,087				-				-				(1,997,973	)			Commodity     Portfolio				Monthly
Total						$	126,238,109			$	(6,045,377	)		$	1,099,937			$	273,063			$	337,985			$	220,305			$	(7,976,667	)

 

7.	Subscriptions, Distributions and Redemptions:

Subscriptions are accepted monthly from investors who become limited partners on the first day of the month after their subscriptions are processed. Distributions are made on a pro-rata basis at the sole discretion of the General Partner. No distributions have been made to date. The General Partner does not intend to make any distributions of the Partnership’s profits. A limited partner may require the Partnership to redeem its Redeemable Units at their net asset value as of the end of each month on three business days’ notice to the General Partner. There is no fee charged to limited partners in connection with redemptions.

 

54

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

8.	Financial Highlights:

Financial highlights for the limited partner class as a whole for the years ended December 31, 2017, 2016 and 2015 were as follows:

 

		2017				2016				2015
Per Redeemable Unit Performance (for a unit outstanding throughout the year):*
Net realized and unrealized gains (losses)		$	(16.93)			$	(42.05)			$	40.15
Net investment loss			(43.28)				(53.56)				(68.79)
Increase (decrease) for the year			(60.21)				(95.61)				(28.64)
Net asset value per Redeemable Unit, beginning of year			885.84				981.45				1,010.09
Net asset value per Redeemable Unit, end of year		$	825.63			$	885.84			$	981.45
		2017				2016				2015
Ratios to Average Limited Partners’ Capital:
Net investment loss**			(5.1	) %			(5.7	) %			(7.0	) %
Operating expenses			5.8	%			5.7	%			6.1	%
Incentive fees			0.0	%			0.2	%			0.9	%
Total expenses			5.8	%			5.9	%			7.0	%
Total return:
Total return before incentive fees			(6.8	) %			(9.5	) %			(1.9	) %
Incentive fees			(0.0	) %			(0.2	) %			(0.9	) %
Total return after incentive fees			(6.8)	%			(9.7)	%			(2.8)	%

 

*

Net investment loss per Redeemable Unit is calculated by dividing the interest income less total expenses by the average number of Redeemable Units outstanding during the year. 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.

 

**	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 year. Additionally, these ratios are calculated for the limited partner class using the limited partners’ share of income, expenses and average net assets of the Partnership and include the income and expenses allocated from the Funds.

 

55

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

9.	Financial Instrument Risks:

In the normal course of business, the Partnership and the Funds are parties to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options, and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange, a swap execution facility or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward, option and swap contracts. Certain swap contracts may also be traded on a swap execution facility or OTC. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. The General Partner estimates that at any given time approximately 52.7% to 75.0% of the Partnership’s/Funds’ contracts are traded OTC.

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

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

 

56

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

London Metals Exchange Forward Contracts. Metal contracts traded on the 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.

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

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

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

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

 

57

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

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

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

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

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

 

10.	Subsequent Events:

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

As of January 1, 2018, the Partnership began offering three classes of limited partnership interests, Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units. All Redeemable Units issued prior to January 1, 2018, were deemed Class A Redeemable Units. The rights, liabilities, risks, and fees associated with investment in the Class A Redeemable Units were not changed. Class A Redeemable Units are available to taxable U.S. individuals and institutions, U.S. tax exempt individuals and institutions, and non-U.S. investors. Class D Redeemable Units and Class Z Redeemable Units were first issued on January 1, 2018. Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes.” The Class of Redeemable Units that a limited partner receives upon a subscription will generally depend upon the amount invested in the Partnership or the status of the limited partner, although the General Partner may determine to offer any Class of Redeemable Units to investors at its discretion. Class Z Redeemable Units are offered to limited partners who receive advisory services from Morgan Stanley Wealth Management and certain employees of Morgan Stanley and its subsidiaries (and their family members). Class A Redeemable Units, Class D Redeemable Units and Class Z Redeemable Units are identical, except that Class D Redeemable Units are subject to a monthly ongoing selling agent fee equal to 1/12 of 0.75% (a 0.75% annual rate) of the net assets of Class D Redeemable Units as of the end of each month, which differs from the Class A Redeemable Units’ monthly ongoing selling agent fee of 1/12 of 2.00% (a 2.00% annual rate) of the net assets of Class A Redeemable Units as of the end of each month. Class Z Redeemable Units are not subject to a monthly ongoing selling agent fee.

 

58

---

Ceres Tactical Systematic L.P.

(formerly, Tactical Diversified Futures Fund L.P.)

Notes to Financial Statements

 

Effective January 1, 2018, the monthly management fee paid by the Partnership to Cambridge was reduced to 1/12 of 1.0% (1.0% per year) of the adjusted month-end net assets allocated to Cambridge. Also effective on January 1, 2018, the Partnership will pay Cambridge an incentive fee of 15% of New Trading Profits annually rather than quarterly.

Effective January 1, 2018, the Partnership allocated a portion of its capital to SECOR Master Fund L.P., which will be managed and traded by SECOR Capital Advisors, LP pursuant to a variation of the program traded by SECOR Alpha Master Fund L.P.

Effective on or about January 1, 2018, MS&Co. has agreed to pay the Partnership interest on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate.

Effective January 12, 2018, the Partnership allocated a portion of its assets to CMF FORT Contrarian Master Fund LLC, which will be managed and traded by FORT, L.P. (“FORT”) pursuant to its Global Contrarian Program. In addition, effective the same date, a portion of the Partnership’s assets were allocated to FORT to be managed and traded directly through a managed account in the Partnership’s name pursuant to its Global Trend Trading Program. FORT began trading the assets allocated to it on January 19, 2018.

Effective February 1, 2018, the Partnership allocated a portion of its assets to CMF AE Capital Master Fund LLC, which will be managed and traded by AE Capital Pty Limited pursuant to its AE Systematic FX Fund Program.

 

59

---

Selected unaudited quarterly financial data for the Partnership for the years ended December 31, 2017 and 2016 are summarized below:

 

		For the period from   October 1, 2017 to   December 31, 2017				For the period from July 1, 2017 to   September 30, 2017				For the period from   April 1, 2017 to   June 30, 2017				For the period from   January 1, 2017 to   March 31, 2017
Total investment income		$	218,240			$	195,247			$	174,834			$	134,360
Total expenses			(1,435,532)				(1,533,109)				(1,689,305)				(1,836,464)
Total trading results			2,609,270				(2,908,888)				(1,427,129)				(754,900)
Net income (loss)		$	1,391,978			$	(4,246,750)			$	(2,941,600)			$	(2,457,004)
Increase (decrease) in Net Asset Value per Redeemable Unit		$	11.31			$	(33.64)			$	(21.63)			$	(16.25)
		For the period from October 1, 2016 to   December 31, 2016				For the period from July 1, 2016 to   September 30, 2016				For the period from   April 1, 2016 to   June 30, 2016				For the period from   January 1, 2016 to   March 31, 2016
Total investment income		$	89,156			$	92,475			$	78,719			$	96,513
Total expenses			(2,058,670)				(2,446,066)				(2,879,464)				(3,149,762)
Total trading results			(2,142,787)				(6,460,818)				(1,331,881)				2,444,742
Net income (loss)		$	(4,112,301)			$	(8,814,409)			$	(4,132,626)			$	(608,507)
Increase (decrease) in Net Asset Value per Redeemable Unit		$	(24.35)			$	(47.43)			$	(20.14)			$	(3.69)

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. 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 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 Rules13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 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.

The report included in “Item 8. Financial Statements and Supplementary Data.” includes the General Partner’s report on internal control over financial reporting (“Management’s Report”).

There were no changes in the Partnership’s internal control over financial reporting during the fiscal quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

Item 9B. Other Information.

Effective January 1, 2018, the monthly management fee paid by the Partnership to Cambridge was reduced to 1/12 of 1.0% (1.0% per year) of the adjusted month-end net assets allocated to Cambridge. Also effective on January 1, 2018, the Partnership will pay Cambridge an incentive fee of 15% of New Trading Profits annually rather than quarterly.

Effective January 1, 2018, the Partnership allocated a portion of its capital to SECOR Master Fund L.P., which will be managed and traded by SECOR Capital Advisors, LP pursuant to a variation of the program traded by SECOR Alpha Master Fund L.P.

 

60

---

Effective on or about January 1, 2018, MS&Co. has agreed to pay the Partnership interest on 100% of the average daily equity maintained in cash in the Partnership’s (or the Partnership’s allocable portion of a Fund’s) brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate.

Effective January 12, 2018, the Partnership allocated a portion of its assets to CMF FORT Contrarian Master Fund LLC, which will be managed and traded by FORT, L.P. (“FORT”) pursuant to its Global Contrarian Program. In addition, effective the same date, a portion of the Partnership’s assets were allocated to FORT to be managed and traded directly through a managed account in the Partnership’s name pursuant to its Global Trend Trading Program. FORT began trading the assets allocated to it on January 19, 2018.

Effective February 1, 2018, the Partnership allocated a portion of its assets to CMF AE Capital Master Fund LLC, which will be managed and traded by AE Capital Pty Limited pursuant to its AE Systematic FX Fund Program.

 

61

---

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The Partnership has no directors or executive officers and its affairs are managed by its General Partner. Investment decisions are made by the Trading Advisors.

The directors and executive officers of the General Partner are Patrick T. Egan (President and Chairman of the Board of Directors of the General Partner), Steven Ross (Chief Financial Officer and Director), M. Paul Martin (Director), Feta Zabeli (Director), Maureen O’Toole (Director) and Matthew R. Graver (Director). Each director holds office until the earlier of his or her death, resignation or removal. Vacancies on the board of directors may be filled by either (i) the majority vote of the remaining directors or (ii) MSD Holdings, as the sole member of the General Partner. The officers of the General Partner are designated by the General Partner’s board of directors. Each officer will hold office until his or her successor is designated and qualified or until his or her death, resignation or removal.

Directors of the General Partner are responsible for overall corporate governance of the General Partner and meet periodically to consider strategic decisions regarding the General Partner’s activities. Under CFTC rules, each Director of the General Partner is deemed to be a principal of the General Partner and, as a result, is listed as such with the NFA. Patrick T. Egan, Maureen O’Toole, Feta Zabeli and Steven Ross serve on the General Partner’s Investment Committee and are the trading principals responsible for allocation decisions.

Patrick T. Egan, age 49, has been a Director of the General Partner since December 2010. Since December 2010, Mr. Egan has been a principal and registered as an associated person of the General Partner, and is an associate member of NFA. Since October 2014, Mr. Egan has served as President and Chairman of the Board of Directors of the General Partner. Since August 2013, Mr. Egan has been registered as a swap associated person of the General Partner. From September 2013 to May 2014, Mr. Egan served as a Vice President of Morgan Stanley Strategies LLC, (formerly, Morgan Stanley GWM Feeder Strategies LLC), which acts as a general partner to multiple alternative investment entities, and Morgan Stanley AI GP LLC, (formerly, Morgan Stanley HedgePremier GP LLC), which acts as a general partner and administrative agent to numerous hedge fund feeder funds. From September 2013 to May 2014, Mr. Egan was registered as an associated person and listed as a principal of each such entity. Since January 2013, each such entity has been registered as a commodity pool operator with the CFTC. Mr. Egan was responsible for overseeing the implementation of certain CFTC and NFA regulatory requirements applicable to such entities. From June 2009 to December 2014, Mr. Egan was employed by Morgan Stanley Smith Barney LLC, a financial services firm, where his responsibilities included serving as Executive Director and as Co-Chief Investment Officer for Morgan Stanley Managed Futures from June 2009 through June 2011 and as Chief Risk Officer for Morgan Stanley Managed Futures from June 2011 through October 2014. Since October 2014, Mr. Egan has been responsible for management of the day-to-day operations of Morgan Stanley Managed Futures. Since January 2015, Mr. Egan has been employed by the General Partner. From November 2010 to October 2014, Mr. Egan was registered as an associated person of Morgan Stanley Smith Barney LLC. From April 2007 through June 2009, Mr. Egan was employed by MS & Co., a financial services firm, where his responsibilities included serving as Head of Due Diligence and Manager Research for Morgan Stanley’s Managed Futures Department. From April 2007 through June 2009, Mr. Egan was registered as an associated person of MS & Co. From March 1993 through April 2007, Mr. Egan was employed by Morgan Stanley DW Inc., a financial services firm, where his initial responsibilities included serving as an analyst and manager within the Managed Futures Department (with primary responsibilities for product development, due diligence, investment analysis and risk management of the firm’s commodity pools) and later included serving as Head of Due Diligence and Manager Research for Morgan Stanley’s Managed Futures Department. From February 1998 through April 2007, Mr. Egan was registered as an associated person of Morgan Stanley DW Inc. From August 1991 through March 1993, Mr. Egan was employed by Dean Witter Intercapital, the asset management arm of Dean Witter Reynolds, Inc., where his responsibilities included serving as a mutual fund administration associate. Mr. Egan also served as a Director from November 2004 through October 2006, and from November 2006 through October 2008 of the Managed Funds Association’s Board of Directors, a position he was elected to by industry peers for two consecutive two-year terms. Mr. Egan earned his Bachelor of Business Administration degree with a concentration in Finance in May 1991 from the University of Notre Dame.

Steven Ross, age 46, has been Chief Financial Officer and a principal of the General Partner since July 2014 and a Director of the General Partner since February 2016. Mr. Ross has been employed by Morgan Stanley Investment Management, a financial services firm, since September 2005, where his responsibilities include serving as an Assistant Treasurer of Morgan Stanley with respect to certain investment vehicles publicly offered by Morgan Stanley. Mr. Ross is also an Executive Director of the Morgan Stanley Fund Administration Group where he is responsible for finance and accounting matters for certain private funds offered by Morgan Stanley. Before joining Morgan Stanley Investment Management, Mr. Ross was employed by JPMorgan Investor Services Co., a financial services firm, from December 1997 through September 2005, where his responsibilities included serving as a Vice President responsible for the accounting of certain funds sponsored by JP Morgan Chase & Co. and other large fund families serviced by JPMorgan Investor Services Co. From April 1997 to December 1997, Mr. Ross was employed by Investors Bank & Trust, a financial services firm, where his responsibilities included performing mutual fund accounting for financial services firms. Mr. Ross began his career at Putnam Investments LLC, a financial services firm, where he was responsible for providing broker services for certain funds sponsored by Putnam Investments LLC from August 1996 to April 1997. Mr. Ross received a B.S. in Accounting from Rhode Island College in May 1995.

M. Paul Martin, age 59, has been a Director of the General Partner since October 2014. Mr. Martin has also served as Managing Director – Global Operations of Morgan Stanley Investment Management, a financial services firm, since June 2006, where his responsibilities include managing all elements of in-sourced and out-sourced global operations, and serving as a senior member of Morgan Stanley Investment Management’s Management, Risk Management, & New Products Committees. Mr. Martin has been listed as a principal of the General Partner since October 2014. Mr. Martin previously served as the Managing Director and Chief Operating Officer of Morgan Stanley Fund Services, a financial services firm, where his responsibilities included launching the Hedge Fund Administration business and being responsible for operations, fund accounting and administration, technology and compliance, from May 2004 through May 2006. Previously, Mr. Martin served as Managing Director – Institutional Investment Operations of Morgan Stanley Investment Management from January 1995 until April 2004, where his responsibilities included trading room support, portfolio administration, service provider management, and derivatives processing and control. From April 1994 through January 1995, Mr. Martin served as Senior Vice President and Head of Custody Operations for Fidelity Investments, a financial services firm. From October 1989 through April 1994, Mr. Martin served as Executive Director and Head of Global Operations for Morgan Stanley Trust Company, a financial services firm. Mr. Martin also served as Vice President – Information Technology for MS & Co., a financial services firm, from June 1984 through October 1989, where his responsibilities included acting as Senior Developer and Programming Manager – Prime Brokerage and Securities Clearance Systems, and as Part-time Manager – IT Training Program. From February 1984 through May 1984, Mr. Martin served as a Senior Analyst in the Financial Control Group of Shearson Lehman Brothers, Inc., a financial services firm. From October 1980 through January 1984, Mr. Martin served as a Senior Consultant – Management Information Consulting Division at Arthur Andersen & Co., an accounting firm, where his responsibilities included programming and programming supervisory roles at large governmental agencies. Mr. Martin received a B.S. in Business Administration - Finance from Georgetown University in May 1980 and an M.B.A. in Finance from New York University in June 1993.

 

62

---

Feta Zabeli, age 58, has been a Director of the General Partner since October 2014. Mr. Zabeli has also served as a director on the Board of Directors of Morgan Stanley Investment Management, a financial services firm, since January 2015 and has been listed as a principal since February 2015. Since May 2016, Mr. Zabeli is the Chief Risk Officer for Morgan Stanley Investment Management, responsible for all investment and operational risk management globally. From January 2012 to May 2016, Mr. Zabeli was Global Head of Risk for Morgan Stanley Investment Management’s Traditional Asset Management business where he was responsible for investment risk of all equity, fixed income, money market, multi-asset class and alternatives portfolios. He was also responsible for counterparty and quantitative model risk for the traditional asset management business. He joined Morgan Stanley in January 2012. Mr. Zabeli has been listed as a principal of General Partner since October 2014. Mr. Zabeli was on garden leave in December 2011. From February 2006 to November 2011, Mr. Zabeli was Senior Vice President, and most recently Global Co-Head of Risk, for AllianceBernstein L.P., a global investment firm, with various risk management assignments in Hong Kong, Tokyo, London and New York. From August 2006 to April 2009, Mr. Zabeli was based in Hong Kong for AllianceBernstein as the Director of Risk Management for Asia Pacific. From April 2009 to July 2011, he was based in Tokyo for AllianceBernstein as both Director of Risk Management for Asia Pacific and Head of Risk Management for Japan. From July 2011 to November 2011, he was based in London for AllianceBernstein as Global Head of Operational & Credit/Counterparty Risk. In these roles at AllianceBernstein he was responsible for the full range of risk management functions including investment, operational and credit/counterparty risk. Prior to his Risk Management roles at Morgan Stanley and AllianceBernstein, Mr. Zabeli held positions as a managing director at Citigroup Asset Management, the asset management division of Citigroup, an international financial services company, from April 1998 to January 2006, where he worked as a quantitative research analyst and portfolio manager, and director at BARRA Inc., a global provider of risk analytic tools to investment institutions, from September 1993 to March 1998, where he developed risk models and applications. Mr. Zabeli received a B.S. in Aerospace Engineering from Rensselaer Polytechnic Institute in May 1982, an M.S. in Electrical Engineering from the University of Southern California in May 1988 and an M.B.A. from the University of California at Los Angeles in August 1992.

Maureen O’Toole, age 60, has been a Director, listed as a principal and registered as an associated person of the General Partner since May 2016. She has also been the Head of Managed Futures at Morgan Stanley Investment Management since May 2016 where she is responsible for developing and managing the managed futures business strategy. She joined Morgan Stanley Investment Management in June 2012 as Managing Director in charge of the intermediary alternative investment sales team. In this capacity she was responsible for the management of a team responsible for business development in managed futures, hedge funds and private investments. She has been registered as an associated person of Morgan Stanley Investment Management since June 2012. From April 2010 until June 2012, Ms. O’Toole was a managing director at K2 Advisors, L.L.C., a hedge fund investment advisory firm, where she was responsible for development of the firm’s investment funds. Between March 1993 and April 2010, Ms. O’Toole was employed by a variety of divisions within what became Citigroup Global Markets Inc., a financial services firm. Between August 2009 and April 2010, she worked in product development within Citi Private Bank, where she assisted in sourcing new investment platforms for its alternatives business. Between January 2002 and August 2009, Ms. O’Toole was Managing Director and Head of Sales and Client Service within Citigroup Alternative Investments. In this role she managed the high net worth sales team for Citigroup Alternative Investments through the Global Wealth Management channel, overseeing education and marketing. Prior to that, between November 1996 and January 2002, Ms. O’Toole was Director of Sales and Marketing within the managed futures department of Smith Barney. Prior to being named Director of Sales and Marketing, Ms. O’Toole was involved in the international development of the managed futures business within the managed futures department from March 1993 until November 1996. In this role, Ms. O’Toole oversaw due diligence and portfolio construction for the managed futures department. Ms. O’Toole served as a Director of Citigroup Managed Futures LLC (the predecessor entity to the General Partner) from August 2001 until October 2006, was listed as a principal of such entity from August 1998 until October 2006 and was registered as an associated person of such entity from January 2004 until October 2006. She was also registered as an associated person of Citigroup Global Markets Inc. from April 1993 until June 2010. Prior to Citigroup Global Markets Inc., Ms. O’Toole was employed at Rodman & Renshaw Inc., an investment bank, as head of managed futures manager research and portfolio construction between March 1989 and March 1993 and was registered as an associated person from June 1991 until March 1993. She was registered as an associated person of Rosenthal Collins Futures Management, Inc., a commodity pool operator and wholly owned subsidiary of Rodman & Renshaw, from January 1992 until March 1993. She began her investment career at Drexel Burnham Lambert Inc., an investment bank, in January 1982 where she worked as a research analyst, performing modeling on financial futures hedging and trading strategies until February 1989 and was registered as an associated person from December 1988 until February 1989. Ms. O’Toole obtained her Bachelor of Arts in Speech Pathology and Audiology from California State University Chico, in June 1979, and her Masters in Management from Kellogg Graduate School of Management at Northwestern University, in June 1989.

Matthew R. Graver, age 50, has been a director of the General Partner and listed as a principal since November 2016. Since January 2008, Mr. Graver has served as Managing Director of Morgan Stanley Investment Management, a financial services firm, and Chief Operating Officer for Morgan Stanley AIP Fund of Hedge Funds, a business unit offering managed portfolios of hedge funds. Since November 2015, Mr. Graver has been listed as a principal and director of Morgan Stanley AIP Cayman GP Ltd., a commodity pool operator. From January 2005 to January 2008, Mr. Graver served as Executive Director of Morgan Stanley Investment Management and from August 2003 to January 2005, Mr. Graver served as Vice President of Morgan Stanley Investment Management. From August 2003 to January 2008, Mr. Graver’s primary responsibilities included serving as Head of Operational Due Diligence for Morgan Stanley AIP Fund of Hedge Funds in which role he oversaw due diligence into operational factors of alternative investment entities. From July 1997 to July 2003, Mr. Graver was employed by PricewaterhouseCoopers LLP, an international auditing and professional services firm, where he served as a senior audit manager and was responsible for managing independent audits of financial services firms. From June 1993 to June 1997, Mr. Graver was employed by PNC Bank, a bank offering consumer and corporate services, where he served as a mutual fund accounting manager and was responsible for managing an accounting team that performed daily accounting functions and valuation calculations for a group of mutual funds. From July 1989 through June 1993, Mr. Graver was employed by Coopers & Lybrand LLP, a predecessor accounting firm to PricewaterhouseCoopers LLP, where he was a senior audit associate and was responsible for performing audits of financial services firms. Mr. Graver earned his Bachelor of Science degree in Accounting in May 1989 from Pennsylvania State University and Masters of Business Administration from Villanova University in May 2002.

The Partnership has not adopted a code of ethics that applies to officers because it has no officers. In addition, the Partnership has not adopted any procedures by which investors may recommend nominees to the Partnership’s board of directors and has not established an audit committee because it has no board of directors.

 

63

---

Item 11. Executive Compensation.

The Partnership has no directors or executive officers. As a limited partnership, the business of the Partnership is managed by the General Partner, which is responsible for the administration of the business affairs of the Partnership. The Partnership pays the General Partner a General Partner fee equal to an annual rate of 1.0% (paid monthly) of month-end net assets of the Partnership.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(a) Security ownership of certain beneficial owners. As of February 28, 2018, the Partnership knows of no person who beneficially owns more than 5% of the Redeemable Units outstanding.

(b) Security ownership of management. Under the terms of the Limited Partnership Agreement, the Partnership’s affairs are managed by the General Partner.

The following table indicates securities owned by management as of December 31, 2017:

 

(1) Title of Class		(2) Name of Beneficial Owner		(3) Amount and Nature of Beneficial Ownership		(4) Percent of Class
Redeemable Units		General Partner		1,371.6544		1.23%

 

Principals of the General Partner who own Redeemable Units:*
* Patrick T. Egan			8.3490			Redeemable Units
* No one principal owns more than 1% of the Redeemable Units.

(c) Changes in control. None.

Item 13. Certain Relationships and Related Transactions and Director Independence.

(a) Transactions with related persons. None.

(b) Review, approval or ratification of transactions with related persons. Not applicable.

(c) Promoters and certain control persons. MS&Co., Morgan Stanley Wealth Management and the General Partner could be considered promoters for purposes of Item 404(c) of Regulation S-K. The nature and the amounts of compensation each promoter received or will receive, if any, from the Partnership are set forth under “Item 1. Business,” “Item 8. Financial Statements and Supplementary Data.” and “Item 11. Executive Compensation.”

Item 14. Principal Accountant Fees and Services.

(1) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by Ernst & Young LLP (“EY”) for the year ended December 31, 2017 and Deloitte for the year ended December 31, 2016 for the audit of the Partnership’s annual financial statements, review of financial statements included in the Partnership’s Forms 10-Q and 10-K and other services normally provided in connection with regulatory filings or engagements were:

2017        $165,469

2016        $204,100

(2) Audit-Related Fees. None.

(3) Tax Fees. The Partnership did not pay EY or Deloitte any amounts in 2017 and 2016, respectively, for professional services in connection with tax compliance, tax advice, and tax planning.

(4) All Other Fees. None.

(5) Not Applicable.

(6) Not Applicable.

 

64

---

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(1) Financial Statements:

Statements of Financial Condition at December 31, 2017 and 2016.

Condensed Schedules of Investments at December 31, 2017 and 2016.

Statements of Income and Expenses for the years ended December 31, 2017, 2016 and 2015.

Statements of Changes in Partners’ Capital for the years ended December 31, 2017, 2016 and 2015.

Notes to Financial Statements.

(2) 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).
	(h)			Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 13, 2017 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on September 18, 2017 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).
	3.3			Amended and Restated Limited Partnership Agreement dated November 22, 2017 (filed as Exhibit 3.1 to the Current Report on Form 8-K filed on November 22, 2017 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).

 

65

---

	10.3			Escrow Agreement among the Partnership, the General Partner, UMB Fund Services, Inc. and UMB Bank, N.A. (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 11, 2017 and incorporated herein by reference).
	10.4			Transfer Agency Agreement among the Partnership, the General Partner and UMB Fund Services, Inc. (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on September 11, 2017 and incorporated herein by reference).
	10.5			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, 2017 through June 30, 2018 (filed herewith).
	(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).
	10.6			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)			Letter from the General Partner extending the Management Agreement with Willowbridge from June 30, 2017 through June 30, 2018 (filed herewith).
	(b)			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).
	10.7			Management Agreement among the Partnership, the General Partner and Drury (filed as Exhibit 10.4 to the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed on February 14, 2003).
	(a)			Letter from the General Partner extending the Management Agreement with Drury from June 30, 2013 through June 30, 2014 (filed as Exhibit 10.5 (a) to the Annual Report on Form 10-K filed on March 31, 2014 and incorporated herein by reference).
	10.8			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 the Management Agreement with Aspect from June 30, 2017 through June 30, 2018 (filed herewith).
	10.9			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).
	10.10			Management Agreement among the Partnership, the General Partner and Krom River (filed as Exhibit 10.14 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 Krom River from June 30, 2014 through June 30, 2015 (dated June 1, 2014 and filed as Exhibit 10.10(a) to the Annual Report on Form 10-K filed on March 30, 2015 and incorporated herein by reference).
	(b)			Amendment to the Management Agreement dated October 1, 2013, by and among the Partnership, the General Partner and Krom River (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on October 7, 2013 and incorporated herein by reference).
	10.11			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).
	10.12			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).
	10.13			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).
	10.14			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).
	10.15			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).
	10.16			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).
	(a)			Novation Agreement by and among the Partnership, the General Partner, ISAM, ISAM (USA) LLC, ISAM Europe LLP and ISAM Funds (UK) Limited (filed as Exhibit 10.12 to the Current Report on Form 8-K filed on September 5, 2017 and incorporated herein by reference).

 

66

---

	(b)			Amended and Restated Management Agreement among the Partnership, the General Partner and ISAM (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on November 6, 2017 and incorporated herein by reference).
	11.1			Foreign Exchange and Bullion Authorization Agreement between Aspect Master and JPMorgan (filed as Exhibit 11.1 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.2			International Swap Dealers Association, Inc. Master Agreement between Aspect Master and JPMorgan (filed as Exhibit 11.2 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.3			Schedule to International Swap Dealers Association, Inc. Master Agreement between Aspect Master and JPMorgan (filed as Exhibit 11.3 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	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 as Exhibit 11.4 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.5			Institutional Account Agreement between Aspect Master and JPMorgan (filed as Exhibit 11.5 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.6			Foreign Exchange and Bullion Authorization Agreement among Cambridge, Cambridge Master and JPMorgan (filed as Exhibit 11.6 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.7			International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.7 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.8			Schedule to International Swap Dealers Association, Inc. Master Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.8 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	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 as Exhibit 11.9 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.10			Institutional Account Agreement between Cambridge Master and JPMorgan (filed as Exhibit 11.10 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.11			Foreign Exchange and Bullion Authorization Agreement between Graham Master and JPMorgan (filed as Exhibit 11.11 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.12			International Swap Dealers Association, Inc. Master Agreement between Graham Master and JPMorgan (filed as Exhibit 11.12 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.13			Schedule to International Swap Dealers Association, Inc. Master Agreement between Graham Master and JPMorgan (filed as Exhibit 11.13 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	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 as Exhibit 11.14 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.15			Institutional Account Agreement between Graham Master and JPMorgan (filed as Exhibit 11.15 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.16			Foreign Exchange and Bullion Authorization Agreement among Willowbridge, Willowbridge Master and JPMorgan (filed as Exhibit 11.16 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.17			International Swap Dealers Association, Inc. Master Agreement between Willowbridge Master and JPMorgan (filed as Exhibit 11.17 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.18			Schedule to International Swap Dealers Association, Inc. Master Agreement between Willowbridge Master and JPMorgan (filed as Exhibit 11.18 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	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 as Exhibit 11.19 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).
	11.20			Institutional Account Agreement between Willowbridge Master and JPMorgan (filed as Exhibit 11.20 to the Quarterly Report on Form 10-Q filed on August 10, 2017 and incorporated herein by reference).

 

67

---

	99.1			Financial Statements of CMF Aspect Master Fund L.P.
	99.2			Financial Statements of CMF Willowbridge Master Fund L.P.
	99.3			Financial Statements of CMF Graham Capital Master Fund L.P.
	99.4			Financial Statements of CMF Boronia I, LLC
	99.5			Financial Statements of Cambridge Master Fund L.P.

The exhibits required to be filed by Item 601 of regulation S-K are incorporated herein by reference:

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.

 

68

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CERES TACTICAL SYSTEMATIC L.P. (FORMERLY, 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: March 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

/s/ Patrick T. Egan		/s/ Feta Zabeli		/s/ Maureen O’Toole
Patrick T. Egan		Feta Zabeli		Maureen O’Toole
President and Director		Director		Director
Ceres Managed Futures LLC		Ceres Managed Futures LLC		Ceres Managed Futures LLC
Date: March 28, 2018		Date: March 28, 2018		Date: March 28, 2018
/s/ Steven Ross		/s/ M. Paul Martin		/s/ Matthew R. Graver
Steven Ross		M. Paul Martin		Matthew R. Graver
Chief Financial Officer and Director		Director		Director
(Principal Accounting Officer)		Ceres Managed Futures LLC		Ceres Managed Futures LLC
Ceres Managed Futures LLC		Date: March 28, 2018		Date: March 28, 2018
Date: March 28, 2018

Supplemental Information to be Furnished With Reports Filed Pursuant To Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.

Annual Report to Limited Partners

No proxy material has been sent to limited partners.

 

69