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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2004
----------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
COMMISSION FILE NO. 000-23529
---------
I.R.S. Employer Identification No. 22-678474
THE WILLOWBRIDGE FUND L.P.
(a Delaware Partnership)
4 Benedek Road,
Princeton, New Jersey 08540
Telephone 609-921-0717
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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
--- ----
THE WILLOWBRIDGE FUND L.P.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements ...............................................3
Interim Condensed Statements of Financial Condition as
of September 30, 2004 (Unaudited) and December 31, 2003.............3
Unaudited Interim Condensed Statements of (Loss) Income for
the Three Months Ended September 30, 2004 and 2003 and for
the Nine Months Ended September 30, 2004 and 2003...................4
Unaudited Interim Condensed Statement of Changes in Partners'
Capital for the Nine Months Ended September 30, 2004................5
Notes to Unaudited Interim Condensed Financial Statements...........6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........14
Item 4. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters.............................15
Item 5. Controls and Procedures............................................16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................16
Item 2. Changes in Securities and Use of Proceeds..........................16
Item 3. Defaults Upon Senior Securities....................................16
Item 4. Submission of Matters to a Vote of Security Holders................16
Item 5. Other Information..................................................16
Item 6. Exhibits and Reports on Form 8-K...................................16
2
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
THE WILLOWBRIDGE FUND L.P.
INTERIM CONDENSED STATEMENTS OF FINANCIAL CONDITION AS
OF SEPTEMBER 30, 2004 (UNAUDITED) AND DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------
September 30, December 31,
2004 2003
ASSETS:
CASH IN BANK $ 3,530,686 $ 1,491,478
EQUITY IN COMMODITY FUTURES TRADING ACCOUNT:
Due from broker 30,087,907 32,839,696
Net unrealized gain on open positions 3,570,989 4,034,794
------------ ------------
33,658,896 36,874,490
ACCOUNTS RECEIVABLE 137,149 132,554
PREPAID EXPENSES 93,862 -
INTEREST RECEIVABLE 6,166 5,491
------------ ------------
TOTAL ASSETS $ 37,426,759 $ 38,504,013
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Prepaid Subscriptions $ 378,883 $ 410,810
Accrued Management Fees 93,914 91,000
Sales Commissions 1,000 -
Accounts Payable 825 14,000
Redemptions Payable - 129,171
Accrued Incentive Fees - 179,406
Other Accrued Expenses 68,929 126,190
TOTAL LIABILITIES ------------ ------------
543,551 950,577
PARTNERS' CAPITAL
Limited partners - Class"A" (5,422.2816 and 35,831,789 36,620,539
4,811.5582 fully redeemable units at
September 30, 2004 and December 31, 2003, respectively)
Limited partner - Class "B" (223.3079 and 0 fully 186,520 -
redeemable units at September 30, 2004 and
December 31, 2003, respectively)
General partner - Class "A" (130.8817 and 122.5730 864,899 932,897
fully redeemable units at September 30, 2004 and
December 31, 2003, respectively)
------------ -----------
TOTAL PARTNERS' CAPITAL: 36,883,208 37,553,436
------------ -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 37,426,759 $ 38,504,013
============ ============
NET ASSET VALUE PER UNIT - Class "A" $ 6,608.25 $ 7,610.95
============ ============
NET ASSET VALUE PER UNIT - Class "B"
Series 1 - (based on Partners' Capital
of $96,908 and 119.9385 shares outstanding) $ 807.98 $ -
============ ============
NET ASSET VALUE PER UNIT - Class "B"
Series 2 - (based on Partners' Capital
of $43,076 and 53.8694 shares outstanding) $ 799.64 $ -
============ ============
NET ASSET VALUE PER UNIT - Class "B"
Series 3 - (based on Partners' Capital
of $46,536 and 49.5000 shares outstanding) $ 940.11 $
============ ============
See Notes to Unaudited Interim Condensed Financial Statements
3
THE WILLOWBRIDGE FUND L.P.
UNAUDITED INTERIM CONDENSED STATEMENTS OF (LOSS) INCOME
- --------------------------------------------------------------------------------------------------------------------
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
INCOME:
Gains (losses) on trading of commodity
futures, forwards and options:
Realized (losses) gains on closed
positions, net $(4,792,529) $(4,110,532) $ (2,545,181) $ 3,196,545
Change in net unrealized gains/losses
on open positions 3,092,683 9,161,277 (463,805) 5,425,502
------------ ----------- ------------- ------------
Total trading (losses) profits (1,699,846) 5,050,745 (3,008,986) 8,622,047
Interest income 117,634 57,853 279,081 212,160
------------ ----------- ------------- ------------
Total (loss) income (1,582,212) 5,108,598 (2,729,905) 8,834,207
EXPENSES: ------------ ----------- ------------- ------------
Brokerage commissions 382,972 320,806 1,194,999 948,408
Incentive fees - 1,136,588 834,528 1,604,275
Management fees 187,797 154,337 576,637 454,130
Administrative expenses 83,918 87,103 243,014 259,941
------------- ----------- ------------- ------------
Total expenses 654,687 1,698,834 2,849,178 3,266,754
------------- ----------- ------------- ------------
NET (LOSS) INCOME: $ (2,236,899) $ 3,409,764 $ (5,579,083) $ 5,567,453
============= =========== ============= ============
See Notes to Unaudited Interim Condensed Financial Statements
4
THE WILLOWBRIDGE FUND L.P.
UNAUDITED INTERIM CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED September 30, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Class "A" Class "B"
--------------------------------------------------------- ----------------------------------------------
Series 1 Series 2
---------------------- --------------------
General partner Limited Partners Total Limited Partners Limited Partners
Units Amount Units Amount Amount Units Amount Units Amount
------------------- ------------------------------------- ---------------------- --------------------
PARTNERS'
CAPITAL,
JANUARY 1, 2004 122.5730 $ 932,897 4,811.5582 $36,620,539 $37,553,436 - $ - - $ -
Subscriptions 8.3087 63,153 758.1897 5,752,805 5,815,958 119.9385 106,684 53.8694 50,000
Redemptions - - (147.4663) (1,113,287) (1,113,287) - - - -
Net income
(loss) - (131,151) - (5,428,268) (5,559,419) - (9,776) - (6,924)
-------- ---------- ----------- ------------ ------------ --------- -------- ------- -------
PARTNERS'
CAPITAL,
SEPTEMBER 30, 2004 130.8817 $ 864,877 5,422.2816 $35,831,789 $36,696,688 119.9385 $96,908 53.8694 $43,076
======== ========== =========== ============ ============ ========= ======== ======= =======
Class "B"
--------------------------------
Series 3 Total
--------------------------------
Limited Partners Total Partners'
Units Amount Amount Capital
-------------------------------- -----------
PARTNERS'
CAPITAL,
JANUARY 1, 2004 - $ - $ - $37,553,436
Subscriptions 49.5000 49,500 206,184 6,022,142
Redemptions - - - (1,113,287)
Net income
(loss) - (2,964) (19,664) (5,579,083)
-------- -------- -------- -----------
PARTNERS'
CAPITAL,
SEPTEMBER 30, 2004 49.5000 $ 46,536 $186,520 $36,883,208
======== ======== ======== ===========
See Notes to Unaudited Interim Condensed Financial Statements
5
THE WILLOWBRIDGE FUND L.P.
NOTES TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
- -------------------------------------------------------------------------------
1. GENERAL
The interm condensed financial statements of The Willowbridge Fund L.P. (the
"Partnership") included herein have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. These condensed
financial statements are unaudited and should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2003. The
Partnership follows the same accounting policies in the preparation of interim
reports as set forth in the annual report. In the opinion of management, the
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the financial position, results
of operation and changes in partners' capital for the interim periods
presented and are not necessarily indicative of a full year's results.
2. ORGANIZATION
The Willowbridge Fund L.P., a Delaware limited partnership, was organized on
January 24, 1986. The Partnership is engaged in the speculative trading of
commodity futures contracts, options on commodities or commodity futures
contracts and forward contracts. The General Partner, Ruvane Investment
Corporation ("General Partner"), is registered as a Commodity Pool Operator
and a Commodity Trading Advisor with the Commodity Futures Trading Commission.
The General Partner is required by the Limited Partnership Agreement, as
amended and restated (the "Agreement") to contribute an amount equal to one
percent of the aggregate capital raised by the Partnership. The Agreement
requires that all subscriptions are subject to a one percent administrative
charge payable to the General Partner.
In accordance with the amendment to Section 5 of the Agreement, effective
January 16, 2003, the Partnership offers separate classes of limited
partnership interests, whereby interests which were already issued by the
Partnership will be designated as Class A interests. As per the offering
memorandum dated February 29, 2004, the Partnership offers Class B limited
partnership interests in private offering pursuant to Regulation D as adopted
under section 4(2) of the Securities Act of 1933, as amended. On
March 1, 2004, the Partnership issued for the first time 24.7500 Class B limited
partnership interests at $1,000 net asset value per unit. The Partnership will
offer the Class B interests up to an aggregate of $100,000,000.
The Partnership shall end upon withdrawal, insolvency or dissolution of the
General Partner or a decline of greater than fifty percent of the net assets
of the Partnership as defined in the Agreement, or the occurrence of any event
which shall make it unlawful for the existence of the Partnership to be
continued.
3. SIGNIFICANT ACCOUNTING POLICIES
Due from Broker - Due from broker represents cash required to meet margin
requirements and excess funds not required for margin that are typically
invested in 30-day commercial paper and U.S. Treasury bills which are carried
at cost plus accrued interest, which approximates market. The Partnership is
subject to credit risk to the extent any broker with whom the Partnership
conducts business is unable to deliver cash balances or securities, or clear
securities transactions on the Partnership's behalf. The General Partner
monitors the financial conditions of the brokers with which the Partnership
conducts business and believes that the likelihood of loss under the
aforementioned circumstances is remote.
6
Prepaid expenses - Prepaid expenses were comprised of the management fees paid
to the General Partner. For the year ended December 31, 2003, prepaid expenses
also included the tax filing fees paid to New Jersey division of taxation. The
fiscal year 2004 management fee is paid by the Partnership to the General
Partner in January 2004. This amount is being amortized (straight-line) by the
Partnership over the twelve-month period ending December 31, 2004. As of
September 30, 2004, $281,651 had been amortized by the Partnership.
Revenue Recognition - Investments in swaps, commodity futures, options and
forward contracts are recorded on the trade date and open contracts are
recorded in the financial statements at their fair value on the last business
day of the reporting period. The difference between the original contract
amount and fair value is recorded in statement of income as an unrealized gain
or loss. Fair value is based on quoted market prices. All commodity futures,
options and forward contracts and financial instruments are recorded at fair
value in the financial statements. Fair value is based on quoted market
prices.
Commissions - The Class A partners pay to the General Partner a flat rate of
4.0 percent commission annually of the net asset value of the Class A
partners' capital as of beginning of each month. Class B limited partners pay
to the General Partner commission of up to 6.0 percent annually of the net
asset value of the Class B partners' capital. The General Partner will pay up
to 3.0 percent from this amount to properly registered selling agents as their
compensation.
For the quarter ended September 30, 2004, commissions
charged to each class or series of class were as follows.
Class B
----------------------------------------------------
Class A Series 1 Series 2 Series 3 Total
-------- -------- -------- -------- ---------
$380,982 $696 $662 $612 $380,972
For the nine months ended September 30, 2004, commissions charged to each class
or series of class were as follows.
Class B
----------------------------------------------------
Class A Series 1 Series 2 Series 3 Total
-------- -------- -------- -------- ----------
$1,192,371 $1,084 $932 $612 $1,194,999
For the quarters ended March 31, 2004 and 2003, the General Partner received
net brokerage commission of $233,163 and $211,687, respectively from the
Partnership. For the six months ended June 30, 2004 and 2003, the General
Partner received net brokerage commission of $498,165 and $386,452,
respectively from the Partnership. For the nine months ended September 30,
2004 and 2003, the General Partner received net brokerage commission of
$716,794 and $542,068, respectively from the Partnership. Net brokerage
commission represents commission charged to Class A and Class B partners less
actual brokerage commissions paid to clearing brokers.
Statement of Cash Flows - The Partnership has elected not to provide a
Statement of Cash Flows as permitted by Statement of Financial Accounting
Standards No. 102, "Statement of Cash Flows- Exemption of Certain Enterprises
and Classification of Cash Flows from Certain Securities Acquired for
Resale".
7
Allocation of Profits (Losses) and Fees - Net realized and unrealized trading
gains and losses, interest income and other operating income and expenses
other than commissions charged to each class or series of partnership interst,
are allocated to the partners monthly in proportion to their capital account
balance, as defined in the Agreement.
The General Partner was paid a management fee equal to approximately one
percent of the net assets of the Partnership (as defined in the Agreement) as
of the last day of the previous fiscal year-end. Such annual fees amounted to
$375,513 and $281,177 for the year 2004 and 2003, respectively. In addition,
the Partnership pays Willowbridge Associates Inc. ("Willowbridge"), the
Commodity Trading Advisor ("CTA") of the Partnership, a quarterly management
fee of 0.25% (1% per year) of the net asset value of the Partnership. These
fees amounted to $294,986 for the nine months ended September 30, 2004 and
$334,246 for the year ended December 31, 2003.
Willowbridge is entitled to an incentive fee based on an increase in the
adjusted net asset value of the allocated assets of the Partnership. The CTA
receives 25% of any new profits, as defined in the Agreement. The term "new
profits" is defined as the increase, if any, in the adjusted net asset value
of the allocated assets.
Administrative Expense - Administrative expenses include professional fees,
bookkeeping costs, and other charges such as registration fees, printing
costs and bank fees.
Income Taxes - Income taxes have not been provided in the accompanying
financial statements as each partner is individually liable for taxes, if
any, on his/her share of the Partnership's profits.
Subscriptions - Partnership units may be purchased on the first day of each
month at the net asset value per unit determined on the last business day of
previous month. Partners' contributions received in advance for subscriptions
are recorded as prepaid subscriptions in the statements of financial
condition. The General Partner charges a one percent initial administrative
fee on all limited unit subscriptions. The General Partner waives this charge
for limited partners who are affiliates of the General Partner. Subscription
proceeds to the Partnership are recorded net of these charges. The General
Partner received initial administrative fees of $56,611 and $33,101 for the
nine months ended September 30, 2004 and 2003, respectively.
Redemptions - Limited partners may redeem some or all of their units
at net asset value per unit as of the last business day of each month on at
least ten days written notice to the General Partner.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of income Class) during the reporting period. Estimates include
accrual of expenses such as professional fees. Actual results could differ
from these estimates.
Recently Issued Accounting Pronouncements - In January 2003, the Financial
Accounting Standards Board issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which addresses consolidation by
business enterprises that control another entity through interests other than
voting interest (referred to as variable interest entity or "VIE"). On
December 24, 2003, FASB Interpretation No. 46 (Revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46(R)"), was issued to
clarify the application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements", as amended by FASB Statement No. 94, "Consolidation of
All Majority-Owned Subsidiaries". Neither FIN 46 nor FIN 46(R) exempt
non-registered investment companies from their scope. Nonetheless, the
effective date of FIN 46(R) has been indefinitely deferred for investment
companies (including non-registered investment companies) that are accounting
for their investments in accordance with the AICPA Audit and Accounting Guide,
Audits of Investment Companies. As of September 30, 2004, management does not
believe that the Partnership holds any interest in investments that may be
considered to be VIEs. Further, management does not believe that the ultimate
adoption of FIN 46(R) will have a material impact on the Partnership's
financial statements.
8
4. FINANCIAL HIGHLIGHTS
The following sets forth the financial highlights for the periods presented.
For the Nine months For the year ended
ended September 30, 2004 December 31, 2003
------------------------------------------------------- -------------------
Class A Class B(1) Class B(6) Class B(7) Class A
Series 1 Series 2 Series 3
-------- ---------- --------- ---------- -------
Per Unit Operating Performance
(for a Unit outstanding for the entire period)
Net Asset Value. Beginning of the period $ 7,610.95 $ 1,000.00 $ 928.17 $1,000.00 $ 6,307.40
----------- ----------- ----------- --------- -----------
Gain (loss) from investment operations
Net investment loss (2) (462.90) (30.90) (21.95) (16.37) (817.05)
Net realized and change in net unrealized
gain/loss on investments (539.80) (161.12) (106.58) (43.52) 2,220.59
----------- ----------- ----------- --------- -----------
Total from investment operations (1,002.70) (192.02) (128.53) (58.89) 1,303.54
----------- ----------- ----------- --------- -----------
Net Asset Value. End of the period $ 6,608.25 $ 807.98 $ 799.64 $ 940.11 $ 7,610.95
=========== =========== =========== ========= ===========
Total Return (3) -13.17% -19.20% -13.85% -5.99% 20.67%
=========== =========== =========== ========= ===========
Total Return (excluding incentive fees)(5) -11.20% -19.20% -13.85% -5.99% 26.40%
=========== =========== =========== ========= ===========
Supplemental Data
Ratio of expenses (4) to average net assets -9.76% -5.93% -9.11% -8.00% -12.61%
Ratio of expenses (4) (excluding incentive fees)
to average net assets -6.90% -5.93% -9.11% -8.00% -7.14%
Ratio of net investment loss (2) (4) to
average net assets -8.81% -4.81% -7.91% -6.75% -11.75%
(1) For the Period March 1, 2004 (original issuance of units) to September 30, 2004.
(2) Net investment gain loss is comprised of interest income less total expenses.
(3) Total return is derived as opening net asset value less ending net asset value divided by opening net asset
value, and excludes the effect of sales commissions and initial administrative charges on subscriptions.
(4) Annualized.
(5) Total return (excluding incentive fees) is derived as net income per unit and adding back incentive fees
per unit divided by opening net asset value per unit.
(6) For the Period June 1, 2004 (original issuance of units) to September 30, 2004.
(7) For the Period July 1, 2004 (original issuance of units) to September 30, 2004.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Willowbridge Fund L.P. (the "Partnership") is engaged in the
speculative trading of commodity futures contracts, options on commodities
or commodity futures contracts and forward contracts. The objective of the
Partnership is the appreciation of its assets through speculative trading.
Ruvane Investment Corporation is the General Partner of the Partnership (the
"General Partner") and Willowbridge Associates Inc. is the Partnership's
trading advisor (the "Advisor").
The success of the Partnership is dependent upon the ability of the Advisor
to generate trading profits through the speculative trading of commodity
interests sufficient to produce capital payments after payment of all fees
and expenses. Future results will depend in large part upon the commodity
interests markets in general, the performance of the Advisor, the amount of
additions to and redemptions from the Partnership and changes in interest
rates. Due to the highly leveraged nature of the Partnership's trading
activity, small price movements in commodity interests may result in
substantial gains or losses to the Partnership. As a result of these
factors, the Partnership's past performance is not indicative of future
results and any recent increases in net realized or unrealized gains may
have no bearing on any results that may be obtained in the future.
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP")
requires management to adopt accounting policies and make estimates and
assumptions that affect amounts reported in the Partnership's financial
statements. The critical accounting estimates and related judgements
underlying the Partnership's financial statements are summarized below. In
applying these policies, management makes judgments that frequently require
estimates about matters that are inherently uncertain. The Partnership's
significant accounting policies are described in detail in Note 3 of the
Notes to the Unaudited Interim Condensed Financial Statements.
The Partnership records all investments at fair value in its financial
statements, with changes in fair value reported as a component of Trading
Profits in the Statements of Income. Generally, fair
values are based on quoted market prices; however, in certain
circumstances, significant judgments and estimates are involved in
determining fair value in the absence of an active market closing price.
10
Results of Operations
Comparison of the Three Months Ended September 30, 2004 and 2003
For the quarter ended September 30, 2004, the Partnership recorded trading
loss of $1,699,846, which was comprised of $4,792,529 in realized losses on
closed positions and $3,092,683 in net change in unrealized gains (losses) on
open positions. For the same quarter in 2003, the Partnership recorded trading
gain of $5,050,745, which was comprised of $4,110,532 in realized losses on
closed positions and $9,161,277 in net change in unrealized gains (losses) on
open positions.
In July 2004, trading was most profitable in energy. The Partnership recorded
a trading gain of $332,542. In August 2004, trading was unprofitable in
tropicals, energy and foreign currencies. Gains in financials and metals
failed to offset such losses. The Partnership recorded a trading loss of
$1,164,750. In September 2004, trading was unprofitable in tropicals,
financials and foreign currencies. Gains in energy and metals failed to offset
such losses. The Partnership recorded a trading loss of $867,638.
In July 2003, trading was most profitable in energy. The Partnership recorded
a trading gain of $320,158. In August 2003, trading was most profitable in
energy. The Partnership recorded a trading gain of $1,225,125. In September
2003, trading was profitable in energy, financials and foreign currencies. The
Partnership recorded a trading gain of $3,505,462.
For the quarter ended September 30, 2004, the Partnership had expenses
comprised of $382,972 in brokerage commissions (including clearing and
exchange fees), $187,797 in management fees, $83,918 in administrative
expenses, and $0 in incentive fees. For the same quarter in 2003, the
Partnership had expenses comprised of $320,806 in brokerage commissions
(including clearing and exchange fees), $1,136,588 in incentive fees, $154,337
in management fees and $87,103 in administrative expenses. Incentive fees are
a fraction of quarterly trading profits. Incentive fees decreased during the
quarter ended September 2004 as a result of a net loss in the quarter ended
September 2004 as compared to a net gain in the same quarter in 2003.
Brokerage commissions and management fees vary primarily as a result of
changes in assets under management and quarterly profits. Management fees
increased as a result of increase in average net assets under management
during the quarter ended September 2004 as compared to quarter ended September
2003. Administrative fees consist primary of legal and other expenses relating
to the Partnership's reporting requirements under the Securities Exchange Act
of 1934, as amended. The Partnership became subject to such reporting
requirements in April 1998.
As a result of the above, the Partnership recorded a net loss of $2,236,899
for the three months ended September 30, 2004, compared to a net income of
$3,409,764 for the same period in 2003.
At September 30, 2004, the net asset value of the Partnership was $36,883,208
compared to its net asset value of $37,553,436 at December 31, 2003.
During the quarter, the Partnership had no credit exposure to counterparty
that is foreign commodities exchange or to any counterparty dealing in over
the counter contracts which is material.
11
Comparison of Nine Months Ended September 30, 2004 and 2003
For the nine months ended September 30, 2004, the partnership had total
trading losses of $3,008,986, which was comprised of net trading losses
representing $2,545,181 in realized losses on closed positions, and $(463,805)
in change in net unrealized gains/losses on open positions. For the same
period in 2003 the Partnership had income of $8,622,047, which were comprised
of net trading profits representing $3,196,545 in realized gains on closed
positions and, $5,425,502 in change in net unrealized gains/losses on open
positions income.
In January 2004, trading was most profitable in energy. The Partnership
recorded a trading profit of $744,660. In February 2004, trading was most
profitable in tropicals, energy and financials. The Partnership recorded a
trading profit of $3,817,574. In March 2004, trading was unprofitable in
foreign currencies and energy. Gains in tropicals failed to offset such
losses. The Partnership recorded a trading loss of $655,923. In April 2004,
trading was unprofitable in tropicals, financials, foreign currencies and
metals. Gains in energy failed to offset such losses. The Partnership recorded
a trading loss of $4,344,701. In May 2004, trading was most profitable in
energy. The Partnership recorded trading profits of $2,161,882. In June 2004,
trading was unprofitable in tropicals, energy, financials and foreign
currencies. Gains in metals failed to offset such losses. The Partnership
recorded a trading loss of $3,062,632. In July 2004, trading was most
profitable in energy. The Partnership recorded a trading gain of $332,542. In
August 2004, trading was unprofitable in tropicals, energy and foreign
currencies. Gains in financials and metals failed to offset such losses. The
Partnership recorded a trading loss of $1,164,750. In September 2004, trading
was unprofitable in tropicals, financials and foreign currencies. Gains in
energy and metals failed to offset such losses. The Partnership recorded a
trading loss of $867,638.
In January 2003 trading was most profitable in foreign currencies and energy.
The Partnership recorded a trading profit of $2,715,504. In February 2003,
trading was most profitable in energy and financials. The Partnership recorded
a trading profit of $4,284,238. In March 2003, trading was unprofitable in all
market sectors. Energy, foreign currencies and financials produced most of the
losses. The Partnership recorded a trading loss of $4,764,045. In April 2003,
trading was most profitable in foreign currencies. The Partnership recorded a
trading profit of $1,098,633. In May 2003, trading was most profitable in
financials and foreign currencies. The Partnership recorded a trading profit
of $5,006,352. In June 2003, trading was unprofitable in all market sectors.
Tropicals, financials and foreign currencies produced most of the losses. The
Partnership recorded a trading loss of $4,769,380. In July 2003, trading was
most profitable in energy. The Partnership recorded a trading gain of
$320,158. In August 2003, trading was most profitable in energy. The
Partnership recorded a trading gain of $1,225,125.
In September 2003, trading was profitable in energy, financials and foreign
currencies. The Partnership recorded a trading gain of $3,505,462.
For the Nine months ended September 30, 2004, the Partnership had expenses
comprised of $1,194,999 in brokerage commissions (including clearing and
exchange fees), $834,528 in incentive fees, $576,637 in management fees, and
$243,014 in administrative expenses. For the same quarter in 2003, the
Partnership had expenses comprised of $948,408 in brokerage commissions
(including clearing and exchange fees), $1,604,275 in incentive fees, $454,130
in management fees, and $259,941 in administrative expenses. Incentive fees
are generated by quarterly profits. Brokerage commissions and management fees
vary primarily as a result of change in assets under management, which are
affected by net income, and capital additions and redemptions. Management fees
increased as a result of increase in average net assets under management
during the nine months ended September 30, 2004 as compared to nine months
ended September 30, 2003. Administrative expenses consists primary of
professional fees and other expenses relating to the Partnership's reporting
requirements under Securities Exchange Act of 1934, as amended. Administrative
expenses decreased due to the decrease in accrual of New Jersey division of
taxation from 2003 to 2004.
As a result of the above, the Partnership recorded a net loss of $5,579,083 for
the nine months ended September 30, 2004, as compared to a net income of
$5,567,453 for the same period in 2003.
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Liquidity and Capital Resources
In general, the Advisor trades only those commodity interests that have
sufficient liquidity to enable it to enter and close out positions without
causing major price movements. Notwithstanding the foregoing, most United
States commodity exchanges limit the amount by which certain commodities may
move during a single day by regulations referred to as "daily price
fluctuation limits" or "daily limits." Pursuant to such regulations, no trades
may be executed on any given day at prices beyond daily limits. The price of a
futures contract occasionally has exceeded the daily limit for several
consecutive days, with little or no trading, thereby effectively preventing a
party from liquidating its position. While the occurrence of such an event may
reduce or eliminate the liquidity of a particular market, it will not
eliminate losses and may, in fact, substantially increase losses because of
the inability to liquidate unfavorable positions. In addition, if there is
little or no trading in a particular futures or forward contract that the
Partnership is trading, whether such liquidity is caused by any of the above
reasons or otherwise, the Partnership may be unable to liquidate its position
prior to its expiration date, thereby requiring the Partnership to make or
take delivery of the underlying interests of the commodity investment.
The Partnership's capital resources are dependent upon three factors: (a)
the income or losses generated by the Advisor; (b) the money invested or
redeemed by the limited partners; and (c) the capital invested or redeemed
by the General Partner.
The Partnership sells limited partnership units to investors from time to
time in private placements pursuant to Regulation D of the Securities Act
of 1933, as amended. As of the last day of any month, a limited partner may
redeem all of its limited partnership units on 10 days' prior written
notice to the General Partner.
The General Partner must maintain a capital account in such amount as is
necessary for the General Partner to maintain a one percent (1%) interest
in the capital, income and losses of the Partnership. All capital
contributions by the General Partner necessary to maintain such capital
account balance are evidenced by units of general partnership interest,
each of which has an initial value equal to the net asset value per unit at
the time of such contribution. The General Partner may withdraw any excess
above its required capital contribution without notice to the limited
partners and may also contribute any greater amount to the Partnership.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is a commodity pool engaged in the speculative trading of
commodity futures contracts (including agricultural and non-agricultural
commodities, currencies and financial instruments), options on commodities
or commodity futures contracts, and forward contracts. The risk of market
sensitive instruments is integral to the Partnership's primary business
activities. The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often dependent upon
changes in the level or volatility of interest rates, exchange rates,
and/or market values of financial instruments and commodities. Fluctuations
in related market risk based upon the aforementioned factors result
in frequent changes in the fair value of the Partnership's open positions,
and, consequently, in its earnings and cash flow. The Partnership accounts
for open positions on the basis of mark-to-market accounting principles. As
such, any gain or loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings, whether
realized or unrealized. The Partnership's total market risk is influenced
by a wide variety of factors including the diversification effects among
the Partnership's existing open positions, the volatility present within
the markets and the liquidity of the markets. At varying times, each of
these factors may act to exacerbate or mute the market risk associated with
the Partnership. The following were the primary trading risk exposures of
the Partnership as of September 30, 2004, by market sector:
Interest Rate: Interest rate risk is a significant market exposure of the
Partnership. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate
exposure is to interest rate fluctuations in the United States and the
other G-7 countries. The General Partner anticipates that G-7 interest
rates will remain the primary market exposure of the Partnership for the
foreseeable future.
Currency: The Partnership's currency exposure is to exchange rate
fluctuations, primarily in the following countries: Germany, England,
Japan, France, Switzerland, Australia, Canada and the United States of
America. 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.
Commodity: The Partnership's primary metals market exposure is to
fluctuations in the price of gold, silver and copper. The Partnership also
has commodity exposures in the price of soft commodities, which are often
directly affected by severe or unexpected weather conditions. The General
Partner anticipates that the Advisor will maintain an emphasis in the
commodities described above. Additionally, the Partnership had exposure to
energies (gas, oil) as of September 30, 2004, and it is anticipated that
positions in this sector will continue to be evaluated on an ongoing basis.
The Partnership measures its market risk, related to its holdings of
commodity interests based on changes in interest rates, foreign currency
rates, and commodity prices utilizing a sensitivity analysis. The
sensitivity analysis estimates the potential change in fair values, cash
flows and earnings based on a hypothetical 10% change (increase and
decrease) in interest, currency and commodity prices. The Partnership used
September 30, 2004 market rates and prices on its instruments to perform the
sensitivity analysis. The sensitivity analysis has been prepared separately
for each of the Partnership's market risk exposures (interest rate,
currency rate, and commodity price) instruments. The estimates are based on
the market risk sensitive portfolios described in the preceding paragraph
above. The potential loss in earnings is based on an immediate change in:
The prices of the Partnership's interest rate positions resulting from a
10% change in interest rates.
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The U.S. dollar equivalent balances of the Partnership's currency exposures
due to a 10% shift in currency exchange rates.
The market value of the Partnership's commodity instruments due to a 10%
change in the price of the instruments. The Partnership has determined that
the impact of a 10% change in market rates and prices on its fair values,
cash flows and earnings would not be material. The Partnership has elected
to disclose the potential loss to earnings of its commodity price, interest
rate and currency exchange rate sensitivity positions as of September 30, 2004.
The potential loss in earnings for each market risk exposure as of
September 30, 2004 was approximately:
Trading portfolio:
Commodity price risk $ 1,770,000
Interest rate risk $ 39,000
Currency exchange rate risk $ 913,000
Item 4. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
There currently is no established public trading market for the Limited
Partnership Units. As of September 30, 2004, 5,776.4712 Partnership Units were
held by 477 Limited Partners and the General Partner.
All of the Limited Partnership Units are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), and may not be sold unless registered under
the Securities Act or sold in accordance with an exemption therefrom, such
as Rule 144. The Partnership has no plans to register any of the Limited
Partnership Units for resale. In addition, the Partnership Agreement
contains certain restrictions on the transfer of Limited Partnership Units.
Pursuant to the Partnership Agreement, the General Partner has the sole
discretion to determine whether distributions (other than on redemption of
Limited Partnership Units), if any, will be made to partners. The
Partnership has never paid any distributions and does not anticipate paying
any distributions to partners in the foreseeable future.
From January 1, 2004 through September 30, 2004, a total of 842.3400 Partnership
Units were subscribed for the aggregate net subscription amount of
$4,908,855. Details of the net subscriptions and redemptions of these
Partnership Units are as follows:
Net amount of
Date of subscriptions subscriptions
- --------------------- ------------------------
January 2004 $ 549,327
February 2004 $ 627,126
March 2004 $ 1,018,846
April 2004 $ 777,254
May 2004 $ 102,276
June 2004 $ 329,963
July 2004 $ 397,747
August 2004 $ 570,115
September 2004 $ 536,201
Investors in the Partnership who subscribed through a selling agent may
have been charged a sales commission at a rate negotiated between such
selling agent and the investor, such sales commission in no event exceeded
4% of the subscription amount. All of the sales of Partnership Units were
exempt from registration pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
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Item 5. Controls and Procedures
The President of the General Partner evaluated the effectiveness of the design
and operation of the Partnership's disclosure controls and procedures, which
are designed to insure that the Partnership's records, processes, summarizes
and reports in a timely and effective manner the information required to be
disclosed in the reports filed with or submitted to the Securities and
Exchange Commission. Based upon this evaluation, the General Partner concluded
that, as of September 30, 2004 the Partnership's disclosure controls are
effective. There were no significant changes in the Partnership's internal
controls or in other factors that could significantly affect those controls
during the third quarter of 2004.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The General Partner is not aware of any pending legal proceedings to which
the Partnership or the General Partner is a party or to which any of their
assets are subject
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
31.1 Rule 13a - 14(a)/15d-14(a) Certification
32.1 Section 1350 Certification
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLOWBRIDGE FUND L.P.
Date: November 12, 2004 By: Ruvane Investment Corporation
Its General Partner
By: /s/ Robert L. Lerner
------------------------------
Robert L. Lerner
President
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