Attached files
file | filename |
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EX-32.1 - EX-32.1 - WESTPORT FUTURES FUND L.P. | y04564exv32w1.htm |
EX-31.1 - EX-31.1 - WESTPORT FUTURES FUND L.P. | y04564exv31w1.htm |
EX-31.2 - EX-31.2 - WESTPORT FUTURES FUND L.P. | y04564exv31w2.htm |
EX-10.3.C - EX-10.3.C - WESTPORT FUTURES FUND L.P. | y04564exv10w3wc.htm |
EX-32.2 - EX-32.2 - WESTPORT FUTURES FUND L.P. | y04564exv32w2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2010
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 000-24111
WESTPORT
JWH FUTURES FUND L.P.
New York | 13-3939393 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
c/o
Ceres Managed Futures LLC
522 Fifth Avenue - 14th Floor
New York, New York 10036
522 Fifth Avenue - 14th Floor
New York, New York 10036
(Address and Zip Code of principal executive offices)
(212) 296-1999
(Registrants 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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants 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 or a smaller reporting
company. See the definitions of
large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer _ | Accelerated filer _ | Non-accelerated filer X | Smaller reporting company _ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.)
Yes
No
X
Limited
Partnership Redeemable Units with an aggregate value of $68,452,760 were outstanding and
held by non-affiliates as of the last business day of the registrants most recently completed
second calendar month.
As of
February, 2011, 37,334.6372 Limited Partnership Redeemable Units were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
[None]
PART I
Item 1. Business.
(a) General
development of business. Westport JWH Futures Fund L.P., (the
Partnership) is a limited partnership organized on March 21, 1997 under the partnership laws of
the State of New York to engage, directly or indirectly, in the speculative trading of a
diversified portfolio of commodity interests including futures and
forward contracts. The sectors traded include currencies, energy,
grains, U.S. and non-U.S. interest rates, indices, livestock, metals and softs. The
Partnership commenced trading operations on August 1, 1997. The commodity
interests that are traded by the Partnership directly, and through its investment in JWH Master Fund LLC
(JWH Master) JWH Master are volatile and involve a high degree of market risk.
A Registration Statement on Form S-1 relating to the public offering became effective on May
30, 1997 (commencement of the offering period). Beginning May 30, 1997, 120,000 redeemable units of
limited partnership interest (Redeemable Units) were
publicly offered at $1,000 per Redeemable
Unit for a period of ninety days, subject to increase for up to an additional sixty days at the
sole discretion of the General Partner. Between May 30, 1997 and July 31, 1997, 40,035 Redeemable
Units were sold at $1,000 Redeemable per unit. Proceeds of the offering were held in an escrow
account and were transferred, along with the General Partners contribution of $404,000 to the
Partnerships trading account on August 1, 1997 when the Partnership commenced trading. The public
offering of Redeemable Units terminated on February 1, 1998. The Partnership privately continues to
offer up to 200,000 Redeemable Units to qualified investors. There is no maximum number of units that may be sold by the
Partnership. Subscriptions of additional Redeemable Units and General Partner
contributions and redemptions of Redeemable Units for the years ended
December 31, 2010, 2009 and
2008 are reported in the Statements of Changes in Partners
Capital on page 32 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. The General Partner is wholly owned
by Morgan Stanley Smith Barney Holdings LLC (MSSB
Holdings). Morgan Stanley, indirectly
through various subsidiaries, owns a majority equity interest in MSSB Holdings.
Citigroup Global Markets Inc. (CGM), the commodity
broker and a selling agent for the Partnership, owns a minority
equity interest in MSSB
Holdings. Citigroup Inc. (Citigroup), indirectly
through various subsidiaries, wholly owns CGM. Prior to
July 31, 2009, the date as of which MSSB Holdings became
its owner, the General Partner was wholly owned by Citigroup
Financial Products Inc., a wholly owned subsidiary of Citigroup
Global Markets Holdings Inc., the sole owner of which is
Citigroup.
As of December 31, 2010, all trading decisions for the Partnership
are made by the Advisor (as defined below).
The Partnerships trading
of futures, forward and options contracts, if applicable, on
commodities is done primarily on United States of America and foreign commodity exchanges. It
engages in such trading through a commodity brokerage account maintained with CGM.
The
General Partner and each limited partner of the Partnership (each a Limited Partner) share in the profits and
losses of the Partnership, in proportion to the amount of Partnership
interest owned by each except that no Limited Partner shall be liable
for obligations of the Partnership in excess of their capital
contribution and profit, if any, net of distributions.
The General Partner has agreed to make capital contributions, 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 the Partnership income, gain,
loss deduction or credit and (2) the greater of (i) 1% of the partners contributions
or (ii) $25,000. As of December 31, 2008, the General Partners interest was less than 1% of the
partners contributions. At December 31, 2009, the General
Partner increased its interest to
greater than 1% of the partners contributions.
The Partnership will be liquidated upon the first of the following to occur: December
31, 2017; the net asset value per Redeemable Unit falls below $400 as of the close of any business
day; or under certain circumstances as defined in the Limited Partnership Agreement of the
Partnership (the Limited Partnership Agreement).
On January 2, 2008, 80% of the assets allocated to John W. Henry & Company,
Inc. (JWH or the Advisor) for trading were
invested in JWH Master, a limited partnership organized under the partnership laws of
the State of New York. The Partnership purchased 29,209.3894 units of JWH Master
(each, a Unit of Member Interest) with cash equal to
$39,540,753. JWH Master was formed in order to permit accounts
managed by JWH Master using the Global Analytics Program, a proprietary systematic trading system, to invest together in one trading
vehicle. A description of the trading activities and focus of the Advisor is
included on Page 8, under Item
7. Managements Discussion and Analysis of Financial
Condition and Results of Operations. The General Partner is also the general partner of the JWH Master. Individual and pooled
accounts currently managed by the Advisor, including the Partnership, are permitted to be
non-managing member of JWH Master. The General Partner and the Advisor believe that trading through this
structure promotes efficiency and economy in the trading process.
The
General Partner is not aware of any material changes to the trading
program discussed above during the year ended December 31, 2010.
JWH Masters trading of
futures and forward contracts, if applicable, on
commodities is done primarily on United States of America commodity exchange and foreign commodity
exchanges. The Partnership and JWH Master engage in such trading through a commodity brokerage
account maintained with CGM.
2
A non-managing member may withdraw all or part of their capital contribution
and undistributed profits, if any, from JWH Master in multiples of the net asset value per
Unit of Member Interest as of the end of any day (the Redemption Date)
after a request for redemption has been made to the General Partner at least 3 days
in advance of the Redemption Date. The Units of Member Interest are classified as a
liability when the non-managing member elects to
redeem and informs JWH Master.
Management and incentive fees are charged at the Partnership level. All exchange,
clearing, user, give-up, floor brokerage and National Futures
Association (NFA) fees (collectively, the clearing fees) are
borne by the Partnership, and through its investment in JWH
Master. All other fees including CGMs direct brokerage fees are charged at the Partnership
level.
For the period January 1, 2010 through December 31, 2010, the
approximate average market sector distribution for the Partnership was as follows:
*
Due to rounding
As
of December 31, 2010 and 2009 the Partnership owned approximately 78.7% and 79.8%, respectively, of JWH Master. The
Partnership intends to continue to invest a portion of its assets in
JWH Master. It is JWHs intention to invest the assets allocated by
the Partnership in JWH Master. The performance
of the Partnership is directly affected by the performance of JWH Master. Expenses to investors as
a result of the investment in JWH Master are approximately the same and redemption rights are not
affected.
The General Partner has
entered into a management agreement (the Management Agreement) with
the Advisor which will make all commodity trading decisions for the Partnership. The Advisor is not
affiliated with the General Partner or CGM. The Advisor is not responsible for the organization or
operation of the Partnership.
Pursuant to the terms
of the Management Agreement, the Partnership pays the Advisor a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets allocated to the Advisor
and an incentive fee payable quarterly equal to 20% of the New Trading Profits.
Month-end Net Assets, for the purpose of calculating management fees are Net Assets, as defined in the Limited
Partnership Agreement, prior to the reduction of
the current months incentive fee accrual, the monthly
management fee and any redemptions or distributions as of the end of such month. The Management
Agreement may be terminated upon 30 days written notice by either party.
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.
The Partnership has
entered into a customer agreement (the Customer Agreement) with CGM
which provides that the Partnership will pay CGM a monthly brokerage fee equal to 11/24 of
1% (5.5% per year) of month-end Net Assets, as defined in lieu of
brokerage fees on a per trade basis. Effective February 1, 2011, the
Partnership reduced the monthly brokerage fee paid to CGM to 5.25%
per year of month-end Net Assets.
Month-end Net Assets, for the purpose of calculating brokerage fees are Net Assets, as defined in the
Limited Partnership Agreement, prior to the reduction of
the current months brokerage fee, incentive fee accrual, the
monthly management fee and other expenses and any redemptions or distributions as of the end of such month.
CGM also pays a portion of its brokerage fees to other properly
registered selling agents and to financial advisors who have sold Redeemable
Units. Brokerage fees will be
paid for the life of the Partnership, although the rate at which such fees are paid may be changed.
This fee may be increased or decreased at any time at CGMs
discretion upon written notice to the Partnership. The Partnership directly,
and through its investment in JWH Master pays for clearing fees.
In addition, CGM pays the Partnership interest on 80% of the average daily equity maintained in
cash in the Partnerships (or the Partnerships allocable
portion of JWH Masters) brokerage account during each month 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 in 30 days from
the date on which such weekly rate is determined.
The Customer Agreements between
the Partnership and CGM and JWH Master and CGM gives the Partnership and JWH Master the legal right to net unrealized gains and losses.
The Customer Agreements may be terminated upon notice by either party.
3
(b) Financial information about segments. The Partnerships business consists
of only one segment, speculative trading of commodity interests. The Partnership does not engage in
sales of goods or services. The Partnerships net income (loss) from operations for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 is set forth under Item 6. Selected Financial
Data. The Partnerships capital as of
December 31, 2010 was $64,695,711.
(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
sales 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 Partnerships 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.
The Partnership will pay substantial fees and expenses regardless of profitability.
Regardless of its trading performance, the Partnership will incur fees and expenses, including
brokerage fees and management fees. Fees will be paid to the Advisor even if the Partnership experiences
a net loss for the full year.
An investors ability to
redeem units is limited.
An investors 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/JWH Master commodity broker are affiliates; | ||
2. | The Advisor, the Partnership/JWH Master commodity broker and their principals and affiliates may trade in commodity interests for their own accounts; and | ||
3. | An investors financial advisor will receive ongoing compensation for providing services to the investors account. |
Investing in units might not provide the desired diversification of an investors overall
portfolio.
The Partnership will not provide any benefit of diversification of an investors overall
portfolio unless it is profitable and produces returns that are independent from 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
Advisor has from time to time incurred substantial losses in trading on behalf of clients.
4
An investors tax liability may exceed cash distributions.
Investors are taxed on their share of the Partnerships income, even though the Partnership
does not intend to make any distributions.
Regulatory changes could restrict the Partnerships operations.
Regulatory
changes could adversely affect the Partnership by restricting its markets or
activities, limiting its trading and/or increasing the 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 Commodity Futures Trading
Commission (CFTC) and the Securities and Exchange Commission (the SEC) may
promulgate rules to regulate swaps dealers, require that swaps be traded on an exchange
or swap execution facilities, mandate additional reporting and disclosure requirements
and require that derivatives (such as those traded by the Partnership) be moved into
central clearinghouses. These rules, if promulgated, may negatively impact the manner
in which swap contracts are traded and/or settled and limit trading by speculators (such as
the Partnership) in futures and over-the-counter markets.
Speculative position and trading limits may reduce profitability.
The CFTC and U.S. exchanges have
established speculative position limits on the maximum net long or net short positions which any person may hold or
control in particular futures and options on futures. 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
foregoing potential profits.
Item 2. Properties.
The Partnership does not own or lease any properties. The General Partner operates out of
facilities provided by MSSB Holdings.
Item 3. Legal Proceedings
This section describes the major pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which CGM 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.
CGM is a New York corporation with its principal place of business at 388 Greenwich St., New York,
New York 10013. CGM is registered as a broker-dealer and futures commission merchant (FCM), and
provides futures brokerage and clearing services for institutional and retail participants in the
futures markets. CGM and its affiliates also provide investment banking and other financial
services for clients worldwide.
There have been no material administrative, civil or criminal actions within the past five years
against Citigroup Global Markets or any of its individual
principals and no such actions are currently pending, except as follows.
Credit-Crisis-Related Litigation and Other Matters
Citigroup and CGM continue to
cooperate fully in response to subpoenas and requests for information from the SEC, FINRA, the
Federal Housing Finance Agency, state attorneys general, the Department of Justice and
subdivisions thereof, bank regulators, and other government agencies and authorities,
in connection with various formal and informal inquiries concerning Citigroups
subprime and other mortgage-related conduct and business activities, as well as
other business activities affected by the credit crisis. These business activities
include, but are not limited to, Citigroups sponsorship, packaging, issuance, marketing,
servicing and underwriting of MBS and CDOs and its origination, sale or other transfer,
servicing, and foreclosure of residential mortgages.
Subprime Mortgage-Related Litigation and Other Matters
The SEC, among other regulators, is investigating Citigroups subprime
and other mortgage-related conduct and business activities, as well as other business activities
affected by the credit crisis, including an ongoing inquiry into Citigroups
structuring and sale of CDOs. Citigroup is cooperating fully with the
SECs inquiries.
On July 29, 2010, the SEC announced the settlement
of an investigation into certain of Citigroups 2007 disclosures
concerning its subprime-related business activities. On October 19, 2010, the
United States District Court for the District of Columbia entered a Final Judgment
approving the settlement, pursuant to which Citigroup agreed to pay a $75 million civil
penalty and to maintain certain disclosure policies, practices and procedures for a three-year
period. Additional information relating to this action is publicly available in court filings under
the docket number 10 Civ. 1277 (D.D.C.) (Huvelle, J.).
The Federal Reserve Bank, the OCC and the FDIC, among other federal and state
authorities, are investigating issues related to the conduct of certain mortgage servicing
companies, including Citigroup affiliates, in connection with mortgage foreclosures. Citigroup is
cooperating fully with these inquiries.
Certain of these regulatory matters assert claims for substantial or indeterminate damages.
Some of these matters already have been resolved, either through settlements or court proceedings,
including the complete dismissal of certain complaints or the rejection of certain claims following
hearings.
In the course of its business, CGM, as a major futures commission merchant and broker-dealer,
is a 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 CGM.
Item 4.
[Removed and Reserved]
5
PART II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases 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 of limited partnership interest
as of December 31, 2010 was 916.
(c) Dividends.
The Partnership did not declare a distribution in 2010 or 2009. 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. For the twelve
months ended December 31, 2010, there were additional subscriptions of
3,467.3878 Redeemable Units totaling $5,112,093. For the twelve months ended December 31, 2009, there were
additional subscriptions of 2,699.3293 Redeemable Units totaling
$4,610,000 and General Partner contribution representing 118.9902 unit equivalents totaling
$200,000. For the twelve months ended December 31, 2008, there were additional subscriptions of
6,833.5420 Redeemable Units totaling $8,989,000. The Redeemable
Units were issued in reliance upon applicable exceptions from
registration under section 4(2) of the Securities Act of 1933, as
amended, and section 506 of Regulation D promulgated thereunder. The
Redeemable units were purchased by accredited investors as
described in Regulation D.
Proceeds
from the additional subscriptions of Redeemable Units are used in the trading of commodity
interests including futures 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.
(d) Maximum Number |
||||||||||||||||||||
(or Approximate |
||||||||||||||||||||
(c) Total Number |
Dollar Value) of |
|||||||||||||||||||
of Redeemable Units |
Redeemable Units that |
|||||||||||||||||||
(a) Total Number |
(b) Average |
Purchased as Part |
May Yet Be |
|||||||||||||||||
of Redeemable |
Price Paid per |
of Publicly Announced |
Purchased Under the |
|||||||||||||||||
Period | Units Purchased* | Redeemable Unit** | Plans or Programs | Plans or Programs | ||||||||||||||||
October 1, 2010 October 31, 2010 |
275.0836 | $ | 1,662.87 | N/A | N/A | |||||||||||||||
November 1, 2010 November 30, 2010 |
307.2553 | $ | 1,593.99 | N/A | N/A | |||||||||||||||
December 1, 2010 December 31, 2010 |
103.8631 | $ | 1,741.05 | N/A | N/A | |||||||||||||||
686.2020 | $ | 1,643.86 | ||||||||||||||||||
* | Generally, Limited Partners are permitted to redeem their Redeemable Units as of the last day of each month on three business days notice to the General Partner. Under certain circumstances, the General Partner can compel redemption, although to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnerships business in connection with effecting redemptions for Limited Partners. | |
** | Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day. No fee will be charged for redemptions. |
6
Item 6. Selected Financial Data.
Net realized and
unrealized trading gains (losses), interest income, net income (loss),
increase (decrease) in net asset value per unit and net asset value per unit for the years
ended December 31, 2010, 2009, 2008,
2007 and 2006 and total assets at December 31, 2010, 2009, 2008,
2007 and 2006 were as follows:
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Net realized and
unrealized trading
gains (losses) and investment in JWH Master net
of brokerage fees
(including clearing
fees) of $3,068,973, $3,732,225, $3,718,766, $4,039,869,
and $7,233,501, respectively |
$ | 13,570,968 | $ | (15,515,478 | ) | $ | 45,239,581 | $ | (8,856,409 | ) | $ | (26,458,364 | ) | |||||||
Total interest income |
46,971 | 48,212 | 606,059 | 2,591,466 | 4,756,761 | |||||||||||||||
$ | 13,617,939 | $ | (15,467,266 | ) | $ | 45,845,640 | $ | (6,264,943 | ) | $ | (21,701,603 | ) | ||||||||
Net income (loss) |
$ | 12,132,978 | $ | (17,124,177 | ) | $ | 42,283,338 | $ | (7,961,661 | ) | $ | (24,393,333 | ) | |||||||
Increase (decrease)
in net
asset value per unit |
$ | 331.62 | $ | (413.40 | ) | $ | 866.02 | $ | (78.67 | ) | $ | (226.91 | ) | |||||||
Net asset value per unit |
$ | 1,741.05 | $ | 1,409.43 | $ | 1,822.83 | $ | 956.81 | $ | 1,035.48 | ||||||||||
Total assets |
$ | 65,406,314 | $ | 54,122,746 | $ | 88,634,325 | $ | 49,479,294 | $ | 107,005,810 | ||||||||||
7
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
Overview
The Partnership and through its investment in JWH Master, aims to achieve substantial capital appreciation through speculative trading
in U.S. and international markets for currencies, interest rates, stock indices, agricultural and
energy products and precious and base metals. The Partnership and JWH Master may employ futures and forward contracts in those markets.
The General Partner manages all business of the Partnership and JWH Master. The General Partner has delegated
its responsibility for the investment of the Partnerships assets to JWH. The General Partner
employs a team of approximately 40 professionals whose primary emphasis is on attempting to
maintain quality control among the advisors to the Partnerships and JWH Master operated or managed by the General
Partner. A full-time staff of due diligence professionals use state-of-the-art technology and
on-site evaluations to monitor new and existing futures money managers. The accounting and
operations staff provide processing of trading activity and reporting to limited partners and
regulatory authorities. In selecting the Advisor for the Partnership and JWH Master, the General Partner
considered past performance, trading style, volatility of markets traded and fee requirements.
The General Partner may modify or terminate the allocation of assets to the Advisor at any time.
Responsibilities of the General Partner include:
| due diligence examinations of the Advisor; | ||
| selection, appointment and termination of the Advisor; | ||
| negotiation of the Management Agreement; and | ||
| monitoring the activity of the Advisor. |
In addition, the General Partner prepares the books and records and provides the
administrative and compliance services that are required by law or regulation, from time to time, in
connection with operation of the Partnership. These services include the preparation of required
books and records and reports to limited partners, government agencies and regulators; computation
of net asset value; calculation of fees; effecting subscriptions, redemptions and limited partner
communications; and preparation of offering documents and sales literature.
The General Partner seeks the best prices and services available in its commodity futures
brokerage transactions.
The Advisor specializes in managing institutional and individual capital in the global
futures, interest rate and foreign exchange markets. Since 1981, JWH has developed and implemented
proprietary trend-following trading techniques that focus on long-term trends.
JWH trades its
Diversified Plus Program directly on behalf of the Partnership and its
Global Analytics Program indirectly on behalf of the Partnership, through the Partnerships investment
in the JWH Master. Its objective is capital appreciation with the reduction of the volatility and risk of loss that
typically would be associated with an investment in any one JWH investment program.
8
As
of December 31, 2010, the Partnerships assets were allocated among the JWH programs as
follows:
Percentage | ||||
Allocation in the | ||||
Partnership as of | ||||
December 31, 2010 | ||||
Broadly Diversified Programs |
||||
JWH Global Analytics® |
87 | % | ||
JWH Diversified Plus |
13 | % |
The allocation of assets among the investment programs, as well as the selection of the
programs used, is dynamic. While JWHs individual investment programs are technical, also known as systematic,
trend-following programs, the selection of programs as well as the allocation of assets among the
programs are entirely discretionary.
As a managed futures Partnership, the Partnerships and JWH Masters performance is dependent upon the
successful trading of the Partnerships and JWH Masters Advisor to achieve the Partnerships and JWH Masters objectives. It is the
business of the General Partner to monitor the Advisors
performance to ensure compliance with the
Partnerships and JWH Masters trading policies and to determine if the Advisors performance is meeting the
Partnerships and JWH Masters objectives. The
Partnerships assets are allocated to two JWH investment
programs: Global Analytics and Diversified Plus. The
allocation was 87% and 13%, respectively. The assets allocated to the Global Analytics program are
traded through JWH Master Fund LLC, to invest in one trading vehicle. The
assets allocated to the Diversified Plus Program are traded directly.
During the period March 1, 2000 through December 31, 2007, JWH traded its Strategic Allocation Program on behalf of
the Partnership. From the Partnerships inception through February 29, 2000, JWH employed four of its programs in
trading for the Partnership.
The General Partner believes
that the new allocations will be more reflective of the current trading environment.
For the period January 1, 2010 through December
31, 2010 average
allocation by commodity market sector:
John W. Henry & Company, Inc
Currencies |
20.50 | % | ||
Energy |
13.55 | % | ||
Grains |
8.67 | % | ||
Interest Rates Non-U.S. |
10.56 | % | ||
Interest Rates U.S. |
8.14 | % | ||
Metals |
12.90 | % | ||
Softs |
11.64 | % | ||
Indices |
12.55 | % | ||
Livestock |
1.49 | % |
JWH Master Fund LLC
Currencies |
19.04 | % | ||
Energy |
12.43 | % | ||
Grains |
12.26 | % | ||
Interest Rates Non-U.S. |
12.04 | % | ||
Interest Rates U.S. |
9.98 | % | ||
Metals |
16.52 | % | ||
Softs |
15.36 | % | ||
Indices |
2.37 | % |
(a) Liquidity.
The Partnership does not engage in the sales of
goods or services. Its assets
are its (i) investment in JWH Master, (ii) equity in its trading account,
consisting of cash and cash equivalents, net unrealized appreciation on open futures contracts,
net unrealized appreciation on open forward contracts, and (iii) 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. While substantial losses could
lead to a material decrease in liquidity, no such illiquidity occurred during the year ended December
31, 2010.
To minimize the risk relating to low margin deposits, the Partnership/JWH Master follow certain trading
policies, including:
(i) | The Partnership/JWH Master invests its 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 the Advisor believes will permit it to enter and exit trades without noticeably moving the market. |
9
(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 ⅔% of the Partnerships net assets allocated to that Advisor. | ||
(iii) | The Partnership/JWH Master may occasionally accept 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 is fully hedged. | ||
(iv) | The Partnership/JWH Master does not employ the trading technique commonly known as pyramiding, which the speculator uses unrealized profits on existing positions as margin for the purchases or sale of additional positions in the same or related commodities. | ||
(v) | The Partnership/JWH Master does not utilize borrowings other than short-term borrowings if the Partnership takes delivery of any cash commodities. | ||
(vi) | The Advisor may, from time to time, employ trading strategies such as spreads or straddles on behalf of the Partnership/JWH Master. Spread and straddle describes a commodity futures trading strategies involving the simultaneous buying and selling of futures contracts on the same commodity but involving different delivery dates or markets. | ||
(vii) | The Partnership/JWH Master will not permit the churning of its commodity trading account. 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. |
From January 1, 2010 through December 31, 2010, the Partnerships
average margin to equity ratio (i.e., the percentage of assets on deposit required for margin)
was approximately 9.7%. The foregoing margin to equity ratio takes into account cash held in
the Partnerships name, as well as the allocable value of the
positions and cash held on behalf of the Partnership in the name of
the JWH Master.
In the normal course of business, the Partnership
and JWH Master are, parties to financial
instruments with off-balance sheet risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments include forwards,
futures and options and swaps, whose
values are based upon an underlying asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash balances, to purchase or sell other financial instruments
at specified terms at specified future dates, or, in the case of
derivative commodity instruments, to
have a reasonable possibility to be settled in cash, through physical delivery or with another
financial instrument. These instruments may be traded on an exchange or over-the-counter (OTC).
Exchange-traded instruments are standardized and include futures and certain forwards and option
contracts. OTC contracts are negotiated between contracting parties and include swaps and certain
forwards and option contracts. Each of these instruments is subject to various risks similar to
those relating to the underlying financial instruments including market and credit risk. In
general, the risks associated with OTC contracts are greater than those associated with
exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract.
The risk to the Limited Partners that have purchased interests in the Partnership is
limited to the amount of their capital contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This limited liability is a consequence of the
organization of the Partnership as a limited partnership under applicable law.
Market risk is the potential for changes in the value of the financial instruments traded by
the Partnership and JWH Master 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 JWH Master 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 and JWH Master risk of loss in the event of counterparty default is typically limited to the
amounts recognized in the Statements of Financial Condition and not represented by the
contract or notional amounts of the instruments.
The Partnerships and JWH Masters risk of loss is reduced through the use of
legally enforceable master netting agreements with counterparties that permit the
Partnership and JWH Master to offset unrealized gains and losses and
other assets and liabilities with such counterparties upon the
occurrence of certain events. The Partnership and JWH Master
have credit risk and concentration risk as the sole counterparty or broker with respect to the
Partnership and JWH Masters assets is CGM or a CGM affiliate.
Credit risk with respect to exchange traded
instruments, is reduced to the extent that, through CGM, the
Partnership and JWH Master counterparty is an exchange or clearing organization.
10
The
General Partner monitors and attempts to control the Partnership and JWH Masters 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 and JWH Master 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 and forward 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 the financial
statements.)
Other than the risks inherent in commodity futures and swaps trading, the Partnership knows of
no trends, demands, commitments, events or uncertainties which will result in or which are
reasonably likely to result in the Partnerships liquidity increasing or decreasing in any material
way. The Limited Partnership Agreement provides that the General Partner may, in its discretion,
cause the Partnership to 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 business day.
(b) Capital resources.
(i) The Partnership has made no material commitments for capital expenditures.
(ii) The Partnerships 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, government 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, brokerage fees and advisory 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 payable by CGM is dependent upon
interest rates over which the Partnership has no control.
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, 2010,
there were additional sales of 3,467.3878 Redeemable Units totaling
$5,112,093.
For the year ended December 31, 2009, there were additional sales of 2,699.3293
Redeemable Units totaling $4,610,000 and
General Partners contribution representing
118.9902 unit equivalents totaling $200,000. For the year ended December 31, 2008, there were
additional sales of 6,833.5420 Redeemable
Units totaling $8,989,000.
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 their net asset value as of the last
day of a 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 Partnerships cash holdings. For the year
ended December 31, 2010, 4,130.3512 Redeemable Units were redeemed
totaling $5,860,745 and 109.0964 General Partner unit equivalents totaling $150,000.
For the year
ended December 31, 2009, 10,086.7047 Redeemable Units were redeemed
totaling $16,615,340. For the year ended December 31, 2008, 11,129.5797
Redeemable Units were redeemed totaling $16,239,385.
Redeemable Units
were sold to persons and entities who are accredited investors as that term is defined in rule 501(a)
of Regulation D under the Securities Act of 1933 as amended (the Securities Act), as well as to those persons who
are not accredited investors but who have either a net worth (exclusive of home, furnishings and automobile) either
individually or jointly with the investors spouse of at least three times their investment in the Partnership (the
minimum investment for which was $25,000) or gross income for the two previous years and projected gross income for the
current fiscal year of not less than three times their investment in the Partnership for each year.
11
(c) Results of Operations.
For the year ended December 31, 2010,
the net asset value per unit increased 23.5% from $1,409.43 to $1,741.05. For the year ended December 31, 2009, the net asset
value per unit decreased 22.7% from $1,822.83 to $1,409.43. For the year ended December 31, 2008,
the net asset value per unit increased 90.5%
from $956.81 to $1,822.83.
The Partnership
experienced a net trading gain before brokerage fees and related fees
in the year ended December 31, 2010 of $16,639,941. Gains were primarily attributable to the
trading of commodity futures in currencies, grains, U.S. and
non-U.S. interest rates, softs, livestock, metals and indices and were
partially offset by losses in energy. The net trading gain or loss
realized from the Partnership and JWH Master is disclosed on
page 31 under Item 8 Financial Statements and Supplementary Data.
Most
financial risk assets recovered well in 2010 due to expansionary monetary and fiscal policies
adopted by most central banks. However, this recovery came amidst global unrest due to
geographically localized crises such as the European sovereign debt crisis and inflationary
headwinds in emerging markets. Global weather conditions also played a significant role in
2010 in affecting commodity prices. Many agricultural products remained at record-level
prices as extreme weather conditions such as drought, floods and winter storms affected
production.
The
Partnership was profitable in agricultural markets, currencies, metals, interest rates,
while registering losses in the energy sector and equity indices.
In the
agricultural sector, products such as wheat, corn, sugar, cotton, coffee and soybeans reached
record price levels. In the case of cotton, prices reached 140-year highs. Extreme weather
conditions in some of the biggest exporters of these products significantly disrupted the
global supply. Several exporting countries even imposed an export ban to meet the internal
demand. The Partnership capitalized on the strong trends in such agricultural products and
produced substantial profits in this sector.
In the
currencies, the Partnership registered its most significant gains in the euro, Swiss franc,
and Japanese yen. As the European debt crisis loomed, the euro dropped to some of the lowest
levels against the U.S. dollar. Separately, the Japanese yen reached its highest levels in
14 years compared to U.S. dollar and the Swiss franc provided solid gains in the second
half of year as the dollar weakened leading up to the second round of quantitative easing.
In
metals, the Partnership was profitable in precious metals and copper as they reached record-level
prices. Precious metals such as gold and silver appealed to many investors as both inflation
hedges and flight to quality. Copper reached record prices due to demand from resilient
emerging markets such as China and India.
In the
interest rates sector, the Partnership recorded gains in both U.S. and non-U.S. interest rates.
In the U.S., the Federal Reserve kept interest rates at historically low levels amid consistently
high unemployment at above 9%. Also, as the European debt crisis seemed to engulf several
countries, most notably Greece and Ireland, investors flocked to U.S. and German Bonds as
flight to quality. Thus the yields remained at historically low levels, reaffirming the
trend from earlier in the year.
In equity
indices, the Partnership recorded losses earlier in the year as global equities sharply corrected.
The European debt crisis and Flash crash of equities on May 6th came around the
time that many economists were actively discussing the possibility of double dip recession.
Equity indices recovered from their lowest levels following the announcement of a European
Union bailout of troubled nations within the Union. Also, later in the year, the U.S. Federal
Reserve announced a second round of quantitative easing which increased the appetite for risk
assets.
The
Partnership registered losses in energy sector, primarily from crude oil and its derivatives
as oil remained range bound on concerns over global economic growth. Oil markets remained
very volatile through most of the year and reacted sharply to global events and economic
factors.
The
Partnership experienced a net trading loss before brokerage fees and related fees
for the year ended December 31, 2009 of $11,783,253. Losses were primarily attributable to the
trading of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates and
were partially offset by gains in indices, livestock, metals and softs.
2009 was a volatile year for the financial markets. The U.S. stock market entered 2009 reeling
from the financial turmoil of 2008. The results of the sub-prime fallout, bank bailouts, auto
industry bankruptcies, and capitulating economic data overwhelmed not just stock prices, but fueled
extraordinarily high levels of risk aversion. The markets recovery was driven by stability in the
banking sector and a rapid recovery in global markets. By mid-year 2009, the market had seen a
bottom in March, banks were seeking to return TARP bailout money and leading indicators were
recovering.
In currencies, the Partnership registered losses as the U.S. Dollar reversed the strong trend earlier
in the year and started weakening against the other major currencies. Trading in Japanese yen
contributed to these losses following speculation that the Japanese government may interfere in the markets
to reverse a strong yen. In the energy sector, most of the products did not exhibit any strong
trends and mostly remained range bound after the reversals earlier in the year. This pattern of
sharp reversal followed by non-directional volatility attributed to the losses in this sector.
Losses were also seen in the fixed income sector. With the economic backdrop of 2008, yields started
to exhibit asymmetric volatility due to extreme uncertainty prevailing in the longer time horizon.
Encouraged by the continuing fiscal and monetary efforts of the U.S. government to stabilize the
economy, the markets finally began to recover. In agricultural commodities, losses were realized
primarily in soybean complex, corn and wheat. Prices of corn and wheat both unexpectedly rallied
in October as cold and wet weather threatened to delay harvest.
The
Partnership recorded gains in the metals sector primarily from gold. Investors across the world
chose to buy gold through ETFs and bullion as a hedge against inflation, driven by the massive
monetary influx of the central banks. In softs, modest gains were recorded as the strong gains
in sugar offset the losses in coffee. In stock indices, strong trends emerged in the second
quarter after the lows of March 2009. The Partnership was favorably positioned to capitalize on
these trends and recover the losses from the sharp reversals.
12
Interest income on 80% of the Partnerships average daily equity
allocated to it by the Master was earned 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 in 30 days. Interest income for the
three and twelve months ended December 31, 2010 increased by $11,306 and decreased by $1,241 as
compared to the corresponding periods in 2009. The increase in interest income is primarily due to
higher U.S. Treasury bill rates during the three months ended
December 31, 2010, as compared to the corresponding periods in 2009.
The decrease in interest income is due to lower average net assets during the twelve months ended
December 31, 2010 as compared to the corresponding period in 2009.
Interest earned by the Partnership
will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership
depends on the average daily equity in the Partnerships and JWH Masters accounts and upon interest
rates over which neither the Partnership nor CGM has control.
Brokerage fees are calculated as a percentage of the Partnerships adjusted net asset value
on the last day of each month and are affected by trading performance, subscriptions and redemptions.
Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values.
Brokerage fees and clearing fees for the three months ended December 31, 2010 increased by $63,807 and for
the twelve months ended December 31, 2010 decreased by $663,252, as compared to the corresponding
periods in 2009. The increase in brokerage fees and clearing fees is due to higher average net assets during the three months ended December 31,
2010 and the decrease in brokerage
fees and clearing fees is due to lower average net assets
during for the twelve months ended December 31,
2010 as compared to the corresponding periods in 2009.
Management fees are calculated as a percentage of the Partnerships net asset value as of the end
of each month and are affected by trading performance, subscriptions and redemptions. Management fees
for the three months ended December 31, 2010, increased by $24,265 and for the twelve months ended
December 31, 2010 decreased by $244,061 as compared to the corresponding periods in 2009. The
increase in management fees is due to higher average net assets during the three months
ended December 31, 2010 and the decrease is due to lower average net assets
during for the twelve months ended December 31, 2010, as compared to the corresponding periods in 2009.
Incentive fees are based
on the new trading profits generated by the Advisor at the end of the
quarter,
as defined in the advisory agreements between the Partnership, the General Partner and the Advisor.
There were no incentive fees earned for the three and twelve months ended December 31, 2010 and 2009.
The
Partnership pays professional fees, which generally include legal and accounting expenses.
Professional fees for the years ended December 31, 2010 and 2009 were $366,087 and $254,035,
respectively.
The
Partnership pays other expenses, which generally include filing, reporting and data processing fees.
Other expenses for the years ended December 31, 2010 and 2009 were $36,909 and $76,850,
respectively.
The
Partnership experienced a net trading gain before brokerage fees and related fees in the year ended December 31, 2008 of $48,958,347. Gains were primarily attributable to the
trading of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates, livestock, metals and indices and were partially offset by losses in softs.
In 2008, the liquidity crisis that began in 2007 rapidly spread to all corners of the globe,
significantly reducing global economic growth and presenting economies with difficult challenges. During the year, the worlds credit markets virtually seized up, commodity
prices plunged and most major equity indices declined dramatically, and some of the large
financial institutions were under pressure. Faced with unprecedented and rapid deterioration in
economic data and outlook, and fearing an adverse snowball effect of the credit crunch, global
central banks reacted with aggressive campaigns of interest rate cuts and coordinated capital
injections. As the markets re-priced the cost of risk, several strong trends emerged. The
Partnership strongly capitalized on the trends and was profitable in all the sectors: currencies,
energy, grains, interest rates, metals, agricultural softs and stock indices.
The Partnership
was well positioned to capitalize on the strong trends that emerged in the
currencies and realized gains for the year. The U.S. Dollar was relatively strong compared with
most of the other developed economy currencies. The Euro was put to its first major test since its
inception. UK, Germany and France continued to show weak growth earlier in the year and as the
situations worsened in the later part of the year, these countries officially entered recession.
Japanese Yen remained an exception and showed extraordinary strength as the carry trade reversed.
The Partnership realized most of the profits in the energy sector by capturing both the
bullish and the bearish trends. In the earlier part of the year, crude oil pushed towards a
historic high of $147 per barrel and in the latter part, the trend suddenly reversed and a strong
negative trend emerged with crude oil dropping to about $32 per barrel. Natural gas also
contributed to profits as prices plunged from $14 to about $5 per MMBtu.
In
grains and agricultural softs sector, the Partnership was profitable, as the trading strategy
successfully navigated the trend reversal period and captured the bullish and bearish legs of the
trend across several products. Corn prices continued to show a strong correlation to the energy
prices and, while peaking at 800 cents around mid year, closed the year around 400 cents.
13
The Partnership was
profitable in the interest rates sector, as the yields on the shorter end of the yield
curve dropped to almost atypical levels. Short term U.S. Treasury bills were in such high demand
due to the flight-to-quality that the yields dropped below zero. While
the 10 year Treasury bill yielded on
average between 3.5%-4% most of the year, the yield dropped to 2% in December. Non-U.S. interest
rates also showed tremendous volatility as the rates dropped precipitously due to the actions of
the central banks.
The Partnership registered gains in the metals sector primarily from the industrials. Precious
metals did not demonstrate a very strong directional trend, but the industrial metals reflected the
general economic malaise. Copper, which is usually considered essential for growth, dropped from 4
cents to 1.5 cents per pound.
Global stock indices also contributed to the gains as the indices continued to test multi-year
lows. As banks continued to write off the assets and as bankruptcies loomed, investors lost
confidence in the equity markets. Futures markets offered greater flexibility as the SEC
temporarily banned short selling in the equity markets.
In the General Partners opinion, the Advisor continues to employ its trading methods in a
consistent and disciplined manner and its results are consistent with the objectives of the
Partnership and expectations for the Advisors programs. The General Partner continues to monitor
the Advisors performance on a daily, weekly, monthly and annual
basis to ensure that these objectives
are met.
Commodity markets are highly volatile. Broad price fluctuations and
rapid inflation increase the risks involved in commodity trading, but also increase the possibility
of profit. The profitability of the Funds and the Partnership depends on the Advisors ability to
forecast changes in energy and energy related commodities. Such price changes 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 the Advisors correctly make such
forecasts, the Funds and the Partnership expect to increase capital through operations.
In
allocating substantially all of the assets of the Partnership to the Master, the General Partner
considered the Advisors past performance, trading style, volatility of markets traded and fee requirements.
The General Partner may modify or terminate the allocation of assets to the Advisor and may allocate assets to
additional advisors at any time.
(d) Off-balance
Sheet Arrangements. None
(e) Contractual
Obligations. None
(f) Operational Risk
The Partnership and JWH Master are directly 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 and JWH Master are subject to increased risks with respect to its trading activities in emerging
market securities, where clearance, settlement, and 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 Partnerships and JWH Masters ability to gather, process, and communicate information
efficiently and securely, without interruption, to customers, and in the markets where the Partnership and JWH Master participates.
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 noncompliance 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 managements authorization, and that financial
information utilized by management and communicated to external parties, including the
Partnerships Redeemable Unit holder, creditors, and regulators, is free of material errors.
(g) Critical Accounting Policies.
Partnerships
and JWH Masters Investments. All commodity interests
held by the Partnership and JWH Master
(including derivative financial instruments and
derivative commodity instruments) are held for trading purposes. The commodity interests are
recorded on trade date and open contracts are recorded at fair value (as described below) at the
measurement date. Investments in commodity interests denominated in foreign currencies are
translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or
losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are
included as a component of equity in trading account on the
Statements of Financial Condition. Realized gains or losses and any
change in net unrealized gain or loss
from the preceding period are reported in the Statements of Income and Expenses.
14
Partnerships and JWH Masters Fair Value Measurements.
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date under current market conditions. The
fair value hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to fair
values derived from unobservable inputs (Level 3). The
level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on
the lowest level input that is significant to the fair value
measurement in its entirety. Management has concluded that based
on available information in the marketplace, the Partnerships
Level 1 assets and liabilities are actively traded.
Accounting principles generally accepted in the United States of America (GAAP) also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that, based on available information in the
marketplace, there has not been significant a decrease in the volume and
level of activity in the Partnerships Level 2 assets and
liabilities.
The Partnership will separately present purchases, sales,
issuances, and settlements in their reconciliation of
Level 3 fair value measurements (i.e. to present such items
on a gross basis rather than on a net basis), and make
disclosures regarding the level of disaggregation and the
inputs and valuation techniques used to measure fair value for
measurements that fall within either Level 2 or
Level 3 of the fair value hierarchy as required by GAAP.
The Partnership and JWH Master consider
prices for exchange-traded commodity futures and forward contracts to be
based on unadjusted quoted prices in active markets for identical assets
(Level 1). The values of non-exchange traded forwards contracts for which market quotations
are not readily available are priced by broker-dealers that derive fair values for those assets from observable inputs
(Level 2). Investments in JWH Master (other commodity
pools) where there are no other rights or obligations inherent
within the ownership interest held by the Partnership are priced
based on the end of the day net asset value of JWH Master (Level 2). The
value of the Partnerships investments in JWH Master
reflects its proportional interest in JWH Master. As of and for the years ended
December 31, 2010 and 2009, the Partnership did not hold any
derivative instruments that were priced at fair value using
unobservable inputs through the application of managements
assumptions and internal valuation pricing models (Level 3).
The gross presentation of the fair value of the Partnerships derivatives by
instrument type is shown in Note 4, Trading Activities on the financial statements.
Futures Contracts. The Partnership and JWH Master 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 JWH Master 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 JWH Master. When the contract is closed, the
Partnership and JWH Master 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 directly, through the futures broker, with the exchange on which the contracts are traded.
Realized gains (losses) and changes in net unrealized gains (losses) on futures
contracts are included in the Statements of Income and Expenses.
London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals
Exchange (LME) represent a firm commitment to buy or sell
a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Partnership and JWH Master are
cash settled based on prompt dates published by the LME. Payments (variation margin) may be made
or received by the Partnership and JWH Master 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 JWH Master. A contract is considered offset when all long positions
have been matched with a hike number of short positions setting on the same prompt date. When the contract is closed at the prompt date, the
Partnership and JWH Master 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. Realized gains (losses) and changes in unrealized gains (losses) on metal
contracts are included in the Statements of Income and Expenses.
15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Introduction
The
Partnership and JWH Master are speculative commodity pools. The
market sensitive instruments held by them
are acquired for speculative trading purposes, and all or substantially all of the Partnerships and JWH Masters
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 Partnerships and JWH Masters main line of business.
The risk to the Limited Partners that have purchased interests in the Partnership is limited
to the amount of their capital contributions to the Partnership and their share of Partnership
assets and undistributed profits. This limited liability is a consequence of the organization of
the Partnership as a limited partnership under applicable law.
Market movements result in frequent changes in the fair market value of the Partnerships and JWH Masters open
positions and, consequently, in its earnings and cash flow. The Partnerships and JWH Masters 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 Partnerships and JWH Masters open positions and the liquidity of the markets in
which they trade.
The Partnership and JWH Master rapidly acquires and liquidates 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 Partnerships and JWH Masters past performance is not necessarily
indicative of their future results.
Value at Risk is a measure of the maximum amount which the Partnership and JWH Master could reasonably be
expected to lose in a given market sector. However, the inherent uncertainty of the Partnerships and JWH Masters
speculative trading and the recurrence in the markets traded by the Partnership and JWH Master of market movements
far exceeding expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnerships and JWH Masters 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 Partnerships and JWH Masters losses in any market sector will be limited to
Value at Risk or by the Partnerships and JWH Masters
attempts to manage their market risk.
Materiality as used in this section, Quantitative and Qualitative Disclosures About Market Risk,
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
Partnerships and JWH Master market sensitive instruments.
Quantifying the Partnerships Trading Value at Risk
The following quantitative disclosures regarding the Partnerships 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 (such as the terms of
particular contracts and the number of market risk sensitive instruments held during or at the end
of the reporting period).
The Partnerships and JWH Masters risk exposure in the various market sectors traded by the Advisor is
quantified below in terms of Value at Risk. Due to the Partnerships and JWH Masters mark-to-market accounting, any
loss in the fair value of the Partnerships and JWH Masters open positions is directly reflected in the
Partnerships and JWH Masters earnings (realized or unrealized).
Exchange maintenance margin requirements have been
used by the Partnership and JWH Master as the measure of its Value at Risk. Maintenance 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
16
interval. The maintenance 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. Maintenance margin has been used rather than the more
generally available initial margin, because initial margin includes a credit risk component which
is not relevant to Value at Risk.
In
the case of market sensitive instruments which are not exchange-traded (almost exclusively
currencies in the case of the Partnership and JWH Master), 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 Partnerships and JWH
Masters futures and forward contracts does not have any
optionality component. However, the Advisor may trade commodity options. The Value at Risk
associated with options is reflected in the following table 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 maintenance
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 and JWH Master in almost all cases fluctuate to a
lesser extent than those of the underlying instruments.
In quantifying the Partnerships and JWH Masters Value at Risk, 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 categorys
aggregate Value at Risk. The diversification effects resulting from the fact that the Partnerships
positions are rarely, if ever, 100% positively correlated have not been reflected.
The Partnerships Trading Value at Risk in Different Market Sectors
Value
at Risk tables represent a probabilistic assessment of the risk of
loss in market sensitive instruments. The
first two tables indicate the trading Value at Risk associated with the Partnerships and JWH Masters open
positions by market category as of December 31, 2010 and 2009.
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 Partnerships name traded by JWH) and indirectly by JWH Master separately.
The
following tables indicate the trading Value at Risk associated with
the Partnerships open positions by market category as of
December 31, 2010 and 2009. As
of December 31, 2010, the Partnerships total
capitalization was $64,695,711.
December 31, 2010
% of Total | ||||||||
Market Sector | Value at Risk | Capitalization | ||||||
Currencies |
$ | 963,589 | 1.49 | % | ||||
Energy |
689,135 | 1.07 | % | |||||
Grains |
818,882 | 1.27 | % | |||||
Interest Rates U.S. |
479,109 | 0.74 | % | |||||
Interest Rates Non-U.S. |
775,022 | 1.20 | % | |||||
Livestock |
8,000 | 0.01 | % | |||||
Metals |
1,135,249 | 1.75 | % | |||||
Softs |
1,513,386 | 2.34 | % | |||||
Indices |
321,889 | 0.50 | % | |||||
Total |
$ | 6,704,261 | 10.37 | % | ||||
As
of December 31, 2009, the Partnerships total
capitalization was $53,461,385.
December
31, 2009
% of Total | ||||||||
Market Sector | Value at Risk | Capitalization | ||||||
Currencies |
$ | 545,387 | 1.02 | % | ||||
Energy |
264,393 | 0.49 | % | |||||
Grains |
275,616 | 0.52 | % | |||||
Interest Rates U.S. |
202,981 | 0.38 | % | |||||
Interest Rates Non-U.S. |
557,337 | 1.04 | % | |||||
Livestock |
8,640 | 0.02 | % | |||||
Metals |
110,077 | 0.20 | % | |||||
Softs |
817,153 | 1.53 | % | |||||
Indices |
431,415 | 0.81 | % | |||||
Total |
$ | 3,212,999 | 6.01 | % | ||||
17
The following tables indicate the trading Value at Risk associated with the Partnerships direct
investments and indirect investments in JWH Master by market sector category as of December 31, 2010 and 2009,
the highest, lowest and average values at any point during the year. All open positions trading risk exposures have been
included in calculating the figures set forth below.
As
of December 31, 2010, the Partnerships Value at Risk for the portion of its assets allocated to the Diversified Plus Program that are traded
directly by JWH was as follows:
December 31,
2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 94,820 | 0.15 | % | $ | 167,600 | $ | 58,028 | $ | 107,473 | ||||||||||
Energy |
63,360 | 0.10 | % | 112,000 | 32,400 | 74,898 | ||||||||||||||
Grains |
82,250 | 0.13 | % | 82,250 | 5,500 | 47,330 | ||||||||||||||
Interest Rates U.S. |
18,950 | 0.03 | % | 60,950 | 12,896 | 42,183 | ||||||||||||||
Interest Rates Non -U.S. |
52,442 | 0.08 | % | 103,150 | 19,462 | 77,242 | ||||||||||||||
Livestock |
8,000 | 0.01 | % | 13,600 | 4,900 | 8,917 | ||||||||||||||
Metals |
94,835 | 0.15 | % | 102,231 | 20,007 | 84,204 | ||||||||||||||
Softs |
105,600 | 0.16 | % | 105,600 | 22,800 | 72,203 | ||||||||||||||
Indices |
144,026 | 0.22 | % | 146,234 | 21,287 | 94,506 | ||||||||||||||
Totals |
$ | 664,283 | 1.03 | % | ||||||||||||||||
* | Annual average of month-end Value at Risk. |
As
of December 31, 2009, the Partnerships Value at Risk for the portion of its assets allocated to the
Diversified Plus Program that are traded directly by JWH was as follows:
December
31, 2009
% of Total | High | Low | Average * | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk | |||||||||||||||
Currencies |
$ | 70,000 | 0.13 | % | $ | 198,507 | $ | 49,397 | $ | 132,544 | ||||||||||
Energy |
57,000 | 0.11 | % | 88,570 | 28,105 | 60,483 | ||||||||||||||
Grains |
50,500 | 0.09 | % | 56,565 | 8,438 | 29,940 | ||||||||||||||
Interest Rates U.S. |
30,885 | 0.06 | % | 96,410 | 16,321 | 38,440 | ||||||||||||||
Interest Rates Non-U.S. |
96,295 | 0.18 | % | 128,522 | 20,415 | 77,268 | ||||||||||||||
Livestock |
6,400 | 0.01 | % | 9,720 | 6,024 | 7,424 | ||||||||||||||
Metals |
102,214 | 0.19 | % | 130,500 | 26,993 | 81,969 | ||||||||||||||
Softs |
77,400 | 0.14 | % | 98,180 | 24,450 | 67,002 | ||||||||||||||
Indices |
142,190 | 0.27 | % | 180,995 | 24,893 | 114,625 | ||||||||||||||
Total |
$ | 632,884 | 1.18 | % | ||||||||||||||||
* | Annual average of month-end Value at Risk. |
18
As
of December 31, 2010, JWH Masters Capitalization was $71,991,640. The Partnership owned approximately 78.7% of JWH Master.
The JWH Masters value at Risk for its assets (including the portion
of the Partnerships assets that are traded indirectly) was as
follows:
December 31, 2010
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 1,103,900 | 1.54 | % | $ | 1,502,400 | $ | 46,800 | $ | 911,350 | ||||||||||
Energy |
795,140 | 1.10 | % | 941,200 | 58,100 | 672,278 | ||||||||||||||
Grains |
936,000 | 1.30 | % | 1,042,000 | 21,645 | 530,709 | ||||||||||||||
Interest Rates U.S. |
584,700 | 0.81 | % | 624,600 | 60,068 | 425,373 | ||||||||||||||
Interest Rates Non -U.S. |
918,145 | 1.28 | % | 982,359 | 163,217 | 672,177 | ||||||||||||||
Metals |
1,322,000 | 1.84 | % | 1,322,000 | 39,984 | 736,005 | ||||||||||||||
Softs |
1,788,800 | 2.48 | % | 1,788,800 | 268,000 | 791,066 | ||||||||||||||
Indices |
226,001 | 0.31 | % | 350,360 | 83,364 | 203,797 | ||||||||||||||
Total |
$ | 7,674,686 | 10.66 | % | ||||||||||||||||
* | Annual average of month-end Value at Risk. |
As of December 31, 2009, JWH Masters capitalization was
$56,933,016. The Partnership owned
approximately 79.8% of JWH Master.
The JWH Masters value at Risk for its assets (including the portion
of the Partnerships assets that are traded indirectly) was as
follows:
December 31, 2009
% of Total | High | Low | Average | |||||||||||||||||
Market Sector | Value at Risk | Capitalization | Value at Risk | Value at Risk | Value at Risk* | |||||||||||||||
Currencies |
$ | 456,750 | 0.80 | % | $ | 1,812,915 | $ | 201,490 | $ | 1,192,390 | ||||||||||
Energy |
296,100 | 0.52 | % | 1,744,940 | 180,550 | 788,493 | ||||||||||||||
Grains |
274,500 | 0.48 | % | 1,347,300 | 53,570 | 625,306 | ||||||||||||||
Interest Rates U.S. |
187,200 | 0.33 | % | 1,003,050 | 44,000 | 436,987 | ||||||||||||||
Interest Rates Non -U.S. |
541,128 | 0.95 | % | 1,285,778 | 175,187 | 654,361 | ||||||||||||||
Softs |
903,600 | 1.59 | % | 909,600 | 48,000 | 529,438 | ||||||||||||||
Indices |
317,522 | 0.56 | % | 574,621 | 16,000 | 313,568 | ||||||||||||||
Total |
$ | 2,976,800 | 5.23 | % | ||||||||||||||||
* | Annual average of month-end Value at Risk. |
19
Material Limitations on Value at Risk as an Assessment of Market Risk
The
face value of the market sector instruments held by the Partnership
and JWH Master are typically many
times the applicable maintenance margin requirement (margin requirements generally range between 2%
and 15% of
contract face value) as well as many times the capitalization of the Partnership. The
magnitude of the Partnerships and JWH Masters open positions creates a risk of ruin not typically found in most
other investment vehicles. Because of the size of its positions, certain market conditions
unusual, but historically recurring from time to time could cause the Partnership and JWH Master to incur
severe losses over a short period of time. The foregoing Value at Risk table as well as the past
performance of the Partnership and JWH Master give no indication of this risk of ruin.
Non-Trading Risk
The Partnership and JWH Master has non-trading market risk on its 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, Qualitative and Quantitative Disclosures About Market
Risk, 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 Partnerships market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnerships and JWH Masters market risk exposures
except for (i) those disclosures that are statements of historical fact and (ii) the descriptions
of how the Partnership and JWH Master manages its primary market risk exposures constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. The Partnerships and JWH Masters primary market risk exposures as well as the strategies
used and to be used by the General Partner and the Advisor for managing such exposures are subject
to numerous uncertainties, contingencies and risks, any one of which could cause the actual results
of the Partnerships and JWH Masters 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 and JWH Master. There can be no assurance that the Partnerships and JWH Masters 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.
The following were the primary
trading risk exposures of the Partnership and JWH Master as of December 31, 2010, by market sector.
Interest Rates. Interest rate movements directly affect the price of the futures
positions held by the Partnership and JWH Master 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 impact the Partnerships profitability. The Partnerships and JWH Masters primary
interest rate exposure is to interest rate fluctuations in the United States and the other G-8
countries. However, the Partnership and JWH Master also takes futures positions on the government debt of smaller
nations.
Currencies. The Partnerships and JWH Masters currency exposure is to exchange rate fluctuations,
primarily fluctuations which 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 Partnerships and JWH Masters currency sector will change significantly in the future. The currency
trading Value at Risk figure includes foreign margin amounts converted into U.S. dollars with an
incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Partnership
in expressing Value at Risk in a functional currency other than U.S. dollars.
20
Stock
Indices. The Partnerships and JWH Masters primary equity exposure is to equity price risk in
the G-8 countries. The stock index futures traded by the Partnership and JWH Master are limited to futures on
broadly based indices. As of December 31, 2010, the Partnerships and JWH Masters primary exposures were in the
EUREX, E-Mini NASDAQ and OSE NIKKEI stock indices. The General Partner anticipates little, if any, trading in
non-G-8 stock indices. The Partnership and JWH Master is primarily exposed to the risk of adverse price trends or
static markets in the major U.S., European and Japanese indices. (Static markets would not cause
major market changes, but would make it difficult for the Partnership and JWH Master to avoid being whipsawed
into numerous small losses.)
Metals. The Partnerships and
JWH Masters primary metal market exposure is to fluctuations in the
price of gold, silver and copper. The General Partner anticipates that gold will remain the
primary metals market exposure for the Partnership and JWH Master.
Softs. The Partnerships and JWH Masters primary commodities exposure is to agricultural price
movements which are often directly affected by severe or unexpected weather conditions. Coffee,
cotton and sugar accounted for the bulk of the Partnerships and JWH Masters commodity exposure as of
December 31, 2010.
Energy. The Partnerships and JWH Masters primary energy market exposure is to natural gas and oil
price movements, often resulting from political developments in the Middle East. Oil prices can be
volatile and substantial profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership and JWH Master as of December 31,
2010.
Foreign Currency Balances. The Partnerships and JWH Masters primary foreign currency balances are in
Japanese yen, Euro dollar and Canadian dollar. The Advisor regularly converts foreign currency
balances to U.S. dollars in an attempt to control the Partnerships and JWH Masters non-trading risk.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The
General Partner monitors and attempts to control the Partnerships and JWH Masters 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 and JWH Master may be subject.
The General Partner monitors the Partnerships and JWH Masters performance and the concentration of open
positions, and consults with the Advisor concerning the Partnerships and JWH Masters overall risk profile. If the
General Partner felt it necessary to do so, the General Partner could require the Advisor to close
out positions as well as enter positions traded on behalf of the Partnership and JWH Master.
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 Partnerships and JWH Masters market risk exposures.
The Advisor applies its own risk management policies to its trading. The Advisor often follows
diversification guidelines, margin limits and stop loss points to exit a position. The Advisors
research of risk management often suggests ongoing modifications to its trading programs.
As part of the General Partners risk management, the General Partner periodically meets with
the Advisor to discuss its risk management and to look for any material changes to the Advisors
portfolio balance and trading techniques. The Advisor is required to notify the General Partner of any
material changes to its programs.
21
Item 8. Financial Statements and Supplementary Data
WESTPORT
JWH
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, Reports of Independent Registered Public Accounting Firms, for the years ended December 31, 2010, 2009,
and 2008; Statements of Financial Condition at December 31, 2010
and 2009; Condensed Schedules of Investments at December 31,
2010 and 2009; Statements of Income and Expenses for the years ended December 31, 2010, 2009, and 2008; Statements of
Changes in Partners' Capital for the years ended December 2010, 2009, and 2008; and Notes to Financial Statements.
22
To the Limited
Partners of
Westport JWH Futures Fund L.P.
Westport JWH Futures Fund L.P.
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.
By: | Walter Davis |
President and Director
Ceres Managed Futures LLC
General Partner,
Westport JWH Futures Fund L.P.
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
212-296-1999
23
Managements
Report on Internal Control Over
Financial Reporting
Financial Reporting
The management of Westport JWH 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 Partnerships 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
Partnerships 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 Partnerships 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 Westport JWH Futures Fund L.P. has
assessed the effectiveness of the Partnerships internal
control over financial reporting as of December 31, 2010.
In making this assessment, management used the criteria set
forth in the Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on our assessment, management concluded
that the Partnership maintained effective internal control over
financial reporting as of December 31, 2010 based on the
criteria referred to above.
Walter Davis President and Director Ceres Managed Futures LLC General Partner, Westport JWH Futures Fund L.P. |
Jennifer Magro Chief Financial Officer and Director Ceres Managed Futures LLC General Partner, Westport JWH Futures Fund L.P. |
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Westport JWH Futures Fund L.P.:
Westport JWH Futures Fund L.P.:
We have audited the accompanying statements of financial condition of Westport JWH Futures Fund
L.P. (the Partnership), including the condensed schedules of investments, as of December 31, 2010
and 2009, 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 Partnerships
management. Our responsibility is to express an opinion on these financial statements based on our
audits. The financial statements of the Partnership for the year ended December 31, 2008 were
audited by other auditors whose report, dated March 26, 2009, expressed an unqualified opinion on
those statements.
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
Partnerships 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 2010 and 2009 financial statements present fairly, in all material respects,
the financial position of Westport JWH Futures Fund L.P. as of December 31, 2010 and 2009, and the
results of its operations and its changes in 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 23, 2011
New York, New York
March 23, 2011
25
Report of Independent Registered Public Accounting Firm
To the Partners of
Westport JWH Futures Fund L.P.:
Westport JWH Futures Fund L.P.:
In our opinion, the accompanying statement of income and expenses, and statement of changes in
partners capital present fairly, in all material respects, the financial position of Westport JWH
Futures Fund L.P. (formerly known as Smith Barney Westport Futures Fund L.P.) at December 31, 2008
and the results of its operations for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Partnership
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Partnerships
management is responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions on these financial statements and
on the Partnerships internal control over financial reporting based on our integrated audit. We
conducted our audit 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 and
whether effective internal control over financial reporting was maintained in all material
respects. Our audit of the financial statements included 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, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys 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 generally accepted accounting principles. A
companys 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 company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
26
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.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
27
Westport JWH
Futures Fund L.P.
Statements of Financial Condition
December 31, 2010 and 2009
Statements of Financial Condition
December 31, 2010 and 2009
2010 | 2009 | |||||||
Assets:
|
||||||||
Investment in JWH Master, at fair value (Note 5)
|
$ | 56,636,675 | $ | 45,426,576 | ||||
Equity in trading account:
|
||||||||
Cash (Note 3c)
|
7,604,362 | 7,806,822 | ||||||
Cash margin (Note 3c)
|
735,316 | 657,666 | ||||||
Net unrealized appreciation on open futures contracts
|
329,705 | 133,994 | ||||||
Net unrealized appreciation on open forward contracts
|
99,712 | 97,594 | ||||||
65,405,770 | 54,122,652 | |||||||
Interest receivable (Note 3c)
|
544 | 94 | ||||||
Total assets
|
$ | 65,406,314 | $ | 54,122,746 | ||||
Liabilities and Partners Capital
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Brokerage fees (Note 3c)
|
$ | 299,779 | $ | 248,063 | ||||
Management fees (Note 3b)
|
108,308 | 89,629 | ||||||
Professional fees
|
96,224 | 66,789 | ||||||
Other
|
25,461 | 30,751 | ||||||
Redemptions payable (Note 6)
|
180,831 | 226,129 | ||||||
Total liabilities
|
710,603 | 661,361 | ||||||
Partners Capital: (Notes 1 and 6)
|
||||||||
General Partner, 400.0879 and 509.1843 unit equivalents
outstanding at December 31, 2010 and 2009, respectively
|
696,573 | 717,660 | ||||||
Limited Partners, 36,758.9460 and 37,421.9094 Redeemable Units
outstanding at December 31, 2010 and 2009, respectively
|
63,999,138 | 52,743,725 | ||||||
Total partners capital
|
64,695,711 | 53,461,385 | ||||||
Total liabilities and partners capital
|
$ | 65,406,314 | $ | 54,122,746 | ||||
Net asset value per unit
|
$ | 1,741.05 | $ | 1,409.43 | ||||
See accompanying notes to financial statements.
28
Westport JWH
Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
26 | $ | 121,719 | 0.19 | % | |||||||
Energy
|
14 | 24,947 | 0.04 | |||||||||
Grains
|
40 | 142,491 | 0.22 | |||||||||
Indices
|
39 | (1,191 | ) | (0.00 | )* | |||||||
Livestock
|
8 | 11,920 | 0.02 | |||||||||
Metals
|
6 | 56,575 | 0.09 | |||||||||
Softs
|
27 | 35,342 | 0.05 | |||||||||
Total futures contracts purchased
|
391,803 | 0.61 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
6 | (13,875 | ) | (0.02 | ) | |||||||
Energy
|
10 | (12,500 | ) | (0.02 | ) | |||||||
Interest Rates U.S.
|
13 | (4,644 | ) | (0.01 | ) | |||||||
Interest Rates non U.S.
|
25 | (31,079 | ) | (0.05 | ) | |||||||
Total futures contracts sold
|
(62,098 | ) | (0.10 | ) | ||||||||
Unrealized Appreciation on Open Forward Contracts
|
||||||||||||
Metals
|
11 | 99,712 | 0.15 | |||||||||
Total unrealized appreciation on open forward contracts
|
99,712 | 0.15 | ||||||||||
Investment in JWH Master
|
56,636,675 | 87.54 | ||||||||||
Total fair value
|
$ | 57,066,092 | 88.20 | % | ||||||||
* | Due to rounding |
See accompanying notes to financial statements.
29
Westport JWH
Futures Fund L.P.
Condensed Schedule of Investments
December 31, 2009
Condensed Schedule of Investments
December 31, 2009
Number of |
% of Partners |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Energy
|
15 | $ | (6,418 | ) | (0.01 | )% | ||||||
Grains
|
38 | (6,114 | ) | (0.01 | ) | |||||||
Indices
|
32 | 62,155 | 0.12 | |||||||||
Interest Rates U.S.
|
17 | (11,688 | ) | (0.02 | ) | |||||||
Interest Rates
Non-U.S.
|
37 | (49,016 | ) | (0.09 | ) | |||||||
Metals
|
6 | (19,395 | ) | (0.04 | ) | |||||||
Softs
|
37 | 102,806 | 0.19 | |||||||||
Total futures contracts purchased
|
72,330 | 0.14 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
25 | 42,394 | 0.08 | |||||||||
Interest Rates U.S.
|
18 | 21,750 | 0.04 | |||||||||
Livestock
|
8 | (2,480 | ) | (0.01 | ) | |||||||
Total futures contracts sold
|
61,664 | 0.11 | ||||||||||
Unrealized Appreciation on Open Forward Contracts
|
||||||||||||
Metals
|
14 | 97,594 | 0.18 | |||||||||
Total unrealized appreciation on open forward contracts
|
97,594 | 0.18 | ||||||||||
Investment in JWH Master
|
45,426,576 | 84.97 | ||||||||||
Total fair value
|
$ | 45,658,164 | 85.40 | % | ||||||||
See accompanying notes to financial statements.
30
Westport JWH
Futures Fund L.P.
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income:
|
||||||||||||
Net gains (losses) on trading of commodity interests and
investment in JWH Master:
|
||||||||||||
Net realized gains (losses) on closed contracts
|
$ | 711,747 | $ | (280,978 | ) | $ | 4,500,381 | |||||
Net realized gains (losses) on investment in JWH Master
|
12,789,226 | (9,074,882 | ) | 41,392,480 | ||||||||
Change in net unrealized gains (losses) on open contracts
|
197,829 | 23,301 | 161,728 | |||||||||
Change in net unrealized gains (losses) on investment in JWH
Master
|
2,941,139 | (2,450,694 | ) | 2,903,758 | ||||||||
Gain (loss) from trading, net
|
16,639,941 | (11,783,253 | ) | 48,958,347 | ||||||||
Interest income (Note 3c)
|
6,834 | 7,148 | 108,073 | |||||||||
Interest income from investment in JWH Master
|
40,137 | 41,064 | 497,986 | |||||||||
Total income (loss)
|
16,686,912 | (11,735,041 | ) | 49,564,406 | ||||||||
Expenses:
|
||||||||||||
Brokerage fees including clearing fees (Note 3c)
|
3,068,973 | 3,732,225 | 3,718,766 | |||||||||
Management fees (Note 3b)
|
1,081,965 | 1,326,026 | 1,317,360 | |||||||||
Incentive fees (Note 3b)
|
| | 1,950,387 | |||||||||
Professional fees
|
366,087 | 254,035 | 262,526 | |||||||||
Other
|
36,909 | 76,850 | 32,029 | |||||||||
Total expenses
|
4,553,934 | 5,389,136 | 7,281,068 | |||||||||
Net income (loss)
|
$ | 12,132,978 | $ | (17,124,177 | ) | $ | 42,283,338 | |||||
Net income (loss) per unit (Note 7)
|
$ | 331.62 | $ | (413.40 | ) | $ | 866.02 | |||||
Weighted average units outstanding
|
37,119.3164 | 41,279.0217 | 48,992.1825 | |||||||||
See accompanying notes to financial statements.
31
Westport JWH
Futures Fund L.P.
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Statements of Changes in Partners Capital
for the years ended
December 31, 2010, 2009 and 2008
Limited |
General |
|||||||||||
Partners | Partner | Total | ||||||||||
Partners Capital at December 31, 2007
|
$ | 46,984,607 | $ | 373,342 | $ | 47,357,949 | ||||||
Net income (loss)
|
41,945,422 | 337,916 | 42,283,338 | |||||||||
Subscriptions of 6,833.5420 Redeemable Units
|
8,989,000 | | 8,989,000 | |||||||||
Redemptions of 11,129.5797 Redeemable Units
|
(16,239,385 | ) | | (16,239,385 | ) | |||||||
Partners Capital at December 31, 2008
|
81,679,644 | 711,258 | 82,390,902 | |||||||||
Net income (loss)
|
(16,930,579 | ) | (193,598 | ) | (17,124,177 | ) | ||||||
Subscriptions of 2,699.3293 Redeemable Units and 118.9902
General Partner Unit equivalents
|
4,610,000 | 200,000 | 4,810,000 | |||||||||
Redemptions of 10,086.7047 Redeemable Units
|
(16,615,340 | ) | | (16,615,340 | ) | |||||||
Partners Capital at December 31, 2009
|
52,743,725 | 717,660 | 53,461,385 | |||||||||
Net income (loss)
|
12,004,065 | 128,913 | 12,132,978 | |||||||||
Subscriptions of 3,467.3878 Redeemable Units
|
5,112,093 | | 5,112,093 | |||||||||
Redemptions of 4,130.3512 Redeemable Units and 109.0964 General
Partner Unit equivalents
|
(5,860,745 | ) | (150,000 | ) | (6,010,745 | ) | ||||||
Partners Capital at December 31, 2010
|
$ | 63,999,138 | $ | 696,573 | $ | 64,695,711 | ||||||
Net asset value per unit:
|
2008:
|
$ | 1,822.83 | ||
2009:
|
$ | 1,409.43 | ||
2010:
|
$ | 1,741.05 | ||
See accompanying notes to financial statements
32
Westport JWH
Futures Fund L.P.
Notes to Financial statements
December 31, 2010
Notes to Financial statements
December 31, 2010
1. | Partnership Organization: |
Westport JWH Futures Fund L.P. (the
Partnership) is a limited partnership organized on
March 21, 1997 under the partnership laws of the State of
New York to engage, directly and indirectly, in the speculative
trading of a diversified portfolio of commodity interests,
including futures contracts and forward contracts. The sectors
traded include currencies, energy, grains, U.S. and non-U.S.
interest rates, indices, softs, livestock and metals. The
Partnership commenced trading on August 1, 1997. The
commodity interests that are traded by the Partnership directly,
and through its investment in JWH Master Fund LLC (JWH
Master) are volatile and involve a high degree of market
risk. The Partnership privately and continuously offers up to
200,000 redeemable units of limited partnership interest
(Redeemable Units) to qualified investors. There is
no maximum number of Redeemable Units that may be sold by the
Partnership.
Ceres Managed Futures LLC, a Delaware limited liability company,
acts as the general partner (the General Partner)
and commodity pool operator of the Partnership. The General
Partner is wholly owned by Morgan Stanley Smith Barney Holdings
LLC (MSSB Holdings). Morgan Stanley, indirectly
through various subsidiaries, owns a majority equity interest of
MSSB Holdings. Citigroup Global Markets Inc. (CGM),
the commodity broker and a selling agent for the Partnership,
owns a minority equity interest of MSSB Holdings. Citigroup Inc.
(Citigroup), indirectly, through various
subsidiaries, wholly owns CGM. Prior to July 31, 2009, the
date as of which MSSB Holdings became its owner, the General
Partner was wholly owned by Citigroup Financial Products Inc., a
wholly owned subsidiary of Citigroup Global Markets Holdings
Inc., the sole owner of which is Citigroup. As of
December 31, 2010, all trading decisions for the
Partnership are made by the Advisor (defined below).
The General Partner and each limited partner of the Partnership
(each a Limited Partner) share in the profits and
losses of the Partnership in proportion to the amount of
Partnership interest owned by each except that no Limited
Partner shall be liable for obligations of the Partnership in
excess of their initial capital contribution and profits, if
any, net of distributions.
The Partnership will be liquidated upon the first to occur of
the following: December 31, 2017; the Net Asset Value per
Redeemable Unit decreases to less than $400 per Redeemable Unit
as of a close of any business day; or under certain other
circumstances as defined in the Limited Partnership Agreement of
the Partnership (the Limited Partnership Agreement).
2. | 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 management 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. | |
b. | Statement of Cash Flows. The Partnership is not required to provide a Statement of Cash Flows. | |
c. | Partnerships and JWH Masters Investments. All commodity interests held by the Partnership and JWH Master (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Realized |
33
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses. |
Partnerships and JWH Masters Fair Value
Measurements. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date under current market conditions. The
fair value hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to fair
values derived from unobservable inputs (Level 3). The
level in the fair value hierarchy within which the fair value
measurement in its entirety falls shall be determined based on
the lowest level input that is significant to the fair value
measurement in its entirety. Management has concluded that based
on available information in the marketplace, the
Partnerships and JWH Masters Level 1 assets and
liabilities are actively traded.
GAAP also requires the need to use judgment in determining if a
formerly active market has become inactive and in determining
fair values when the market has become inactive. Management has
concluded that, based on available information in the
marketplace, there has not been a significant decrease in the
volume and level of activity in the Partnerships Level 2 assets
and liabilities.
The Partnership will separately present purchases, sales,
issuances, and settlements in their reconciliation of
Level 3 fair value measurements (i.e. to present such items
on a gross basis rather than on a net basis), and make
disclosures regarding the level of disaggregation and the
inputs and valuation techniques used to measure fair value for
measurements that fall within either Level 2 or
Level 3 of the fair value hierarchy as required by GAAP.
The Partnership and JWH Master consider prices for
exchange-traded commodity futures and forward contracts to be
based on unadjusted quoted prices in active markets for
identical assets (Level 1). The values of non-exchange
traded forward contracts for which market quotations are not
readily available are priced by broker-dealers that derive fair
values for those assets from observable inputs (Level 2).
Investments in JWH Master (commodity pool) where there are
no other rights or obligations inherent within the ownership
interest held by the Partnership are priced based on the end of
the day net asset value of JWH Master (Level 2). The value
of the Partnerships investments in JWH Master
reflects its proportional interest in JWH Master. As of and for
the years ended December 31, 2010 and 2009, the Partnership
and JWH Master did not hold any derivative instruments that were
priced at fair value using unobservable inputs through the
application of managements assumptions and internal
valuation pricing models (Level 3). The gross presentation of
the fair value of the Partnerships derivatives by
instrument type is shown in Note 4, Trading
Activities.
34
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
Quoted Prices in |
||||||||||||||||
Active Markets |
Significant Other |
Significant |
||||||||||||||
for Identical |
Observable Inputs |
Unobservable |
||||||||||||||
12/31/2010 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Forwards
|
$ | 99,712 | $ | 99,712 | $ | | $ | | ||||||||
Futures
|
329,705 | 329,705 | | | ||||||||||||
Investment in JWH Master
|
56,636,675 | | 56,636,675 | | ||||||||||||
Total assets
|
$ | 57,066,092 | $ | 429,417 | $ | 56,636,675 | $ | | ||||||||
Total fair value
|
$ | 57,066,092 | $ | 429,417 | $ | 56,636,675 | $ | | ||||||||
Quoted Prices in |
||||||||||||||||
Active Markets |
Significant Other |
Significant |
||||||||||||||
for Identical |
Observable Inputs |
Unobservable |
||||||||||||||
12/31/2009 | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Forwards
|
$ | 97,594 | $ | 97,594 | $ | | $ | | ||||||||
Futures
|
133,994 | 133,994 | | | ||||||||||||
Investment in JWH Master
|
45,426,576 | | 45,426,576 | | ||||||||||||
Total assets
|
$ | 45,658,164 | $ | 231,588 | $ | 45,426,576 | $ | | ||||||||
Total fair value
|
$ | 45,658,164 | $ | 231,588 | $ | 45,426,576 | $ | | ||||||||
d. | Futures Contracts. The Partnership and JWH Master 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 JWH Master 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 JWH Master. When the contract is closed, the Partnership and JWH Master 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. Realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses. |
e. | London Metals Exchange Forward Contracts. Metal contracts traded on the London Metals Exchange (LME) represent a firm commitment to buy or sell a specified quantity of aluminum, copper, lead, nickel, tin or zinc. LME contracts traded by the Partnership and JWH Master are cash settled based on prompt dates published by the LME. Payments (variation margin) may be made or received by the Partnership and JWH Master 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 JWH Master. 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 JWH Master 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, |
35
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
through the broker, directly with the LME. Realized gains (losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses. |
f. | Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on their share of the Partnerships income and expenses. |
GAAP provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial
statements and requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the
Partnerships financial statements to determine whether the
tax positions are more-likely-than-not to be
sustained by the applicable tax authority. Tax positions with
respect to tax at the Partnership level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The General
Partner has concluded that no provision for income tax is
required in the Partnerships financial statements.
The Partnership files U.S. federal and various state and
local tax returns. No income tax returns are currently under
examination. Generally, the 2007 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
g. | Subsequent Events. Management of the Partnership evaluates events that occur after the balance sheet date but before financial statements are filed. Management has assessed the subsequent events through the date of filings and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements. | |
h. | Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 7, Financial Highlights. |
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, 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 the Partnership income,
gain, loss, deduction or credit and (2) the greater of
(i) 1% of the partners contributions or
(ii) $25,000.
b. | Management Agreement: |
The General Partner, on behalf of the Partnership, has entered
into a management agreement (the Management
Agreement) with John W. Henry & Company, Inc.
(JWH) (the Advisor), a registered
commodity trading advisor. The Advisor is not affiliated with
the General Partner or CGM and is not responsible for the
organization or operation of the Partnership. The Partnership
pays the Advisor a monthly management fee equal to 1/6 of 1% (2%
per year) of month-end Net Assets allocated to the Advisor and
an incentive fee payable quarterly equal to 20% of the New
Trading Profits, as defined in the Management Agreement, earned
by the Advisor 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.
Month-end Net Assets, for the purpose of calculating management
fees are Net Assets, as defined in the Limited Partnership
Agreement, prior to the reduction of the current months
incentive fee accrual, the monthly management fee and any
redemptions or distributions as of the end of such month. The
Management Agreement may be terminated upon notice by either
party.
36
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
In allocating the assets of the Partnership to the Advisor, the
General Partner considers past performance, trading style,
volatility of markets traded and fee requirements. The General
Partner may modify or terminate the allocation of assets to the
Advisor and may allocate the assets to additional advisors at
any time.
c. | Customer Agreement: |
The Partnership has entered into a customer agreement (the
Customer Agreement) with CGM which provides that the
Partnership will pay CGM a monthly brokerage fee equal to
(5.5% per year) of month-end Net Assets, as defined, in
lieu of brokerage fees on a per trade basis. Effective
February 1, 2011 the Partnership reduced the monthly
brokerage fee paid to CGM to 5.25% per year of
month-end Net Assets. Month-end Net Assets, for the purpose of
calculating commissions are Net Assets, as defined in the
Limited Partnership Agreement, prior to the reduction of the
current months brokerage fees, incentive fee accrual, the
monthly management fee and other expenses and any redemptions or
distributions as of the end of such month. The Partnership will
pay for National Futures Association fees as well as exchange,
clearing, user,
give-up and
floor brokerage fees (collectively the clearing
fees), directly and through its investment in JWH Master.
CGM will pay a portion of its brokerage fees to other properly
registered selling agents and to financial advisors who have
sold Redeemable Units in the Partnership. Brokerage fees will be
paid for the life of the Partnership, although the rate at which
such fees are paid may be changed. This fee may be increased or
decreased at any time at CGMs discretion upon written
notice to the Partnership. All of the Partnerships assets,
not held in JWH Masters account at CGM, are deposited in
the Partnerships account at CGM. The Partnerships
cash is deposited by CGM in segregated bank accounts to the
extent required by Commodity Futures Trading Commission
regulations. At December 31, 2010 and 2009, the amounts of
cash held for margin requirements were $735,316 and $657,666,
respectively. CGM has agreed to pay the Partnership interest on
80% of the average daily equity maintained in cash in the
Partnerships (or the Partnerships allocable portion
of JWH Masters) account during each month at a
30-day
U.S. Treasury bill rate determined weekly by CGM based on
the average noncompetitive yield on
3-month
U.S. Treasury bills maturing in 30 days from the date
on which such weekly rate is determined. The Customer Agreement
may be terminated upon notice by either party.
4. | Trading Activities: |
The Partnership was formed for the purpose of trading contracts
in a variety of commodity interests, including derivative
financial instruments and derivative commodity interests. The
results of the Partnerships trading activities are shown
in the Statements of Income and Expenses.
The Customer Agreements between the Partnership and CGM and JWH
Master and CGM give the Partnership and JWH Master the legal
right to net unrealized gains and losses on open futures and
forward contracts. The Partnership and JWH Master net, for
financial reporting purposes, the unrealized gains and losses on
open futures and forward contracts on the Statements of
Financial Condition.
All of the commodity interests owned by the Partnership are held
for trading purposes. The average number of futures contracts
traded for the years ended December 31, 2010 and 2009 based
on a monthly calculation, was 244 and 204, respectively. The
average number of metal forward contracts traded for the years
ended December 31, 2010 and 2009 based on a monthly
calculation was 23 and 27, respectively. In prior year, the
average contracts were based on a quarterly and not a monthly
calculation. The amounts for the year ended December 31,
2009 have been revised accordingly.
Brokerage fees are calculated as a percentage of the
Partnerships adjusted net asset value on the last day of
each month and are affected by trading performance, additions
and redemptions.
37
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The following tables indicate the Partnerships gross fair
values of derivative instruments of futures and forward
contracts as separate assets and liabilities as of
December 31, 2010 and 2009.
December 31, 2010 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 122,819 | ||
Energy
|
24,947 | |||
Grains
|
142,491 | |||
Indices
|
14,510 | |||
Interest Rates
Non-U.S.
|
989 | |||
Livestock
|
11,920 | |||
Metals
|
56,575 | |||
Softs
|
50,963 | |||
Total unrealized appreciation on open futures contracts
|
$ | 425,214 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (14,975 | ) | |
Energy
|
(12,500 | ) | ||
Indices
|
(15,702 | ) | ||
Interest Rates U.S.
|
(4,644 | ) | ||
Interest Rates
Non-U.S.
|
(32,068 | ) | ||
Softs
|
(15,620 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (95,509 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 329,705 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
December 31, 2010 | ||||
Assets
|
||||
Forward Contracts
|
||||
Metals
|
$ | 99,712 | ||
Total unrealized appreciation on open forward contracts
|
99,712 | |||
Net unrealized appreciation on open forward contracts
|
$ | 99,712 | ** | |
** | This amount is in Net unrealized appreciation on open forward contracts on the Statements of Financial Condition. |
38
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
December 31, 2009 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 42,569 | ||
Energy
|
2,400 | |||
Grains
|
1,600 | |||
Interest Rates U.S.
|
23,000 | |||
Indices
|
62,155 | |||
Metals
|
9,125 | |||
Softs
|
102,806 | |||
Total unrealized appreciation on open futures contracts
|
$ | 243,655 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (175 | ) | |
Energy
|
(8,818 | ) | ||
Grains
|
(7,714 | ) | ||
Interest Rates U.S.
|
(12,938 | ) | ||
Interest Rates
Non-U.S.
|
(49,016 | ) | ||
Livestock
|
(2,480 | ) | ||
Metals
|
(28,520 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (109,661 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 133,994 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
December 31, 2009 | ||||
Assets
|
||||
Forward Contracts
|
||||
Metals
|
$ | 97,594 | ||
Total unrealized appreciation on open forward contracts
|
$ | 97,594 | ||
Net unrealized appreciation on open forward contracts
|
$ | 97,594 | ** | |
** | This amount is in Net unrealized appreciation on open forward contracts on the Statements of Financial Condition. |
39
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The following table indicates the Partnerships trading
gains and losses, by market sector, on derivative instruments
for the years ended December 31, 2010 and 2009.
December 31, 2010 |
December 31, 2009 |
|||||||
Sector
|
Gain (Loss) from trading | Gain (Loss) from trading | ||||||
Currencies
|
$ | 73,646 | $ | (273,231 | ) | |||
Energy
|
(264,000 | ) | (91,840 | ) | ||||
Grains
|
297,250 | (198,357 | ) | |||||
Interest Rates U.S.
|
185,139 | (162,801 | ) | |||||
Interest Rates
Non-U.S.
|
310,632 | (131,189 | ) | |||||
Indices
|
(151,355 | ) | 276,875 | |||||
Livestock
|
28,050 | 20,710 | ||||||
Metals
|
27,182 | 294,910 | ||||||
Softs
|
403,032 | 7,246 | ||||||
Total
|
$ | 909,576 | $ | (257,677 | ) | |||
5. | Investment in JWH Master: |
The Advisor trades a portion of the assets allocated to the
Advisor directly, in accordance with the systematic JWH
Diversified Plus Program.
On January 2, 2008, 80% of the assets allocated to the
Advisor for trading were invested in JWH Master, a limited
liability company organized under the laws of the State of New
York. The Partnership purchased 29,209.3894 units of JWH Master
(each, a Unit of Member Interest) with cash equal to
$39,540,753. JWH Master was formed in order to permit accounts
managed by the Advisor using the Global Analytics Program, a
proprietary, systematic trading system, to invest together in
one trading vehicle. The General Partner is also the general
partner of JWH Master. Individual and pooled accounts currently
managed by the Advisor, including the Partnership, are permitted
to be non-managing members of JWH Master. The General Partner
and the Advisor believe that trading through this structure
promotes efficiency and economy in the trading process.
The General Partner is not aware of any material changes to the
trading programs discussed above during the year ended
December 31, 2010.
The JWH Masters trading of futures and forward contracts,
if applicable, on commodities is done primarily on U.S. and
foreign commodity exchanges. JWH Master engages in such trading
through a commodity brokerage account maintained with CGM.
A non-managing member may withdraw all or part of its redeemable
capital contributions and undistributed profits, if any, from
JWH Master in multiples of the net asset value per Unit of
Member Interest as of the end of any day (the
Redemption Date) after a request for redemption
has been made to the General Partner at least 3 days in
advance of the Redemption Date. The Units of Member
Interest is classified as a liability when the non-managing
member elects to redeem and informs JWH Master.
Management and incentive fees are charged at the Partnership
level. All clearing fees are borne by the Partnership and
through its investment in JWH Master. All other fees including
CGMs direct brokerage fees are charged at the Partnership
level.
As of December 31, 2010 and 2009, the Partnership owned
approximately 78.7 and 79.8%, respectively of JWH Master. The
Partnership intends to continue to invest a portion of its
assets in JWH Master. The performance of the Partnership is
directly affected by the performance of JWH Master. Expenses to
investors as a result of the investment in the JWH Master are
approximately the same and redemption rights are not affected.
40
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The financial statements of JWH Masters including the Condensed
Schedule of Investments are contained elsewhere in this report
and should be read together with the Partnerships
financial statements.
6. | Subscriptions, Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become Limited Partners on the first day of the month after
their subscription is processed. Distributions of profits, if
any, will be made at the sole discretion of the General Partner
and at such times as the General Partner may decide. A Limited
Partner may require the Partnership to redeem its Redeemable
Units at their net asset value as of the last day of each month
on three business days notice to the General Partner.
No fee will be charged for redemptions.
7. | Financial Highlights: |
Changes in the net asset value per unit for the years ended
December 31, 2010, 2009 and 2008 were as follows:
2010 | 2009 | 2008 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | 370.36 | $ | (374.47 | ) | $ | 927.43 | |||||
Interest income
|
1.27 | 1.16 | 12.25 | |||||||||
Expenses**
|
(40.01 | ) | (40.09 | ) | (73.66 | ) | ||||||
Increase (decrease) for the year
|
331.62 | (413.40 | ) | 866.02 | ||||||||
Net asset value per unit, beginning of year
|
1,409.43 | 1,822.83 | 956.81 | |||||||||
Net asset value per unit, end of year
|
$ | 1,741.05 | $ | 1,409.43 | $ | 1,822.83 | ||||||
* | Includes brokerage fees. | |
** | Excludes brokerage fees. |
2010 | 2009 | 2008 | ||||||||||
Ratios to Average Net Assets:
|
||||||||||||
Net investment income (loss) before incentive fees***
|
(8.4 | )% | (8.1 | )% | (7.5 | )% | ||||||
Operating expenses
|
8.5 | % | 8.1 | % | 8.5 | % | ||||||
Incentive fees
|
| % | | % | 3.1 | % | ||||||
Total expenses
|
8.5 | % | 8.1 | % | 11.6 | % | ||||||
Total return:
|
||||||||||||
Total return before incentive fees
|
23.5 | % | (22.7 | )% | 95.1 | % | ||||||
Incentive fees
|
| % | | % | (4.6 | )% | ||||||
Total return after incentive fees
|
23.5 | % | (22.7 | )% | 90.5 | % | ||||||
*** | Interest income less total expenses. |
The above ratios 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.
41
Westport JWH
Futures Fund L.P.
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
8. | Financial Instrument Risks: |
In the normal course of business, the Partnership and JWH Master
are, parties to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative
commodity instruments. These financial instruments may include
forwards and futures, whose values are based upon an underlying
asset, index, or reference rate, and generally represent future
commitments to exchange currencies or cash balances, to purchase
or sell other financial instruments at specific terms at
specified future dates, or, in the case of derivative commodity
instruments, to have a reasonable possibility to be settled in
cash, through physical delivery or with another financial
instrument. These instruments may be traded on an exchange or
over-the-counter
(OTC). Exchange-traded instruments are standardized
and include futures and certain forwards and option contracts.
OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Each of these
instruments is subject to various risks similar to those related
to the underlying financial instruments including market and
credit risk. In general, the risks associated with OTC contracts
are greater than those associated with exchange-traded
instruments because of the greater risk of default by the
counterparty to an OTC contract.
The risk to the Limited Partners that have purchased interests
in the Partnership is limited to the amount of their capital
contributions to the Partnership and their share of the
Partnerships assets and undistributed profits. This
limited liability is a consequence of the organization of the
Partnership as a limited partnership under applicable law.
Market risk is the potential for changes in the value of the
financial instruments traded by the Partnership and JWH Master
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 JWH Master 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 Partnerships and JWH Masters risk of
loss in the event of a counterparty default is typically limited
to the amounts recognized in the Statements of Financial
Condition and not represented by the contract or notional
amounts of the instruments. The Partnerships and JWH
Masters risk of loss is reduced through the use of legally
enforceable master netting agreements with counterparties that
permit the Partnership and JWH Master to offset unrealized gains
and losses and other assets and liabilities with such
counterparties upon the occurrence of certain events. The
Partnership and JWH Master have credit risk and concentration
risk as the sole counterparty or broker with respect to the
Partnership and JWH Master assets is CGM or a CGM affiliate.
Credit risk with respect to exchange-traded instruments, is
reduced to the extent that, through CGM, the Partnership and JWH
Master counterparty is an exchange or clearing organization.
The General Partner monitors and attempts to control the
Partnerships and JWH Masters 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 and JWH Master 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 and forward contracts by sector, margin requirements,
gain and loss transactions and collateral positions.
The majority of these instruments mature within one year of the
inception date. However, due to the nature of the
Partnerships and JWH Masters business, these
instruments may not be held to maturity.
42
Selected
unaudited quarterly financial data for the Partnership for the years ended December 31, 2010 and 2009 are
summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2010 to | July 1, 2010 to | April 1, 2010 to | January 1, 2010 to | |||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Net realized and
unrealized trading
gains (losses) net
of brokerage
fees and
clearing fees
including interest
income |
$ | 8,423,883 | $ | 5,342,186 | $ | 2,613,218 | $ | (2,761,348 | ) | |||||||
Net income (loss) |
$ | 7,989,529 | $ | 4,985,568 | $ | 2,260,127 | $ | (3,102,246 | ) | |||||||
Increase (decrease)
in net asset value
per unit |
$ | 215.57 | $ | 136.68 | $ | 60.78 | $ | (81.41 | ) | |||||||
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and
unrealized trading
gains (losses) net
of brokerage
fees and
clearing fees
including interest
income |
$ | (3,232,038 | ) | $ | (4,312,654 | ) | $ | (2,023,885 | ) | $ | (5,898,689 | ) | ||||
Net income (loss) |
$ | (3,607,110 | ) | $ | (4,687,469 | ) | $ | (2,456,343 | ) | $ | (6,373,255 | ) | ||||
Increase (decrease)
in net asset value
per unit |
$ | (95.57 | ) | $ | (116.39 | ) | $ | (59.42 | ) | $ | (142.02 | ) |
43
TABLE OF CONTENTS
To the Members
of
JWH Master Fund LLC
JWH Master Fund LLC
To the best of the knowledge and belief of the undersigned, the
information contained herein is accurate and complete.
By: | Walter Davis |
President and Director
Ceres Managed Futures LLC
Managing Member,
JWH Master Fund LLC
Ceres Managed Futures LLC
522 Fifth Avenue
14th Floor
New York, NY 10036
212-296-1999
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
JWH Master Fund LLC:
JWH Master Fund LLC:
We have audited the accompanying statements of financial condition of JWH Master Fund LLC (the
Company), including the condensed schedules of investments, as of December 31, 2010 and 2009, and
the related statements of income and expenses, and changes in members capital for the years then
ended. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. The
financial statements of the Company for the year ended December 31, 2008 were audited by other
auditors whose report, dated March 26, 2009, expressed an unqualified opinion on those statements.
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
Company 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 Companys 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 2010 and 2009 financial statements present fairly, in all material respects,
the financial position of JWH Master Fund LLC as of December 31, 2010 and 2009, and the results of
its operations and its changes in members 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 23, 2011
New York, New York
March 23, 2011
45
Report of Independent Auditors
To the Members of
JWH Master Fund LLC:
JWH Master Fund LLC:
In our opinion, the accompanying statement of income and expenses, and statement of changes in
members capital present fairly, in all material respects, the financial position of JWH Master
Fund LLC (formerly known as CMF JWH Strategic Allocation Master Fund LLC) at December 31,
2008, and the results of its operations for the year then ended in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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, and evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 26, 2009
March 26, 2009
46
2010 | 2009 | |||||||
Assets:
|
||||||||
Equity in trading account:
|
||||||||
Cash (Note 3c)
|
$ | 58,147,328 | $ | 52,728,434 | ||||
Cash margin (Note 3c)
|
9,601,427 | 3,594,053 | ||||||
Net unrealized appreciation on open futures contracts
|
4,314,312 | 637,268 | ||||||
Total assets
|
$ | 72,063,067 | $ | 56,959,755 | ||||
Liabilities and Members Capital:
|
||||||||
Liabilities:
|
||||||||
Accrued expenses:
|
||||||||
Professional fees
|
$ | 71,427 | $ | 26,739 | ||||
Total liabilities
|
71,427 | 26,739 | ||||||
Members Capital:
|
||||||||
Members Capital, 21,244.0589 and 23,163.2996 Units
outstanding at December 31, 2010 and 2009, respectively
|
71,991,640 | 56,933,016 | ||||||
Total liabilities and members capital
|
$ | 72,063,067 | $ | 56,959,755 | ||||
Net asset value per unit
|
$ | 3,388.79 | $ | 2,457.90 | ||||
See accompanying notes to financial statements.
47
JWH Master
Fund LLC
Condensed Schedule of Investments
December 31, 2010
Condensed Schedule of Investments
December 31, 2010
Number of |
% of Members |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Currencies
|
328 | $ | 608,700 | 0.85 | % | |||||||
Energy
|
212 | 361,671 | 0.50 | |||||||||
Grains
|
390 | 530,375 | 0.74 | |||||||||
Indices
|
68 | 57,461 | 0.08 | |||||||||
Interest Rates
Non-U.S.
|
37 | 4,326 | 0.01 | |||||||||
Metals
|
236 | 2,104,700 | 2.92 | |||||||||
Softs
|
592 | 563,962 | 0.78 | |||||||||
Total futures contracts purchased
|
4,231,195 | 5.88 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
46 | (41,600 | ) | (0.06 | ) | |||||||
Energy
|
3 | (3,750 | ) | (0.01 | ) | |||||||
Interest Rates U.S.
|
318 | 321,553 | 0.45 | |||||||||
Interest Rates
Non-U.S.
|
228 | (193,086 | ) | (0.27 | ) | |||||||
Total futures contracts sold
|
83,117 | 0.11 | ||||||||||
Total fair value
|
$ | 4,314,312 | 5.99 | % | ||||||||
See accompanying notes to financial statements.
48
JWH Master
Fund LLC
Condensed Schedule of Investments
December 31, 2009
Condensed Schedule of Investments
December 31, 2009
Number of |
% of Members |
|||||||||||
Contracts | Fair Value | Capital | ||||||||||
Futures Contracts Purchased
|
||||||||||||
Energy
|
39 | $ | (92,032 | ) | (0.16 | )% | ||||||
Grains
|
158 | (31,000 | ) | (0.05 | ) | |||||||
Indices
|
86 | 162,509 | 0.28 | |||||||||
Interest Rates
Non-U.S.
|
232 | (123,114 | ) | (0.22 | ) | |||||||
Softs
|
320 | 652,578 | 1.15 | |||||||||
Total futures contracts purchased
|
568,941 | 1.00 | ||||||||||
Futures Contracts Sold
|
||||||||||||
Currencies
|
181 | 118,063 | 0.21 | |||||||||
Energy
|
34 | (128,500 | ) | (0.23 | ) | |||||||
Grains
|
80 | (42,438 | ) | (0.07 | ) | |||||||
Interest Rates
Non-U.S.
|
32 | (46,200 | ) | (0.08 | ) | |||||||
Interest Rates U.S.
|
78 | 23,812 | 0.04 | |||||||||
Softs
|
276 | 143,590 | 0.25 | |||||||||
Total futures contracts sold
|
68,327 | 0.12 | ||||||||||
Total fair value
|
$ | 637,268 | 1.12 | % | ||||||||
See accompanying notes to financial statements.
49
JWH Master
Fund LLC
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
Statements of Income and Expenses
for the years ended
December 31, 2010, 2009 and 2008
2010 | 2009 | 2008 | ||||||||||
Income:
|
||||||||||||
Net gains (losses) on trading of commodity interests:
|
||||||||||||
Net realized gains (losses) on closed contracts
|
$ | 16,155,890 | $ | (10,646,709 | ) | $ | 47,316,119 | |||||
Change in net unrealized gains (losses) on open contracts
|
3,677,044 | (2,803,613 | ) | 3,434,405 | ||||||||
Gain (loss) from trading, net
|
19,832,934 | (13,450,322 | ) | 50,750,524 | ||||||||
Interest income
|
53,208 | 49,676 | 590,486 | |||||||||
Total income (loss)
|
19,886,142 | (13,400,646 | ) | 51,341,010 | ||||||||
Expenses:
|
||||||||||||
Clearing fees
|
82,844 | 71,031 | 72,704 | |||||||||
Professional fees
|
124,451 | 56,914 | 42,496 | |||||||||
Total expenses
|
207,295 | 127,945 | 115,200 | |||||||||
Net income (loss)
|
$ | 19,678,847 | $ | (13,528,591 | ) | $ | 51,225,810 | |||||
Net income (loss) per unit (Note 6)
|
$ | 933.36 | $ | (559.84 | ) | $ | 1,684.88 | |||||
Weighted average units outstanding
|
22,096.5142 | 25,243.3352 | 31,430.3246 | |||||||||
See accompanying notes to financial statements.
50
JWH Master
Fund LLC
Statements of Changes in Members Capital
For the years ended
December 31, 2010, 2009 and 2008
Statements of Changes in Members Capital
For the years ended
December 31, 2010, 2009 and 2008
Members |
||||
Capital | ||||
Members Capital at December 31, 2007
|
$ | 5,392,162 | ||
Net income (loss)
|
51,225,810 | |||
Subscriptions of 31,882.0862 Units
|
45,577,553 | |||
Redemptions of 7,274.2306 Units
|
(15,266,781 | ) | ||
Distribution of interest income to feeder funds
|
(590,486 | ) | ||
Members Capital at December 31, 2008
|
86,338,258 | |||
Net income (loss)
|
(13,528,591 | ) | ||
Subscriptions of 3,694.2747 Units
|
10,164,500 | |||
Redemptions of 9,122.1076 Units
|
(25,991,475 | ) | ||
Distribution of interest income to feeder funds
|
(49,676 | ) | ||
Members Capital at December 31, 2009
|
56,933,016 | |||
Net income (loss)
|
19,678,847 | |||
Subscriptions of 2,074.2109 Units
|
5,809,674 | |||
Redemptions of 3,993.4516 Units
|
(10,376,689 | ) | ||
Distribution of interest income to feeder funds
|
(53,208 | ) | ||
Members Capital at December 31, 2010
|
$ | 71,991,640 | ||
Net asset value per unit:
|
2008:
|
$ | 3,019.76 | ||
2009:
|
$ | 2,457.90 | ||
2010:
|
$ | 3,388.79 | ||
See accompanying notes to financial statements.
51
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
1. | Partnership Organization: |
JWH Master Fund LLC, (the Master) is a limited
liability company formed under the New York Limited Liability
Company Law. The Masters purpose is to engage in the
speculative trading of a diversified portfolio of commodity
interests including futures and forward contracts. The sectors
traded include currencies, energy, grains, U.S. and
non-U.S. interest
rates, indices, softs, livestock and metals. The commodity
interests that are traded by the Master are volatile and involve
a high degree of market risk. The Master is authorized to sell
an unlimited number of redeemable units of member interest
(Units).
Ceres Managed Futures LLC, a Delaware limited liability company,
acts as the managing member (the Managing Member)
and commodity pool operator of the Master. The Managing Member
is wholly owned by Morgan Stanley Smith Barney Holdings LLC
(MSSB Holdings). Morgan Stanley, indirectly through
various subsidiaries, owns a majority equity interest in MSSB
Holdings. Citigroup Global Markets Inc. (CGM), the
commodity broker for the Master, owns a minority equity interest
in MSSB Holdings. Citigroup Inc. (Citigroup),
indirectly through various subsidiaries, wholly owns CGM. Prior
to July 31, 2009, the date as of which MSSB Holdings became
its owner, the Managing Member was wholly owned by Citigroup
Financial Products Inc., a wholly owned subsidiary of Citigroup
Global Markets Holdings Inc., the sole owner of which is
Citigroup. As of December 31, 2010, all trading decisions
for the Master are made by the Advisor (defined below).
On July 1, 2005, Institutional Futures Portfolio L.P.
(Institutional Portfolio) allocated a portion of its
capital to the Master and purchased 4,195.5111 Units with cash
equal to $7,000,000. On January 2, 2008, Westport JWH
Futures Fund L.P. (Westport) allocated
substantially all of its capital to the Master and purchased a
total of 29,209.3894 Units with cash equal to $39,540,753. On
May 1, 2009, The JWH Global Analytics Fund L.P.
(Global Analytics) allocated substantially all of
its capital to the Master and purchased a total of 1,146.1657
Units with cash equal to $3,137,000. The Master was formed to
permit commodity pools managed now or in the future by John W.
Henry & Company, Inc. (the Advisor) using
the Global Analytics Program, the Advisors systematic
trading program, to invest together in one trading vehicle.
The Master operates under a structure where its investors
consist of Institutional Portfolio, Westport and Global
Analytics (each a Member, collectively the
Funds), each of which owned approximately 13.3%,
78.7%, and 8.0% investments in the Master at December 31,
2010, respectively. Institutional Portfolio, Westport and Global
Analytics owned approximately 15.1%, 79.8% and 5.1% investments
in the Master at December 31, 2009, respectively.
The Master will be liquidated upon the first to occur of the
following: December 31, 2030; or under certain other
circumstances as defined in the Limited Liability Company
Agreement of the Master (the Limited Liability Company
Agreement).
52
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
2. | 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 management 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. | |
b. | Statement of Cash Flows. The Master is not required to provide a Statement of Cash Flows. | |
c. | Masters Investments. All commodity interests of the Master (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses. |
Masters Fair Value Measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date under
current market conditions. The fair value hierarchy gives the
highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1) and the
lowest priority to fair values derived from unobservable inputs
(Level 3). The level in the fair value hierarchy within
which the fair value measurement in its entirety falls shall be
determined based on the lowest level input that is significant
to the fair value measurement in its entirety. GAAP also
requires the need to use judgment in determining if a formerly
active market has become inactive and in determining fair values
when the market has become inactive. Management has concluded
that based on available information in the marketplace, the
Masters Level 1 assets and liabilities are actively traded.
The Master will separately present purchases, sales, issuances,
and settlements in their reconciliation of Level 3 fair
value measurements (i.e. to present such items on a gross basis
rather than on a net basis), and make disclosures regarding the
level of disaggregation and the inputs and valuation techniques
used to measure fair value for measurements that fall within
either Level 2 or Level 3 of the fair value hierarchy
as required under GAAP.
53
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The Master considers prices for exchange-traded commodity
futures and forward contracts to be based on unadjusted quoted
prices in active markets for identical assets (Level 1). The
values of non-exchange traded forward, contracts for which
market quotations are not readily available are priced by
broker-dealers that derive fair values for those assets from
observable inputs (Level 2). As of and for the years ended
December 31, 2010 and December 31, 2009, the Master
did not hold any derivative instruments for which market
quotations were not readily available and which were priced by
broker-dealers that derive fair values for those assets from
observable inputs (Level 2) or that were priced at
fair value using unobservable inputs through the application of
managements assumptions and internal valuation pricing
models (Level 3). The gross presentation of the fair value
of the Masters derivatives by instrument type is shown in
Note 4, Trading Activities.
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical sets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Futures
|
$ | 4,314,312 | $ | 4,314,312 | $ | | $ | | ||||||||
Total assets
|
4,314,312 | 4,314,312 | | | ||||||||||||
Total fair value
|
$ | 4,314,312 | $ | 4,314,312 | $ | | $ | | ||||||||
Quoted Prices in |
Significant |
|||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||
12/31/2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets
|
||||||||||||||||
Futures
|
$ | 637,268 | $ | 637,268 | $ | | $ | | ||||||||
Total assets
|
637,268 | 637,268 | | | ||||||||||||
Total fair value
|
$ | 637,268 | $ | 637,268 | $ | | $ | | ||||||||
d. | Futures Contracts. The Master trades 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 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 Master. When the contract is closed, the Master records 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. Realized gains (losses) and changes in net unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses. |
54
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
e. | Income and Expenses Recognition. All of the income and expenses and realized and unrealized gains and losses on trading of commodity interests are determined on each valuation day and allocated pro rata among the Funds at the time of such determination. |
f. | Income Taxes. Income taxes have not been provided as each member is individually liable for the taxes, if any, on their share of the Masters income and expenses. |
GAAP provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial
statements and requires the evaluation of tax positions taken or
expected to be taken in the course of preparing the
Masters financial statements to determine whether the tax
positions are more-likely-than-not to be sustained
by the applicable tax authority. Tax positions with respect to
tax at the Master level not deemed to meet the
more-likely-than-not threshold would be recorded as
a tax benefit or expense in the current year. The Managing
Member concluded that no provision for income tax is required in
the Masters financial statements.
The Master files U.S. federal and various state and local
tax returns. No income tax returns are currently under
examination. Generally, the 2007 through 2010 tax years remain
subject to examination by U.S. federal and most state tax
authorities. Management does not believe that there are any
uncertain tax positions that require recognition of a tax
liability.
g. | Subsequent Events. Management of the Master evaluates events that occur after the balance sheet date but before financial statements are filed. Management has assessed the subsequent events through the date of filing and determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements. | |
h. | Net Income (Loss) per Unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 6, Financial Highlights. |
55
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
3. | Agreements: |
a. | Limited Liability Company Agreement: |
The Managing Member administers the business and affairs of the
Master including selecting one or more advisors to make trading
decisions for the Master.
b. | Management Agreement: |
The Managing Member, on behalf of the Master, has entered into a
management agreement (the Management Agreement) with
the Advisor, a registered commodity trading advisor. The Advisor
is not affiliated with the Managing Member or CGM and is not
responsible for the organization or operation of the Master. The
Management Agreement provides that the Advisor has sole
discretion in determining the investment of the assets of the
Master. All management fees in connection with the Management
Agreement are borne by the Funds. The Management Agreement may
be terminated upon 30 days notice by either party.
c. | Customer Agreement: |
The Master has entered into a customer agreement (the
Customer Agreement) with CGM whereby CGM provides
services which include, among other things, the execution of
transactions for the Masters account in accordance with
orders placed by the Advisor. All exchange, clearing, user,
give-up,
floor brokerage and National Futures Association fees
(collectively clearing fees) are borne by the
Master. All other fees including CGMs direct brokerage
fees shall be borne by the Funds. All of the Masters cash
is deposited by CGM in segregated bank accounts, to the extent
required by Commodity Futures Trading Commission regulations. At
December 31, 2010 and 2009, the amount of cash held by the
Master for margin requirements was $9,601,427 and $3,594,053,
respectively. The Customer Agreement may be terminated upon
notice by either party.
4. | Trading Activities: |
The Master was formed for the purpose of trading contracts in a
variety of commodity interests, including derivative financial
instruments and derivative commodity interests. The results of
the Masters trading activities are shown in the Statements
of Income and Expenses.
The Customer Agreement between the Master and CGM gives the
Master the legal right to net unrealized gains and losses on
open futures and forward contracts. The Master nets, for
financial reporting purposes, the unrealized gains and losses on
open futures and forward contracts on the Statements of
Financial Condition.
All of the commodity interests owned by the Master are held for
trading purposes. The average number of futures contracts traded
for the years ended December 31, 2010 and 2009 based on a
monthly calculation, were 2,153 and 1,999, respectively. In
prior year, the average contracts were based on a quarterly and
not a monthly calculation. The amount for the year ended
December 31, 2009 has been revised accordingly.
56
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
The following tables indicate the gross fair values of
derivative instruments of futures contracts as separate assets
and liabilities as of December 31, 2010 and 2009.
December 31, 2010 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 608,700 | ||
Energy
|
362,521 | |||
Grains
|
530,375 | |||
Indices
|
57,461 | |||
Interest Rates U.S.
|
342,828 | |||
Interest Rates
Non-U.S.
|
149,777 | |||
Metals
|
2,104,700 | |||
Softs
|
912,009 | |||
Total unrealized appreciation on open futures contracts
|
$ | 5,068,371 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (41,600 | ) | |
Energy
|
(4,600 | ) | ||
Interest Rates U.S.
|
(21,275 | ) | ||
Interest Rates
Non-U.S.
|
(338,537 | ) | ||
Softs
|
(348,047 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (754,059 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 4,314,312 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
57
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
December 31, 2009 | ||||
Assets
|
||||
Futures Contracts
|
||||
Currencies
|
$ | 135,325 | ||
Grains
|
45,050 | |||
Indices
|
162,509 | |||
Interest Rates U.S.
|
23,812 | |||
Softs
|
799,918 | |||
Total unrealized appreciation on open futures contracts
|
$ | 1,166,614 | ||
Liabilities
|
||||
Futures Contracts
|
||||
Currencies
|
$ | (17,262 | ) | |
Energy
|
(220,532 | ) | ||
Grains
|
(118,488 | ) | ||
Interest Rates
Non-U.S.
|
(169,314 | ) | ||
Softs
|
(3,750 | ) | ||
Total unrealized depreciation on open futures contracts
|
$ | (529,346 | ) | |
Net unrealized appreciation on open futures contracts
|
$ | 637,268 | * | |
* | This amount is in Net unrealized appreciation on open futures contracts on the Statements of Financial Condition. |
The following tables indicate the trading gains and losses, by
market sector, on derivative instruments for the years ended
December 31, 2010 and 2009.
December 31, 2010 |
December 31, 2009 |
|||||||
Sector
|
Gain (Loss) from Trading | Gain (Loss) from Trading | ||||||
Currencies
|
$ | 4,411,831 | $ | (3,698,810 | ) | |||
Energy
|
(2,340,134 | ) | (4,074,292 | ) | ||||
Grains
|
2,875,976 | (1,756,349 | ) | |||||
Indices
|
(821,660 | ) | 277,407 | |||||
Interest Rates U.S.
|
2,835,060 | (3,340,111 | ) | |||||
Interest Rates
Non-U.S.
|
2,549,173 | (2,376,135 | ) | |||||
Softs
|
5,806,743 | 679,903 | ||||||
Metals
|
4,515,945 | 838,065 | ||||||
Total
|
$ | 19,832,934 | ** | $ | (13,450,322 | )** | ||
** | This amount is in Gain (loss) from trading, net on the Statements of Income and Expenses. |
5. | Subscriptions Distributions and Redemptions: |
Subscriptions are accepted monthly from investors and they
become
non-managing
members on the first day of the month after their subscription
is processed. A non-managing member may withdraw all or part of
its capital contribution and undistributed profits, if any, from
the Master in multiples of the net asset value per Unit of
Member Interest as of the end of any day (the
Redemption Date) after a request for redemption
has been made to the Managing Member at least 3 days in
advance of the Redemption Date. The Units are classified as
a liability when the non-managing member elects to redeem and
informs the Master.
58
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
6. | Financial Highlights: |
Changes in the net asset value per unit for the years ended
December 31, 2010, 2009 and 2008 were as follows:
2010 | 2009 | 2008 | ||||||||||
Net realized and unrealized gains (losses)*
|
$ | 936.66 | $ | (559.51 | ) | $ | 1,667.47 | |||||
Interest income
|
2.47 | 2.02 | 18.82 | |||||||||
Expenses**
|
(5.77 | ) | (2.35 | ) | (1.41 | ) | ||||||
Increase (decrease) for the year
|
933.36 | (559.84 | ) | 1,684.88 | ||||||||
Distribution of interest income to feeder funds
|
(2.47 | ) | (2.02 | ) | (18.82 | ) | ||||||
Net asset value per unit, beginning of year
|
2,457.90 | 3,019.76 | 1,353.70 | |||||||||
Net asset value per unit, end of year
|
$ | 3,388.79 | $ | 2,457.90 | $ | 3,019.76 | ||||||
2010 | 2009 | 2008 | ||||||||||
Ratios to average net assets:
|
||||||||||||
Net investment income (loss)***
|
(0.3 | )% | (0.1 | )% | 0.8 | % | ||||||
Operating expenses
|
(0.4 | )% | 0.2 | % | 0.2 | % | ||||||
Total return
|
37.9 | % | (18.5 | )% | 124.5 | % | ||||||
* | Includes clearing fees. | |
** | Excludes clearing fees. | |
*** | Interest income less total expenses. |
The above ratios may vary for individual investors based on the
timing of capital transactions during the year. Additionally,
these ratios are calculated for the non-managing member class
using the non-managing members share of income, expenses
and average net assets.
7. | Financial Instrument Risks: |
In the normal course of business, the Master is party to
financial instruments with off-balance sheet risk, including
derivative financial instruments and derivative commodity
instruments. These financial instruments may include forwards,
futures, options and swaps whose values are based upon an
underlying asset, index, or reference rate, and generally
represent future commitments to exchange currencies or cash
balances, 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 or
over-the-counter
(OTC). Exchange-traded instruments are standardized
and include futures and certain forwards and option contracts.
OTC contracts are negotiated between contracting parties and
include certain forwards and option contracts. Each of these
instruments is subject to various risks similar to those related
to the underlying financial instruments including market and
credit risk. In general, the risks associated with OTC contracts
are greater than those associated with exchange-traded
instruments because of the greater risk of default by the
counterparty to an OTC contract.
Market risk is the potential for changes in the value of the
financial instruments traded by the Master 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
59
JWH Master
Fund LLC
Notes to Financial Statements
December 31, 2010
Notes to Financial Statements
December 31, 2010
which the related underlying assets are traded. The Master is
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 Masters risk of loss in the event of
counterparty default is typically limited to the amounts
recognized in the Statements of Financial Condition and not
represented by the contract or notional amounts of the
instruments. The Masters risk of loss is reduced through
the use of legally enforceable master netting agreements with
counterparties that permit the Master to offset unrealized gains
and losses and other assets and liabilities with such
counterparties upon the occurrence of certain events. The Master
has credit risk and concentration risk as the sole counterparty
or broker with respect to the Masters assets is CGM or a
CGM affiliate. Credit risk with respect to exchange-traded
instruments is reduced to the extent that, through CGM, the
Masters counterparty is an exchange or clearing
organization.
The Managing Member monitors and attempts to control the
Masters 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 Master may be
subject. These monitoring systems generally allow the Managing
Member to statistically analyze actual trading results with
risk-adjusted performance indicators and correlation statistics.
In addition, online monitoring systems provide account analysis
of futures, forwards and options positions by sector, margin
requirements, gain and loss transactions and collateral
positions.
The majority of these instruments mature within one year of the
inception date. However, due to the nature of the Masters
business, these instruments may not be held to maturity.
60
Selected unaudited quarterly financial
data for JWH Master for the years ended December 31, 2010 and 2009 are summarized below:
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2010 to | July 1, 2010 to | April 1, 2010 to | January 1, 2010 to | |||||||||||||
December 31, 2010 | September 30, 2010 | June 30, 2010 | March 31, 2010 | |||||||||||||
Net realized
and unrealized trading gains (losses) net of brokerage
fees and clearing fees
including interest income |
$ | 10,580,542 | $ | 7,199,159 | $ | 4,331,406 | $ | (2,307,809 | ) | |||||||
Net income (loss) |
$ | 10,543,934 | $ | 7,165,528 | $ | 4,296,385 | $ | (2,327,000 | ) | |||||||
Increase (decrease) in net asset
value per unit |
$ | 498.40 | $ | 340.90 | $ | 194.97 | $ | (100.91 | ) | |||||||
For the period from | For the period from | For the period from | For the period from | |||||||||||||
October 1, 2009 to | July 1, 2009 to | April 1, 2009 to | January 1, 2009 to | |||||||||||||
December 31, 2009 | September 30, 2009 | June 30, 2009 | March 31, 2009 | |||||||||||||
Net realized and unrealized trading
gains (losses) net of brokerage
fees and clearing fees
including interest income |
$ | (2,934,318 | ) | $ | (4,648,308 | ) | $ | (677,156 | ) | $ | (5,211,895 | ) | ||||
Net income (loss) |
$ | (2,959,702 | ) | $ | (4,652,493 | ) | $ | (691,716 | ) | $ | (5,224,680 | ) | ||||
Increase (decrease) in net asset
value per unit |
$ | (131.97 | ) | $ | (191.59 | ) | $ | (31.88 | ) | $ | (204.40 | ) |
61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
PricewaterhouseCoopers LLP (PwC) was previously the principal accountant for the Partnership
through July 22, 2009. On July 22,
2009, PWC was dismissed as principal accountant and on July 23, 2009
Deloitte & Touche LLP (Deloitte) was engaged as the independent registered
public accounting firm. The decision to change accountants was approved by the
General Partner of the Partnership.
In connection with the audit of the fiscal year ended December 31, 2008, and
through July 22, 2009, there were no disagreements with PwC, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference
thereto in its report on the financial statements for the corresponding year.
The audit report of PwC on the financial statements of the
Partnership as of and for the years ended December 31, 2008 did not contain any adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope, or accounting principle.
Item 9A. Controls and Procedures.
The Partnerships disclosure controls and procedures are
designed to ensure that information required to be disclosed
by the Partnership on the reports that it files or submits under the Securities Exchange Act
of 1934 (the Exchange Act) is recorded, processed, summarized and reported within the
time periods expected in the SECs rules and forms.
Disclosure controls and procedures
include controls and procedures designed to ensure that information required to be disclosed by the
Partnership in the reports it files is accumulated and communicated to management,
including the Chief Executive Officer (the CEO) and Chief Financial
Officer (the CFO) of the General Partner, to allow for timely
decisions regarding required disclosure and appropriate SEC
filings.
Management is responsible for ensuring that there is an adequate and effective process for
establishing, maintaining and evaluating disclosure controls and procedures for the Partnerships
external disclosures.
The General Partners CEO and CFO have evaluated the effectiveness of the Partnerships
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2010 and, based on that evaluation, the
General Partners CEO and CFO have concluded that at
that date the Partnerships disclosure controls and procedures were effective.
The Partnerships internal control over financial reporting is a process under the supervision
of the General Partners CEO and CFO to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in
accordance with GAAP. These controls include policies and procedures that:
| pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; | ||
| provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and (ii) the Partnerships receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and | ||
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnerships assets that could have a material effect on the financial statements. |
The report included in Item 8. Financial Statements and Supplementary Data. includes
managements report on internal control over financial reporting
(Managements Report).
There were no changes in the Partnerships internal control over financial reporting during
the fiscal quarter ended December 31, 2010 that materially affected, or are reasonably likely to
materially affect, the Partnerships internal control over financial reporting.
Item 9B. Other Information
None
62
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The Partnership has no
officers, directors or employees and its affairs are managed by its General
Partner, Investment decisions are made by the Advisor.
The officers and directors of the General Partner are Walter Davis (President and Chairman of the
Board of Directors), Jennifer Magro (Chief Financial Officer and Director), Michael McGrath
(Director), Douglas J. Ketterer (Director), Ian Bernstein (Director), Harry Handler (Director),
Patrick T. Egan (Director) and Alper Daglioglu (Director). Each
director of the General Partner 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) Morgan Stanley Smith
Barney Holdings LLC, as the sole member of the General Partner. The officers of the General
Partner are designated by the General Partners 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.
Walter
Davis, age 46, is President and Chairman of the Board of Directors of the General Partner
(since June 2010). Mr. Davis was registered as an associated person of the General Partner and
listed as a principal in June 2010. Mr. Davis is responsible for the oversight of the General
Partners funds and accounts. Prior to the combination of
Demeter Management LLC (Demeter) and the General Partner effective December 1, 2010, Mr. Davis served as Chairman of the Board of Directors and President of
Demeter, a registered commodity pool operator. Mr. Davis was a principal and associated person of
Demeter from May 2006 to December 2010 and July 2006 to December 2010, respectively. Mr. Davis was
an associated person of Morgan Stanley DW Inc., a financial services firm, from August 2006 to
April 2007, when, because of the merger of Morgan Stanley DW
Inc. into Morgan Stanley & Co. Incorporated (MS & Co.), a global financial
services firm, he became an associated person of MS &
Co., (due to the transfer of his original
registration as an associated person of Morgan Stanley DW Inc.). Prior to becoming an associated
person in August 2006, Mr. Davis was responsible for overseeing the sales and marketing of MS &
Co.s managed futures funds to high net worth and institutional investors on a global basis. Mr.
Davis withdrew as an associated person of MS & Co. in June 2009. Mr. Davis has been an associated
person of Morgan Stanley Smith Barney LLC since June 2009. Morgan Stanley Smith Barney LLC is
registered as a broker-dealer with FINRA, an investment adviser with the SEC and a futures
commission merchant with the CFTC. Mr. Davis is a Managing Director of Morgan Stanley Smith Barney
LLC and the Director of Morgan Stanley Smith Barney LLCs Managed Futures Department. Prior to
joining Morgan Stanley in September 1999, Mr. Davis worked for Chase Manhattan Banks Alternative
Investment Group from January 1992 until September 1999, where his principal duties included
marketing managed futures funds to high net worth investors, as well as developing and structuring
managed futures funds. Throughout his career, Mr. Davis has been involved with the development,
management and marketing of a diverse array of commodity pools, hedge funds and other alternative
investment vehicles. Mr. Davis received an MBA in Finance and International Business from the
Columbia University Graduate School of Business in 1992 and a BA in Economics from the University
of the South in 1987.
Jennifer Magro, age 39, is Chief Financial Officer and Director of the General Partner (since
October 2006 and May 2005, respectively). Ms. Magro was listed as a principal in June 2005. Ms.
Magro served as Vice President and Secretary of the General Partner from August 2001 to December
2010 and June 2010 to December 2010, respectively. She was also a Managing Director of Citi
Alternative Investments (CAI), a division of Citigroup that administered its hedge fund and fund
of funds business, and was Chief Operating Officer of CAIs Hedge Fund Management Group from
October 2006 to July 2009. Ms. Magro is responsible for the financial, administrative and
operational functions of the General Partner. She is also responsible for the accounting and
financial and regulatory reporting of the General Partners managed futures funds. From March 1999 to July 2009, Ms. Magro was responsible for the accounting and financial and
regulatory reporting of Citigroups managed futures funds. She had similar responsibilities with
CAIs Hedge Fund Management Group (from October 2006 to July 2009). Prior to joining the General
Partner in January 1996, Ms. Magro was employed by Prudential Securities Inc., a securities
brokerage services company, (from July 1994) as a staff accountant whose duties included the
calculation of net asset values for commodity pools and real estate investment products. Ms. Magro
received a BS in Accounting from the State University of New York, Oswego in 1993.
Michael McGrath, age 41, has been a Director of the General Partner since June 2010. Mr. McGrath
was listed as a principal in June 2010. Mr. McGrath was a principal and Director of Demeter from
May 2006 until Demeters combination with the General Partner in December 2010. Mr. McGrath is a
Managing Director of Morgan Stanley Smith Barney LLC and currently serves as the Head of
Alternative Investments for the Global Wealth Management Group of Morgan Stanley Smith Barney LLC.
He also serves on the Management Committee of the Global Wealth Management Group. Prior to his
current role, Mr. McGrath served as the Director of Product Management for the Consulting Services
Group in Morgan Stanley as well as the Chief Operating Officer for Private Wealth Management North
America and Private Wealth Management Latin America (the Americas) and the Director of Product
Development for Morgan Stanleys Global Wealth Management Group. Mr. McGrath served as a Managing
Director of Morgan Stanley from May 2004 until May 2009, when Mr. McGrath became a Managing
Director of Morgan Stanley Smith Barney LLC. Mr. McGrath joined Morgan Stanley from Nuveen
Investments, a publicly traded investment management company headquartered in Chicago, Illinois,
where he worked from July 2001 to May 2004. At Nuveen Investments, Mr. McGrath served as a
Managing Director and oversaw the development of alternative investment products catering to high
net worth investors. Mr. McGrath received his BA degree from Saint Peters College in 1990, and
currently serves on the schools Board of Regents. He received his MBA in Finance from New York
University in 1996.
Douglas J. Ketterer, age 45, has been a Director of the General Partner since December 2010. Mr.
Ketterer was listed as a principal in December 2010. Mr. Ketterer was a principal of Demeter from
October 2003 until Demeters combination with the General Partner in December 2010. Mr. Ketterer
is a Managing Director and Head of the U.S. Private Wealth Management Group within Morgan Stanley
Smith Barney LLC. Mr. Ketterer joined MS & Co. in March 1990 and has served in many roles in the
corporate finance/investment banking, asset management, and wealth management divisions of the
firm; most recently as Chief Operating Officer, Wealth Management Group and Head of the Products
Group with responsibility for a number of departments (including, among others, the Alternative
Investments Group, Consulting Services Group, Annuities & Insurance Department and Retirement &
Equity Solutions Group) which offered products and services through MS & Co.s Global Wealth
Management Group. Mr. Ketterer received his MBA from New York Universitys Leonard N. Stern School
of Business and his BS in Finance from the University at Albanys School of Business.
63
Ian Bernstein, age 48, is a Director of the General Partner. Mr. Bernstein has been a Director,
and listed as a principal of the General Partner since December 2010. Mr. Bernstein held various
positions, including Managing Director, within the Capital Markets group at Morgan Stanley DW Inc.
from October 1984 to April 2007, when Morgan Stanley DW Inc. was merged into, its institutional
affiliate, MS & Co. and became the Global Wealth Management Division of MS & Co. Mr. Bernstein
first served as a Managing Director with MS & Co. in March 2004, prior to its merger with Morgan
Stanley DW Inc. Since June 1, 2009, Mr. Bernstein has served as a Managing Director of Capital
Markets at Morgan Stanley Smith Barney LLC, a new broker-dealer formed as a result of a joint
venture between Citigroup and Morgan Stanley. The respective retail business of MS & Co. and Citigroup (formerly known as Smith Barney) was
contributed to Morgan Stanley Smith Barney LLC. Mr. Bernstein has continued as Managing Director
of both Morgan Stanley Smith Barney LLC, the retail broker-dealer, and MS & Co., the institutional
broker-dealer, up to the present. Mr. Bernstein received his MBA from New York Universitys
Leonard N. Stern School of Business in 1988, and his BA from the University of Buckingham in 1980.
Harry Handler, age 51, has been a Director of the General Partner since December 2010. Mr. Handler
became registered as an associated person of the General Partner and listed as a principal in
December 2010. Mr. Handler was a principal and associated person of Demeter from May 2005 until
Demeters combination with the General Partner in December 2010, and from April 2006 until December
2010, respectively. He has been an associate member of the NFA since August 1985. Mr. Handler was
an associated person of Morgan Stanley DW Inc., a financial services firm, from February 1984 to
April 2007, when, because of the merger of Morgan Stanley DW Inc. into MS & Co., he became an
associated person of MS & Co. due to the transfer of his original registration as an associated
person of Morgan Stanley DW Inc. Mr. Handler withdrew as an associated person of MS & Co. in June
2009. Mr. Handler has been an associated person of Morgan Stanley Smith Barney LLC since June
2009. Mr. Handler serves as an Executive Director at Morgan Stanley Smith Barney LLC in the Global
Wealth Management Group. Mr. Handler works in the Capital Markets Division and is responsible for
Electronic Equity and Securities Lending. Additionally, Mr. Handler serves as Chairman of the
Global Wealth Management Groups Best Execution Committee. In his prior position, Mr. Handler was
a Systems Director in Information Technology, in charge of Equity and Fixed Income Trading Systems
along with the Special Products, such as Unit Trusts, Managed Futures, and Annuities. Prior to his
transfer to the Information Technology Area, Mr. Handler managed the Foreign Currency and Precious
Metals Trading Desk of Dean Witter, a financial services firm and predecessor company to Morgan
Stanley, from July 1982 until January 1984. He also held various positions in the Futures Division
where he helped to build the Precious Metals Trading Operation at Dean Witter. Before joining Dean
Witter, Mr. Handler worked at Mocatta Metals, a precious metals trading firm and futures broker
that was sold to Standard Charted Bank in the 1980s, as an Assistant to the Chairman from March
1980 until June 1982. His roles at Mocatta Metals included positions on the Futures Order Entry
Desk and the Commodities Exchange Trading Floor. Additional work included building a computerized
Futures Trading System and writing a history of the company. Mr. Handler graduated on the Deans
List from the University of Wisconsin-Madison with a BA degree and a double major in History and
Political Science.
Patrick T. Egan, age 41, has been a Director of the General Partner since December 2010. Mr. Egan
became registered as an associated person of the General Partner and listed as a principal in
December 2010. Mr. Egan has been an associate member of the NFA since December 1997. He has been
an associated person of Morgan Stanley Smith Barney LLC since November 2010. Mr. Egan was an
associated person of Morgan Stanley DW Inc., a financial services firm, from February 1998 to April
2007, when, because of the merger of Morgan Stanley DW Inc. into MS & Co., he became an associated
person of MS & Co. due to the transfer of his original registration as an associated person of
Morgan Stanley DW Inc. Mr. Egan withdrew as an associated person of MS & Co. in November 2010.
Mr. Egan is an Executive Director at Morgan Stanley Smith Barney LLC and currently serves as the
Co- Chief Investment Officer for Morgan Stanley Smith Barney LLCs Managed Futures Department.
Prior to his current role, Mr. Egan served as the Head of Due Diligence & Manager Research for
Morgan Stanleys Managed Futures Department from October 2003 until the formation of Morgan Stanley
Smith Barney LLC in June 2009. From March 1993 through September 2003, Mr. Egan was an analyst and
manager within the Managed Futures Department for Morgan Stanley DW Inc., and its predecessor firm, Dean Witter Reynolds, Inc., a financial services firm, with his primary
responsibilities being dedicated to the product development, due diligence, investment analysis and
risk management of the firms commodity pools. Mr. Egan began his career in August 1991, joining
Dean Witter Intercapital, the asset management arm of Dean Witter Reynolds, Inc., until March 1993
when he joined the firms Managed Futures Department. Mr. Egan received a Bachelor of Business
Administration with a concentration in Finance from the University of Notre Dame in May 1991. Mr.
Egan is a former Director to the Managed Funds Associations Board of Directors, a position he was
elected to by industry peers for two consecutive two-year terms, from November 2004 to October 2006
and November 2006 to October 2008.
Alper Daglioglu, age 33, has been a Director, and listed as a principal of the General Partner
since December 2010. Mr. Daglioglu is an Executive Director at Morgan Stanley Smith Barney LLC and
the Co-Chief Investment Officer for Morgan Stanley Smith Barney LLCs Managed Futures Department.
Mr. Daglioglu also serves on the Alternative Investments Product Review Committee of Morgan Stanley
Smith Barney LLCs Alternative Investments Group. Prior to his current role, Mr. Daglioglu was a
Senior Analyst at the Product Origination Group within Morgan Stanley Managed Futures Department
from December 2003 until the formation of Morgan Stanley Smith Barney LLC in June 2009. In
addition to his responsibilities within Managed Futures Department, Mr. Daglioglu was also the lead
investment analyst for Global Macro and Managed Futures strategies within Morgan Stanley Graystone
Research Group from February 2007 to June 2009. Mr. Daglioglu served as a consultant at the
Product Origination Group within Morgan Stanley Managed Futures Department from June 2003 to
November 2003. Mr. Daglioglu received a BS degree in Industrial Engineering from Galatasaray
University in June 2000 and a MBA degree in Finance from the University of Massachusetts-Amhersts
Isenberg School of Management in May 2003. Mr. Daglioglu was awarded a full merit scholarship and
research assistantship at the Center for International Securities and Derivatives Markets during
his graduate studies. In this capacity, he worked with various major financial institutions in
performance monitoring, asset allocation and statistical analysis projects and specialized on
alternative approaches to risk assessment for hedge funds and managed futures. Mr. Daglioglu wrote
and published numerous research papers on alternative investments. Mr. Daglioglu is a Chartered
Alternative Investment Analyst charterholder.
64
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 Partnerships board of directors, and has not established an audit committee because it has
no board of directors.
Item 11. Executive Compensation.
The
Partnership has no directors or officers. Its affairs are managed by
Ceres Managed
Futures LLC, its General Partner. CGM, an affiliate of the General Partner, is the commodity broker
for the Partnership and receives brokerage fees for such services, as described under Item
1. Business. Brokerage fees and clearing fees of
$3,068,973 were earned by CGM for
the year ended December 31, 2010. Management fees and incentive
fees of $1,081,965 and $0,
respectively, were earned by the Advisor for the year ended
December 31, 2010.
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,
2011, 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 Partnerships affairs are managed by the General
Partner.
The following table indicates securities owned by management as of December 31, 2010:
(1) Title of Class |
(2) Name of Beneficial Owner |
(3) Amount and Nature of Beneficial Ownership |
(4) Percent of Class |
General Partner unit equivalents | General Partner | 400.0879 | 1.1% |
(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. CGM
and the General Partner would be considered promoters
for purposes of item 404 (c) of Regulation S-K. The nature and the amounts of compensation each
promoter will receive, if any, from the Partnership are set forth under Item 1. Business
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 Deloitte for the year ended December 31, 2010 and for
the period from July 23,
2009 through December 31, 2009. PwC for the period from January
1, 2009 through
July 22, 2009
for the audit of the Partnerships annual financial statements, review of financial
statements included in the Partnerships Forms 10-Q and 10-K and other services normally provided
in connection with regulatory filings or engagements were:
Deloitte | PwC | |||
2010 |
$81,200 | $ N/A | ||
2009 |
$81,900(1) | $25,700(2) |
(1) For
the period July 23, 2009 to December 31, 2009.
(2) For
the period January 1, 2009 to July 22, 2009.
(2)
Audit-Related Fees. None
(3)
Tax Fees. In the last two fiscal years, Deloitte did not provide any
professional services for tax compliance, tax advice or tax
planning. The aggregate fees billed for each of the last two fiscal years for
professional services rendered by PwC for tax compliance and tax advice
given in the preparation of the Partnerships Schedule K1s, the preparation of the Partnerships
Form 1065 and preparation of all State Tax Returns were:
2010 |
$21,000 | |||
2009 |
$20,000 |
(4) All Other Fees. None.
(5) Not Applicable.
(6) Not Applicable.
65
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements:
Statements of Financial Condition at
December 31, 2010 and 2009.
Condensed
Schedules of Investments at December 31, 2010 and 2009.
Statements of Income and
Expenses for the years ended December 31, 2010, 2009 and 2008.
Statements of Changes in
Partners Capital for the years ended December 31, 2010, 2009 and
2008.
Notes to Financial Statements.
(2) Exhibits:
3.1 | Limited Partnership Agreement, dated March 21, 1997 (filed as Exhibit A to the Registration Statement on Form S-1 filed on April 10, 1997 and incorporated herein by reference). | ||
3.2 | Certificate of Limited Partnership of the Partnership as filed in the office of the Secretary of State of the State of New York, dated March 21, 1997 (filed as Exhibit 3.2 to the Registration Statement on Form S-1 filed on April 10, 1997 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 New York, dated October 1, 1999 (filed as Exhibit 3.2(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(b) | Certificate of Change of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, effective January 31, 2000 (filed as Exhibit 3.2(b) to the Form 10-Q filed on November 16, 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 New York, dated May 21, 2003 (filed as Exhibit 3.2(c) to the Form 10-Q filed on November 16, 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 New York, dated September 21, 2005 (filed as Exhibit 3.2(d) to the Form 10-Q filed on November 16, 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 New York, dated September 19, 2008 (filed as Exhibit 3.2(e) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(f) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the Form 8-K filed on September 29, 2009). | ||
(g) | Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated June 29, 2010 (filed as Exhibit 3.2(g) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference). | ||
10.1 | Form of Customer Agreement between the Partnership and Smith Barney Inc. (filed as Exhibit 10.1 to the Registration Statement on Form S-1 filed on April 10, 1997 and incorporated herein by reference). | ||
(a) | Amendment No. 1 to the Customer Agreement, dated March 1, 2000 (filed as Exhibit 10.1(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
10.2 | Form of Escrow Agreement and Instructions relating to escrow of subscription funds (filed as Exhibit 10.3 to the Registration Statement on Form S-1 filed on April 10, 1997 and incorporated herein by reference). | ||
(a) | Amendment to the Escrow Agreement and Instructions relating to escrow of subscription funds, dated April 8, 1997 (filed as Exhibit 10.2(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
10.3 | Amended and Restated Management Agreement among the Partnership, the General Partner and John W. Henry & Company Inc., dated March 1, 2000 (filed as Exhibit 10.3 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(a) | Amendment No. 1 to the Amended and Restated Management Agreement, dated September 10, 2000 (filed as Exhibit 10.3(a) to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
(b) | Letter extending the Amended and Restated Management Agreement among the Partnership, the General Partner and John W. Henry & Company, Inc. for 2010, dated June 1, 2010 (filed herein). | ||
10.4 | Form of Subscription Agreement (filed as Exhibit 10.4 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
10.5 | Agency Agreement among the Partnership, the General Partner, Morgan Stanley Smith Barney LLC and Citigroup Global Markets Inc., dated November 11, 2009 (filed as Exhibit 10.5 to the Form 10-Q filed on November 16, 2009 and incorporated herein by reference). | ||
10.6 | Joinder Agreement among the General Partner, Citigroup Global Markets Inc., and Morgan Stanley Smith Barney LLC dated as of June 1, 2009 (filed as Exhibit 10 to the Form 10-Q filed on August 14, 2009 and incorporated herein by reference). | ||
16.1 | Letter dated July 23, 2009 from PricewaterhouseCoopers LLP to the Securities and Exchange Commission (filed as Exhibit 16.1 to the Form 8-K, filed on July 23, 2009 and incorporated herein by reference). | ||
16.2 | Letter dated June 26, 2008 from KPMG LLP to the Securities and Exchange Commission (filed as Exhibit 16.1 to the Form 8-K, filed on July 1, 2008 and incorporated herein by reference). |
66
23.1 | Consent from KPMG LLP, dated March 26, 2009 (filed as Exhibit 23.1 to the Form 10-K filed on March 31, 2009 and incorporated herein by reference). |
The exhibits required to be filed by Item 601 of regulation S-K are incorporated herein by
reference
Exhibit 31.1 Rule 13a-14(a)/15d-15(a) Certification (Certification of President and
Director)
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial
Officer and Director)
Exhibit 32.1 Section 1350 Certification (Certification of President and Director)
Exhibit 32.2 Section 1350 Certification (Certification of Chief Financial Officer and
Director)
67
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.
Westport JWH Futures Fund L.P.
|
||||
By: | Ceres Managed Futures LLC | |||
(General Partner) | ||||
By: | /s/ Walter Davis | |||
Walter Davis President & Director Date: March 31, 2011 |
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/ Walter Davis
|
/s/ Michael McGrath
|
/s/ Patrick T. Egan
|
|||
President
and Director Ceres Managed Futures LLC Date: March 31, 2011
|
Director Ceres Managed Futures LLC Date: March 31, 2011
|
Director Ceres Managed Futures LLC Date: March 31, 2011
|
|||
/s/ Jennifer Magro
|
/s/ Douglas J. Ketterer | /s/ Alper Daglioglu | |||
Jennifer Magro
|
Douglas J. Ketterer | Alper Daglioglu | |||
Chief
Financial Officer and Director (Principal Accounting Officer) Ceres Managed Futures LLC Date: March 31, 2011
|
Director Ceres Managed Futures LLC Date: March 31, 2011 |
Director Ceres Managed Futures LLC Date: March 31, 2011
|
|||
/s/ Ian Bernstein
|
/s/ Harry Handler | ||||
Ian Bernstein
|
Harry Handler | ||||
Director Ceres Managed Futures LLC Date:
March 31, 2011 |
Director Ceres Managed Futures LLC Date:
March 31, 2011 |
||||
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.
68