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EX-31.03 - EXHIBIT 31.03 - NESTOR PARTNERSv341588_ex31-03.htm
EX-32.03 - EXHIBIT 32.03 - NESTOR PARTNERSv341588_ex32-03.htm
EX-31.01 - EXHIBIT 31.01 - NESTOR PARTNERSv341588_ex31-01.htm
EX-31.02 - EXHIBIT 31.02 - NESTOR PARTNERSv341588_ex31-02.htm
EX-32.02 - EXHIBIT 32.02 - NESTOR PARTNERSv341588_ex32-02.htm
EX-32.01 - EXHIBIT 32.01 - NESTOR PARTNERSv341588_ex32-01.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended:  March 31, 2013

Or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 000-50725

 

NESTOR PARTNERS

 

 

 

(Exact name of registrant as specified in its charter)

 

NEW JERSEY   22-2149317
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

c/o MILLBURN RIDGEFIELD CORPORATION

411 West Putnam Avenue

Greenwich, Connecticut  06830

 

 

 

(Address of principal executive offices) (Zip code)

 

Registrant's telephone number, including area code:  (203) 625-7554

 

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

 

Yes  x           No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes  x           No  ¨

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

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

 

Yes  ¨         No  x

 

 
 

 

PART 1. FINANCIAL INFORMATION    
ITEM 1. FINANCIAL STATEMENTS    
     
Nestor Partners    
Financial statements    
For the three months ended March 31, 2013 and 2012 (unaudited)    
     
Statements of Financial Condition (a)   1
Condensed Schedules of Investments (a)   2
Statements of Operations (b)   6
Statements of Changes in Partners' Capital (b)   7
Statements of Financial Highlights (b)   8
Notes to the Financial Statements   9

 

(a) At March 31, 2013 and December 31, 2012 (unaudited)

(b) For the three months ended March 31, 2013 and 2012 (unaudited)

 

 
 

 

Nestor Partners

Statements of Financial Condition (UNAUDITED)

 

   March 31   December 31 
   2013   2012 
ASSETS          
EQUITY IN TRADING ACCOUNTS:          
Investments in U.S. Treasury notes-at fair value (amortized cost $22,816,585 and $28,389,695)  $22,825,813   $28,396,041 
Net unrealized appreciation on open futures and forward currency contracts   1,966,992    2,496,110 
Due from brokers   5,492,147    2,205,107 
Cash denominated in foreign currencies (cost $777,307 and $1,359,884)   761,260    1,368,336 
Total equity in trading accounts   31,046,212    34,465,594 
           
INVESTMENTS IN U.S. TREASURY NOTES-at fair value (amortized cost $111,344,258 and $111,707,766)   111,375,380    111,733,763 
CASH AND CASH EQUIVALENTS   7,104,921    2,226,883 
ACCRUED INTEREST RECEIVABLE   255,547    646,507 
TOTAL  $149,782,060   $149,072,747 
           
LIABILITIES AND PARTNERS' CAPITAL          
LIABILITIES:          
Capital contributions received in advance  $1,408,000   $873,000 
Net unrealized depreciation on open futures and forward  currency contracts   1,272,421    943,951 
Accrued brokerage fees   276,414    285,906 
Cash denominated in foreign currencies (cost -$207,336 and -$428,893)   202,390    438,694 
Accrued expenses   237,355    146,185 
Capital withdrawals payable   2,930,378    3,341,531 
Due to General Partner   -    123 
Other liabilities   14,600    - 
Total liabilities   6,341,558    6,029,390 
           
PARTNERS' CAPITAL   143,440,502    143,043,357 
           
TOTAL  $149,782,060   $149,072,747 

 

See notes to financial statements

 

1
 

 

Nestor Partners

Condensed Schedule of Investments

March 31, 2013 (UNAUDITED)

 

Futures and Forward Currency Contracts  Net Unrealized
Appreciation/
(Depreciation) as a % of
Partners' Capital
  

Net

Unrealized
Appreciation/
(Depreciation)

 
         
FUTURES CONTRACTS:          
Long futures contracts:          
Energies   0.40%  $568,226 
Grains   (0.13)   (190,053)
Interest rates          
2 Year U.S. Treasury Note (932 contracts, settlement date June 2013)   0.02    33,501 
5 Year U.S. Treasury Note (614 contracts, settlement date June 2013)   0.10    136,180 
10 Year U.S. Treasury Note (269 contracts, settlement date June 2013)   0.08    116,719 
30 Year U.S. Treasury Bond (35 contracts, settlement date June 2013)   0.02    22,250 
Other   0.67    964,262 
Total interest rates   0.89    1,272,912 
           
Livestock   0.00    5,550 
Metals   (0.47)   (672,074)
Softs   0.07    107,262 
Stock indices   (0.38)   (540,102)
Total long futures contracts   0.38    551,721 
           
Short futures contracts:          
Energies   (0.32)   (459,391)
Grains   0.29    412,371 
Interest rates   (0.07)   (102,008)
Livestock   (0.07)   (99,440)
Metals   0.64    912,890 
Softs   0.18    259,966 
Stock indices   0.08    121,770 
Total short futures contracts   0.73    1,046,158 
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net   1.11    1,597,879 
           
FORWARD CURRENCY CONTRACTS:          
Total long forward currency contracts   (0.51)   (732,251)
Total short forward currency contracts   (0.12)   (171,057)
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS-Net   (0.63)   (903,308)
           
TOTAL   0.48%  $694,571 

 

(Continued)

 

2
 

 

Nestor Partners

Condensed Schedule of Investments

March 31, 2013 (UNAUDITED)

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value as a
% of Partners'
Capital
   Fair Value 
             
$38,450,000   U.S. Treasury notes, 3.375%, 07/31/2013   27.10%  $38,870,547 
 46,880,000   U.S. Treasury notes, 0.125%, 09/30/2013   32.68    46,883,663 
 10,040,000   U.S. Treasury notes, 0.500%, 11/15/2013   7.02    10,063,727 
 37,990,000   U.S. Treasury notes, 1.250%, 03/15/2014   26.76    38,383,256 
     Total investments in U.S. Treasury notes (amortized cost $134,160,843)   93.56%  $134,201,193 

 

See notes to financial statements  (Concluded) 

 

3
 

 

Nestor Partners

Condensed Schedule of Investments

December 31, 2012

 

Futures and Forward Currency Contracts  Net Unrealized
Appreciation/
(Depreciation) as a % of
Partners' Capital
  

Net

Unrealized
Appreciation/
(Depreciation)

 
         
FUTURES CONTRACTS:          
Long futures contracts:          
Energies   0.54%  $776,587 
Grains   (0.08)   (120,475)
Interest rates          
2 Year U.S. Treasury Note (1,238 contracts, settlement date March 2013)   0.06    87,593 
5 Year U.S. Treasury Note (359 contracts, settlement date March 2013)   (0.01)   (14,391)
10 Year U.S. Treasury Note (165 contracts, settlement date March 2013)   (0.02)   (33,406)
30 Year U.S. Treasury Bond (32 contracts, settlement date March 2013)   (0.01)   (12,750)
Other   0.43    615,382 
Total interest rates   0.45    642,428 
           
Metals   0.05    68,455 
Softs   0.00    4,385 
Stock indices   0.66    940,708 
Total long futures contracts   1.62    2,312,088 
           
Short futures contracts:          
Energies   (0.64)   (920,638)
Grains   0.04    67,207 
Interest rates   0.01    10,171 
Livestock   (0.00)   (3,220)
Metals   (0.19)   (274,237)
Softs   0.13    189,635 
Stock indices   (0.02)   (33,060)
Total short futures contracts   (0.67)   (964,142)
TOTAL INVESTMENTS IN FUTURES CONTRACTS-Net   0.95    1,347,946 
           
FORWARD CURRENCY CONTRACTS:          
Total long forward currency contracts   (0.19)   (276,829)
Total short forward currency contracts   0.33    481,042 
TOTAL INVESTMENTS IN FORWARD CURRENCY CONTRACTS-Net   0.14    204,213 
           
TOTAL   1.09%  $1,552,159 

 

(Continued)

 

4
 

 

Nestor Partners

Condensed Schedule of Investments

December 31, 2012

 

U.S. TREASURY NOTES

 

Face Amount   Description  Fair Value as a
% of Partners'
Capital
   Fair Value 
             
$37,990,000   U.S. Treasury notes, 0.625%, 02/28/2013   26.58%  $38,024,132 
 38,450,000   U.S. Treasury notes, 3.375%, 07/31/2013   27.38    39,169,436 
 52,880,000   U.S. Treasury notes, 0.125%, 09/30/2013   36.96    52,867,606 
 10,040,000   U.S. Treasury notes, 0.500%, 11/15/2013   7.04    10,068,630 
     Total investments in U.S. Treasury notes (amortized cost $140,097,461)   97.96%  $140,129,804 

 

See notes to financial statements (Concluded)

 

5
 

 

Nestor Partners

Statements of Operations (UNAUDITED)

 

   For the three months ended 
   March 31   March 31 
   2013   2012 
INVESTMENT INCOME:          
Interest income  $64,674   $54,045 
           
EXPENSES:          
Brokerage fees   931,273    900,708 
Administrative expenses   91,170    96,437 
Custody fees and other expenses   7,558    8,194 
Total expenses   1,030,001    1,005,339 
           
NET INVESTMENT LOSS   (965,327)   (951,294)
           
NET REALIZED AND UNREALIZED GAINS (LOSSES):          
Net realized gains (losses) on closed positions:          
Futures and forward currency contracts   5,485,597    (5,735,005)
Foreign exchange translation   (59,809)   21,476 
Net change in unrealized:          
Futures and forward currency contracts   (857,588)   (3,789,872)
Foreign exchange translation   (9,752)   4,994 
Net gains (losses) from U.S. Treasury notes:          
Realized   1,514    - 
Net change in unrealized   8,007    (39,130)
Total net realized and unrealized gains (losses)   4,567,969    (9,537,537)
           
NET INCOME (LOSS)   3,602,642    (10,488,831)
LESS PROFIT SHARE TO GENERAL PARTNER   14,600    - 
NET INCOME (LOSS) AFTER PROFIT SHARE TO GENERAL PARTNER  $3,588,042   $(10,488,831)

 

See notes to financial statements

 

6
 

 

Nestor Partners

Statements of Changes in Partners' Capital (UNAUDITED)

 

For the three months ended March 31, 2013:

 

  Limited
Partners
  Special
Limited
Partners
  General
Partner
  Total 
             
PARTNERS' CAPITAL-January 1, 2013 $81,662,298  $58,343,188  $3,037,871  $143,043,357 
Contributions  1,123,000   -   -   1,123,000 
Withdrawals  (4,148,659)  (165,238)  -  (4,313,897)
Net income  1,759,479   1,750,232   92,931   3,602,642 
General Partner's allocation:                
New Profit-Accrued  (14,600)  -   -   (14,600)
PARTNERS' CAPITAL-March 31, 2013 $80,381,518  $59,928,182  $3,130,802  $143,440,502 

 

For the three months ended March 31, 2012:

 

  Limited
Partners
  Special
Limited
Partners
  General
Partner
  Total 
             
PARTNERS' CAPITAL-January 1, 2012 $89,151,864  $64,316,203  $3,150,229  $156,618,296 
Contributions  6,374,000   -   -   6,374,000 
Withdrawals  (1,783,075)  (358,832)  -   (2,141,907)
Net loss  (6,389,497)  (3,909,475)  (189,859)  (10,488,831)
PARTNERS' CAPITAL-March 31, 2012 $87,353,292  $60,047,896  $2,960,370  $150,361,558 

 

See notes to financial statements

 

7
 

 

Nestor Partners

Statements of Financial Highlights (UNAUDITED)

 

For the three months ended March 31, 2013 and 2012  Limited
Partners
   Special Limited
Partners
 
   2013   2012   2013   2012 
                 
Ratios to average capital:                    
Net investment loss (a)   (4.08)%   (3.83)%   (0.76)%   (0.60)%
                     
Total expenses (a)   4.26%   3.97%   0.94%   0.74%
Profit share allocation (b)   0.02%   0.00%   0.00%   0.00%
Total expenses and profit share allocation   4.28%   3.97%   0.94%   0.74%
                     
Total return before profit share allocation (b)   2.15%   (6.83)%   3.00%   (6.08)%
Less: profit share allocation (b)   0.02%   0.00%   0.00%   0.00%
Total return after profit share allocation   2.13%   (6.83)%   3.00%   (6.08)%

 

(a) annualized  
(b) not annualized

 

 

See notes to financial statements

8
 

 

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of Nestor Partners’ (the “Partnership”) financial condition at March 31, 2013 and December 31, 2012 and the results of its operations for the three months ended March 31, 2013 and 2012 (unaudited). These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes included in the Partnership's annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2012. The December 31, 2012 information has been derived from the audited financial statements as of December 31, 2012.

 

The preparation of financial statements in conformity with accounting principles generally accepted (“U.S. GAAP”) in the United States of America (the “U.S.”) requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Actual results could differ from these estimates.

 

The Partnership enters into contracts that contain a variety of indemnification provisions. The Partnership’s maximum exposure under these arrangements is unknown. The Partnership does not anticipate recognizing any loss related to these arrangements.

 

The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (the “Codification”) clarifies the accounting for uncertainty in tax positions. This requires that the Partnership recognize in its financial statements the impact of any uncertain tax positions. Based on a review of the Partnership’s open tax years, 2009 to 2012, for the U.S. Federal jurisdiction, the New York, Connecticut and New Jersey state jurisdictions and the New York City jurisdiction, there are no uncertain tax positions. The Partnership is treated as a limited partnership for federal and state income tax reporting purposes and therefore the limited partners of the Partnership (the "Limited Partners") are responsible for the payment of taxes.

 

There have been no material changes with respect to the Partnership's critical accounting policies, off-balance sheet arrangements or disclosure of contractual obligations as reported in the Partnership's Annual Report on Form 10-K for fiscal year 2012.

  

2. FAIR VALUE

 

The Fair Value Measurements and Disclosures topic of the Codification defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

 

Level 3: Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

In determining fair value, the Partnership separates its investments into two categories: cash instruments and derivative contracts.

 

9
 

 

Cash Instruments – The Partnership’s cash instruments are generally classified within Level 1 of the fair value hierarchy because they are typically valued using quoted market prices. The types of instruments valued based on quoted market prices in active markets include U.S. government obligations and an investment in a quoted short-term U.S. government securities money market fund. Millburn Ridgefield Corporation (the “General Partner”) does not adjust the quoted price for such instruments even in situations where the Partnership holds a large position and a sale could reasonably impact the quoted price.

 

Derivative Contracts – Derivative contracts can be exchange-traded or over-the-counter (“OTC”). Exchange-traded futures contracts are valued based on quoted closing settlement prices and typically fall within Level 1 of the fair value hierarchy.

 

Spot currency contracts are valued based on current market prices (“Spot Price”). Forward currency contracts are valued based on pricing models that consider the Spot Price plus the financing cost or benefit (“Forward Point”). Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Partnership may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. Model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.

   

During the three months ended March 31, 2013 and 2012, there were no transfers of assets or liabilities between Level 1 and Level 2. The following tables represent the Partnership’s investments by hierarchical level as of March 31, 2013 and December 31, 2012 in valuing the Partnership’s investments at fair value. At March 31, 2013 and December 31, 2012, the Partnership held no assets or liabilities in Level 3.

  

Financial Assets and Liabilities at Fair Value as of March 31, 2013

 

   Level 1   Level 2   Total 
             
U.S. Treasury Notes (1)  $134,201,193   $-   $134,201,193 
Short-Term Money Market Fund*   6,894,227    -    6,894,227 
Exchange-Traded Futures Contracts               
Energies   108,835    -    108,835 
Grains   222,318    -    222,318 
Interest rates   1,170,904    -    1,170,904 
Livestock   (93,890)   -    (93,890)
Metals   240,816    -    240,816 
Softs   367,228    -    367,228 
Stock indices   (418,332)   -    (418,332)
                
Total exchange-traded futures contracts   1,597,879    -    1,597,879 
                
Over-the-Counter Forward Currency Contracts   -    (903,308)   (903,308)
                
Total futures and forward currency contracts (2)   1,597,879    (903,308)   694,571 
                
Total financial assets at fair value  $142,693,299   $(903,308)  $141,789,991 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $22,825,813 
Investments in U.S. Treasury notes held in custody             111,375,380 
Total investments in U.S. Treasury notes            $134,201,193 
                
(2)               
Net unrealized appreciation on futures and forward currency contracts            $1,966,992 
Net unrealized depreciation on futures and forward currency contracts             (1,272,421)
Total unrealized appreciation on futures and forward currency contracts            $694,571 

 

*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.

 

10
 

 

Financial Assets and Liabilities at Fair Value as of December 31, 2012

 

   Level 1   Level 2   Total 
             
U.S. Treasury Notes (1)  $140,129,804   $-   $140,129,804 
Short-Term Money Market Fund*   2,041,883    -    2,041,883 
Exchange-Traded Futures Contracts               
Energies   (144,051)   -    (144,051)
Grains   (53,268)   -    (53,268)
Interest rates   652,599    -    652,599 
Livestock   (3,220)   -    (3,220)
Metals   (205,782)   -    (205,782)
Softs   194,020    -    194,020 
Stock indices   907,648    -    907,648 
                
Total exchange-traded future contracts   1,347,946    -    1,347,946 
                
Over-the-Counter Forward Currency Contracts   -    204,213    204,213 
                
Total futures and forward currency contracts (2)   1,347,946    204,213    1,552,159 
                
Total financial assets at fair value  $143,519,633   $204,213   $143,723,846 
                
Per line item in Statements of Financial Condition               
(1)               
Investments in U.S. Treasury notes held in brokers' trading accounts as collateral            $28,396,041 
Investments in U.S. Treasury notes held in custody             111,733,763 
Total investments in U.S. Treasury notes            $140,129,804 
                
(2)               
Net unrealized appreciation on futures and forward currency contracts            $2,496,110 
Net unrealized depreciation on futures and forward currency contracts             (943,951)
Total unrealized appreciation on futures and forward currency contracts            $1,552,159 

 

*The short-term money market fund is included in Cash and Cash Equivalents on the Statements of Financial Condition.

 

3. DERIVATIVE INSTRUMENTS

 

The Derivatives and Hedging topic of the Codification requires qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.

 

In December 2011, FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities” which created a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangement associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Statements of Financial Condition and instruments and transactions subject to an arrangement similar to a master netting agreement. The following tables present gross amounts of assets and liabilities which qualify for offset as presented in the Statements of Financial Condition at March 31, 2013 and December 31, 2012.

 

11
 

 

Offsetting of derivative assets and liabilities at March 31, 2013

 

Assets  Gross amounts of
recognized assets
   Gross amounts
offset in the
Statements of
Financial Condition
   Net amounts of
assets presented in
the Statements of
Financial Condition
 
Futures contracts       $    $  
Counterparty B  $1,801,754    (575,328)   1,226,426 
Counterparty C   1,157,361    (702,434)   454,927 
Counterparty D   696,594    (410,955)   285,639 
Total futures contracts  $3,655,709   $(1,688,717)  $1,966,992 

 

Liabilities  Gross amounts
offset in the
Statements of
Financial Condition
   Gross amounts of
recognized liabilities
   Net amounts of
liabilities presented in
the Statements of
Financial Condition
 
Futures contracts               
Counterparty A  $713,287   $(797,733)  $(84,446)
Counterparty E   328,288    (612,955)   (284,667)
Total futures contracts   1,041,575    (1,410,688)   (369,113)
                
Forward currency contracts               
Counterparty F   469,311    (850,917)   (381,606)
Counterparty G   18,096    (119,222)   (101,126)
Counterparty H   867,555    (1,288,131)   (420,576)
Total forward currency contracts   1,354,962    (2,258,270)   (903,308)
                
Total futures and forward currency contracts  $2,396,537   $(3,668,958)  $(1,272,421)

 

Offsetting of derivative assets and liabilities at December 31, 2012

 

Assets  Gross amounts of
recognized assets
   Gross amounts
offset in the
Statements of
Financial Condition
   Net amounts of
assets presented in
the Statements of
Financial Condition
 
Futures contracts               
Counterparty A  $469,664   $(265,540)  $204,124 
Counterparty B   1,826,503    (917,569)   908,934 
Counterparty D   454,227    (183,659)   270,568 
Counterparty E   403,519    (277,140)   126,379 
Total futures contracts   3,153,913    (1,643,908)   1,510,005 
                
Forward currency contracts               
Counterparty F   1,407,165    (489,760)   917,405 
Counterparty G   104,142    (35,442)   68,700 
Total forward currency contracts   1,511,307    (525,202)   986,105 
                
Total futures and forward currency contracts  $4,665,220   $(2,169,110)  $2,496,110 

 

Liabilities  Gross amounts
offset in the
Statements of
Financial Condition
   Gross amounts of
recognized liabilities
   Net amounts of
liabilities presented in
the Statements of
Financial Condition
 
Futures contracts               
Counterparty C  $634,042   $(796,100)  $(162,058)
Total futures contracts   634,042    (796,100)   (162,058)
                
Forward currency contracts               
Counterparty H   2,102,167    (2,884,060)   (781,893)
Total forward currency contracts   2,102,167    (2,884,060)   (781,893)
                
Total futures and forward currency contracts  $2,736,209   $(3,680,160)  $(943,951)

 

12
 

 

 

The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open positions and the liquidity of the markets in which it trades.

 

The Partnership engages in the speculative trading of futures and forward contracts on currencies, energies, grains, interest rates, livestock, metals, softs and stock indices. The following were the primary trading risk exposures of the Partnership at March 31, 2013, by market sector:

 

Agricultural (grains, livestock and softs) – The Partnership’s primary exposure is to agricultural price movements, which are often directly affected by severe or unexpected weather conditions as well as supply and demand factors.

  

Currencies – Exchange rate risk is a principal market exposure of the Partnership. The Partnership’s currency exposure is to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs. The fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Partnership trades in a large number of currencies, including cross-rates—e.g., positions between two currencies other than the U.S. dollar.

 

Energies – The Partnership’s primary energy market exposure is to gas and oil price movements, often resulting from political developments in the Middle East and economic conditions worldwide. Energy prices are volatile and substantial profits and losses have been and are expected to continue to be experienced in this market.

 

Interest rates – Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries may materially impact the Partnership’s profitability. The Partnership’s primary interest rate exposure is to interest rate fluctuations in countries or regions including Australia, Canada, Japan, Switzerland, the United Kingdom, the U.S. and the Eurozone. However, the Partnership also may take positions in futures contracts on the government debt of other nations. The General Partner anticipates that interest rates in these industrialized countries or areas, both long-term and short-term, will remain the primary interest rate market exposure of the Partnership for the foreseeable future.

 

Metals – The Partnership’s metals market exposure is to fluctuations in the price of aluminum, copper, gold, lead, nickel, platinum, silver, tin and zinc.

 

Stock indices – The Partnership’s equity exposure, through stock index futures, is to equity price risk in the major industrialized countries as well as other countries.

 

The Derivatives and Hedging topic of the Codification requires entities to recognize in the Statements of Financial Condition all derivative contracts as assets or liabilities. Fair values of futures and forward currency contracts in an asset position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized appreciation on open futures and forward currency contracts.” Fair values of futures and forward currency contracts in a liability position by counterparty are recorded in the Statements of Financial Condition as “Net unrealized depreciation on open futures and forward currency contracts.” The Partnership’s policy regarding fair value measurement is discussed in the Fair Value and Disclosures note, contained herein.

 

Since the derivatives held or sold by the Partnership are for speculative trading purposes, the derivative instruments are not designated as hedging instruments under the provisions of the Derivatives and Hedging guidance. Accordingly, all realized gains and losses, as well as any change in net unrealized gains or losses on open positions from the preceding period, are recognized as part of the Partnership’s trading gains and losses in the Statements of Operations.

 

13
 

 

The following tables present the fair value of open futures and forward currency contracts, held long or sold short, at March 31, 2013 and December 31, 2012. Fair value is presented on a gross basis even though the contracts are subject to master netting agreements and qualify for net presentation in the Statements of Financial Condition.

  

Fair value of futures and forward currency contracts at March 31, 2013

 

                   Net Unrealized 
   Fair Value - Long Positions   Fair Value - Short Positions   Gain (Loss) on 
Sector  Gains   Losses   Gains   Losses   Open Positions 
Futures contracts:                         
Energies  $593,376   $(25,150)  $6,702   $(466,093)  $108,835 
Grains   11,030    (201,083)   435,797    (23,426)   222,318 
Interest rates   1,499,513    (226,601)   329    (102,337)   1,170,904 
Livestock   5,550    -    -    (99,440)   (93,890)
Metals   36,980    (709,054)   927,543    (14,653)   240,816 
Softs   176,132    (68,870)   322,444    (62,478)   367,228 
Stock indices   560,118    (1,100,220)   121,770    -    (418,332)
Total futures contracts:   2,882,699    (2,330,978)   1,814,585    (768,427)   1,597,879 
                          
Forward currency contracts   682,470    (1,414,721)   672,492    (843,549)   (903,308)
                          
Total futures and forward currency contracts  $3,565,169   $(3,745,699)  $2,487,077   $(1,611,976)  $694,571 

 

Fair value of futures and forward currency contracts at December 31, 2012

 

                   Net Unrealized 
   Fair Value - Long Positions   Fair Value - Short Positions   Gain (Loss) on 
Sector  Gains   Losses   Gains   Losses   Open Positions 
Futures contracts:                         
Energies  $783,955   $(7,368)  $49,968   $(970,606)  $(144,051)
Grains   -    (120,475)   74,045    (6,838)   (53,268)
Interest rates   1,159,021    (516,593)   10,171    -    652,599 
Livestock   -    -    480    (3,700)   (3,220)
Metals   91,984    (23,529)   645    (274,882)   (205,782)
Softs   4,385    -    243,519    (53,884)   194,020 
Stock indices   1,064,657    (123,949)   -    (33,060)   907,648 
Total futures contracts:   3,104,002    (791,914)   378,828    (1,342,970)   1,347,946 
                          
Forward currency contracts   1,505,439    (1,782,268)   1,788,055    (1,307,013)   204,213 
                          
Total futures and forward currency contracts  $4,609,441   $(2,574,182)  $2,166,883   $(2,649,983)  $1,552,159 

 

The effect of trading futures and forward currency contracts is represented on the Statements of Operations for the three months ended March 31, 2013 and 2012 as “Net realized gains (losses) on closed positions: Futures and forward currency contracts” and “Net change in unrealized: Futures and forward currency contracts.” These trading gains and losses are detailed below.

  

Trading gains (losses) of futures and forward currency contracts for the three months ended March 31, 2013 and 2012

 

Sector  2013   2012 
Futures contracts:          
Energies  $(974,996)  $2,248,294 
Grains   (216,884)   (972,755)
Interest rates   (1,152,399)   (3,465,841)
Livestock   31,680    (26,170)
Metals   (790,232)   (1,565,326)
Softs   528,860   470,853 
Stock indices   6,887,732   (1,915,527)
Total futures contracts:   4,313,761   (5,226,472)
           
Forward currency contracts   314,248   (4,298,405)
           
Total futures and forward currency contracts  $4,628,009  $(9,524,877)

  

14
 

 

The following table presents average notional value by sector of open futures and forward currency contracts for the three months ending March 31, 2013 and 2012 in U.S. dollars. The Partnership’s average net asset value for the three months ended March 31, 2013 and 2012 was approximately $146,000,000 and $154,000,000, respectively.

  

Average notional value by sector of futures and forward currency contracts for the three months ended March 31, 2013 and 2012

 

   2013   2012 
Sector  Long positions   Short positions   Long positions   Short positions 
Futures contracts:                    
Energies  $22,578,780   $24,385,153   $19,470,621   $9,066,420 
Grains   8,744,235    11,443,235    4,363,581    7,873,675 
Interest rates   407,242,568    7,935,373    293,958,348    5,260,197 
Livestock   258,540    2,990,745    -    993,270 
Metals   9,851,233    14,590,613    6,157,937    13,791,063 
Softs   3,652,553    9,048,550    1,632,294    6,171,687 
Stock indices   134,108,060    1,201,050    21,418,139    26,848,576 
Total futures contracts:   586,435,969    71,594,719    347,000,920    70,004,888 
                     
Forward currency contracts   196,238,131    69,497,014    60,728,284    99,834,140 
                     
Total futures and forward currency contracts  $782,674,100   $141,091,733   $407,729,204   $169,839,028 

 

Notional values in the interest rate sector were calculated by converting the notional value in local currency of open interest rate futures positions with maturities less than 10 years to 10-year equivalent fixed income instruments and translated to U.S. dollars at March 31, 2013 and 2012. The 10-year note is often used as a benchmark for many types of fixed-income instruments and the General Partner believes it is a more meaningful representation of notional values of the Partnership’s open interest rate positions.

 

CONCENTRATION OF CREDIT RISK

 

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. Credit risk is normally reduced to the extent that an exchange or clearing organization acts as a counterparty to futures transactions since typically the collective credit of the members of the exchange is pledged to support the financial integrity of the exchange.

 

The General Partner seeks to minimize credit risk primarily by depositing and maintaining the Partnership’s assets at financial institutions and trading counterparties which the General Partner believes to be creditworthy. In addition, for OTC forward currency contracts, the Partnership enters into master netting agreements with its counterparties. Collateral posted at the various counterparties for trading of futures and forward currency contracts includes cash and U.S. Treasury notes.

  

The Partnership’s forward currency trading activities are cleared by Barclays Bank PLC (“BB”), Deutsche Bank AG (“DB”) and Morgan Stanley & Co. LLC (“MS”). The Partnership’s concentration of credit risk associated with BB, DB or MS nonperformance includes unrealized gains inherent in such contracts, which are recognized in the Statements of Financial Condition plus the value of margin or collateral held by BB, DB and MS. The amount of such credit risk was $10,585,354 and $15,616,290 at March 31, 2013 and December 31, 2012, respectively.

 

4. PROFIT SHARE

 

The following table indicates the total profit share earned and accrued during the three months ended March 31, 2013 and 2012. Profit share earned (from Limited Partners’ redemptions) is credited to the New Profit Memo Account as defined in the Partnership’s Agreement of Limited Partnership.

  

   Three months ended: 
   March 31, 
2013
   March 31,
2012
 
Profit share earned  $-   $- 
Profit share accrued (1)   14,600    - 
Total profit share  $14,600   $- 

 

(1)Included in “Other liabilities” in the Statements of Financial Condition.

 

15
 

 

5. RELATED PARTY TRANSACTIONS

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership's average month-end net assets. A portion of such expenses are paid to an affiliate of the General Partner, The Millburn Corporation (“TMC”), for providing accounting services to the Partnership. The following table indicates the portion relating to administrative expenses as well as the portion relating to legal and accounting services provided to the Partnership by TMC during the three months ended March 31, 2013 and 2012. The General Partner pays all administrative expenses in excess of 0.25 of 1% per annum of the Partnership's average month-end net assets.

 

   Three Months
Ended
   Three Months
Ended
 
   March 31,
2013
   March 31,
2012
 
Administrative Expenses  $91,170   $96,437 
Legal and Accounting Services  $49,074   $46,902 
Provided by TMC          

  

Limited partnership interests (“Interests”) sold through selling agents engaged by the General Partner are generally subject to a 2.5% redemption charge for redemptions made prior to the end of the twelfth month following their sale. All redemption charges will be paid to the General Partner. At March 31, 2013 and December 31, 2012, $0 and $123, respectively, was owed to the General Partner.

  

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Reference is made to Item 1, "Financial Statements." The information contained therein is essential to, and should be read in connection with, the following analysis.

 

OPERATIONAL OVERVIEW

 

Due to the nature of the Partnership's business, its results of operations depend on the General Partner's ability to recognize and capitalize on trends and other profit opportunities in different sectors of the global capital and commodity markets. The General Partner's investment and trading methods are confidential so that substantially the only information that can be furnished regarding the Partnership's results of operations is contained in the performance record of its trading. Unlike operating businesses, general economic or seasonal conditions do not directly affect the profit potential of the Partnership and its past performance is not necessarily indicative of future results. The General Partner believes, however, that there are certain market conditions, for example, markets with strong price trends, in which the Partnership has a better likelihood of being profitable than in others.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Interests may be offered for sale as of the beginning, and may be redeemed as of the end, of each month.

 

The amount of capital raised for the Partnership should not have a significant impact on its operations, as the Partnership has no significant capital expenditure or working capital requirements other than for monies to pay trading losses, brokerage commissions and charges. Within broad ranges of capitalization, the General Partner’s trading positions should increase or decrease in approximate proportion to the size of the Partnership.

 

The Partnership raises additional capital only through the sale of Interests and capital is increased through trading profits (if any). The Partnership does not engage in borrowing.

 

The Partnership trades futures, forwards and spot contracts on interest rate instruments, agricultural commodities, currencies, metals, energy and stock indices, and forward contracts on currencies, and may trade options on the foregoing and swaps thereon. Risk arises from changes in the value of these contracts (market risk) and the potential inability of counterparties or brokers to perform under the terms of their contracts (credit risk). Market risk is generally to be measured by the face amount of the futures positions acquired and the volatility of the markets traded. The credit risk from counterparty non-performance associated with these instruments is the net unrealized gain, if any, on these positions plus the value of the margin or collateral held by the counterparty. The risks associated with exchange-traded contracts are generally perceived to be less than those associated with OTC transactions because exchanges typically (but not universally) provide clearinghouse arrangements in which the collective credit (in some cases limited in amount, in some cases not) of the members of the exchange is pledged to support the financial integrity of the exchange. In most OTC transactions, on the other hand, traders must rely (typically but not universally) solely on the credit of their respective individual counterparties. Margins which may be subject to loss in the event of a default are generally required in exchange trading and counterparties may require margin or collateral in the OTC markets.

 

The General Partner has procedures in place to control market risk, although there can be no assurance that they will, in fact, succeed in doing so. These procedures primarily focus on (1) real time monitoring of open positions; (2) diversifying positions among various markets; (3) limiting the assets committed as margin or collateral, generally within a range of 5% to 35% of an account’s net assets, though the amount may at any time be substantially higher; (4) prohibiting pyramiding - that is, using unrealized profits in a particular market as margin for additional positions in the same market; and (5) changing the equity utilized for trading by an account solely on a controlled periodic basis, not automatically due to an increase in equity from trading profits. The General Partner attempts to control credit risk by causing the Partnership to deal exclusively with large, well capitalized financial institutions as brokers and counterparties.

 

16
 

 

The financial instruments traded by the Partnership contain varying degrees of off-balance sheet risk whereby changes in the market values of the futures, forwards and spot contracts or the Partnership’s satisfaction of the obligations may exceed the amount recognized in the Statement of Financial Condition of the Partnership.

 

Due to the nature of the Partnership’s business, substantially all its assets are represented by cash, cash equivalents and U.S. government obligations while the Partnership maintains its market exposure through open futures, forwards and spot currency contract positions.

 

The Partnership’s futures contracts are settled by offset and are cleared by the exchange clearinghouse function. Open futures positions are marked to market each trading day and the Partnership’s trading accounts are debited or credited accordingly. Options on futures contracts are settled either by offset or by exercise. If an option on a future is exercised, the Partnership is assigned a position in the underlying future which is then settled by offset. The Partnership’s spot and forward currency transactions conducted in the interbank market are settled by netting offsetting positions or payment obligations and by cash payments.

 

The value of the Partnership’s cash and financial instruments is not materially affected by inflation. Changes in interest rates, which are often associated with inflation, could cause the value of certain of the Partnership’s debt securities to decline, but only to a limited extent. More important, changes in interest rates could cause periods of strong up or down market price trends during which the Partnership’s profit potential generally increases. However, inflation can also give rise to markets which have numerous short price trends followed by rapid reversals, markets in which the Partnership is likely to suffer losses.

 

The Partnership’s assets are generally held as cash or cash equivalents, including U.S. government securities or securities issued by federal agencies (or, to a limited extent, foreign government securities in connection with trading on non-U.S. exchanges), other Commodity Futures Trading Commission authorized investments or held in bank or certain other money market instruments (e.g., bankers acceptances and Eurodollar or other time deposits), which are used to margin the Partnership’s futures, forwards and spot currency positions and withdrawn, as necessary, to pay redemptions and expenses. Other than potential market-imposed limitations on liquidity, due, for example, to limited open interest in certain futures markets or to daily price fluctuation limits, which are inherent in the Partnership’s futures, forwards and spot trading, the Partnership’s assets are highly liquid and are expected to remain so.

 

During its operations for the three months ended March 31, 2013, the Partnership experienced no meaningful periods of illiquidity in any of the numerous markets traded by the General Partner.

 

CRITICAL ACCOUNTING ESTIMATES

 

The Partnership records its transactions in futures, forwards and spot contracts, including related income and expenses, on a trade date basis. Open futures contracts traded on an exchange are valued at fair value, which is based on the closing settlement price on the exchange where the futures contract is traded by the Partnership on the day with respect to which net assets are being determined. Open spot currency contracts are valued based on the current Spot Price. Open forward currency contracts are recorded at fair value, based on pricing models that consider the Spot Price and Forward Point. Spot Prices and Forward Points for open forward currency contracts are generally based on the average midpoint of bid/ask quotations at the last second ending at 3:00 P.M. New York time provided by widely used quotation service providers on the day with respect to which net assets are being determined. Forward Points from the quotation service providers are generally in periods of one month, two months, three months, six months, nine months and twelve months forward while the contractual forward delivery dates for the forward currency contracts traded by the Partnership may be in between these periods. The General Partner’s policy to determine fair value for forward currency contracts involves first calculating the number of months from the date the forward currency contract is being valued to its maturity date (“Months to Maturity”), then identifying the forward currency contracts for the two forward months that are closest to the Months to Maturity (“Forward Month Contracts”). Linear interpolation is then performed between the dates of these two Forward Month Contracts to calculate the interpolated Forward Point. The General Partner will also compare the calculated price to the forward currency prices provided by dealers to determine whether the calculated price is fair and reasonable.

 

17
 

 

RESULTS OF OPERATIONS

 

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

 

     
  Period ended March 31, 2013  
     

  

Month Ending:  Total Partners'
Capital
 
     
March 31, 2013  $143,440,502 
December 31, 2012   143,043,357 

 

   Three Months 
Change in Partners' Capital  $397,145 
Percent Change   0.28%

 

THREE MONTHS ENDED MARCH 31, 2013

 

The increase in the Partnership’s net assets of $397,145 was attributable to withdrawals of $4,313,897, which was partially offset by contributions of $1,123,000, and net income after profit share to General Partner of $3,588,042.

 

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended March 31, 2013 increased $30,565 relative to the corresponding period in 2012. The increase was due to an increase in the net asset value of fee-paying limited partners which was partially offset by a decrease in average net assets of the Partnership during the three months ended March 31, 2013, relative to the corresponding period in 2012.

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the three months ended March 31, 2013 decreased $5,267 relative to the corresponding period in 2012. The decrease was due mainly to a decrease in the Partnership’s average net assets during the three months ended March 31, 2013, relative to the corresponding period in 2012.

 

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the three months ended March 31, 2013 increased $10,629 relative to the corresponding period in 2012. This increase was due predominantly to an increase in short-term Treasury yields during the three months ended March 31, 2013 relative to the corresponding period in 2012.

 

During the three months ended March 31, 2013, the Partnership experienced net realized and unrealized gains of $4,567,969 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $931,273, administrative expenses of $91,170, custody fees and other expenses of $7,558 and an accrued profit share allocation to the General Partner of $14,600 were incurred. Interest income of $64,674 partially offset the Partnership's expenses resulting in net income after profit share to the General Partner of $3,588,042. An analysis of the trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)
 
Currencies   0.23%
Energies   (0.67)%
Grains   (0.14)%
Interest rates   (0.85)%
Livestock   0.01%
Metals   (0.54)%
Softs   0.37%
Stock indices   4.82%
Trading gain   3.23%

 

18
 

 

MANAGEMENT DISCUSSION – 2013

 

Three months ended March 31, 2013

 

The Partnership produced a profit during the quarter predominantly due to gains from long equity positions. There was also a fractional gain from trading soft commodities. Currency trading was nearly flat. On the other hand, trading of interest rate, energy, metal and agricultural commodity futures generated losses.

 

During the quarter, market participants were encouraged by an improvement in U.S. economic conditions, by signs that China’s growth was recovering after having bottomed in the third quarter of 2012, by continued monetary ease worldwide, and by evidence that some grudging progress was being made on the banking and fiscal problems that have plagued developed economies in recent years. At times, however, this enthusiasm was dampened by a variety of factors including: ongoing debate about the future direction of monetary policies and quantitative easing; discussion about the efficacy of continued austerity in the developed world; the possible impact of the U.S. sequestration; talk of political scandals in Spain; labor unrest in Greece; the unexpected Italian election results; and the Cypriot crisis.

 

With U.S. manufacturing, housing and employment data remaining positive, long positions in U.S. equity futures were profitable as well as a short position in the VIX index. Long positions in Japanese equity futures were profitable in the wake of the Bank of Japan’s accommodative rhetoric. Long Swedish, German, Dutch, Australian, South African, Singaporean and Taiwanese equity index trades were also positive. On the other hand, long positions in Italian, Spanish, Chinese, Korean and Hong Kong equity futures produced partially offsetting losses.

 

Currency trading was mixed and essentially flat for the quarter. Long U.S. and Australian dollar trades against the Japanese yen were quite profitable as Japan’s leaders forged ahead with promises of monetary accommodation. Long Australian positions relative to British Pound Sterling and the Euro, and long U.S. dollar and Euro trades against the South African rand also posted gains. Finally, short Euro trades versus Romanian Leu, Swedish Krone and Turkish Lira, and short U.S. dollar trades versus Chilean and Mexican Peso and Israeli Shekel were profitable. On the other hand, short U.S. dollar trades versus the currencies of the United Kingdom, Canada, Colombia, South Korea, Singapore, Norway, Poland and Switzerland registered losses and were reduced as were short Euro trades against the currencies of Norway, Poland, Hungary and the Czech Republic.

 

In January when growth prospects brightened and risk aversion dissipated, interest rates rose and long positions in German, U.S., Australian, Canadian, British and French note and bond futures—which had been highly profitable for the last two years—produced losses and were reduced. In late February and March, increasing worry increased the purchase of government securities, and the long—though reduced—positions produced profits that fell short of earlier losses. For the quarter, long U.S. note and bond positions were profitable, as was a long JGB trade. On the other hand, trading of German, British, Canadian and Australian interest rate futures was unprofitable.

 

Trading of commodities was fractionally unprofitable. Among soft commodities, short positions in coffee and sugar were profitable due to the weight of abundant supplies on price. Also, a long cotton trade produced a gain. In grains, the losses from trading corn and the soybean complex outdistanced the gain from a short wheat position. Energy prices were volatile during the quarter and the losses from trading crude oil, heating oil and London gas oil were greater than the profits from a long RBOB gasoline position and from trading natural gas. In metals, profits from short copper and aluminum positions fell short of the losses from long gold, silver, platinum, zinc, lead and nickel trades.

 

19
 

 

     
  Period ended March 31, 2012  
     

 

Month Ending:  Total Partners'
Capital
 
     
March 31, 2012  $150,361,558 
December 31, 2011   156,618,296 

 

   Three Months 
Change in Partners' Capital  $(6,256,738)
Percent Change   -3.99%

 

THREE MONTHS ENDED MARCH 31, 2012

 

The decrease in the Partnership’s net assets of $6,256,738 was attributable to a net loss of $10,488,831 and withdrawals of $2,141,907, which was partially offset by contributions of $6,374,000.

 

Brokerage fees are calculated on the net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions. Brokerage fees for the three months ended March 31, 2012 increased $64,092 relative to the corresponding period in 2011. The increase was due to an increase in the number of fee-paying limited partners which was partially offset by a decrease in average net assets of the Partnership during the three months ended March 31, 2012, relative to the corresponding period in 2011.

 

The Partnership pays administrative expenses for legal, audit and accounting services, up to 0.25 of 1% per annum of the Partnership’s average month-end net assets. Administrative expenses for the three months ended March 31, 2012 decreased $5,448 relative to the corresponding period in 2011. The decrease was due mainly to a decrease in the Partnership’s average net assets during the three months ended March 31, 2012, relative to the corresponding period in 2011.

 

Interest income is derived from cash and U.S. Treasury instruments held at the Partnership’s brokers and custodian. Interest income for the three months ended March 31, 2012 decreased $71,668 relative to the corresponding period in 2011. This decrease was due primarily to a decrease in short-term Treasury yields during the three months ended March 31, 2012 relative to the corresponding period in 2011.

 

During the three months ended March 31, 2012, the Partnership experienced net realized and unrealized losses of $9,537,537 from its trading operations (including foreign exchange translations and U.S. Treasury notes). Brokerage fees of $900,708, administrative expenses of $96,437 and custody fees and other expenses of $8,194 were incurred. Interest income of $54,045 partially offset the Partnership's expenses resulting in a net loss of $10,488,831. An analysis of the trading gain (loss) by sector is as follows:

 

Sector  % Gain
(Loss)
 
Currencies   (2.72)%
Energies   1.45%
Grains   (0.61)%
Interest rates   (2.22)%
Livestock   (0.00)%
Metals   (0.97)%
Softs   0.31%
Stock indices   (1.19)%
Trading gain   (5.95)%

 

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MANAGEMENT DISCUSSION – 2012

 

Three months ended March 31, 2012

 

The Partnership produced a loss during the quarter as losses from trading currency forwards and interest rates, equities, metals and grains futures overwhelmed gains from trading energies and soft commodities futures. The sentiment of market participants during the quarter was driven by the belief that both the economic outlook and the European debt crisis were improving.

 

Foreign exchange trading was particularly volatile and unprofitable. Entering the quarter, the U.S. dollar had been trading higher against most currencies based on relative economic strength, financial tumult in Europe and perceived weakening of growth in China. As these factors receded and the U.S. interest rates appeared to be staying negligible for an extended period the dollar sold off against Central and South American, European and Asian currencies generating losses on long dollar positions and in many cases bringing a reversal to short dollar positions. Later, short dollar trades versus the Brazilian real, Colombian peso and Chilean peso also generated losses. For the Brazilian real in particular, a larger than expected cut in the Brazilian Central Bank’s Selic benchmark interest rate and increased capital controls geared toward weakening the currency undermined the real. Also, a long Japanese yen trade versus the U.S. dollar lost money and was reversed to a short trade after the Japanese yen weakened suddenly following a surprise expansionary move by the Bank of Japan which increased its asset purchase program by $130 billion and set an inflation target for the first time.

 

Turning to non-U.S. dollar cross rates, long Australian dollar positions against a variety of currencies generated losses when the Australian dollar weakened as slowing growth, rising unemployment and declining inflation statistics combined with forecasts of a Chinese growth slowdown to increase the likelihood that the Reserve Bank of Australia might ease monetary policy. Short Euro trades against several currencies were unprofitable as the Euro rebounded when the European Central Bank’s longer-term refinancing operation program improved the functioning of financial markets in Europe and as the size of the European rescue fund was substantially raised.

 

Whether from a reduced need for safety because of an improving economic outlook, particularly in the U.S., from an increased worry about inflation, from a renewed concern about government debt levels or from a reduced likelihood of a third round of quantitative easing from the Federal Reserve, interest rates rose and long positions in U.S., Australian, Canadian, British and Japanese note and bond futures produced losses.

 

A first quarter rally in equity markets was rather widespread as market participants responded favorably to an apparent improvement in the global economic outlook, particularly in the U.S. and to progress by the European Union toward resolving their sovereign debt crisis. Long positions in U.S. equity futures were profitable, as was a short CBOE VIX trade that also benefitted from rising equity markets. However, short positions in numerous European and Asian equity indices, especially Japan, China, Hong Kong and Germany, produced even bigger losses.

 

Industrial metals had been in a sustained downtrend but as pessimism about global growth swung to modest optimism, perhaps prematurely, the metals rallied strongly, generating losses on short positions. A short platinum position also was unprofitable as a supply interruption from South Africa boosted prices.

 

In the energy markets, long positions in Brent crude, RBOB gasoline, London gas oil and heating oil benefited from the general commodity rally and continued stresses from the Middle East, and as a result were profitable. The biggest winner in the sector was short positions in natural gas where the supply boom from fracking and horizontal drilling in shale formations continues to drive prices down.

 

Trading of agricultural commodities was marginally negative. Short grain trades, especially in the soybean complex, were unprofitable. A short cocoa position was unprofitable as hot, dry weather hit the Ivory Coast and raised fears that an expected bumper crop might face significant damage. Short cotton and rubber trades were also unprofitable when prices rose as pessimism about worldwide growth lifted at least temporarily. A short Arabica coffee trade produced a profit as expectations of a bumper Brazilian harvest pushed Arabica to its lowest price in 18 months in late March.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Partnership does not engage in off-balance sheet arrangements with other entities.

 

CONTRACTUAL OBLIGATIONS

 

The Partnership does not enter into any contractual obligations or commercial commitments to make future payments of a type that would be typical for an operating company or that would affect its liquidity or capital resources. The Partnership’s sole business is trading futures,forward currency, spot, option and swap contracts, both long (contracts to buy) and short (contacts to sell). The Partnership may also engage in trading swaps. All such contracts are settled by offset, not delivery. Substantially all such contracts are for settlement within four months of the trade date and substantially all such contracts are held by the Partnership for less than four months before being offset or rolled over into new contracts with similar maturities. The financial statements present a Condensed Schedule of Investments setting forth the Partnership’s open futures and forward currency contracts, both long and short, at March 31, 2013.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required.

 

ITEM 4.   CONTROLS AND PROCEDURES

 

The General Partner, with the participation of its principal executive officers and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with respect to the Partnership as of the end of the period covered by this quarterly report, and, based on their evaluation, have concluded that these disclosure controls and procedures are effective. There were no changes in the General Partner's internal controls over financial reporting during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the General Partner's internal controls over financial reporting with respect to the Partnership.

 

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PART II.  OTHER INFORMATION

 

ITEM 1.  Legal Proceedings

 

None.

 

ITEM 1A. Risk Factors

 

Not required.

 

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

 

(c)  Pursuant to the Partnership’s Agreement of Limited Partnership, Limited Partners may redeem their Interests at the end of each calendar month at the then current month-end net asset value. The redemption of Interests has no impact on the value of Interests that remain outstanding, and Interests are not reissued once redeemed.

 

The following table summarizes Interests redeemed during the three months ended March 31, 2013:

 

Date of
Withdrawal
  Limited
Partners
   Special
Limited
Partners
   Total 
             
January 31, 2013  $(620,793)  $(6,062)  $(626,855)
February 28, 2013   (756,402)   (262)   (756,664)
March 31, 2013   (2,771,464)   (158,914)   (2,930,378)
Total  $(4,148,659)  $(165,238)  $(4,313,897)

 

ITEM 3.  Defaults Upon Senior Securities

 

None.

 

ITEM 4.  Mine Safety Disclosures

 

Not Applicable.

 

ITEM 5.  Other Information

 

None.

  

ITEM 6.  Exhibits

 

The following exhibits are included herewith:

 

31.01   Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.02   Rule 13(a)-14(a)/15(d)-14(a) Certification of Co-Chief Executive Officer
31.03   Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer
32.01   Section 1350 Certification of Co-Chief Executive Officer
32.02   Section 1350 Certification of Co-Chief Executive Officer
32.03   Section 1350 Certification of Chief Financial Officer
     
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

*XBRL information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By: Millburn Ridgefield Corporation, /s/Tod A. Tanis
  General Partner Tod A. Tanis
  Vice-President
Date: May 14, 2013 (Principal Accounting Officer)

 

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